ADVENT TECHNOLOGIES HOLDINGS, INC. Q4 2023 earnings call

Thank you, operator. Good morning to everyone listening in, and thank you for joining us on Advent's fourth quarter 2023 earnings call. On today's call, I will provide an update on the business, and I will also review our financial performance and outlook. I would like to take this opportunity to briefly reintroduce Advent to you, what we do and what makes our technology different. At Advent, we're developing the high-temperature PEM fuel cell technology. High-temperature PEM, as we call it, has unique competitive advantages. Our fuel cells are optimal for using liquid E-fuels made from hydrogen, like E-methanol, but also biofuels and biogas. If you're following market developments, you have recently heard these words more and more. We expect that E-methanol and biogas will dominate the investment and business plans in the next years, moving to deployment much faster than compressed or liquefied hydrogen applications.

The reason is simple: the cost of infrastructure and the end cost of electrification. Advent's fuel cells are not limited to pure hydrogen, and this makes them ideal for marine and off-grid power, both of which are turning to methanol. Furthermore, due to our high temperature operation, our fuel cells have superior efficiency that can reach 85% when the heat is used and are ideal for aviation and heavy-duty trucks. All these statements have been validated by our strong collaborations with Airbus, U.S. Army, Hyundai and Siemens Energy, among others, during the last year. You and all probably follow in development in the battery market and the hundreds of billions invested there. Let us give you a comparison that showcases the importance of our technology.

Our fuel cell converts approximately four hundred grams of methanol, that carry eighty grams of green hydrogen, to one kilowatt-hour of electrical power, thus, it is equivalent to 2,500 watt-hours per kilogram battery. As a comparison, lithium-ion batteries are at one-tenth of the power density, and even futuristic batteries are at one-fifth. Moreover, unlike a battery or a hydrogen-based system, our fuel cells can be deployed on the existing infrastructure of transported and especially liquid fuels globally, even in the poorest countries. You might wonder why high-temperature PEM has not been more widespread in the past. The issue was the maturity of the technology. Advent using a next-generation membrane and electrode structure, called Ion Pair MEA, has achieved in 2024, 2X the power of previous state-of-the-art fuel cells per square centimeter.

We also have concrete data that we will achieve two X the lifetime of competing high-temperature PEM systems. These accomplishments can lead to massively lower cost of electrification, and we believe that at scale and in cooperation with the OEMs and Tier 1s, we can achieve a levelized cost of electricity, including hardware, fuel, and service, in the range of 20-30 cents per kilowatt hour. This, of course, will not be competitive versus the grid, but it will be highly competitive for all off-grids and backup markets, and also for all heavy-duty mobility markets. In fact, it will be the lowest cost solution when compared to battery-only, compressed hydrogen, or even fossil fuel alternatives. The relentless pursuit of low-cost green energy is what drives us, and it's our mission.

The development of the Ion Pair MEA was and is the core mission of Advent since its public market entry. We're happy to announce that in 2024, we're on pace to meet the demands of the global OEM leaders in the fuel cell industry, companies like Airbus and Hyundai Motors, which have been highly successful in meeting all the milestones we set with our key OEM partners, and I will discuss this in more detail later. A hydrogen high-temperature PEM fuel cell with equivalent to 2,500 watt-hours per kilogram battery performance is ideal for enabling electrification in heavy-duty mobility and also off-grid power, large-scale stationary power, and backup applications like data centers. We see our fuel cells as the key technology for covering the other 50% of the market that will not and cannot be addressed by batteries or direct electrification.

In the marine, off-grid power, but also in the defense markets, we see methanol as a practical solution today. Methanol is the fuel of tomorrow, available today. We already deploy systems using natural gas-based methanol that is a low-cost interim solution, and it drops emissions 40% lower than diesel. Tomorrow, as hydrogen and subsequently E-methanol costs drop, we see our fuel cells being highly competitive in most applications while providing net zero green power without pollutants. Already, there are 130 renewable methanol production projects around the world, 250 marine vessels, and we project that the demand for marine and off-grid markets will further accelerate the trend. The Ion Pair MEA technology is the core differentiator for Advent.

Any OEM or Tier 1 manufacturer that has access to our MEA has the capability of producing state-of-the-art high-temperature PEM fuel cells for completely different applications, from data center backup power to heavy-duty trucks, and from pure electrification to aerospace propulsion. Advent's business model will from now on focus exclusively on the MEA innovation, IP, and MEA manufacturing scale, a business that requires low CapEx, is highly protected by Advent's specific know-how, and can have a healthy margin. Moving to the operational side, over the past year, we have encountered a mix of positive as well as challenging events. On the positive side, the interest for methanol fuel cells and clean power solutions has reached unprecedented levels from a variety of markets. However, the financial markets have not been favorable to clean energy investments lately.

Consequently, infrastructure loans and grants from the EU and the US have become the most viable route for finance support through the entailed lengthy bureaucratic processes. In response to these delays, we have proactively streamlined our operations by reducing operational facility expenses. We've made the difficult decision to close subsidiaries and facilities that were not profitable and negatively impacted the company's future trajectory. Accordingly, in 2024, we eliminated our Boston, Denmark, and Philippines operations. Through the years in post-acquisitions, especially SerEnergy, we have developed hardware technology, and we have successfully managed to sell 1,200 hardware systems, primarily to the telecom industry. This know-how is utilized to accelerate partner OEMs through technology transfer and licensing agreements, but is not our intent to become an end product OEM in multiple markets, a feat that will require hundreds of millions in investment and a long time to market.

This is the reason we have decided to discontinue operations of certain subsidiary facilities that have been focusing on end system production and were demanding more and more costs for low or even negative margin revenues. The Danish subsidiary, especially, which was developing systems based on older high-temperature PEM technology, had a production cost exceeding $2,000 per kilowatt, while we expected that OEMs with the Ion Pair MEA technology can develop systems that with a cost approaching $500 per kilowatt at scale. These are all dollars. This will happen from the product plan that will deliver Ion Pair MEAs with 3X the lifetime and 3X the power per square centimeter. The Ion Pair makes all the difference between mass market scale-up and an unprofitable, low business, low-volume business.

These strategic actions position us for a more sustainable and profitable future, allowing us to focus on our core strengths and continue leading in the clean power solution market. The business model shift is significantly reducing Advent's current OpEx and future CapEx needs, and keep a scalable global, simpler to execute business model. Despite the challenges of last year, Advent has been extremely successful in its MEA development, where we've made very considerable strides. Our high-temperature PEM fuel cell technology is gaining recognition from world-leading companies, demonstrated by our collaborations with Airbus, US Army, Hyundai Motor Company, and other top automotive leaders. We're proud to have delivered on our contractual agreements with all aforementioned partners. These strategic partnerships underscore the industry's confidence in our technology and are the first phase before the commercial scale-up plan for 2026.

Additionally, our defense solution under development, the Honey Badger 50, is anticipated to transition to mass production by 2026. We expect that with the introduction of the Ion Pair technology, OEMs will be able to pack 50 kilowatt to 80 kilowatt of power in a small cabinet and combine multiple cabinets for multi-megawatt solution, aimed at data centers, remote recharge stations, virtual power plants, and microgrid support systems. When it comes to new business development, we are seeking to develop joint ventures or technology transfer and license agreement with large-scale local integrators, Tier 1s and OEMs. Some of the discussions are in the advanced stage, and our technology transfer and license model makes sense to all parties.

Under this model, we intend to continue to manufacture the MEA, and potentially even the fuel cell stack for some markets, but we license out the complete balance of plant and end system product. This can allow a multitude of different Tier 1 manufacturers to scale up different usage-specific product configurations with a core Advent high-temperature PEM MEA in all products. Such a model can be highly scalable, low CapEx, and high gross margin for Advent. In the automotive market, we're already active in the first level of collaboration, the technology assessment phase, with four of the top 10 of the world's leading auto manufacturers in terms of annual vehicle production. This is all we can announce, and not the names at this point, as every world-class partner has its own specific strategy and goals.