AVL Strategic Collaboration

Dec 10, 2020

Slides

Hello, everyone, and welcome to the Power ABL Collaboration Conference Call. My name is Lydia, and I will be your coordinator for today's event. Please note this conference is being recorded. And for the duration of the call, your lines will be on listen only. However, there will be session. I will now hand you over to your host, Phil Caldwell, CEO, to begin today's conference. Thank you. Good afternoon, everybody, and thank you for joining the call today. I'm joined with, here with Richard Precious and CFO. And also today, from North America, Tony Cochran, our Chief Commercial Officer as well. My intention is to walk you through the slides, explaining the strategic rationale of the collaboration with ABL this afternoon and those slides are available on our website and then we will open it up to Q And A. Okay. So I'm now on Slide 2. Let's start with the strategic rationale. I think those of you that have followed the company for some time we'll know that we've been successful with our licensing model, and we've seen recent announcements just this week with Bosch and with Doosan and others. But we have an appetite to really grow the company. And we see that what we're doing with this technology has very broad range of applications and the certain parts of the world that we're just not yet active in, which we could be. So we have a collaboration and a partnering business model, and it made sense for us to collaborate on front end engineering and business development. And we're very pleased to announce today that we've signed a strategic system collaboration with ABL, Now for those of you that may not know ABL, they're globally recognized as one of the leading engineering consultancy firms They're based in Vats in Austria and they employ 11,500 people under operating in 26 countries. AVL is, for us, a natural partner because with that global presence automatically we get the reach that we want. But ABL already have considerable experience and expertise in fuel cells and considerable engineering experience. So the strategic rationale is really to drive more systems, customers to service and therefore prompt demand for stack manufacturing licensees. And the collaboration brings the benefits of increased global presence enhances our brand. It brings technology leadership because we can combine forces on our system IP, which is considerable in both companies. It boosts our infrastructure and capability that have extensive test capability within ABL, and it improves our scalability of execution. So it removes any constraints that we would have in bringing new partners on and allows us to get more and more people working on the steel cell technology. And already with this collaboration, we have a first agreement with an unnamed customer through ABL. If I look at Slide 3, just to remind you of how the business is scaling, we talk about a steel cell ecosystem. On the right hand side, we're seeing more and more interest in applications for our technology. Just this year, we've added the potential for utility scale and marine through Dusan. And also you've seen the scale up announcements, with Bosch, and a trend towards higher power. So with ABL and their system expertise, we expect to be able to grow further into these applications. What that does is that will drive demand for our manufacturing, of the steel cell and therefore, potentially grow our licensing business on the sell and stack side. And the way we see the business growing is more and more people wanting to use the core steel cell technology at the system level, driving demand from a smaller number of trusted, very capable, high quality manufacturing partners. Go to Slide 4, what that does in turn is on the system side, we can combine forces doing shared engineering work, shared intellectual property, and have multiple systems and shared system royalties with ABL, and driving demand on the stack side, which, we don't actually share that core technology for servers we drive more and more stack royalties through manufacturing partners, such as Bosch and Tucson in the future. So if I go to Slide 5, as I mentioned, ABL are already recognized in powertrain and engineering consultancy globally. What you may not realize is they have over 20 years of experience in fuel cells. And what's attractive to Sarah's is they have extensive test capability, very good capability in simulation and modeling. They already have existing reference designs in commercial CHP, industrial prime power, large scale power systems, 100 kilowatt plus, which is very important for us going into the future. Marine, which is an area we want to grow into and cars, buses and trucks. So again, broadening out on the transportation side and also the stationary power side. They currently generate around 1,000,000,000 turnover business. As I mentioned, 11500 employees, 65 percent of who are engineers and scientists So a pretty similar DNA to service and a presence in 26 countries, which obviously gives us instant scale on our business development side. So how does the framework of the Partnership work? I'm on Slide 6, so we create a systems engineering services practice together that offers customers state of the art systems designs for our technology for the service SOS stack. We will collaborate on customer acquisition and identify and exploit growing interest in SRFC Technology in new application and new regions that were just not in yet today with Sarah's. We will combine our 2 IP portfolios as in sharing to create a significantly stronger IP position in the market. And that's common. You see that quite often in the fuel cell industry with large corporate coming together on IP. And we'll collaborate on new system architectures and designs to expand the applications. As I mentioned, ABL already have capability in some of the system architecture that we would want to expand to in the future. Revenues from the systems side, we will share in an equitable manner where we're combining forces with ABL, but we expect to generate a much larger number of system Salon Stack IP is outside of the scope of this collaboration. And obviously, we will continue to develop that and license independently as 7 So if you look at Slide 7, we are at that stage of ramping up with key partners of sell and stack production with the recent announcements with Bosch this week in Doosan last month. This will drive more demand on the, engineering services side, potentially system licenses, and ultimately royalties to more manufacturing licensees or scale and demand for the steel selling stack. If you look at slide 8, this is some of the references that we talked about earlier So on the power system side with ABL, they've already have expertise and experience of developing systems from 10 kilowatts up to megawatts scale in solid oxide. And they have system availability at what we call technology readiness level 7, which pretty mature and everything from 5 kilowatts to a megawatt. On the automotive side, they've obviously very strong already on conventional vehicles, but also have extensive experience with fuel cell vehicles as well. So they've developed range extenders for a number of years, including with Nissan and on bus and book applications as well. So in summary, on Slide 10, the combination of Sarah's Sofc technology and ABL's engineering will create, we believe, a world leading systems engineering competence for solid oxide technology. It will significantly expand and accelerate the adoption of service technology, which I think is key at a moment where more and more people are looking for technologies in the fuel cell space it's important that service grows fast and establishes ourselves as the world leader in solid oxide technology. It will create 1 of the largest combined portfolios of solid oxide systems IP jointly, and that's something that we can exploit jointly with customers. And ultimately, it will drive demand we anticipate for fuel cell stacks from Sarah's manufacturing licenses. So with that, I'll take any questions. Our first question comes from the line of Mark Elliott of Investec. When you're ready, please go ahead. Thank you. Thanks, Bill. A couple of questions. I just wonder if you could provide a little bit of color on, so if you do a deal with ABL and you sign an agreement, Can you talk a little bit about the mechanics of, let's say, that agreement on our system moves into commercial production and how could it unfold with regards to let's say that agreement with a third party sourcing stacks from Doosan and Bosch, would it be kind of a bidding thing? We won't have to make a commitment on additional just thinking about the mechanics of how that goes forward. And another little question, when, let's say, if you sign a partnership agreement and sort of the payments to develop a system together before it goes commercial. With those sort of with the fees to kind of do that work, that partnership will be split fifty-fifty or would it be on a case by case basis subject to the relative assessed workload to each party between yourselves and ADL. Okay. And Mark, I'll I'll answer your first question and then since we've got Tony on the line, I'll hand over to him because, it's not often you get exposure to Tony as well. I think to your first question, it's a very difficult one to answer apart from. If you think about the way that some of our partners like Box bosch operate today as a tier 1 supplier. It could become a competitive market. So, what we're doing with this relationship is driving demand the systems that will require stacks. Where those stacks come from will be subject to the normal commercial terms of of whose best on quality, price, etcetera. Ultimately, we hope it will drive more demand for sell and stock for service because that's the whole point. We are looking to grow and expand this business. And as we've said already, in the past month, we've announced about quarter of a gigawatt of committed capacity, but that's only a fraction of what you will need to address this whole area of decarbonization. If we look at all these different applications, we could be in. So our job at Sarah's with ABL is to drive more and more demand for the core technology, how that's fulfilled will ultimately drive demand from our manufacturing licenses. Tony, would you like to talk a little bit about the mechanics of how it would work on the you're happy to. Hello, everyone. So a couple of points. First of all, I'll just build a little bit on the previous question. A typical entry point to relationship with a 3rd party system licensee would normally include a joint development agreement proposal delivered by either ABL or Sarah, depending on how we decide to hand off the customer interface. But they typically before they make an investment of that size, want to understand what kind of supply assurance they might get for the stacks themselves. And often, we will broker a discussion with a Bosch or a Doosan so that they can understand the commercial terms of that supply and signal interest. And for the most part, a company such as Bosch has full intention to deliver Tier 1 stacks to whatever the market demand is and build the capacity accordingly. So they, in turn, get high visibility to future demand and are therefore more ready. But to the question on how the development work occurs. It would be, what we've decided to do was we would have a primary interface with the customer and that would depend on the market segment. And the respective relationship. So that would be on a case by case basis. And the other party would be a subcontractor to the joint development work based on the right skills mix and competencies mix. Now we just described the size of ABL There are 11,000 engineers and scientists for the most part. We're much smaller. And the whole purpose of this relationship is for us to be able to So we anticipate that as the portfolio grows, we'd be quite happy to let AVL take on larger portions of some of these contracts. And Sarah's would be quite selective about the ones that we fulfill the lion's share of so that we're using our resources in the areas where we add most value and where perhaps the most core IP related to our technology occurs. So our objective is to make sure that we, as series are never a bottleneck to adoption of the technology through these systems contracts. Thanks, Tony. We'll take another question. Okay. So before we move on to our next caller, Our next caller is Anthony Plumb of Berenberg. So I think there might be sort of more questions really for ABL, but sort of interested in your thoughts anyway. So yes, firstly, have ABL kind of given you any specific reasons as to why they're chosen to part of the Ferro's and some of your peers. And then secondly, presumably Ferro's has kind of become ABL's exclusive partner on the solid oxide side with this collaboration. So do you have any, I guess, any sense at all who ADL was working with before on this 10th will be you've displaced? Tony, do you want to answer that Yes. Yes, I'm happy to. So a couple of things. First of all, a clarification, So there is no exclusivity on either side, contractually in this relationship. So if if ABL chooses to work with someone else on another SOC program they are allowed to as are we, if we decide in our best interest, not to include an ABL in a particular relationship, Now that will be an exception, I think, on both sides, but there's no contractual obligation that forces either party to use this collaboration Having said that, the reason ABL chose to do this is because the CERIS technology is very unique. Our metal supported technology is the only viable SOC technology for any motive applications. So the industry has already concluded that metal supported SoFC is the only technology robust enough to ever be put on a vehicle. And survive. And ABL's practice is quite strong in motive applications. And so they were seeing very strong demand for Sarah's technology that could only relationship with Sarah's offers them unique access to that technology. Similarly, on the distributed generation side and marine, Ferris' SFC Technology is very robust and very cost effective. And they were again seeing the market shift towards a preference to use Sarah's cells and stacks in those applications. And so through the multitude of inquiries, we receiving from ABL to support them in these contracts, the relationship blossomed into what we're announcing today. Moving on to our next caller. We have question from Maggie Shirley of Stifel. Maggie, when you're ready, please go ahead. Good afternoon, everybody. Thanks for taking my call. Mine was more, about the communication. So obviously, this collaboration should propel you into doing many deals. But as a smaller company, how can you explain to us or give us some understanding of how you're going to manage the internal patient to ensure that no balls are dropped particularly while you're continuing to innovate your core steel. Offering, to ensure that no one's disappointed and to create that virtuous circle and virtuous momentum. How do you ensure that the communication and given the potential opportunity, won't let you down. Well, Maggie, I think we already operate an engineering services kind of offering to our customers. And we already successfully are able to innovate on core technology and advanced manufacturing at the same time as do the system engineering for partners. So we're already used to working in that mode. And I view the ABL relationship as very additional to to how we already work. But again I'll hand on to Tony because I think that we already have management of how this will happen with ABL and maybe Tony, you could explain that to some extent. Yes, certainly. So what we've agreed to do, Maggie, with ABL is, try to adhere to some of their best practices on program management interfaces with customers. We're leaning on a company that has a tremendous pedigree and brands delivering on engineering services contracts. And frankly, have world class best practices to make sure that customers' needs are fulfilled. And we, Sarepta, can benefit from that and are agreeing to try and adhere to common practices and here on the side of using ABL's tested practices to do that. The other thing that we are doing and what we benefit from here is We no longer have to worry about over stretching our resources and fulfillment contracts because if if we are stretched, we can always lean more on ABL to to bring some of their cake of engineers to achieve the success. All right. And at this time, I'll make one more call question at this Alright. Moving on to our next caller, we have Edward Mara Vanayekka of Citigroup when you're ready. Please go ahead. Hi, sorry. So just have one question, around the potential for any sort of conflict. Between maybe a customer that you're working with not wanting to collaborate with KDL in the temperature that there could be a conflict there? I'm pretty sure Edward that as Tony mentioned, there's certain mechanisms where for either party, we don't necessarily have to work with ABL or with Sarah's, it's as appropriate. So as we pointed out, our existing customer relationship are not included in this. And if it wasn't appropriate for whatever reason, for one or the other not to work together, I think that, that exists. Tony, is there anything to add to that? And maybe if I can follow-up, so is my understanding correct that to the extent that ABL brings on, new customers into the sort of joint leverage of agreement, they would also be bringing the engineering heft. And hence, there's no additional engineering headcount responsibility on your head. I'm not sure I fully understood your question there. Can you just repeat that? So my question just revolves around the engineering headcount, but any additional customers that ABL brings to the agreements, they will also back up with engineering capacity. Old sales also now have to also to have step up on engineering account. I think the point of this agreement is, we leverage the engineering capacity that ABL has Now obviously as appropriate, where we're putting engineers in, we'll be obviously, getting a share of the revenue from that. But as Tony mentioned, the scale of ABL compared with the scale of servers means that a lot of the system engineering that sometimes service takes on will be largely supported by ABL. So I think this is a way for us to actually scale servers and the licensing business, which is the valuable revenue generation of the future for this company without having to continually bring on large engineering teams, particularly as we get into some of these other new areas of application, which may require quite considerable system engineering. Understood. Sure. Now I just wanted to clarify. Thank you. Okay. Our next caller is Austin Earl, Marshall Wallace. When you're ready, please go ahead. Hi, good afternoon, everyone. My question is really just regarding applications particularly in terms of, of, transportation. I mean, slide 9 has, I guess, pictures of a minivan and Boston. I just wondered, I mean, would the solid oxide only ever be used in hybrid or is there any possibility of it being used as a principal powertrain source? We see the combination as being the best combination as being hybrid in general because you have the dynamic response of the battery and you have the range for the duration that a fuel cell gives you as a range extender. And I think a lot of fuel cell companies have moved that way. I think when I started in fuel cells years ago, there was this idea that you would have fuel cell only vehicles because batteries were prohibitively expensive as were fuel cells, but now the economics of batteries, I think it makes sense to have a hybrid approach. And which fuels do you think will be used first? I mean, will it be natural gas or do you think of maybe ammonia or hydrogen? I think it really depends on which part of the world you're in. You look at our relationship with the likes of Weichai, it's natural gas as the first application. I think if you and also if you look towards marine applications, that's largely what we're seeing is, again, could be LNG, but then there's a lot of interest in transitioning to future fuels such as ammonia. So it really depends on what's the application in which geography. I think what's fair to say is there's large parts of the world which will take quite a long time to transition towards hydrogen and have hydrogen infrastructure and big areas like China have already transitioned a lot of the heavy transportation towards natural gas. Tony, do you have any insights you want to share on the transportation side? Yes, sure. So the, the, as you said, Phil, there's markets, especially in very diverse geographies and loan large landscapes that are going to struggle to transition quickly to hydrogen. So the applications for the foreseeable future will be natural gas. And especially on vehicular initially, Europe might be an exception in Europe because the hydrogen infrastructure is much better and there's a stronger mandate. I think our hydrogen ready technology will be enabled more quickly. And ammonia will be a growing segment of the market, but more into, as you said, shipping applications we believe. The good news is ammonia is very compatible with our sales and stacks. It offers some some other technologies in the fuel cell sector, a lot more problems. So we feel that we're ready for natural gas, but we're also ready for both hydrogen and and ammonia future fuel logistics in many of our applications. And could I just maybe ask one more in terms of ABL's expertise in fuel cells. Is that in pen fuel cells that they've been active for many years? Both PEM and SoFC, they have a fairly large PEM practice because they're quite a quite an automotive focused company. And most of the automotive applications to date have been PEM. They have had a solid oxide practice for a long time as well. And I think there are obviously some synergies on the side between those 2 practices. And that's, some of the reforming appeals and some of the hydrogen, just subsystems are are compatible across both platforms. So I think we, we benefit from their broad competence in fuel cells in general. But we also benefit from a pedigree in solid oxide fuel cell systems as well. Sorry, does that explain your point if they have expertise in solving oxides about the steel, which is in terms of using it in transportation and therefore needs to be robust and that's the bid that they're missing. Correct. So they're they're automotive partners and they have many. They're very, very active in the automotive sector. Have come to them and some of, some of them have, wanted to explore putting solid oxide fuel cell range extenders on vehicle And the only viable cell oxide technology available is Saras's. And so ABL needs the Sarah solution to enable those customers to succeed. Moving on to our next caller. Our question comes from Jonathan Jackson of Petronas. When you're ready, please go ahead. Good afternoon, guys. As a as large shareholders, did Bosch and Weichai have any input into regarding the deal. It's the first question. And then second one, the first agreement you've signed with the unnamed customer, when will we get further disclosure on that? And is there, can you talk about a pipeline of further deals with, through this arrangement? Thanks. Let me answer the first part and Tony can talk to the pipeline question. And I think this is quite important obviously Bosch and Weichai have board representatives, but we have to sometimes separate that from any commercial discussions, which may or may not be a conflict. So it's not as though we have to have, consultation necessarily on the commercial strategy with Boschai. That said, I think Boschai, no ABL and respect ABL They already buy certainly in the Weichai case by a lot of test equipment and capability from ABL on the conventional engine side. And I think this is where the industry is is, if you look at our partners, you've got a lot of established combustion engine, automotive engine type customers who will know ABL very well on their pedigree and their capability is well respected. So in terms of a partnership, obviously Bosch and Weichai at the board level are very supportive of this. Tony, do you want to talk about the pipeline? Yes, certainly. So the deal was was signed today, and that is one of the gating items to trigger what will be the first pipeline review by the 2 parties. The first project was a bit of a test case that we ran ahead of time. It required what I call some special arrangements on both confidentiality and making sure that we didn't get locked up into IP that was unintended. We now have agreement we need in order to fully collaborate both on the commercial side and on the technical side. And so that will broker the the initial portfolio review, which is set up very near term and obviously more to come on the programs that that will stimulate. We can't disclose who the first customer is. It's it's active. But it is it was a customer that was brought by ABL And it fell squarely into the what I described earlier, which was there was no other solution other than to use the Sarah's SOC technology. And, we agreed to start that because there was a sense of urgency that demanded us to to do some things on an exception basis before we had this agreement. And both Sarah's and ABL have a portfolio of projects that we've been waiting to stimulate these collaborative discussions around and we hope to get those on the rails quite quickly here after. And at this time, we have no further questions. One last call, if you would like to ask a question live on today's event, please press And with that, I will turn the call over to you, Bill. Okay. Well, thank you everybody for joining. I think The last few months have been a very strong end of 2020 for Sarah's, both progress with manufacturing partners like the announcement earlier this week with Bosch, committing to 200 megawatts and earlier Dusan, committing to 50 megawatts of capacity and also scaling up in terms of higher power and taking us into new areas like marine. This announcement today, completes one of our strategic intentions, which was to scale demand at the system engineering level to takers into more applications and more geographies. So I go back to that ecosystem kind of slide. I think what we've done in the past few months is really accelerated again the potential for the commercial adoption of the service technology that this deal driving more and more demand for future partners and also with what we announced earlier satisfying that manufacturing demand to our trusted license partners. So I think we've had a very good end to 2020 and it really puts us in great shape for 2021. So thank you for taking the time to join us today. And I wish you all the best, and we'll talk to you in the near future. Thank you for joining today's event. You may now disconnect your lines. Post, please stay connected.