Advent Technologies Holdings, Inc. (NASDAQ:ADN) Q2 2023 Earnings Conference Call August 11, 2023 9:00 AM ET
Vasilis Gregoriou – Chairman and CEO
Kevin Brackman – CFO
Conference Call Participants
Good morning, everyone. I will be your conference operator today. At this time, I would like to welcome everyone to the Advent Technologies Second Quarter Earnings Conference Call. [Operator Instructions] On the call today, we are joined by Dr. Vasili 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 second 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.advant.energy. I would also like to remind everyone that during the course of this conference call, Advent 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 analysts – 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 the 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. Vasili Gregoriou. Dr. Gregoriou, I now turn it over to you.
Thank you, operator. Good morning to everyone listening in, and thank you for joining us on Advent’s second 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 May 15, I highlighted that Advent has further consolidated its business operations and was focusing on the core sectors of mobility and stationary power.
This has continued in the second quarter with a gradual improvement in our cash burn as various non-costs are eliminated. We remain focused on expanding and executing on commercial pipeline with a view to embedding our technology and product portfolio in these key power sectors. We also maintained our capital investment program in state-of-the-art equipment that’s required to complete the scale of production capacity.
We intend for this progress to continue towards large-scale manufacturers as soon as our Green HiPo project commences. We believe that the future demand for Advent high-temperature PEM technology and related products will create a significant opportunity, and we believe Advent will be ideally positioned to capitalize on these two suitable partnerships.
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 and the development of advanced fuel cell systems, leading to direct sales.
In addition, joint development agreement with OEMs will enable us to enter into long-term licensing and supply agreements. I will now give an overview of our recent business updates. BASF Environmental Catalyst and Metal Solutions, a global leader in precious metals and catalysts, and Advent concluded the terms of a new agreement to join efforts in building a full look component supply chain for fuel cell.
For the past 20 years, BASF Environmental Catalyst and Metal Solutions has been a leader in membrane MEA technology for high temperature PEM fuel cells with a strong foundation in precious metal services and catalysis. Advent is a significant manufacturer of high temperature PEM fuel cell systems targeting emerging markets in the field of sustainable and decentralized energy such as stationary power that can replace diesel generators, maritime power for e-methanol fuel cells and heavy-duty mobility.
High temperature PEM fuel cells operate at 120 to 180 degrees celsius offer a broad operating window and can tolerate impurities in the hydrogen fuel gas. These fuel cells also enable simplified cooling and do not require humidification. Advent offers competitive fuel cell systems for stationary portable applications based on methanol and on-site reforming.
Looking ahead, 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 membrane by Advent, aiming for improved performance, lifetime and cost competitiveness.
In the Aerospace Sector, Advent signed a memorandum of understanding with Safran Power Systems, a leader in auxiliary power systems and turbojet engines. Leveraging Advent’s proprietary Ion Pair MEA technology and Safran aerospace knowledge and capabilities, this new collaboration will seek to advance the development of next-generation high-temperature PEM fuel cell technology, specifically for the aerospace sector.
High temperature PEM enables more efficient heat management versus low temperature PEM. High temperature PEM is more adapted for applications requiring high amounts of power, combined with strong integration constraints as in aviation. High temperature PEM is more robust and can withstand tougher operating conditions such as extreme temperature and pollution versus low temperature PEM.
The collaboration further supported by a strong research consortium including the Research & Technology Center of Safran Group, the French Alternative Energies and Atomic Energy Commission, Fraunhofer Institute, the French National Centre for Scientific Research, the University of Strasbourg and the IMDEA Energy Institute. Led by Safran Power units and with the support of Advent, the consortium has secured a grant for the Clean Hydrogen Partnership NIMPHEA Project.
Running from 2023 to 2026, the project is funded by Horizon Europe and the project’s main objective is to develop an aircraft-compatible next-generation high temperature PEM MEA. This involve optimizing and enhancing various components such as the catalyst layer, membrane and gas diffusion layer. Advent’s Ion Pair MEA technology serves as the foundation for these advancements.
As part of the newly signed MoU, Advent and Safran Power Units are exploring a joint development agreement for the advancement of high temperature PEM fuel cells in aviation and for enhancing Advent’s supply capability. In May, Advent announced the contract with a prominent fuel cell manufacturer specializing in truck application in the East Asian market.
Under this contract, Advent will supply high temperature PEM MEAs to support the development of advanced fuel cell solution for trucks. The contract has a combined value of $1.1 million and comes after a highly successful testing phase of Advent’s proprietary MEA technology conducted by our customer.
Advent will deliver high temperature PEM MEAs with a projected continuation of deliveries aligned to the customer-specific time. The use of Advent’s MEA technology in fuel cell-powered trucks is a critical and substantial enhancement to EV technology, effectively tackling the challenges associated with charging infrastructure and the limited range of pure EVs. MEA’s are the critical component of fuel cell systems and have pivotal role in determining the overall performance, durability, efficiency, weight and cost-effectiveness of the electrochemical products they empower.
Advent’s electrochemistry components business include electrodes, membranes and MEAs. These components are critical for fuel cell electrolysers and for long duration energy storage, such as flow batteries. In June, Advent participated in the second European Electrolyser Summit held in Brussels.
I was part of the delegation of 30 CEOs representing the European electrolyser manufacturing sector in a meeting with European Commissioner Thierry Breton. The primary purpose of the meeting was to discuss and address the objective outlined in the joint declaration of the May 2022 EU Electrolyser Summit.
The meeting, jointly organized by the European Commission and Hydrogen Europe as part of the Electrolyser Partnership brought together approximately 44 companies actively involved in the European electrolyser supply chain. Following the second European Electrolyser Summit, the industry remains steadfast in its commitment to achieve the ambitious goals set out in the REPowerEU communication.
The objective is to accomplish 10 million tons of domestic hydrogen production and import 10 million tons of hydrogen by 2030. As part of this commitment, the industry is planning to significantly increase electrolyser production in the EU, aiming to ramp-up capacity by a factor of 7 within 7 years. This will involve scaling-up from the current 3 gigawatt production capacity to approximately 21 gigawatts by 2025.
In a recently published documents, the partnership members and the European Commission provided an update on the progress that has been made one year after the signing of the joint declaration. The document highlights the industry’s continued efforts to expand its European footprint as the regulatory framework moves closer to completion. Notable development includes the Renewable Energy Directive, Delegated Acts on Additionality, and the Hydrogen Bank.
For Advent Green HiPo Project, we provided an update in May on its status. This update highlighted the recent milestone achieved so far emphasizing the collective dedication of the entire Advent team towards decarbonization and the transformation of the clean energy landscape in Greece and Europe.
Most notably, One, Admin successfully acquired the ownership right to a prime parcel of real estate located in Kozani, Greece, where its planned state-of-the-art facility for the Green HiPo IPCEI project is expected to be located. This land acquisition underscore Advent’s unwavering dedication to establishing a robust infrastructure that will effectively and strategically support the objectives of the Green HiPo IPCEI project.
Advent has also set up a coordination and planning office in the center of Kozani which will serve as the operational hub for the Green HiPo IPCEI project. Second, Advent has initiated the process of identifying and hiring key professionals such as scientists, engineers and managers who will play integral roles in the new state-of-the-art facility in Kozani. These individuals will drive critical functions such as research and development, first industrial deployment and supply chain management.
The expertise will be instrumental under development, design and manufacture of the innovative fuel cell systems and electrolyser systems. Advent’’s careful selection process will ensure that top-tier talent is recruited to support the successful execution of the Green HiPo IPCEI project, thereby ensuring the project’s success and innovation. On August 4, 2023, Advent was informed by the Ministry of National Economy and Finance that the Greek State is currently reviewing the financing for IPCEI Hy2Tech.
Accordingly, and as a pre-requisite for unlocking the State Aid funding for Green HiPo, the Greek State is examining and planning ways to implement actions and to strengthen initiatives that will contribute to the transition of the productive and growth model of the Greek economy towards climate neutrality. Parameters for the planning of such actions include implementing projects at specific times, the viability of the completed proposed plans, as well as compliance with regulatory obligations and guidelines regarding the management of European funds.
We will provide further updates on Green HiPo at an appropriate time. Advent is suitably positioned to take advantage of the growth focus on clean energy. We are continually advancing our technology and consolidate our operations to address new and key opportunities. We have a product portfolio that’s focused to enable a green economy, one that will reduce the reliance on fossil fuels and will decentralize energy supply market, therefore, providing energy security to communities and economies.
With that, I would like to hand over to our CFO, Kevin Brackman.
Thank you, Vassili, and good morning, everyone.
Turning to our financials. We delivered revenue of $1.1 million in the second quarter and income from grants of $0.7 million for a total of $1.8 million. R&D expenses were $2.9 million in the second 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 $8.3 million in the second quarter, combined with R&D, total operating expenses were $11.2 million, a year-over-year increase of $0.6 million, primarily related to an increase in research and development costs as well as expenses related to our new Hood Park facility in Charlestown Mass.
We recognized $9.8 million of asset impairment charges in the second quarter, mostly related to the assessment of goodwill and other intangible assets from the company’s acquisitions in 2021. Net loss in Q2 was $21.8 million or $0.41 per share.
Unrestricted cash reserves were $10.1 million as of June 30, 2023, a decrease of $9.5 million from March 31, 2023, which includes $3.4 million of cash that we raised from the Company’s equity line of credit with Lincoln Park Capital, $1.9 million paid to complete the acquisition of the fuel cell systems business in Denmark, Germany and the Philippines, $0.8 million paid to acquire land in Kozani, Greece for the Green HiPo project and $0.4 million paid for the build-out of the Hood Park facility. 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, in addition to the potential funding from the pending Green HiPo project, we finalized an agreement in April this year 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 utilization of this equity line of credit is at Advent’s discretion and provides us with an effective buffer that may be used alongside other funding routes.
As I mentioned earlier, we raised $3.4 million in the month of June using this equity line of credit, sufficient to cover our current monthly run rate for operating and capital expenses. We also implemented in June and at the market equity program with H.C. Wainwright as sales agent, under which we may sell up to $50 million of shares of the company’s common stock through the agent without any commitment from Advent.
We did not utilize this ATM facility during the second quarter. Aside from raising capital, we will continue to manage our cost structure closely and capitalize on opportunities to reduce costs where possible. Let me now turn to our outlook. Advent has 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 as well as the fact that Green HiPo is still under review by the Greek state, we are not providing an outlook for revenue and income from grants for 2023 on this call.
With that, I will hand back to Vassili for closing remarks.
Thank you, Kevin.
Advent have significant opportunities for its high temperature PEM technology, advanced materials and fuel cell system products. Advent is a clear energy technology company, developing innovative products for key sectors that require clean energy. We look forward to growing the business and to give you a breadth of development. I would like to thank you all for joining us today.
Before we open the line to any questions from the company’s analysis, I would like to address questions submitted by Lacie Midgley with Panmure Gordon, who is unable to join the call today. The first question is, can you provide an update on the Green HiPo project and expect the timing on evaluation, confirmation of final funding documents and subsequent releases of funding.
As I said a little bit in the script, we are very keen to officially launch the green HiPo, and we have demonstrated particular actions that says that we’re moving in this direction. First of all, we schedule all the R&D and development work. Second, we have identified a suitable site.
We purchased the land, and we have commenced with planning. Third, very important, we have entered this very strategic agreements with BASF another option that we cannot mention right now. And we will announce, obviously, the details at the appropriate time that ensures that the minute we start – we have this giant with us to be able to manufacture the products with quality and at the right time.
In the meantime, as we said, we are complaint to the European Union because we feel that this is a big delay here from the state, and it’s simply not acceptable by us. So I sent the letter to commissioner Breton, who initiated an internal discussion within the European Commission with DG growth and DG internal market industry and SME.
These are policy departments, the directional general. And there, what we got back is that despite that within the holiday month, the European union will work very close to the Greek authorities, to be able to inform us and us inform you the shareholders that the project we received the foreseen public funds. So I think where in the last stages. And there, as you know, we have very big delays with interaction with other European partners. Of course, we have suffered, we believe a big loss in our valuation because of all of that.
So this thing needs to be resolved as soon as possible. The Europeans understand that this is a project of common European interest. It’s not Greece only, not Italy for – then oral let’s say, it’s not transfer McAfee. So I think the Europeans were push very hard on this. Now we received on August 4, a letter by the Deputy Minister of Economy and Finance from Greece, Mr. [indiscernible] and respond to my letter to him on July 25. And basically, the idea is, and I will go over later in a bit – the idea is that the Greek state is examining and planning ways to implement actions and to strengthen the initiatives that will contribute to the transition, the productive and growth model of the great economy towards climate neutrality.
Parameters for the plan and such actions include implemented projects at specific times, the viability of the completed proposal plans as well as compliance with regulatory obligations and guidelines regarding the management of European funds. The Greek state is kind of reviewing funding for IPCEI program and we’ll provide further updates at the appropriate time. So the delay is solely with the Greek state, and we expect this to be resolved very, very soon.
You can imagine we do everything in our capacity to finish this. And we will keep you posted on the developments, which, as I said, I think that will be very strong. Second question is, again, from Lacie. Can you provide an update on the Hyundai JDA and next key milestones, including expected first half? As you know, the – as with other automotive manufacturers, Hyundai is an OEM.
And basically, they were developing in the fuel cell system in collaboration with the OEM. We have a joint development agreement now where the Advent MEA and actually our fuel cell expertise as well will be incorporated in an automotive agent with Hyundai. And Hyundai has shown great interest in the technology and basically behind on fair technology. And we – also there, we incorporate Hyundai technology as well. We use Hyundai catalyst for that particular program.
So the whole idea is to achieve the power targets that they are conducive for automotive in order for this to become an actual product. Now, as you know, we have three core hardware models on the market already.
So we have good experience from using them. And as I said in other calls as well, it’s not only Hyundai that we work with, we have other large companies that we cannot name but we’re working very hard – actively with all of them. The other question is how has the collaboration with Siemens Energy for maritime fuel cell solution progress?
Is licenses progressing to JDA or similar depending on successful technology testing? And there, the collaboration with Siemens, as you know, is on this very exciting section of maritime. We’re very happy that our methanol vision because we have this for quite some time now, as you know, the ones that you follow us the methanol and eventually e-methanol that arrive from green hydrogen, we believe will be the key fuel in the path to net zero for maritime.
So not only [indiscernible] but also Alfa Laval, Maersk, they all work there, and we try to collaborate with [indiscernible], but we have the recent success with Siemens and Sanlorenzo, and we feel very proud about that. So again, the idea is that when you use high temperature PEM and e-methanol, we’re talking about a similar system and an expensive one-stage reformation, whereas low temperature then requires 99.99% pure hydrogen.
The selling system now that we use, it’s made in Denmark. And we’re talking about 100 kilo, but we actually also can go to 250 kilo easing. So that’s the status over there. I think there is the right technology and the right market, and it’s a obligation, if you will, to grow this as fast as we can. Another question is how has conversation as part of the early stages of the BASF agreement progressed with regard to establishing the end-to-end supply chain in Europe.
I think we discussed that also in the script. Basically, the idea is that the BASF agreement is very significant for us because, one, it endorses our technology; and second, we fortify our supply chain. We are working on high temperature PEM with BASF for about 15 years now, as you know. BASF is a global leader in manufacturing and brands, electrodes, a lot of expertise with PVI. And as I said, we’re very close and for me, would be a key parameter, this association in accelerating the Green HiPo Project.
Win-win situation for both parties and very secure deal, if you will, for the customer as well. Another thing I don’t want to be left out of the conversation is the ability of BASF to manage precious metals in closed loop processing of this material. That’s very important when we go from more pilot programs to throw large-scale manufacturing.
The next question is, does your current cash position and currently burn rate gives you sufficient headroom has been funding received for and to execute on the Green HiPo Project and other commitments?
I’m going to turn this to Kevin. So Kevin, could you please answer this?
Yes, sure. Thank you, Vassili. So let me share some information on our liquidity situation and cash burn rate. So we finished the second quarter with right around $10 million of available cash on our balance sheet. As you know, over the past three months or so, we’ve put in place a couple of different equity facilities.
One is an equity line of credit with Lincoln Park Capital. The other is an ATM facility with H.C. Wainwright. Each of those facilities gives us the opportunity to access up to $50 million of capital over the next three years. And that’s our – at our discretion on whether and when we utilize those facilities.
So we have those two facilities in place. As I mentioned in my comments this morning, we raised $3.4 million in the month of June, utilizing one of those two facilities. At the same time, we have also taken actions recently to reduce our costs and to reduce our spend rate.
So as I look forward to the second half of the year, I’m anticipating that our monthly spend for operating and capital expenses will probably range between $2.5 million and $3 million per month. And so the $3.4 million that we raised back in June is sufficient or even more than sufficient to cover what we expect to be our monthly spend rate in the second half of the year.
So that would continue to be our plan in the short term. It’s to continue to use these facilities to raise the cash that we need to cover our operating expenses until such time that we receive funding from either Green HiPo or from other sources of capital. And with that, I will turn it back to Vassili.
I think, Kevin, we’re ready now to go to Q&A. I don’t know if there are any questions, extra questions from that.
Yes. We’ll turn it back to the operator to open the line for any other question.
[Operator Instructions] There are no more questions. Thank you, ladies and gentlemen. This does conclude today’s call. Thank you for your participation. You may now disconnect.