Advent Technologies Holdings, Inc. (NASDAQ:ADN) Q4 2022 Earnings Call Transcript March 31, 2023
Operator: 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. 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 fourth 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 reports filed with the United States 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 that this call is being recorded. Kicking off the call will be Dr. Vasilis Gregoriou. Dr. Gregoriou, I’ll now turn it over to you.
Vasilis Gregoriou: Thank you, operator. Good morning to everyone listening in and thank you for joining us on Advent’s fourth quarter 2022 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. It is clear that the energy transition is underway. And while sustainability has always been foremost, the issue of energy security is also now prominent. The combination of sustainability and energy security is providing the tipping point for the clean energy economy. In particular, the increase in support from government and most notably the U.S. and EU that have introduced incentives such as the Inflation Reduction Act of 2022, REPowerEU and the European hydrogen IPCEI projects, where Advent is one of the participants.
Advent had a productive fourth quarter after formal ratification from the EU for funding of €782.1 million for Advent’s Green HiPo project. We have been working with a Greek state on the mechanism and timing schedule for the funding facility. These meetings have been included visits by Greek state officials to the company’s research and production facilities in Patras, Greece. It is our goal to finalize these discussions as soon as possible and proceed with the rollout of the program. The scope of Green HiPo, over the initial period of 6 years, is to innovatively develop and manufacture fuel cell systems and electrolyzer systems for the production of power and green hydrogen respectively. We are aiming for cumulative capacity of 118 megawatts of fuel cells and 1.5 gigawatts of electrolyzers over this time.
The production of these systems will take place in Greece in the region of Western Macedonia, which will become our focal point for technology development and mass production. The company intends to create approximately 600 direct jobs for qualified scientific and technical personnel and up to 4,600 indirect jobs over the 6-year period. Green HiPo will provide the Advent with the momentum trying to enter and accelerate towards commercialization of electrolyzer systems. As a result, we will establish a global green hydrogen value chain from hydrogen production with electrolyzers to clean energy production with fuel cells. In addition to the Green HiPo project, I will now give an overview of key recent developments. In the U.S., Advent recently announced that the token into new R&D manufacturing facility at Hood Park in Charleston, Massachusetts.
The state-of-the-art Hood Park facility will enable Ardent to scale up and deliver on the increasing global demand for electrochemical components in the clean energy sector. This includes state-of-the-art coating machines to support the seamless transition from prototype production runs for advanced membranes and electrodes, a fully analytical facility dedicated to quality control, performance analysis and improved product lifetime, fuel cell test stations for statistical process control and development of next-generation engineering materials and a mechanical engineering lab for development automated process for MEAs. One of the products have been developed to manufacture, I am sorry, in the Hood facility will be the ion-pair Advent MEA, which is currently being developed within the framework of L’Innovator, the company’s joint development program with the U.S. Department of Energy.
Advent intends that each proprietary fuel cell products such as Serine and Honeybadger 50 will incorporate the ion-pair Advent MEA beginning in 2024. The company expects introduction of the ion-pair MEA will significantly reduce the cost of our Serene flagship production and thus expand the immediately addressable market. Furthermore, with the expected system increase in power density in the lifetime will highly differentiate Advent’s fuel cells in the heavy duty mobility industry. In March this year, Advent and Hyundai announced a successful technology assessment. The assessment evaluated Advent’s proprietary MEA technology for supplying Hyundai’s high temperature fuel cell needs. And following its success, the two companies get under into a joint development agreement.
The 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 type of the JDA focuses on the NBA. Advent’s goal is to provide its MEA and its high temperature PEM fuel cell development expertise we codevelop with automotive manufacturers, the next generation of fuel cells for heavy-duty mobility. The high temperature PEM fuel cell technology is highly differentiated compared to the current technology because it allows a vehicle to operate with e-fuel, such as e-methanol, biofuels and low-purity hydrogen. It allows higher purity hydrogen or air intake, a case which is very common in practice and has repeatedly hampered low temperature PEM deployments in real-world conditions.
It has built-in resilience as the high temperature PEM fuel cell does not rely on water for conductivity, therefore, eliminating the problems of operating in extreme heat, cold or humid conditions. And it has a higher efficiency resulting from the high temperature operation, which allows for optimized cooling, a critical performance parameter for heavy-duty trucks and aircraft. Based on this, Advent will continue to pursue strategic joint development agreements to achieve its goal of supplying key components and technology to the mobility market. In December, Advent launched a proof-of-concept project with Vantage Towers to replace business generators with fuel cells. Vantage Towers Greece is the largest and non-independent tower infrastructure company in Greece operating more than 5,250 towers for in Greece and Wind Hellas.
By replacing digital generators with fuel sets at non-permanent sites that are not connected to the power grid that can be supplied with clean electricity. Under the project, Vantage Towers Greece, a subsidiary of Vantage Towers Group, one of Europe’s leading tower companies, will explore the applicability of advance biomethanol-powered fuel cell systems as backup and primary power sources for its telecom towers, following the successful completion of the project with Greece, Advent and Vantage Towers would consider wider deployment. Advent has already installed approximately 1,000 methanol-powered fuel cell systems worldwide, primarily used as backup power source for the telecommunication sector. In January this year, Advent announced a collaboration with Alfa Laval, a global provider of heat transfer, separation fuel handling products on a project to explore application of Advent’s methanol-powered high temperature PEM fuel cells in the marine industry, funded by the Danish Energy Technology development and demonstration program, the project with a joint effort between, Advent Alfa Laval and a group of shipowners.
The project will focus on testing Advents methanol power high temperature PEM fuel cell as a source of marine auxiliary power. During the course of the project, the fuel cell system will undergo a risk assessment by leading international classification side. At the same time, the project aims to integrate the next generation of Advent fuel cells. This fuel cells will be based on Advent’s next-generation MEA. Aiming to meet the ever-growing power requirements of the marine industry, Advent’s next-generation fuel cells are expected to demonstrate a significant increase in lifetime efficiency and electrical output. In February, Advent announced a new marine collaboration with a globally renowned energy technology company offering a sustainable solution across the entire energy value chain.
Advent and its partner will work together to develop a 50-kilowatt to 500-kilowatt marine fuel cell solution for a range of super yachts, which will provide a sustainable and reliable source of auxiliary power and offer improved power density. This marine 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 generations for procedures such as anchoring and maneuver. As part of the agreement, Advent’s partner has placed an initial order for 20 of Advent’s methanol power Serene fuel systems. Following the completion of this project, the two parties will explore the potential of development similar solutions for a wider range of business applications beyond marine, such as industrial power solutions.
Advent will continue with the development effort of the Honey Badger 50, the portable power generation for the defense market, funded by the U.S. Department of Defense. The company expects the production version to be finalized in 2023, and our goal is to receive production orders in 2024, increasing to high volumes in 2025. We consider the Department of Defense programs, a very important part of our innovation portfolio as the demand performance under extreme conditions improve the resilience of the high-temperature PEM technology. The portable fuel cell application market is also a potential target for growth, where we intend to seek synergies with established market leaders that require a fuel cell product line. And finally, let me take to the stationary fleet market.
Advent has made focused efforts to increase the commercial footprint of the Serene high-temperature PEM fuel cell system produced in Germany and in Denmark. Our stationary powered products should has been targeted communication and other critical backup power opportunities. We are experiencing and changing landscape in the Philippines, which here resulted in order delays. Prior to acquisition, Serene was actively selling to both Smart and Globe Telecom in the Philippines. In 2022, these companies proceeded with Serene of most of their tower access to Towercos. This has resulted in delayed orders and the mandate to report our efforts in this sector. We’re focusing our resources now on major Towercos, pursuing long-term large-scale deals that can sustain this product and marketing at the tower exchange event.
In addition to lower revenue that we had planned in 2022, another financial impact of the market change and order delays was the recompletion of the impairment shares against our Serene investment. We remain confident though that the Serene products have great promise for both the upgrade and marine markets. With that, I would like to hand over to our CFO, Kevin Brackman.
Kevin Brackman: Thank you, Vasilis, and good morning, everyone. Turning to our financial results. We delivered revenue of $2 million in the fourth quarter compared to $2.9 million in the prior year quarter. The year-over-year result is due to a decline in orders for the company’s stationary fuel cell systems, driven by a change in telecom tower ownership, as Vasilis mentioned. R&D expenses were $2.5 million in the fourth 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 $9.3 million in the fourth quarter. Combined with R&D expenses, total operating expenses were $11.7 million a year-over-year decrease of $4.6 million, primarily due to a reduction in incentive and stock-based compensation expenses.
Net loss in Q4 was $47.6 million or $0.92 per share. Adjusted net loss was $13.2 million or $0.26 per share. The adjusted net loss excludes a $2.1 million gain from the change in the fair value of outstanding warrants, a $2.4 million gain from an acquisition purchase price adjustment and a $38.9 million asset impairment charge. The asset impairment charge primarily relates to goodwill from the company’s stationary fuel cell systems business in Denmark, Germany and the Philippines, which was acquired in August 2021. Unrestricted cash reserves were $32.9 million as of December 31, 2022, which is a decrease of $9.5 million from September 30. In the fourth quarter of 2022, we received $0.4 million in tenant improvement allowances for the Hood Park R&D and manufacturing facility, which is net of additional spending for the build-out of the facility.
Our existing cash balances and projected cash flows are not expected to be sufficient to support planned operations for the next 12 months. However, as Vasilis discussed earlier, we have been working with the Greek state to implement a funding mechanism for the Green HiPo project as soon as possible. Additionally, we are exploring opportunities to raise additional capital and expect to provide an update on this very soon. In the meantime, we will continue to manage our costs 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. As we mentioned, we have experienced delays in the Philippines for stationary fuel cell systems and their installation. Due to the level of uncertainty caused by these factors, we are not providing a revenue outlook for 2023 at this time. With that, I will hand back to Vasilis for closing remarks.
Vasilis Gregoriou: Thank you, Kevin. Advent has a significant portfolio of technology and commercial strengths, allowing to compete and be successful at the global level. Green HiPo will be transformational for Advent and Green HiPo is for the long run. We are moving along the process with a Greek state to unlock state aid, and we will keep you informed of developments. Advent is pursuing a visible and defined path towards keen significant sectors. Advent is a clean energy technology company and we will leverage from this strength to generate commercial products in addition to providing attractive technology solutions through partnerships with OEMs. In closing, we believe Advent is well positioned to be the provider of clean energy solution across a variety of end markets. I would like to thank you all for joining us today, and we are now ready to answer questions. Thank you very much.
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Q&A Session
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Operator: Your first question comes from the line of Lacie Midgley with Panmure Gordon. Your line is open.
Lacie Midgley: Hi Vasilis, Kevin, can you hear me?
Vasilis Gregoriou: Yes, very well.
Lacie Midgley: Hi guys. Thank you very much and congratulations on the recent appointment and as Chair of the IPCEI Hy2Tech Facilitation Group. And my first question actually is around the Green HiPo project. And obviously, this is a key project for Advent over the next few years, certainly. And you mentioned the next steps towards implementation of the project has been discussed. Can you give us some more color on what the steps and next milestones are and sort of timing of those, please?
Vasilis Gregoriou: Yes, absolutely. I know this is a very good question, and this is something that’s very, very important to us, so we call it every day. Here is the situation, the IPCEI has been ratified at €5.4 billion across the continent. Not all countries are at the same level, okay. And as a very newly elected Chairman, my first thing is to for all of us to find out where we are and to go in the next couple of months when we have our first reporting to see where everybody is. So, the idea is that the Greek state is very positive about it. We received a letter in March that first of all congratulated us on this amazing success, if you will. And second is that they go as fast as possible to go to the next level, meaning, give us a call.
And in the call, we are going to see the exact details of what’s going to happen there. In general, when I came back from the first meeting two days ago in Berlin is that hydrogen is here and is going to be big in Europe. And I think the collective effort there represents a true world opportunity. So, I think that’s how much I can say. I think we in the next few months, we will know things. But right now, I don’t think we can say something more about it. I mean we are definitely there in that and definitely happening, but we cannot say, unfortunately. We definitely would like to have it by now. Don’t get me wrong because we got ratification in July of 2022, and we know it’s going to be some months. But unfortunately, we don’t have it today.
Lacie Midgley: And I understand that. Thank you. That’s helpful. And I guess switching sort of unpack a little bit. But on the homebuyer, the JDA deal, which for me is quite significant step forward this year and most recently. But is there any more color you can give us, again, on sort of expected timing on the development milestones? And I know it’s early days of course, but any initial sort of expected timings on a commercial product or being ready with Hyundai?
Vasilis Gregoriou: Yes. Thank you. Listen, we had a joint press release. As you know and I don’t think I can say much more from that I thought it was inclusive. The good thing here is a, the long-term nature of this because we passed the first test, okay. The technology assessment, in my opinion was the most difficult thing there. We agreed to work together. There is the merge expertise from Hyundai and catalysts that we will use it in the final MEA. And also, we have demonstrated with Hyundai that our hardware capabilities, especially the superior cooling and the multi-fuel capacity that we said before, are very important to a global player like them. So, I will say we will focus on the longer term, and it’s a really important milestone for us.
Lacie Midgley: Absolutely. I think it’s yes, I agree. And as a follow-up, just I think I know the answer to this, but this isn’t an exclusive agreement, that you are free to work with other sort of partners and players in the auto market?
Vasilis Gregoriou: No. We have with them a particular agreement. As I have said, we provide our expertise, they provide their expertise. But because these are rather complex systems, right. I mean not everybody knows everything. So, we will go to two different collaborations with different models. But we are very happy so far with Hyundai, and we congratulate them also to be a pioneer in this sector.
