Q2 2023 Heliogen Inc Earnings Call

Good morning, and welcome to the heel, you'll Jenne, Inc. Second quarter 2023 conference call as a reminder, today's call is.

Being recorded at this time, all participants are in a listen only mode.

Question and answer session will follow the prepared remarks, I would now like to turn the call over to Louis Baltimore Helio Jones, Vice President of strategic Finance and Investor Relations for opening remarks and introductions.

Thank you operator, and good morning to everyone. We're glad you could join US today for our second quarter 2023 conference call.

With us on today's call are Kristie, <unk>, <unk>, Chief Executive Officer, and soccer Corrado, our Chief Financial Officer.

So you had your initiatives results yesterday afternoon in a press release that can be found on the investors section of our website <unk> com.

As a reminder, our comments on this call include forward looking statements, which are subject to various risks and uncertainties.

These statements include expectations and assumptions regarding the company's future operations and financial performance, including implementation of the Companys strategic plan and growth initiatives.

Plans to prioritize sales of the company's industrial steam project and installation of commercial scale project.

Expectations for scaling the company is concentrated solar thermal technology discussions with potential customers and commercial contract progress.

Actual results could differ materially from those contemplated in the forward looking statements.

Any forward looking statements that we make on this call are based on assumptions as of today and we undertake no obligation to update these statements as a result of new information future events Dr.

Factors that could cause actual results to differ materially can be found in yesterday's press release and other documents filed with the SEC by the company from time to time.

During this call. We may also refer to certain non-GAAP financial measures.

non-GAAP measures should be considered in addition to and not as a substitute for or in isolation from GAAP results more detailed information about these measures and a reconciliation to the most comparable U S. GAAP measures is contained in the press release issued yesterday, which is available in the investors section of our web site and was furnished on form 8-K with the SEC.

A replay of this call will also be available on the investors section of our company website. This afternoon.

With that I'm pleased to turn the call over to Christie.

Thank you Louis.

Good morning to you all and thank you for joining us.

Let's start by turning to page four in the presentation posted on the investors section of <unk> website.

This slide essentially captures healy again on a single page.

I'd like to begin by reaffirming our core mission, which is that first slide highlighted in orange on the page.

Genie agenda is on a mission to help decarbonize industry and enable a sustainable low carbon future.

We're positioned to do this through our unique combination of concentrated solar technology thermal energy storage and artificial intelligence, which allow us to produce dispatch able green energy in the form of heat power our hydrogen.

Now over the next five minutes or so I'm going to walk through slides, which essentially double quick on other slices from this opening page.

Our product and value Differentiators, our market focus and our offerings.

Turning to slide five here I'll describe the needs we see in the market and how he knew Jim's products can meet those needs first.

First let's talk about heat which include steam.

30% of industrial heating applications require heat below 100 degree Celsius, while another 27% can be met with heat between 104 hundred degrees Celsius.

In most cases the onsite production of this he is vital in order to minimize wasted heat that gets lost and transport to the point of use at the customer.

We specialize in producing and delivering green heat because our energy starts as heat from the Sun.

Our first products will serve saturated in superheated steam applications of up to 550 degrees Celsius. This capacity enables customers to avoid high fuel costs, enhancing both sustainability and financial viability.

Longer term, we see huge potential for the high temperature heat products that are on our future product roadmap as we've already proven at our demonstration scale facility that <unk> technology can generate temperatures in excess of 1000 degrees Celsius.

High temperature applications are especially compelling because they can address industries like cement and steel which are among the most significant contributors to carbon emissions specifically because they are high temperature processes are currently served almost exclusively by burning fossil fuels.

On the power side the need for on demand electricity is ever present and tends to be much more universally understood as compared with heat.

It's not a surprise to most that industrial and utility both serving assets often require continuous power.

So our resilient economical grid independent solution with four and plus our duration is essential.

And the market has finally started to incentivize this commercially for renewable sources of power.

Our power products will produce the special electric power that is competitively price inclusive of storage.

Turning to green fuel with around 95% of all hydrogen currently produced from fossil fuels to call for Green hydrogen has intensified.

The region's ability to produce both green heat and green power. It makes us uniquely suited for harvesting the efficiencies of our solid oxide Electra wiser to produce green hydrogen, which can leverage both steam and power as a central energy inputs for splitting the water molecule.

Now on the right side of the page, let's delve into the Differentiators that set our products apart.

Strategically our solutions offer high capacity factors of up to 100%.

Low energy storage costs, no reliance on rare earth minerals and greater than 85% Recyclability.

So well positioned to leverage regulatory incentives in the U S via the inflation reduction act and many others abroad.

Operationally, our AI enabled closed loop tracking for the heliostat deal leads to over 30% more efficiency per square foot than traditional solar PV without the thermal runaway fire risk associated with battery storage solutions. Our products are designed to use widely available materials with a diverse supply chain for stability.

And scalability.

Finally, the modularity of our systems solves for scale by enabling tailored solutions to serve behind the meter needs for both small and large customer applications.

Modularity also enables easier permitting and maximizes the ability for us to reapply engineering work and lessons learned from project to project <unk>.

By aligning our solutions to the critical needs of our customers and differentiating our offerings through strategic and operational innovation. We are building a robust platform for growth within a massive addressable market opportunity.

Moving on to page six we will explore human <unk> value proposition through the lens of the different industries, our technology can serve our.

Our technology is applicable and customizable across different diverse sectors.

The metals and mining industry is responsible for nearly 4% of total final energy consumption globally and given the prominent role that critical minerals play in the energy transition it faces a pressing need to use more sustainable energy sources. He neogen is primed to replace aging fossil fuel energy production assets, serving this market.

Legacy renewable technologies have been an imperfect substitute just to dispatch able fossil fuel energy sources are solutions for demand year round can maximize the integration of renewables with low carbon electricity.

We're prepared to fully integrate our concentrated solar power with solar PV and storage for optimal level is cost of energy inclusive of storage.

This integration offers a new standard that can be utilized by both utilities and industrial operators with onsite power generation.

We're working to forge solutions oriented partnerships with other service providers and vendors along with clients that have a need for decarbonization, but he viewed in technology can solve I strongly believe in all of the above strategy is necessary for the world to achieve its ambitious and growing net zero goals.

And the attribute them outlined here so while he neogen technology can be an essential contributor to achieving these goals.

Let me now take the time to describe our commercial offerings.

Aged seven lays out how we operate today and provides a glimpse into our vision for the future.

Day, we partner to develop and sell turnkey projects, which deploy he neogen <unk> core technology.

In this current model, we're not merely a provider where a partner we plan design and build projects, ensuring there are functional and ready to use.

This turnkey approach fosters efficiency and a seamless integration with our customer's existing operation.

We work closely with our customers to align our solutions to address their unique needs and pain points. Then upon startup of operations, we can provide operations and maintenance support through a long term service contract in.

In the future, we expect our business model to shift more towards a licensing approach will resolve technology packages, which may include our heliostat, our proprietary software and integration services, we expect to partner with third parties on project development and physical deployment and this will help us amplify our reach and accelerate our market penetration.

Now I'd like to share an update on our strategic priorities summarized on page eight.

We've made significant progress since our last business update.

Our first priority is to closed sales contracts and we've continued to make strides in expanding our commercial reach.

Signed an $11 2 million sustainable Green hydrogen production offtake contract with the city of Lancaster, California.

Let me now take the time to describe our commercial offering.

Page seven lays out how we operate today and provides a glimpse into our vision for the future.

Today, we develop and sell all turnkey projects, which deploy Healy agenda core technology. This includes planning designing and overseeing the installation of the projects to ensure that they are functional and ready to use taking on these roles helps us control our own destiny on our early commercial projects and we will work closely with our customers to align our solutions.

To address their unique needs and pain points.

Then upon startup operations, we can provide operations and maintenance support through a long term service contract.

In the future, we expect our business model to shift more towards a licensing approach, where we sell technology packages, which may include our heliostat, our proprietary software and integration services, we expect to partner with third parties on product development and physical deployment under this business model and this will help us amplify our reach and accelerate our market penetration.

Now I'd like to share an update on our strategic priorities as summarized on page eight of the presentation.

We've made significant progress since our last business update.

Our first priority is to closed sales contracts in June we signed an $11 2 million sustainable Green hydrogen offtake contract with the city of Lancaster, California.

This represents not only a commercial milestone for Healy again, but a shared vision for a cleaner future with the city as our partner.

Looking ahead, our current prospects pipeline has grown to 825 megawatts with 700 megawatts added since our last conference call. In May. This remarkable expansion reflects the progress our sales and commercial team have made and positions us for securing additional customer commitments.

Our second priority is to install our first commercial scale project, which will open up access to new prospective customers as well as continuing to help us evolve future generations of our product.

This priority underscores our commitment to translating vision into tangible results.

We're targeting groundbreaking by year and setting the stage for the construction of our pioneering green hydrogen project.

We're executing on a well calibrated plan to achieve mechanical completion by the end of 2024 and commenced the first hydrogen production during the first quarter of 2025.

Over the upcoming 90 days will be focused on our permitting and long lead equipment activities.

Our third priority is to extend our liquidity runway in order to position for robust growth.

The cost reductions that reaction to the end of the first quarter are now being realized and in parallel the shelf registration that we filed earlier. This year is now effective and preserves optionality for how we add growth capital to the balance sheet.

If you'll turn to page nine Youll see we have outlined our commercial pipeline on a page for the first time.

What you see on the page is a summary of our sales and marketing activity.

This is how our chief commercial officer, Tom Doyle and the commercial team now manage the pipeline internally and going forward, we will continue to status and share. This with you as part of our business update on subsequent calls.

There are four stages named at the top of the graphic and we've defined those stages based on the status of engagement with each prospective customer.

We only categorized in order as booked if we have a fully signed contracts with the performance obligation under the sale.

In terms of the Big picture, we have a total of 825 megawatts across 22 potential customers, we've more than doubled the total number of potential customers in the pipeline.

Terms of megawatts, we've grown that number by over six times with our focus not only on adding customers, but on prioritizing those who may have energy demand across multiple operating locations, where he neogen may be a fit so the average capacity per customer has increased.

Let me take a moment to explain the stages of the pipeline. Each stage is defined based on the progress of engagement with the customer in.

In the lead generation stage of our sales pipeline. We are discussing site specific details of the customer we're in discussion about their goals their pinpoints their technical wants and we're conceptualizing the approach to integration.

As those interactions progress will receive more detailed information from the customer that we used to generate an indicative proposal that we then submit we currently have six customers in this submitted proposal stage encompassing 34 megawatts.

The next phase and the pipeline is the pre final investment decision activity to stage or the pre FID stage by this point it will often be the case that will have a letter of intent or a memorandum of understanding in place that outlines mutual intense between heavy adjourn and the customer.

We progressed through the necessary steps to help the customer make a final decision. This may include activities such as engineering design work, providing the client with the detailed equipment layout and providing details on the scope schedule and cost estimate.

Where possible we will structure these as customer funded activities.

The duration of pre work will depend upon the type of customer and the nature and size of customer commitments.

For example for some projects the customer may need to take the decision to their board of directors for approval.

After executing a final contract we move into the execution phase of the project. We currently have two customers in this stage that includes the approximate green hydrogen contract as well as the Capella project with Woodside energy, who continues to be an exceptionally strong partner for us.

Projects in the booked orders stage enter our revenue backlog.

I mentioned last quarter that we augmented and reoriented, our sales team to grow our pipeline and the numbers on this page are a testament to those improvements as we work to close additional contracts. We look forward to updating you on our progress in the coming quarters.

Before we move on to the discussion of our backlog and financial results I'd like to introduce saga Corona, our new CFO and head of strategy and to express my deep appreciation to Kelly roster graciously served as our interim CFO and has now returned to serving as our Chief accounting Officer.

Saga brings more than two decades of experience in industrial de carbonization and renewable energy and he has a proven track record of developing and implementing financial growth strategies for disruptive companies in this space.

<unk> over to you.

Thanks, Christy good morning, everyone, continuing our review of the second quarter business performance allow me to direct your attention to page 10.

As Christie mentioned on page nine we have today seven megawatts and three projects in our contracted backlog representing 75 million in anticipated sales our backlog has grown approximately $10 million since the first quarter earnings call.

On June six 2023, we announced our green hydrogen contract, adding $11 2 million in backlog in the second quarter. This will be our first installed project it'll be in the city of Lancaster, California.

And will fuel their municipal fleet.

You referred to this project as project proximate Proxima is expected to achieve mechanical completion at the end of 2024 with first production in the first quarter of 2025. Additionally, at the end of second quarter rehab $63 $5 million of backlog.

Remaining on our original contract to develop a turnkey green energy production facility sponsored by Woodside and partially funded by the department of energy we refer to this as project Capello Lastly, we have a partnership with dimensional energy for our remaining backlog of zero.

<unk> 5 million to develop sustainable aviation fuel.

In the second quarter, we recognized $1 4 million of revenue largely attributable to project Capella for $1 $1 million. In addition to the $75 million. We have been selected to receive a $4 1 million award from the Doe that aims to.

Reduce the carbon emissions associated with cement manufacturing by Decarbonising the heating of limestone.

We also have a contract with Nancy cheap power to provide up to $5 million in engineering services paving the way for them to purchase a commercial scale calcination facility deep.

Services include field testing and development of a techno economic model and design services.

In the next two pages I will talk you through the second quarter financials, Let me direct your attention to the right hand side of page 11, we earned $1 $4 million in revenue in the second quarter on Capella over the lifetime of this contract we will earn $80 6 million.

We have cuss far recognized $17 1 million.

Leaving a backlog of $63 $5 million, which we expect to recognize through 2026 as we work to complete the project.

Moving to SG&A, we recorded $17 7 million on a GAAP basis.

G&A includes $3 3 million of noncash expenses $1 4 million of unusual nonrecurring items.

And zero point $9 million of project cost related to Proxima and other long term projects adjusted for these items, we recorded $12 $1 million in SG&A. This is.

A 14% reduction relative to the comparable costs in the fourth quarter of 2022.

We continue to manage our R&D efforts to focus on methodical product development to deliver on commitments to our existing and future customers in our pipeline.

Moving on to page 12, we ended the second quarter with $108 million in liquidity, including $44 million in cash and $64 million in investments year to date, we received $8 8 million in cash for projects underway and we extended project development expenses of $8 5 million.

We spent $21 8 million in SG&A year to date adjusting for project cost and noncash items SG&A expense was $25 8 million.

This spend does include $3 2 million in unusual items, and one 5 million related to sales and marketing effort to support our commercial engagement.

As a reminder, the remaining of the contracted backlog for project Capello from Woodside and the Doe.

For $63 $5 million is not included in our liquidity on hand of $108 million, we expect our liquidity on hand to address both our project and working capital needs through the first half of 2024 with that let me hand, it back to Christy for page 13.

Thank you <unk>.

Before we open it up for Q&A I want to take a moment to reflect on the significant strides we've made.

We have a contracted revenue backlog of over $75 million that serves as a springboard for our future growth our.

Our addition of 700 megawatts to our pipeline since May is a sign of the market demand and our aggressive progress toward capturing it.

Our first project installation is on track toward our goals of groundbreaking by year end 2023, and mechanical completion by year end 2024.

Our fully operational World class manufacturing facility in long Beach, California represents our commitment to excellence in engineering automation and robotics.

None of this would be possible without our strong team, who is bringing fresh energy to the challenge all of our teams actions are aligned to the strategic priorities that I laid out at the beginning of the call.

<unk> differentiated approach to clean energy is not just a response to market demand, but it's a re imagined way of advancing the energy transition.

And the progress that we've made over the past three months highlights the effectiveness of our strategy and also shines a light on our path ahead.

So I want to thank you for your continued support of Helio Gen and your belief in our mission I am pleased to now open the line to address any questions that you may have.

Thank you we will now be conducting a question and answer session. If you would like to ask a question. Please press star one on your telephone keypad, a confirmation tone will indicate your line is in the question queue. You May press star two if he would like to remove your question from the queue for participants using speaker equipment may be necessary to pick up your handset before pressing.

The Star Keys.

One moment, please when we poll for your questions.

Okay.

Our first question comes from the line of Rob Wertheimer with Melius Research. Please proceed with your question.

Hi, Thanks, and good morning, everybody.

Christine <unk>.

Product as.

Well I had one question on the product and then a couple on the pipeline funnel.

You mentioned on slide six fully integrated hybrid design I'm not sure if I'm totally familiar I wonder if you could expand on what that means just a little bit.

Yeah, Rob absolutely when we talk about hybrid design, they're actually exist projects in other parts of the world outside the U S that combined concentrated solar energy technology with solar PV and what we continue uniquely is to bring here neogen elevation of costs Trina solar.

Lodging through the artificial intelligence in our hardware innovation to up level that further and with a benefit of combining these two concentrated solar PV and storage is the fact that you can then leverage is below cost solar PV and in certain parts of the world during the daytime and use that provided to them.

Charge offs, the solar thermal energy storage during the day, and then have that be dispatch or at night. So we've found that a lot of interest in that solution and find that that could actually be a great fit for many customers are looking for that consistent relative availability of along with that low cost energy.

What's interesting is that inbound interest as I'm not sure. If that was one of your strategic focus is it seems a little bit new and then just really does that include concentrated solar energy gathering or is it more and.

More hip storage when you have that you would add into it.

Okay.

It's something that we've been exploring and as we've been testing the market with it we have found a lot of interest in that as a solution.

And then in terms of the way that we would combine the storage we would have most of the storage is our concentrated solar thermal energy storage I. So it wouldn't be thorough.

With some potential for integration.

Other grid access or.

Battery to the extent necessary. So we were looking to permit up to a 100% firm power to meet our customers' needs that would be an option too. So we're really focused on serving the customer depending on their operational requirements, but again most of the stores are going to be our CFS team thermal storage.

Perfect. Okay, great I wanted to move to the commercial activity, where it seems like the strategy you've kind of put in place Kristina and the rest of you.

As you evolved it seems to be paying off by which I mean, you've got the 34 megawatts 20 megawatts, which seem to be more on the sticking kind of sized frame so that down scaled.

The smaller footprint so a couple of questions there.

Can you talk about <unk>.

All of those projects in the 34% to 20 buckets, which do seem to be a little bit smaller and more bite sized can you talk about the speed of permitting and complexity and proposals and so forth.

This is all new so I am not sure you have metrics on how fast stuff can move to the pipeline but.

Is it fair to assume that the project complexity is lower than on the big mining or whatever the other ones are and could you maybe talk about just how fast it could move if it does from one step in the bucket to the next to actually being completed.

Construction.

Yeah, Rob absolutely.

Quite a range that we see you pointed out the 34 megawatts across six customers and I wouldn't say that's true your point that in general the smaller projects tend to be less complex than the potentially larger projects and we're pleased that we have been able to increase the average capacity per our prospective customer in the pipeline.

So that's a positive a positive direction, we find that there is a sweet spot, especially for power projects were to leverage the turbine efficiency you really have to be in the tens of megawatts range for that to make sense and so in fact, the smaller projects that you see tens are more likely to be.

Actually heat or scheme projects. So that's one one context I'll provide on your question and then in terms of timing it really depends I would say that for the really large projects. Yeah, you could be looking at something like 12 to 18 months in terms of what it takes to move a project a prospect through our sales pipeline.

Smaller projects and nimble customers, we're able to move as quickly as a customer look like and so we look forward to advancing some of these projects to completion.

And then I know you don't have metrics on how many fallout of different stages of the funnel yet because youre building the funnel. So fast here, but do you have any comments on the work that goes into it or the customer commitment that goes into it or how you got the customers to think about how much of a 34 <unk> 'twenty kind of are likely to come to fruition I would Alex maybe a hard question.

To answer numerically, but I wonder if you can give background on it.

Yeah, certainly some background on that as well.

Look I think any capital project.

In the world of energy and capital projects. There are always going to be for every project that moves forward sell that fall by the wayside and I think that's just the nature of the business because there is a perfect project that gets you that gets built there are some that don't go forward and those can be for reasons that are both outside our control and sometimes often outside the customers.

And so for that reason you will see that over the course of time there'll be no change to the pipeline where things are both added to the pipeline and they fall away from the pipeline, but I would consider that to be natural progressions of any sales process for the type of business that were and rather than something that's specific to the agenda and so.

In terms of the way that our pipeline has shaped going forward.

We'll look for in general all of the health of the pipeline to be moving more from lead generation to submitted proposal goes to a creative idea activities. That's the progression that we look forward to and so it's not necessarily that were only ever going to be adding to the pipeline.

Going into the second piece of your question in terms of how we prioritize customers for US an ideal customer is someone who is worried about increasing cost and volatility of fossil fuels and was looking for a different solution that provides that same consistency of availability with the greater certainty not having carbon emissions and cost Riyadh.

And so I think.

Global customer with a footprint requiring some combination of heat and power is.

Definitely a priority for us in terms of how we look at our customer base.

Okay, perfect and I'll ask one more and then I'll get back in line, but.

On the left hand of the chart the lead generation, obviously, a tremendous amount of progress there.

<unk> been talking to folks for a long time, so could you give us the criteria or what changed or.

Why we have such a loyal from what I assume are sort of intangible conversations with tenants. What maybe you could just give us a little bit of background on what.

The screen was to make it into the 25 bucket.

Yeah, there's a number of screening criteria that we use there are screening criteria that included both the nature of what the customer is looking to do in terms of are.

Are they need them.

One or more of heat or power or fuel and then also aspects of the customers' physical site and so for example, if a customer in the middle is in the middle of.

And urban location in the middle of downtown and that's where they're making there whether it's a consumer good or what have you that's not going to be a strong fit for many types of projects in the energy space, because theres just a land requirements.

There, but for example, we talked to customers who are in Chile, a remote place that is serving mining companies and if if you're in that kind of location and you need really to independence and certainty of costs, where you're otherwise paying a high cost for diesel or otherwise imported.

Also fuels to help fuel your energy requirements, that's something where he neogen can provide is truly a differentiated way to help them meet their energy consumption requirements.

But then you've been talking to these folks I assume.

And while what truce entry into the qualified lead backlog I mean is your commercial outreach been more successful in some way that makes it into the slide that you showed us.

Yes, Okay. So that's a great question many of the customers that are in the 825 are actually brand news then may there are some that we've been talking to for a period of time and the ones that are new I think what we've been able to do is to really focus our offering more clearly and we came out.

After the market with our first available steam unit, and then with a power offering which as we talked about earlier has the opportunity to combine both the FTE, our CSP and solar PV that that's another way of being able to meet customers' needs in a different way for power and so I think over the <unk>.

The time Youre going to see that our pipeline will shift more towards power in the medium term because the market is the market demand is just so significant and I think we have a unique way of meeting that demand.

Got it thank you.

Thanks, Rob. Thank you. Our next question comes from the line of Jeff Grant with Alliance Global Partners. Please proceed with your question.

Good morning, everyone and first I just wanted to commend you all for putting forth a lot more transparency and visibility on the pipeline that's super helpful and exciting to see.

Continuing on kind of that last comment Christie just wanted to peel the onion back a bit more on the robust growth in the pipeline over the last several months is that purely attributable to a shift in the sales strategy is that.

Further derisking of the technology shift in kind of the offering is there a way to kind of.

It's probably hard to attribute disc.

Discretely to each of those but.

Just looking for more detail on what's driving so much of that growth over the last few months.

Yeah, Jeff. Thanks for the question if I can boil it down to one word I would say focus it's about the sales team and our overall commercial effort being more focused on the type of customer that the fed and on customers that are interested in moving quickly to capitalize on what's out there.

On both the carbon reduction opportunity and from a financial perspective, and then it's really our team's effort in hitting the market with a more focused product offering as well and having that be consistent.

Got it that's very helpful and.

Within the current pipeline the 825 I'm curious if any of those currently include a PV component and when you. When you guys use that term kind of a hybrid project.

Should we think about that as integrating things, including your AI and software on the PV side as well is that a little bit.

Our earlier stage of something to think about or yeah, just just hoping for a little bit more detail on the PV component there.

Sure in the 825 megawatts there are prospects that we're having dialogue with on this hybrid approach and so yes that does include the the hybrid offering and in terms of the.

The way that we integrate our AI and our novel our novel hardware. Both of those are focused on Helio Jan.

Our proprietary <unk> technology, and so we haven't looked at this point and applying that to <unk>. This is just traditional.

Traditional commercially available PV off the shelf easy to integrate and that sort of thing theres not anything novel.

The PV perspective really the novelty is in key Neogen. This core IP apply to our concentrated solar technology offering.

Okay, great. Thank you if I can just sneak one more in.

What would you say are the main risks as it relates to the timing.

Timing milestones on the Capella project as it is it purely just kind of sourcing long lead items permitting kind of normal things of that nature kind of how would you characterize any any risks or main milestones that you guys are looking to achieve over the next 12 to 16 18 months.

Yes, Jeff I think the ones that you called out you hit the nail on the head I think in some of those kind of traditional project milestones, but also on a thorough Guyana development phase.

And also it's.

It's just the.

Our approach of how we're developing the development of the testing process and so that particular project is just to just to remind folks can get context for folks who are waiting until the first time that project is a first demonstration of our next generation storage technology.

And so we're really excited to be partnering with our customer Woodside energy on that project and we have a whole program.

Kind of parallel testing and risk reduction efforts on that technology and over the course of time, we're gonna be deploying those.

We continue to develop the actual project site and so I think that as we proceed with these milestones we're gonna be completing our.

Front end engineering design study, which will produce an updated schedule an estimate and then move towards breaking ground sometime next year.

Got it understood. Thanks for the time.

Thanks, Jeff.

Thank you. Our next question comes from the line of Jason Williams with Siebert Williams and Schenk. Please proceed with your question.

Hey, good morning, Christine Seger, just a question.

About sort of that qualified lead backlog.

Is there an ideal sort of.

The power project capacity or a number of customers you'd be targeting or actual differently. If all those qualified leads wanted to sign deals tomorrow. What portion do you think you'd be able to support.

Yes, good morning, Matt.

Nice to meet you look I think I think right now our objective is to increase our focus on getting contracts in the door. We will we do have a fully entitled till you start production facility that can produce a lot more than where we are in terms of our contracted backlog today. So we are.

We're excited to reach that capacity.

Deployment of increased capacity is something that we would consider at that point.

What I can say is that we would be we are today equipped to do more than what we have contracted and we want to get to a 100% of that.

But to <unk> point, there is a lag time between generating the pipeline to getting it to contract and backlog, but then that lifetime will have a better answer for you on how that translates into reaching that complete entitlement.

Okay, great. Thank you.

Thank you. Our next question is a follow up from Rob Wertheimer with Melius Research. Please proceed with your question.

Hi, Thanks.

A couple of small ones the hydrogen approximate what's the revenue recognition on that.

The project.

Yeah My projects, Rob revenue recognition would be once we have the asset in operation that we get paid $10 per kilogram of hydrogen and so revenue would be recognized over the course of time once that contract is overweight underway and the the that that is generating.

But again now in for example, the.

The project were to be acquired by an equity Investor then we would recognize that revenue.

The recognition would be pulling forward and we'd be recognizing at an earlier stage and so we do have inbound interest from parties interested in participating as an equity investor in that project and so that that's a possibility but as currently structured revenue recognition happens based on the offtake contract, which has lots of hydrogen is being that is.

Perfect and I know, it's early to talk about gross margins on projects we haven't.

Fully brought in the backlog yet, but how are you thinking about pricing on this I know you have a lot of manufacturing talent I know you have a factory that can ramp up pretty far and your costs will come down over time.

Anyway, how do you think about gross margin on early projects, whether you get people you know.

How do you think about gross margin on early projects.

Yeah, Yeah of course.

That you came back to that question three times over.

But look I think.

But but but.

We are intensely focused on delivering gross margin, we believe that in the next couple of years as we ramp up our production and to and to the conversation we had earlier get more contracts through the door, but then but then the forecasted period.

Over the next three years, we expect to get there.

My view on gross margin as we have today, a compelling product that can.

Demand market pricing and we are coming down the cost curve as we ramp up our manufacturing facility to.

Two entitlement will be presenting more of them that detail over the course of this theoretically come back to you periodically.

But but.

There are no projects, but we would be considering in the long term that would not be yielding gross margin both on a project basis and on an aggregate basis. Today, we are expanding our market share. So there is a level of flexibility. These demonstrate on that in order to ensure that our techs.

Apologies more present in prominent Flores with other incumbents and for that reason there is.

There's a fine balance between margin versus revenue, but we'll keep you posted as as new contracts come through the door.

Got it thank you.

Thank you we have no more phone questions, but we do have one question submitted from the audience.

How are you reaching out to potential customers to use. This technology is your sales approach based on the potential of the technology or the vital importance that an alternative technology must be implemented sooner rather than later.

Okay.

Yeah.

Thank you operator.

We are to address that question, we are absolutely meeting in selling on the basis of necessity. We haven't followed that industrial consumers of energy without exception are driven by economics and that includes both of their operational requirements and their own cost benefit assessment looking at the value of what our solutions can provide financially and in terms of carbon reduction.

And they do look at both now and in the future now they may there may also be emotion involved.

One of our customer executives told us that he's excited to work with our technology, because he said I know that I owe it to my kids the health of the planet on a better path and it's done but ultimately the way that we approach sales is to show how easy it can deliver dispatch of all high capacity factor and clean energy to help customers both meet.

Our operational and their carbon reduction and financial objective and so that's hopefully that addresses that question from a from the investor.

With that I understand that was the last question that we had coming in and so I wanted to thank everyone again for tuning in and for your support of heavy agenda and look forward to the next business update for you all thank you.

Thank you. This concludes today's teleconference. You may disconnect. Your lines at this time. Thank you for your participation and have a wonderful day.

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Yeah.

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