Creation Applied sciences Holdings, Inc. (NASDAQ:ADN) Q2 2023 Earnings Convention Name August 11, 2023 9:00 AM ET
Firm Contributors
Vasilis Gregoriou – Chairman and CEO
Kevin Brackman – CFO
Convention Name Contributors
Operator
Good morning, everybody. I might be your convention operator right now. Right now, I wish to welcome everybody to the Creation Applied sciences Second Quarter Earnings Convention Name. [Operator Instructions] On the decision right now, we’re joined by Dr. Vasili Gregoriou, Creation’s Chairman and CEO; and Kevin Brackman, Creation’s CFO.
Earlier than we start the ready remarks, we wish to remind you that Creation issued a press launch saying its second quarter 2023 monetary outcomes shortly earlier than market open right now. You might entry the supplies on the Investor Relations part of the corporate’s web site, www.advant.power. I’d additionally prefer to remind everybody that through the course of this convention name, Creation administration will focus on forecasts, targets and different forward-looking statements concerning the corporate’s future buyer orders and the corporate’s enterprise outlook which are meant to be lined by the protected harbor provisions of the Non-public Securities Litigation Reform Act of 1995 for forward-looking statements. Whereas these statements characterize administration’s present expectations and projections about future outcomes and efficiency as of right now, Creation’s precise outcomes are topic to many dangers and uncertainties that might trigger precise outcomes to vary materially from these expectations. Along with any dangers highlighted throughout this name, essential components which will have an effect on Creation’s future outcomes are described in its most up-to-date SEC studies filed with the Securities and Trade Fee, together with right now’s earnings press launch.
Besides as required by relevant legislation, the corporate undertakes no obligation to replace any of those forward-looking statements for any purpose after the date of this name. Lastly, info mentioned on this name regarding the firm’s trade aggressive place out there wherein it operates, relies on info from unbiased trade and analysis organizations, different third-party sources and administration estimates. Administration estimates are derived from publicly obtainable info launched by unbiased trade analysts – evaluation and different third-party assets in addition to information from the corporate’s inner analysis and are primarily based on assumptions made upon reviewing such information and with the information of such trade and markets. Which it believes to be cheap. These assumptions are topic to uncertainties and dangers, which might trigger outcomes to vary materially from these expressed within the estimates. Please observe that this name is being recorded.
Kicking off the decision might be Dr. Vasili Gregoriou. Dr. Gregoriou, I now flip it over to you.
Vasilis Gregoriou
Thanks, operator. Good morning to everybody listening in, and thanks for becoming a member of us on Creation’s second quarter 2023 earnings name.
On right now’s name, I’ll present an replace on the enterprise. I’ll then hand over to Kevin, who will give a evaluation of our monetary efficiency and outlook in additional element. Throughout my final replace on Could 15, I highlighted that Creation has additional consolidated its enterprise operations and was specializing in the core sectors of mobility and stationary energy.
This has continued within the second quarter with a gradual enchancment in our money burn as varied non-costs are eradicated. We stay targeted on increasing and executing on industrial pipeline with a view to embedding our expertise and product portfolio in these key energy sectors. We additionally maintained our capital funding program in state-of-the-art gear that is required to finish the size of manufacturing capability.
We intend for this progress to proceed in the direction of large-scale producers as quickly as our Inexperienced HiPo mission commences. We imagine that the longer term demand for Creation high-temperature PEM expertise and associated merchandise will create a big alternative, and we imagine Creation might be ideally positioned to capitalize on these two appropriate partnerships.
We sit up for rising our industrial actions and reaching long-term worthwhile development. Our enterprise focus is on the manufacturing of superior gas cell supplies and the event of superior gas cell methods, resulting in direct gross sales.
As well as, joint improvement settlement with OEMs will allow us to enter into long-term licensing and provide agreements. I’ll now give an summary of our latest enterprise updates. BASF Environmental Catalyst and Metallic Options, a worldwide chief in valuable metals and catalysts, and Creation concluded the phrases of a brand new settlement to hitch efforts in constructing a full look element provide chain for gas cell.
For the previous 20 years, BASF Environmental Catalyst and Metallic Options has been a frontrunner in membrane MEA expertise for top temperature PEM gas cells with a robust basis in valuable metallic providers and catalysis. Creation is a big producer of excessive temperature PEM gas cell methods concentrating on rising markets within the area of sustainable and decentralized power equivalent to stationary energy that may exchange diesel turbines, maritime energy for e-methanol gas cells and heavy-duty mobility.
Excessive temperature PEM gas cells function at 120 to 180 levels celsius provide a broad working window and might tolerate impurities within the hydrogen gas gasoline. These gas cells additionally allow simplified cooling and don’t require humidification. Creation presents aggressive gas cell methods for stationary moveable functions primarily based on methanol and on-site reforming.
Trying forward, excessive temperature PEM gas cells can even be obtainable for heavy-duty mobility and maritime energy. The scope of the settlement contains BASF’s position in scaling-up MEA manufacturing at Creation’s deliberate state-of-the-art manufacturing facility in Western Macedonia Greece, whereas providing Creation its full portfolio of services to allow circularity in key supplies. Each corporations will cooperate on BASF’s newest membrane improvement, Celtec-Z and the brand new Ion Pair MEA membrane by Creation, aiming for improved efficiency, lifetime and price competitiveness.
Within the Aerospace Sector, Creation signed a memorandum of understanding with Safran Energy Methods, a frontrunner in auxiliary energy methods and turbojet engines. Leveraging Creation’s proprietary Ion Pair MEA expertise and Safran aerospace information and capabilities, this new collaboration will search to advance the event of next-generation high-temperature PEM gas cell expertise, particularly for the aerospace sector.
Excessive temperature PEM permits extra environment friendly warmth administration versus low temperature PEM. Excessive temperature PEM is extra tailored for functions requiring excessive quantities of energy, mixed with sturdy integration constraints as in aviation. Excessive temperature PEM is extra strong and might stand up to more durable working circumstances equivalent to excessive temperature and air pollution versus low temperature PEM.
The collaboration additional supported by a robust analysis consortium together with the Analysis & Know-how Heart of Safran Group, the French Various Energies and Atomic Power Fee, Fraunhofer Institute, the French Nationwide Centre for Scientific Analysis, the College of Strasbourg and the IMDEA Power Institute. Led by Safran Energy models and with the help of Creation, the consortium has secured a grant for the Clear Hydrogen Partnership NIMPHEA Undertaking.
Working from 2023 to 2026, the mission is funded by Horizon Europe and the mission’s essential goal is to develop an aircraft-compatible next-generation excessive temperature PEM MEA. This contain optimizing and enhancing varied elements such because the catalyst layer, membrane and gasoline diffusion layer. Creation’s Ion Pair MEA expertise serves as the inspiration for these developments.
As a part of the newly signed MoU, Creation and Safran Energy Items are exploring a joint improvement settlement for the development of excessive temperature PEM gas cells in aviation and for enhancing Creation’s provide functionality. In Could, Creation introduced the contract with a distinguished gas cell producer specializing in truck utility within the East Asian market.
Beneath this contract, Creation will provide excessive temperature PEM MEAs to help the event of superior gas cell answer for vehicles. The contract has a mixed worth of $1.1 million and comes after a extremely profitable testing section of Creation’s proprietary MEA expertise performed by our buyer.
Creation will ship excessive temperature PEM MEAs with a projected continuation of deliveries aligned to the customer-specific time. Using Creation’s MEA expertise in gas cell-powered vehicles is a vital and substantial enhancement to EV expertise, successfully tackling the challenges related to charging infrastructure and the restricted vary of pure EVs. MEA’s are the vital element of gas cell methods and have pivotal position in figuring out the general efficiency, sturdiness, effectivity, weight and cost-effectiveness of the electrochemical merchandise they empower.
Creation’s electrochemistry elements enterprise embody electrodes, membranes and MEAs. These elements are vital for gas cell electrolysers and for lengthy period power storage, equivalent to circulate batteries. In June, Creation participated within the second European Electrolyser Summit held in Brussels.
I used to be a part of the delegation of 30 CEOs representing the European electrolyser manufacturing sector in a gathering with European Commissioner Thierry Breton. The first goal of the assembly was to debate and tackle the target outlined within the joint declaration of the Could 2022 EU Electrolyser Summit.
The assembly, collectively organized by the European Fee and Hydrogen Europe as a part of the Electrolyser Partnership introduced collectively roughly 44 corporations actively concerned within the European electrolyser provide chain. Following the second European Electrolyser Summit, the trade stays steadfast in its dedication to realize the bold targets set out within the REPowerEU communication.
The target is to perform 10 million tons of home hydrogen manufacturing and import 10 million tons of hydrogen by 2030. As a part of this dedication, the trade is planning to considerably enhance electrolyser manufacturing within the EU, aiming to ramp-up capability by an element of seven inside 7 years. It will contain scaling-up from the present Three gigawatt manufacturing capability to roughly 21 gigawatts by 2025.
In a not too long ago revealed paperwork, the partnership members and the European Fee offered an replace on the progress that has been made one 12 months after the signing of the joint declaration. The doc highlights the trade’s continued efforts to develop its European footprint because the regulatory framework strikes nearer to completion. Notable improvement contains the Renewable Power Directive, Delegated Acts on Additionality, and the Hydrogen Financial institution.
For Creation Inexperienced HiPo Undertaking, we offered an replace in Could on its standing. This replace highlighted the latest milestone achieved to this point emphasizing the collective dedication of all the Creation staff in the direction of decarbonization and the transformation of the clear power panorama in Greece and Europe.
Most notably, One, Admin efficiently acquired the possession proper to a major parcel of actual property positioned in Kozani, Greece, the place its deliberate state-of-the-art facility for the Inexperienced HiPo IPCEI mission is predicted to be positioned. This land acquisition underscore Creation’s unwavering dedication to establishing a strong infrastructure that may successfully and strategically help the goals of the Inexperienced HiPo IPCEI mission.
Creation has additionally arrange a coordination and planning workplace within the heart of Kozani which can function the operational hub for the Inexperienced HiPo IPCEI mission. Second, Creation has initiated the method of figuring out and hiring key professionals equivalent to scientists, engineers and managers who will play integral roles within the new state-of-the-art facility in Kozani. These people will drive vital features equivalent to analysis and improvement, first industrial deployment and provide chain administration.
The experience might be instrumental beneath improvement, design and manufacture of the modern gas cell methods and electrolyser methods. Creation’’s cautious choice course of will be sure that top-tier expertise is recruited to help the profitable execution of the Inexperienced HiPo IPCEI mission, thereby making certain the mission’s success and innovation. On August 4, 2023, Creation was knowledgeable by the Ministry of Nationwide Financial system and Finance that the Greek State is presently reviewing the financing for IPCEI Hy2Tech.
Accordingly, and as a pre-requisite for unlocking the State Assist funding for Inexperienced HiPo, the Greek State is analyzing and planning methods to implement actions and to strengthen initiatives that may contribute to the transition of the productive and development mannequin of the Greek economic system in the direction of local weather neutrality. Parameters for the planning of such actions embody implementing tasks at particular occasions, the viability of the finished proposed plans, in addition to compliance with regulatory obligations and tips concerning the administration of European funds.
We’ll present additional updates on Inexperienced HiPo at an applicable time. Creation is suitably positioned to reap the benefits of the expansion deal with clear power. We’re regularly advancing our expertise and consolidate our operations to deal with new and key alternatives. We now have a product portfolio that is targeted to allow a inexperienced economic system, one that may cut back the reliance on fossil fuels and can decentralize power provide market, subsequently, offering power safety to communities and economies.
With that, I wish to hand over to our CFO, Kevin Brackman.
Kevin Brackman
Thanks, Vassili, and good morning, everybody.
Turning to our financials. We delivered income of $1.1 million within the second quarter and earnings from grants of $0.7 million for a complete of $1.Eight million. R&D bills have been $2.9 million within the second quarter, primarily associated to inner R&D prices incurred in every of our companies. In addition to our cooperative analysis and improvement settlement with the Division of Power.
Administrative and promoting bills have been $8.Three million within the second quarter, mixed with R&D, whole working bills have been $11.2 million, a year-over-year enhance of $0.6 million, primarily associated to a rise in analysis and improvement prices in addition to bills associated to our new Hood Park facility in Charlestown Mass.
We acknowledged $9.Eight million of asset impairment expenses within the second quarter, principally associated to the evaluation of goodwill and different intangible belongings from the corporate’s acquisitions in 2021. Internet loss in Q2 was $21.Eight million or $0.41 per share.
Unrestricted money reserves have been $10.1 million as of June 30, 2023, a lower of $9.5 million from March 31, 2023, which incorporates $3.Four million of money that we raised from the Firm’s fairness line of credit score with Lincoln Park Capital, $1.9 million paid to finish the acquisition of the gas cell methods enterprise in Denmark, Germany and the Philippines, $0.Eight million paid to amass land in Kozani, Greece for the Inexperienced HiPo mission and $0.Four million paid for the build-out of the Hood Park facility. Our present money balances and projected working money flows are usually not anticipated to be adequate to help deliberate operations for the following 12 months.
Nevertheless, along with the potential funding from the pending Inexperienced HiPo mission, we finalized an settlement in April this 12 months for an fairness line of credit score with Lincoln Park Capital, which provides us the choice to entry as much as $50 million of capital over the 3-year time period. The utilization of this fairness line of credit score is at Creation’s discretion and offers us with an efficient buffer that could be used alongside different funding routes.
As I discussed earlier, we raised $3.Four million within the month of June utilizing this fairness line of credit score, adequate to cowl our present month-to-month run price for working and capital bills. We additionally applied in June and on the market fairness program with H.C. Wainwright as gross sales agent, beneath which we could promote as much as $50 million of shares of the corporate’s widespread inventory by the agent with none dedication from Creation.
We didn’t make the most of this ATM facility through the second quarter. Apart from elevating capital, we are going to proceed to handle our price construction carefully and capitalize on alternatives to cut back prices the place attainable. Let me now flip to our outlook. Creation has a robust pipeline of alternatives. As everyone knows, nevertheless, not each alternative within the pipeline will transpire attributable to components which are past Creation’s management.
Alternatives could not materialize or might be delayed. As a result of long-Time period contract nature of our enterprise mannequin, the timing of our income may also be troublesome to foretell. As a result of stage of uncertainty brought on by these components in addition to the truth that Inexperienced HiPo continues to be beneath evaluation by the Greek state, we aren’t offering an outlook for income and earnings from grants for 2023 on this name.
With that, I’ll hand again to Vassili for closing remarks.
Vasilis Gregoriou
Thanks, Kevin.
Creation have important alternatives for its excessive temperature PEM expertise, superior supplies and gas cell system merchandise. Creation is a transparent power expertise firm, creating modern merchandise for key sectors that require clear power. We sit up for rising the enterprise and to offer you a breadth of improvement. I wish to thanks all for becoming a member of us right now.
Earlier than we open the road to any questions from the corporate’s evaluation, I wish to tackle questions submitted by Lacie Midgley with Panmure Gordon, who’s unable to hitch the decision right now. The primary query is, are you able to present an replace on the Inexperienced HiPo mission and anticipate the timing on analysis, affirmation of ultimate funding paperwork and subsequent releases of funding.
As I stated a little bit bit within the script, we’re very eager to formally launch the inexperienced HiPo, and we’ve demonstrated specific actions that claims that we’re transferring on this path. Initially, we schedule all of the R&D and improvement work. Second, we’ve recognized an appropriate website.
We bought the land, and we’ve commenced with planning. Third, essential, we’ve entered this very strategic agreements with BASF an alternative choice that we can not point out proper now. And we are going to announce, clearly, the main points on the applicable time that ensures that the minute we begin – we’ve this big with us to have the ability to manufacture the merchandise with high quality and on the proper time.
Within the meantime, as we stated, we’re grievance to the European Union as a result of we really feel that this can be a large delay right here from the state, and it is merely not acceptable by us. So I despatched the letter to commissioner Breton, who initiated an inner dialogue throughout the European Fee with DG development and DG inner market trade and SME.
These are coverage departments, the directional common. And there, what we obtained again is that regardless of that throughout the vacation month, the European union will work very near the Greek authorities, to have the ability to inform us and us inform you the shareholders that the mission we acquired the foreseen public funds. So I feel the place within the final levels. And there, as you already know, we’ve very large delays with interplay with different European companions. In fact, we’ve suffered, we imagine a giant loss in our valuation due to all of that.
So this factor must be resolved as quickly as attainable. The Europeans perceive that this can be a mission of widespread European curiosity. It is not Greece solely, not Italy for – then oral for example, it is not switch McAfee. So I feel the Europeans have been push very laborious on this. Now we acquired on August 4, a letter by the Deputy Minister of Financial system and Finance from Greece, Mr. [indiscernible] and reply to my letter to him on July 25. And mainly, the concept is, and I’ll go over later in a bit – the concept is that the Greek state is analyzing and planning methods to implement actions and to strengthen the initiatives that may contribute to the transition, the productive and development mannequin of the nice economic system in the direction of local weather neutrality.
Parameters for the plan and such actions embody applied tasks at particular occasions, the viability of the finished proposal plans in addition to compliance with regulatory obligations and tips concerning the administration of European funds. The Greek state is sort of reviewing funding for IPCEI program and we’ll present additional updates on the applicable time. So the delay is solely with the Greek state, and we anticipate this to be resolved very, very quickly.
You possibly can think about we do all the pieces in our capability to complete this. And we are going to preserve you posted on the developments, which, as I stated, I feel that might be very sturdy. Second query is, once more, from Lacie. Are you able to present an replace on the Hyundai JDA and subsequent key milestones, together with anticipated first half? As you already know, the – as with different automotive producers, Hyundai is an OEM.
And mainly, they have been creating within the gas cell system in collaboration with the OEM. We now have a joint improvement settlement now the place the Creation MEA and really our gas cell experience as nicely might be integrated in an automotive agent with Hyundai. And Hyundai has proven nice curiosity within the expertise and mainly behind on truthful expertise. And we – additionally there, we incorporate Hyundai expertise as nicely. We use Hyundai catalyst for that specific program.
So the entire thought is to realize the ability targets that they’re conducive for automotive to ensure that this to turn out to be an precise product. Now, as you already know, we’ve three core {hardware} fashions in the marketplace already.
So we’ve good expertise from utilizing them. And as I stated in different calls as nicely, it is not solely Hyundai that we work with, we’ve different massive corporations that we can not identify however we’re working very laborious – actively with all of them. The opposite query is how has the collaboration with Siemens Power for maritime gas cell answer progress?
Is licenses progressing to JDA or related relying on profitable expertise testing? And there, the collaboration with Siemens, as you already know, is on this very thrilling part of maritime. We’re very glad that our methanol imaginative and prescient as a result of we’ve this for fairly a while now, as you already know, those that you just comply with us the methanol and ultimately e-methanol that arrive from inexperienced hydrogen, we imagine would be the key gas within the path to web zero for maritime.
So not solely [indiscernible] but additionally Alfa Laval, Maersk, all of them work there, and we attempt to collaborate with [indiscernible], however we’ve the latest success with Siemens and Sanlorenzo, and we really feel very proud about that. So once more, the concept is that whenever you use excessive temperature PEM and e-methanol, we’re speaking a few related system and an costly one-stage reformation, whereas low temperature then requires 99.99% pure hydrogen.
The promoting system now that we use, it is made in Denmark. And we’re speaking about 100 kilo, however we truly can also go to 250 kilo easing. So that is the standing over there. I feel there’s the best expertise and the best market, and it is a obligation, if you’ll, to develop this as quick as we are able to. One other query is how has dialog as a part of the early levels of the BASF settlement progressed with regard to establishing the end-to-end provide chain in Europe.
I feel we mentioned that additionally within the script. Mainly, the concept is that the BASF settlement could be very important for us as a result of, one, it endorses our expertise; and second, we fortify our provide chain. We’re engaged on excessive temperature PEM with BASF for about 15 years now, as you already know. BASF is a worldwide chief in manufacturing and types, electrodes, quite a lot of experience with PVI. And as I stated, we’re very shut and for me, can be a key parameter, this affiliation in accelerating the Inexperienced HiPo Undertaking.
Win-win state of affairs for each events and really safe deal, if you’ll, for the shopper as nicely. One other factor I do not wish to be unnoticed of the dialog is the power of BASF to handle valuable metals in closed loop processing of this materials. That is essential once we go from extra pilot packages to throw large-scale manufacturing.
The subsequent query is, does your present money place and presently burn price offers you adequate headroom has been funding acquired for and to execute on the Inexperienced HiPo Undertaking and different commitments?
I will flip this to Kevin. So Kevin, might you please reply this?
Kevin Brackman
Sure, certain. Thanks, Vassili. So let me share some info on our liquidity state of affairs and money burn price. So we completed the second quarter with proper round $10 million of accessible money on our stability sheet. As you already know, over the previous three months or so, we have put in place a few totally different fairness amenities.
One is an fairness line of credit score with Lincoln Park Capital. The opposite is an ATM facility with H.C. Wainwright. Every of these amenities offers us the chance to entry as much as $50 million of capital over the following three years. And that is our – at our discretion on whether or not and once we make the most of these amenities.
So we’ve these two amenities in place. As I discussed in my feedback this morning, we raised $3.Four million within the month of June, using a kind of two amenities. On the identical time, we’ve additionally taken actions not too long ago to cut back our prices and to cut back our spend price.
In order I sit up for the second half of the 12 months, I am anticipating that our month-to-month spend for working and capital bills will in all probability vary between $2.5 million and $Three million monthly. And so the $3.Four million that we raised again in June is adequate or much more than adequate to cowl what we anticipate to be our month-to-month spend price within the second half of the 12 months.
So that will proceed to be our plan within the brief time period. It is to proceed to make use of these amenities to boost the money that we have to cowl our working bills till such time that we obtain funding from both Inexperienced HiPo or from different sources of capital. And with that, I’ll flip it again to Vassili.
Vasilis Gregoriou
I feel, Kevin, we’re prepared now to go to Q&A. I do not know if there are any questions, additional questions from that.
Kevin Brackman
Sure. We’ll flip it again to the operator to open the road for some other query.
Operator
Query-and-Reply Session
Q –
[Operator Instructions] There are not any extra questions. Thanks, women and gents. This does conclude right now’s name. Thanks in your participation. You might now disconnect.