Advent Technologies Holdings, Inc. (NASDAQ:ADN) Q3 2022 Earnings Conference Call November 14, 2022 8:30 AM ET

Company Participants

Vasilis Gregoriou - Chairman and CEO

Kevin Brackman - CFO

Conference Call Participants

Daniel Rizzo - Jefferies

Sanjay Jha - Panmure Gordon & Co.

Operator

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. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session.

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 a third quarter 2022 financial results, shortly before market opened today. You may access the materials on the Investor Relations section of www.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 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 risk and certainties that could cause actual results to differ materially from those expectations.

In addition to any risk highlighted during this quarter, important factors that may affect Advent’s future results are described in its most recent SEC reports filed with the Securities and Exchange Commission including today's earnings press release. Except as required by applicable law, the company undertakes no obligation to update any of these forward-looking statements for any reason after the date of this call.

Lastly, information discussed on this call concerning the company's industry competitive position in the market in which it operates is based on information from independent industry and research organizations, other third-party sources and management estimates. Management estimates are derived from publicly available information released by independent industry analysis and other third-party resources as well as data from a company's internal research and are based on assumptions made upon reviewing such data and with knowledge of such Industry and Market, which it believes to be reasonable.

These assumptions are subject to uncertainties and risks which could cause results to differ materially from those expressed in the estimates. Please note this call is being recorded. Kicking off the call will be Dr. Vasilis Gregoriou. Dr. Gregoriou, I will 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 third quarter 2022 earnings call. I'm joined today by Advent CFO, Kevin Brackman. On today's call, I will provide comments regarding our third quarter results, followed by 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.

Advent had a very productive third quarter, which began in July with a former ratification from the EU for Advent's Green HiPo Project. This now clears the way for the process to begin for funding from the Greek state, under the IPCEI hydrogen framework, the ratification represents approval of up to €5.4 billion in support of 15 member states in the hydrogen technology value chain.

This value chain has four key areas consisting of hydrogen generation, fuel cell technology, storage, transportation and distribution and end user technology. Others Green HiPo encapsulates two of these areas, namely hydrogen generation and fuel cell technology. Example of other companies in these areas include Cummins, McPhy, Alstom, Bors, and Daimler.

The scope of HiPo over the initial period of six years is to innovately develop and manufacture fuel cell systems, and electrolyzer systems. We're aiming for cumulative capacity of 180 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 streamline of the business is continuing in earnest and has resulted in a clear focus of resources towards our core technologies, products and market segments. This has proven to be effective and we should enter into several new MoUs use during the third quarter with major partners.

The sale of Shito [ph] Fuel Cell systems in MEAs will provide near term revenue. Our stationary power sector has been targeted telecommunications, and affordable power sector has been targeted in the defense sector. We have secured new agreements in the sectors during the third quarter.

Our focus on the mobility sector is geared towards heavy duty vehicles, marine and aviation. While opportunities from the mobility sector are likely to be significant, or into their nature, they will lend themselves to longer term license agreements. We have cash reserves, totaling $42.4 million as of September 30. Overall, our performance this quarter leaves us confident about the long-term growth and manage potential of the company.

In addition to the Green HiPo project, I will now give an overview of our key achievements doing this quarter. In July, Advent hosted 2022 Investor Day, where Advent's executives and senior leadership discuss the company's most recent advancements for its fuel cell products and systems, housing development projects and business activities in markets across the U.S., Europe.

And there's the key areas that were addressed where the company is Green HiPo project, with planned funding of €782.1 million euros over six years from the Greek state aimed at producing high numbers of PEM fuel sales, and electrolyzers to decarbonize global power production via hydrogen.

R&D partnerships and collaborations with OEMs, the U.S. Department of Energy and the U.S. Department of Defense. High temperature in the MEA and water electrolysis innovations, and others commercial activities in global markets, aimed at replacing existing power systems with hydrogen alternatives.

In August, Advent announced the launch of Honey Badger 50, a compact portable fuel cell system and quiet power supply for use in off grid field applications, such as military and rescue operations. The launch of Advent's portable power system coincided with the communities fulfilment of its first shipment order from the U.S. Department of Defense.

The Honey Badger 50 power system can be fueled by biodegradable methanol, allowing near silent generation over 250 watts of continuous power with clean emissions. Designed for covert operations, Honey Badger 50 can easily power radio and satellite communications gear, remote fixed and mobile surveillance systems, laptop, computers, along with more general battery charging needs.

Honey Badger 50 is a unique technology that can provide up to 65% of weight savings versus batteries over a typical 72-hour mission. The weight savings benefit increases further for longer missions. Honey Badger 50 unique design allows it to be used in soldier-war configurations, or operated besides a portable backup or vehicle while charging batteries and powered sources systems, while its thermal features allows you to operate within an ambient temperature range of minus 20 degrees celsius to plus 55 degrees.

Aside from its optimized compatibility with integrated visual augmentation system Honey Badger 50 can also power devices such as high frequency radios, like the Model 117G, as well as beacon and stabling terminals. Honey Badger 50's durability allows it to be easily deployed in challenging condition and climates while supporting mission mobility for 37 days without the need to resupply.

Too Honey Badger 50 fuel cell technology can run on hydrogen or liquid fuels, the system can operate a fraction of the weight of traditional military grade batteries to meet the U.S. Department of Defense, continuous evolving needs for on-the-go electronics. As military power needs continue to evolve, highly portable, lightweight, solutions like Honey Badger will become a mission critical necessity.

Also note, as an announced the signing of an MoU with DEPA Commercial, the leader and important pipeline gas and liquefied natural gas increase. The MoU paves the way for strategic collaboration on hydrogen projects and set out the framework for forthcoming mutually binding agreements.

The [technical difficulty] preliminary agreed to collaborate on the production of environmentally friendly hydrogen as a fuel with the participation of other major industrial partners for developing proprietary highly differentiated CHP system ready for mass production with efficiency approaching 90% and with multi-fuel operating capabilities such as hydrogen, natural gas, any fuels that can address the key current and future on grid and off grid operation modes and business cases and create an innovation hub for the grid hydrogen fuel cell industry and develop synergies for promoting hydrogen and related technologies.

Also, in August, we announced the successful delivery of affordable fuel cell products the Hellenic Army's Special Operations Unit. Advent's fuel cell technology powers, a highly sophisticated incredibly portable battery charger, designed to meet the rank of grid power needs in performance demand in settings, such as those regularly faced by the Hellenic Army's Special Operations Unit, and other military divisions.

The portable fuel cell can be quickly and efficiently utilized by remote military units to power off grid radio, surveillance radio, and other mobile electronic military equipment by operating under even the most challenging combat conditions. As its portable fuel cell uses the company's proprietary method of information technology to deliver premium performance alongside and significant reduction in size and weight. These lightweight and compact the portable fuel cell fits in soldiers' blade carrier systems and rucksacks maximizing efficiency, and portability across the full range of military operations.

The portable fuel cell delivers up to 50 watts of continuous power and up to 85 watts of peak power, ensuring a reliable charging experience to the wide variety of high power electronic devices regularly used by the Hellenic Army's Special Operations units. Others portable fuel cells operate silently and it can uninterrupted off grid for up to two weeks with a single hot swappable fuel tank. The portable fuel cell been previously deployed successfully within the framework of PARMANION National Large Scale Joint Exercise

In August, Advent announced that it just co-signed a MoU with the New York State Energy Research and Development Authority and more than 60 clean hydrogen ecosystem partners. Under the MoU, the parties will collaborate to develop a proposal that will enable the Northeastern United States to become one of the top of the list for regional clean hydrogen hubs designated to the federal regional clean hydrogen hub program, included in the Bipartisan Infrastructure Investment and Jobs act.

The coalition of six states, Connecticut, Massachusetts, Maine, New Jersey, New York and Rhode Island along with more than 60 clean hydrogen ecosystem partners, have laid the groundwork for the proposal for the U.S. Department of Energy funding opportunity, with up to $8 billion in total funding available.

After the initial announcement in March 2022, New York will continue to add strategic partners that now include 14 private sector industry leaders 12 utilities, 20 hydrogen technology original equipment manufacturers, 10 universities, seven organizations, five other states, two transportation companies and three state agencies.

The consulting partners committed to collaborate with the New York State Authority, New York Power Authority, the Empire State Development for the proposal to Advent's clean hydrogen projects. At the same time, partnering states will also coordinate with our respective state entities to help align the consortium efforts with each state climate and clean energy goals, such as Massachusetts goal of reaching net zero carbon emissions by 2050.

With the execution of this agreement, the partners will work together to define the shared vision and plans for the regional clean hydrogen hub that can advance safe clean hydrogen energy innovation and investment and address climate change while improving the health resiliency and economic development for the region's residents.

Advent's hydrogen hub proposal makes planned environmental concern centered to its services, which deliver opportunities and improve the quality of life for underresourced areas in the region. perform research and analysis necessary to support the hydrogen hub proposal to quantify the reduction of greenhouse gas emissions resulting from the project, development framework to ensure the ecosystem for innovation, production infrastructure and related workforce development in sales across all partnered state and support environmentally responsible opportunities to develop clean hydrogen in accordance with the participate in states policies.

The coalition will continue to focus on the integration of renewables such as onshore and offshore wind, hydropower and solar PV and nuclear power into clean hydrogen production and evaluation of clean hydrogen for use in transportation included for medium and heavy duty vehicles, heavy industry, power generation applications, another appropriate use is consistent with decarbonize enough.

In September we announced the signing of a MoU with Hydrogen System, a hydrogen energy solution company based in Saudi Arabia to provide integrated hybrid solutions and value added support with investment in renewable energy markets in the Middle East. Under the MoU Hydrogen Systems aimed to utilize a vast number of existing relationships in the telecom and hydrogen energy marketplace in the Kingdom of Saudi Arabia and elsewhere throughout the Mideast to market, sell, distribute, install and service Advent's full line of high temperature PEM fuel cells and hydrogen production products.

Simultaneously, Advent and Hydrogen Systems intend to collaborate and explore potential large scale development opportunities for hydrogen fuel cell power applications across the region.

Advent's family of products include the Serene and M-ZERO fuel cell system, realized a significant carbon advantage over conventional diesel remote power generation technology. High temperature M fuel cells can operate in the range of low or zero carbon hydrogen fuels and enable more efficient heat management. Such fuel cells can produce power in extreme ambient temperatures from minus 40 degrees Celsius to up to plus 55 degrees Celsius and conditions such as higher pollution and lower humidity resulting in a longer lifetime, a lower total cost of ownership.

Also in September, we announced the sign of a three-year agreement with the German state of Brandenburg for the supplier of methanol powered fuel cell systems, which will be installed in select critical communication sites in the region. Others methanol powered fuel cell system will be used as a backup power source for Brandenburg's BOS digital radio network, replacing the diesel driven emergency power systems at several sites over the next three years. Germany's all public safety and security infrastructure is rely on an outdated analog radio system for communication.

BOS the digital encrypted and secure means of communication. The new BOS network allows first responders and other public safety officials to communicate easily and securely. The BOS network now covers 99.2% of German territory. Other solutions it was elected as part of a tender launch by the German stated Brandenburg, which requested that fuel cells and hydrogen technology companies submit proposal for sustainable and reliable emergency power supply solution.

Prior to Advent election, the performance of the company's methanol power fuel cells was tested at the site of the BOS digital radio network, providing further proof of concept for the use of high numbers of PEM fuel cells as an efficient backup power source for critical infrastructure application. Advent's methanol power fuel cells deliver reliable power in an environmentally friendly way, reducing CO2 emissions and operating silently while having a low impact on the surroundings. Methanol as a care of hydrogen along simpler storage of pure hydrogen and enhances the safety of operations.

Advent has a strong pipeline and has made progress in converting this pipeline to tangible agreements. The pros [ph] we are attracting are significant and will remain fully focused on commercializing our innovative technology portfolio.

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 financials, we delivered revenue of $2.4 million in the third quarter, compared to $1.7 million in the prior year third quarter. The 43% increase resulted from an increase in the delivery of MEA electrochemistry components as well as engineering fees.

Gross profit was flat year-over-year in the third quarter. R&D expenses were $2.5 million in the third quarter primarily related to the 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 $8.2 million in the third quarter. Combined with R&D expenses, total operating expenses were $10.8 million, which is a year over year decrease of $3.2 million primarily due to $2.4 million of executive severance recognized in the prior year third quarter, as well as a year-over-year reduction in stock-based compensation expenses $0.6 million.

Net loss totaled $11.5 million in the quarter and adjusted net loss was $10.6 million. Our adjusted net loss excludes a $0.9 million loss from the change in the fair value of outstanding warrants. Our net loss per share was $0.22 in the third quarter. Advent remains well capitalized with $42.4 million in cash reserves on the balance sheet as of September 30, which provides us with a flexibility to be agile in executing on our strategic and operational priorities. This is a decrease of $4.1 million from June 30, 2022.

In the third quarter of 2022, we received $3.8 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 reserves and projected cash flows are anticipated to be sufficient to support our planned operations for the next 12 months.

I will now turn to our outlook. Advent entered 2022 with a more advanced product range, and a dedicated technical sales team focused on key sectors and geographies. We therefore have a strong pipeline. Also in mid-June, the company announced the successful notification from the Greek state for funding of €782 million for Advent's Green HiPo project, which was subsequently ratified by the EU.

As we all know, however, not every opportunity in the pipeline will transpire due to factors that may be beyond Advent's control. Opportunities may not materialize or it 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.

Throughout 2022, we have experienced delays from our customers in the Philippines for fuel cell systems and their installation. As a result, our revenue for 2022 will be less than we had originally planned.

With respect to Green HiPo, discussions with the Greek state are progressing, and we look forward to providing updates over the coming weeks.

In closing, we believe Advent is well positioned to be the provider of clean energy solutions across a wide variety of end markets. Company has built a solid foundation for the business and continues to execute on his strategic initiatives.

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 strength, allowing to compete be successful at the global level. Advent Green HiPo will be transformational for Advent and Green HiPo for the long term. The Greek state he has now started the process that will allow for funding and will keep you informed on developments.

Advent is pursuing a visible and defined path towards key and significant sectors. Advent is a clean energy technology company and we will leverage from the strength -- to generate commercial products and provide attractive technological solutions through our partnership with OEM.

I would like to thank you all for joining us today. And we're now ready to answer your questions. Thank you very much.

Question-and-Answer Session

Operator

[Operator Instructions] Our first question will come from the line of Laurence Alexander with Jefferies. Please go ahead.

Daniel Rizzo

Good morning. This is Dan Rizzo on for Laurence. Could you just provide a little bit more color on a Honey Badger 50 project with the Department of Defense? What's the revenue from that once I guess it's fully ramped? What is the addressable market? And what is the timing in terms of ramping that up?

Kevin Brackman

Yeah, I'm not gonna provide a specific revenue number for that project. We are -- as we described, we're excited about that product. It's compact, [technical difficulty] fuel sell for off-grid [technical difficulty] such as military and rescue operations. We expect scale up production and sale holes to occur over the next, let's say 18 to 24 months. And we believe the potential is significant. Because, a lot of power is needed in the field of operations, especially at programs like the integrated visual augmentation system, progress as plans. So we're excited about the potential.

Daniel Rizzo

Just a follow up, is this an exclusive agreement with the Department of Defense, whereas you cannot sell to anybody else? Or is it not like that, am I thinking about it wrong?

Vasilis Gregoriou

No, it's not. We do need an export license, as you can imagine, because state-of-the-art U.S. military products, so that will not be an issue for NATO countries. So it's not -- there is no restriction. That's where the question is.

Daniel Rizzo

Thank you very much.

Vasilis Gregoriou

Thank you.

Operator

Your next question will come from the line of Sanjay Jha with Panmure Gordon. Please go ahead.

Sanjay Jha

Yes, hello, thank you for taking my questions. I've got two or three, if I may. First of all on the German state agreement you have, could you sort of give us some idea of how many backup systems to Brandenburg data network have? So what's potentially number of fuel systems that you could supply them? And if you're kind of contracted that kind of for testing, or that kind of ready to be deployed?

And my second question is, you said earlier, that you're expecting revenue to be original, less than you had originally expected? How much of the expectation was how much were you expecting to sell to Philippines? And is that now should we expect that to now come in, in the following year?

Kevin Brackman

Yeah, so let me let me take your second question first. So we started the year, our guidance was $23 million. That included both revenue and grants. The large majority of it was revenue. So let's say $20 million of revenue and $3 million of grants. I mean, we're at $6 million of revenue through nine months, due to the delays that we've seen in the Philippines. And so we expect to have obviously a fall short of that $20 million revenue number for the full year.

Having said that, I mean we're working every day to secure orders, we hope to hopefully close on some orders before the end of the year, so that we can hit the ground running in 2023. So to your point, we still kind of view it really as a timing issue. We still believe in the growth potential of that business. It's just, it's taken more time to secure orders than we had originally planned for.

Your first question on the Brandenburg contract, that contract in and of itself is not for a significant number of systems. But hopefully, that's the start of more contracts, similar agreements that we can do with Brandenburg or with other states and municipalities. And so hopefully, that's just the start of a good things to come.

Vasilis Gregoriou

If I may say a couple of things as well, to what Kevin said. As the opportunity is early in Asia Pacific. Okay, so there, even though we have a delay in the Philippines, we're not saying that, we're not going to do it. It's delayed, so we have to differentiate between sales and revenue.

So the sales are on track. It's just the revenue projections for the quarter, we will have a delay. That's why we're announcing. However, in the meantime and as Kevin said, a lot of other opportunities has shown up in Asia Pacific, and also in Europe, as you see now Germany, and so on.

So overall, we're very optimistic about the way things are. It's just the timing of the revenue is the issue here. Plus, as Kevin said, when we started the year, we really projected the grants to come from what are called normal grants, grants that we have dealt with the beginning and it was on the lower end $3 million now with the Advent of Green HiPo. And as we said, we'll have at least one or five weeks till the end of the year, to see how the funding will come from these IPCEI projects, which are, pan-European issue, everybody's pushing for this thing to happen this year.

The potential to have a significant, grant revenue, it was there, and that's where we also announced the beginning. So, overall, revenue wise we should be lower. However, sales in IPCEI wise, not only we're not down, we're -- I think we're going to do very, very good is just the timing of it that has gone further. And that's where we're announcing now. All right.

Sanjay Jha

Thank you.

Vasilis Gregoriou

Thank you.

Operator

At this time, I will turn the conference back over for any closing remarks.

Vasilis Gregoriou

No, we're okay. Thank you very much for your participation and attention. Thank you.

Operator

Ladies and gentlemen, that does conclude today's call. Thank you all for joining. You may now disconnect.