Q3 2021 Advent Technologies Holdings Inc Earnings Call

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 Doctor by Sealy Slick Guar, you had been chairman and CEO and Kevin Pac Man I've been CFO before we begin the prepared remarks, we would like to remind you that the advent issued a press release announcing its third quarter 2021 financials assault shortly before.

I kept open today, you may access the material on the Investor Relations section of I R. Dot added that's about energy.

I'd also like to remind everyone that during the course of this conference call.

Advanced management will discuss forecast 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 <unk>.

Forward looking statements.

While these statements represent managements screen expectation and projections about future results and performance of subsidy.

<unk> actual results are subject to many risks and uncertainties that could cause actual results to differ materially from those expectations. In addition to Andrew highlighted during this call.

Important factors that may affect advent future results are described in its most recent S. Eastern reports filed with the Securities and Exchange Commission, including todays earnings press release.

Except as required by applicable law. The company undertakes no obligation to update any of this forward looking statements for any reason after you did beat up the Scotland.

Lastly, information discussed on this call concerning the company's industrial competitor plus the shut in the markets in which it operates its based on information from independence industry and research organizations other third party with resources and management estimates.

Management's estimates are there right from publicly available information beliefs by independent industry. A lot of this is and other third party resources as well as seed off from the company's internal research and are based on assumptions made upon reviewing such that they get out and this experience and knowledge of such industry end 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 Doctor Vasili Squib bar, you they'll start Gregoire, you Allison I'll turn it over to you.

Thank you operator, good morning, everyone and thank you for joining us on Netherlands third quarter 'twenty to 'twenty, one earnings call I'm joined today by I've been CFO, Kevin Brackman.

On today's call I will provide some brief comments regarding our third quarter results 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 sedans and ruthless L. 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 outside of any of your system critical infrastructure power, which is R. M zero system that significantly reduces methane emissions and defense and portable power, which is our honey buzzards system.

To accomplish our commercial goals.

Expanding and training, our global sales force and work towards integrated global partnerships to accelerate ribbon.

In the third quarter, we delivered $1 $7 billion in revenue up 643% from the prior year driven by strong customer demand for I've been sky temperature Emea's in redox flow battery materials.

Well as acquisitions of Obsidian energy.

Echo solutions and Ultrashape, we continued to have strong cash reserves totaling $92 million a quarter that 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 31st closing of the acquisitions offset enters in pre surgical solutions. The fuel cell business of the group surrender G operated in Denmark in the Philippines is a leading manufacturer or high temperature hydrogen fuel cell system globally with thousands seats around the globe Jordan, It's 15 to Europe.

Sure.

He said Arco solutions based in Germany provides automated fuel cell stack assembly and testing as well as the production of critical fuel cell component, including membrane electrode assemblies bipolar plates and reformers.

The acquired businesses specializing in manufacturing hydrogen fuel cell systems, and align with advent of ability to provide clean power in the stationery.

Portable and Nova Greek markets under the any fuel anywhere value proposition, our ability to deliver hydrogen through liquid fuels.

Allows us to have immediate market opportunity today without having to wait for the global hydrogen infrastructure to develop.

The acquisitions also accelerates our strategy to cover the pure vertical supply chain with our product we are in a competitive position to deliver reliable efficient and cost effective human cell system with a new product portfolio over the latest sky temperature fuel cells carbon in a range of 25 watts to 90 kilowatt systems.

The acquisition also made that when a leading manufacturer of high temperature fuel cells for critical backup Denver radio or continuous lenses for southern power to stationary markets across Europe and Asia.

Spend in our business in Europe and Asia.

Does it move and allow us to kept well place production capabilities and market penetration.

We have already seen the benefits from the acquisitions through our partnerships with smart communications, a leading telecom provider in the Philippines.

October we completed the first installation of 85000 fuel cell systems in the Philippines, It's part of Smart communications rollout of sustainable energy solutions to Telecom tower sites.

In October we announced that they had been spud in Thailand placed a new order for state entities fourth generation five kilowatt fuel cell systems, the new fuel cell stacks and reformers are intended to support Intel at this instance, setups and evaluate performance and to showcase the results with the diet telecom operators as well as.

Support of government projects for micro grids on a remote island.

I think grew its deemed by 92 employees with the acquisition now employing over 170 people across the world the acquisitions bring together some of the leading minds and the high temperature fuel cell space and further expand the audience platform to meet the increasing demand for clean energy worldwide. We now hold over 100 issued patents.

Worldwide for our fuel cell technology, and hips 38 R&D projects.

Another significant development in the third quarter was the continued progress of the wide that Agua and could even keep up projects in south Eastern Europe on September seven I've been announced that these two important projects of common European interest have been approved by the Greek Minister New development investments and the Greek minister of environment and energy and climate change.

These projects were among five projects out of 'twenty submitted to receive approval the way their icon project aims to replace coal fired power plants across western Macedonia, and transition to cleaner energy production and transmission.

The project plans to use the renewable electricity to produce green hydrogen by electrolysis would then be store and through itunes high temperature fuel cells supply agrees with cleaner electricity Green energy and heat the.

The Green Cubo project is complementary to the way they are arguing that just focuses on the development design and manufacturing of high temperature fuel cells to produce heat empower the projects are part of the HUD isn't the Clos to this I P. C. I will now move towards approval and the European Union level.

As a next step Unbilled would 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.

<unk> hopes to receive final notification from the European Commission by mid 2022 at both projects are approved we will provide that the closer we will part of white that are going to clean energy plan.

These projects are a special significance to the future growth of our company is what would be the designated technology partner for a potentially 8 billion Bureau project if approved at the end of the wide, but I wont consortium of companies will implement a project between 'twenty to 'twenty, two and 'twenty 'twenty night in terms of capacity the way that I want in green here.

Both projects will represent $4 65, gigawatts of Green hydrogen in 400 megawatts of fuel cells. In addition will be a key player in the decarbonization of the South Eastern Europe entered the system is Greek looks to decommission all qualified power plants by 2028, we see augment technology.

Is it an integral part of the energy transition, we're pleased to be their technology partner for such a large and important environmental projects in Europe and to have received approval from the good government. We look forward to being able to provide more information around the EU approval and the final scope of the project in the coming months.

Our effort with the Panama National vendors and National Laboratories also continues to gain momentum. This group a leading scientist and engineer is working closely with Ocwen development and manufacturing teams and are further in the understanding of breakthrough materials that will advance high temperature Banfield says the next generation of high temperature as well too.

For prohibited due to transportation marine and other medical applications as well as delivering.

Benefits and cost and lifetime for stationary power system used in telecom and other remote power markets for the next generation M. B, a which will be scaled to manufacture for them. In 2022 is expected to be in products in 2023 and has grown interest from several multinational businesses.

I've been remains well positioned to take advantage of the growing focus on clean energy and we're encouraged that our government businesses and society will work together to address the climate crisis reflect on the recent UN climate change conference held in Glasgow, We see evidence of our growing support for the fight against climate change, we believe our fuel cells.

Technology and the hydrogen economy will play a key role in parent decarbonization with that.

I'd like to hand over to our CFO Kevin Brackman.

Thank you, but silly turning to our financials as Vasu I noted earlier, we delivered revenue of $1.7 million in the third quarter.

643% increase from the prior year.

The increase was driven by growing customer demand for advent emea's fuel cell systems and other products as well as the August 31 acquisition of <unk> energy and Fisher Eco solutions and the acquisition of ultra sell earlier in the year.

Cost of revenues increased $1.6 million year over year in the third quarter. The increase was directly related to revenue growth over the last year and the requirement for increased production of Ami as in fuel cell systems to satisfy customer demand as well as the completed acquisitions.

R&D expenses were zero point $9 million in the third quarter, primarily related to a cooperative research and development agreement with the department of energy, which we announced in March as well as the R&D concepts are energy and Fisher Eco solutions in the month of September.

Administrative and selling expenses were 13 million in the third quarter, our 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 <unk> energy and Fisher Eco solutions stock based compensation X.

Spencers and a nonrecurring $2 4 million dollar charge for executive severance.

Net loss totaled $11 $3 million in the quarter and then adjusted net loss was $10 $4 million I should note that our adjusted net loss excludes the offsetting impact from the change in the fair value of outstanding warrants and the charge for executive severance as well as <unk>.

Acquisition related costs, our net loss per share was 23 cents 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 and executing on our strategic and operational priorities. This is a decrease of $23 6 million from June 30 of 2021.

Driven by approximately $13 5 million for the acquisition of sort of energy and Fisher Eco solutions net of 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 to date 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 Mci 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 noncash stock based compensation expenses.

We continue to anticipate entering 2022 with a significant portion of our current cash balance and our liquidity position that will allow us to fund operations for the foreseeable future in.

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 Vince So he for closing remarks.

Thank you, Kevin we believe that the hardest and economies now and there is a massive opportunity for any fuel anywhere fuel cell products. The issue of climate change that they need for decarbonization is normally growing provide them they need for thoughtful to Nielsen and positive change to tackle these difficult issues, we're committed to providing.

They can also clear create a cleaner to decarbonize world I want to thank you all for joining us today and we're now ready to answer your questions. Thank you very much.

Thank you and as a reminder to ask a question you will need to press star one on your telephone again, that's star one on your telephone to try your question press the pound key.

Please standby, while we compile any roster.

Your first question comes from the line of Laurence Alexander from Jefferies. Your line is open.

Good morning could you sketch out in more detail what being the.

Technology advisor on White Dragon means in terms of how much of the eight.

8 billion projects.

Tension could flow through your P&L.

You either as a project coordinator or through product sales can you just give us a sense for kind of what the range of scenarios might be.

Yeah. It is difficult to say about it because we don't know.

You know exactly the the level.

Oh funding not to approve but I can tell you will be very significant meaning that we're not an adviser where the technology provider.

That we ought to be only company there that has the capability to make the you know the fuel cell in the ER and the <unk> and the technical infrastructure when it comes to the to the hydrogen part therefore, I would expect to be very significant and it would be.

A big portion of the final number.

Okay.

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

We will be sending equipment keep in mind that there is two projects under one one is the white Dragon umbrella project and then there's the greenkeeper, which is ours.

The umbrella project, where we will be part of the JV. So we will take them.

Income from that as well being part of a consortium, but are on a roll with it.

With the Greek people is to provide the machines. If you will do the wide that are gonna JV. So we will get.

Income from too.

Two different.

I'll be used if you will one of them is from selling the equipment and the other for being part of the White Dragon.

The JV and the capacity expansion to support the Green Hippo that would be capacity that then you keep after the project is completed or does that get transferred to a third party.

We keep it.

Great and then just last question is can you give a sense for the rough.

Split between EMEA sales and system sales.

Or how you think that's going to evolve over the next couple of years.

One dominate the other.

Hmm.

Go ahead, Kevin, but I can say a little bit more so over the next couple of years, what we envision as our system sales would be roughly half of our overall revenue.

Which would be.

Significantly more than the EMEA sales in EMEA I think we're projecting around 20% of our overall revenue so about 50% from system sales, 20% from EMEA sales and then the remainder would.

B, you know engineering fees licensing fees.

Et cetera. So.

And that's kind of a breakdown that we enter.

Okay, great. Okay. Thank you very much.

Thank you and again, if you would like to ask a question. Please.

Please press star one on your telephone.

Your next question is from the line of Adam Foresight from Longspur. Your line is open.

Hi, guys.

First question on just on the gross margin, which obviously is a lot lower in Q3 compared to the very good numbers. We saw in Q2 I Wonder if you could give some give us some some background for that and give us perhaps a feel of how representative is 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 it has as many others are.

And perhaps related to that I wonder if you can give us a feel for it for actually the megawatts of capacity sold in this quarter and then also can you give us a breakdown of the nonrecurring costs, which which have been a feature.

And then if it's not too many questions. Just one final one just you talked about R&D expenditure at <unk>.

Fisher and <unk> energy.

What sort of R&D are they actually undertaking what what what are they doing is it complementary to the work within the historic advent group or is it something very different.

Thanks.

Thank you Adam let me try to tackle those questions and maybe vasili can.

Can follow up with anything I match.

So on the gross margin I think right now with with a small revenue base.

Our gross margin is probably going to be volatile from quarter to quarter, depending on the mix.

IDEXX in the mix of customers.

That fall on any particular quarter.

And so that's why you may see us swing from 30% now.

One quarter, which is I think where we were in Q2 to a you know 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 that gross margin up 30%.

Let me take the second part of your question was related to.

Nonrecurring costs and in 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 two and a half million for executive severance.

It also includes about a million.

Million dollars, just under a million dollars related to acquisition related costs.

So if you remove those.

You know that gets us down closer to that $10 million range now having said that keep in mind, we only had sort of energy and Fisher for one month in the third quarter. So when you in future quarters when the ads.

On a full quarter of their results are I would expect maybe another million dollars of SG&A cost related to that so I think our run rate moving forward should be in the let's say 10, and a half to $11 million range for for SG&A and Cogs.

Now that's not all cash.

There's about I E moving forward I expect around three and a half million per quarter.

<unk> based compensation expenses, which is noncash and so let's say 10 and a half in total three and a half 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 a.

We had $900000.

R&D costs in the in the third quarter.

Again that only includes one month.

R&D costs at Sir NRG, 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.

And then what we had in the third quarter. So hopefully that answers your numbers questions. The Sally I don't know if you want to add on to that.

I think we're fine I always put them on something more.

Yeah, Yeah. It would just be nice to get a feel for the actual R&D that that's being undertaken.

It feels like it it must be different to the core essence, R&D can be and just interesting to see what sort of correction.

Thank you.

Yeah listen I mean, I can give you a qualitative you know overall answer to keep in mind that we've got.

Coffee, but finally, we have a global energy company right I mean whichever operations.

Many parts of the world It would have different types of products and all of them.

Hip sums into it again from each other okay, we have the honey browser them zero.

I would have said and it is as you say with the telecom product in there.

The liquid cooled system.

They all talk to each other and it is our job also to integrate the groups and the right way so.

Definitely there is a center of excellence of all of this right, but the message we get new products in U.

Our capabilities and new development.

Development needs and of course.

We will integrate that under one umbrella, but oh.

That's that's where we're at around what that's where we're at now.

Great Great that's really helpful. Thanks.

Thank you.

Thank you.

And we have no further questions I would now like to turn the call back to Dr. Vassilios Gregoire you for final remarks.

Doctor Gregoire, you'll please proceed.

Okay.

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 that.

You remember materials going right into our system company right now and whichever makes us very.

A very exciting new products.

Yes.

The market.

Is positive and we'll give it our best in order for us to get.

I thought my different or whatever you know keep in mind, we came from the spark and we kept that as well.

Deal with but I think overall when I voted with the objective as I said before and we're looking forward for the next quarters. Thank you.

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

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