Q4 2023 Heliogen Inc Earnings Call
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Good morning, and welcome to the Helio Jenne, Inc, fourth quarter and full year 2023 conference call. As a reminder, today's call is being recorded at this time all participants are in a listen only mode.
<unk> 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. Please go ahead.
Thank you operator, and good morning to everyone. We're glad you could join US today for our fourth quarter and full year 2023 conference call.
With us on today's call is Christie Obi I kill your gyms, Chief Executive Officer Kelly.
So as you know Jan if she gets results yesterday afternoon in a press release that can be found on the investors section of our website at Gilead Gen Dot 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 for the company's cost reduction strategy.
Plans to advance its P b hybrid product and prioritize installation of commercial scale projects expectations for scaling the company's concentrated solar thermal technology.
Intent to review strategic alternatives discussions with potential customers and commercial contracts 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 or future events.
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 will also refer to certain non-GAAP financial measures. These 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.
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A replay of this call will also be available on the investors section of our company website. This afternoon.
And with that I'm pleased to turn the call over to Christie.
Thank you Louis and good morning, everyone page three of the material shows the outline of topics we'll cover today.
I'm going to start with updates and highlights from four to 2023, along with the commercial pipeline update in 'twenty 'twenty four priorities that will go on to an update on our financials, including our backlog income statement review in cash before sharing closing remarks.
Now diving into our four key updates on page four we've continued to make tangible progress on our three strategic priorities of clothing sales installing our first commercial scale project and extending our liquidity and growth capital.
I'll stay on this page for a moment to spotlight a few of the headlines and then I'll take a deeper dive on a couple of other highlights in the coming slides.
In January we announced that we signed a joint development agreement for deploying your does technology in Mexico.
Why is that agreement significantly and our commercialization progress.
Well, firstly, we know that partnering with developers is the best way to accelerate deployment of our energy technology.
Because it allows us to leverage an external third party in the resource intensive effort of developing specific project site.
And this is our first signed agreement of this sort.
Second as we've mentioned previously Mexico is one of the four initial geographic targets along with the U S, Chile and Australia.
The reason why Mexico was attractive to US is that in addition to its excellent annual solar resource that country is forecasted to have over 30 gigawatts of energy demand growth in the next decade, driven in part by the near shoring of foreign businesses, who have industrial operations much of that energy demand is expected to be fulfilled by clean energy solutions.
Based on corporate targets by the near shoring companies as well as Mexico's Owen energy transition goals.
And with the power grid in Mexico facing constraints, some companies will need to turn to behind the meter solutions, which is a particularly strong match for Neogen technology.
And third the principles of illness.
Our leading developers of logistics and energy infrastructure assets and they provide permitting and off take services for renewable energy projects in the states in Baja California, Norcal and Sonora Mexico.
Therefore, we see a ton of synergy between what <unk> brings and AUM in our strengths.
We've begun the collaboration with <unk> by working together to evaluate specific locations that they have identified our first potential projects there and we look forward to sharing updates as this unfolds.
In addition to the own our agreement it is worth noting our contract update on our Brenda hydrogen project, which is our development asset in Arizona.
On the Brenda project, we intend to deploy our hybrid E. S. P. P V offering.
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We recently executed a contract with Woodside energy to progress the engineering and development a few new gens design on the Arizona project sites.
While the revenue backlog is relatively nominal at $1.6 million, it's an indicator of the interest generated in this project as we have been engaged in discussions with multiple potential equity sponsors.
As a reminder, our long term intended business model is to license our technology and support the engineering design and integration, but in the meantime, we're taking a broader role in some of our early projects given we're still in commercialization phase.
The last item I will highlight on this page is that we've continued to advance our first commercial scale project, which is now underway in west Texas.
Engineering has significantly progressed in all major mechanical and process packages have now been awarded.
We're pleased that we remain on track for this project to be complete by year end 2024.
Now if you turn to page five we recently shared this news from our collaboration with Sandia National Labs that are proprietary first ever closed loop software was validated at San D. S. ESP test facility.
The test proves the capability of our advanced control system to significantly improve the pointing accuracy of the solar beam on a tower.
You can see the improvement visually and in the before and after photos on the slide.
The type of quote unquote spillage that you see in that before.
Historically been a common challenge with CSP and huge and improved accuracy is designed to therefore translate to improved energy production.
One of the notable aspects of the Sandia test is that it was performed on third party heliostat our mirrors. So although we have our own mute mirror, our hardware design, where we first demonstrated our novel closed loop solution in Lancaster, California. Our software is now also confirmed to work on third party hardware.
This really opens up additional and nearer term licensing potential for deployment of our software technology as a standalone offering on brownfield CFC projects or on Greenfield projects, where the hardware has already been specified.
Now turning to page six which focuses on our Capella project you may recall that for most of our commercial pipeline, we plan to deploy our E. S. P. P D hybrid offering with thermal energy storage to produce power are huge.
This offering uses the most mature commercially available storage technology on the market, which is molten salts.
The Capella project will be the first commercial scale deployment of our next generation storage technology, which achieves higher temperatures, which can mean, having commercial offerings for higher temperature heat as well as more efficient power production.
Capello project is therefore, a key step along healy agenda future roadmap as a technology company.
Our customer and partners in the project are Woodside energy in the U S Department of energy.
23 was a banner year for the Capella project as we achieved a number of key milestones.
Completed a successful test of our centrifugal particle receiver.
We validated critical design improvements for scale up.
We received aerospace approval, which is an important step in project site development and permitting.
We conducted trials on the heat exchanger, which will be used transfer heat to the power block.
We also completed front end engineering design or feed resulting in an updated schedule and cost estimates for the project.
Feedback from industry participants is that heavy agenda work on the Capella project now positions us as having the most advanced generation three concentrated solar technology in the world and we look forward to leveraging the capella learning toward a full commercially available offering in the years following completion of this project.
One challenging reality that rose from the completion of feed is that the project estimate has increased by about $53 million from the original estimate of $115 million. This increase was driven primarily by a combination of commodity and labor inflation that occurred since the prior estimates as well as.
No non reoccurring development costs related to deploying this first of kind technology.
The nonrecurring development costs are something that we should be able to leverage for future projects with this technology and this is common for initial deployments of any novel technology.
As a practical matter of fiscal Prudence, we intend to close that $53 million gap in order to move the project forward and we do not intend for Huguely adjourn to absorb that future cash loss.
Collaboration with our customer and partners. We currently have value engineering efforts underway to optimize the design for reduced costs.
For example, reducing administrative building scope, reducing the amount of piping with metallurgy that is designed for higher temperatures than we need and reducing the useful design life. Since this is a demonstration facility that will not be part of the customers operating fleet.
We are also pursuing third party funding and cost offsets such as funds to support deployment of novel Clean Energy solutions.
Sales and use tax exclusion applications in California, and other things where the project is based.
We already have soft commitments on a portion of this funding and we will continue working to firm up those solutions the.
The potential for generation three CSP technology remains huge and we are committed to seeking a sustainable path forward.
Now turning to updates on our commercial activity on slide seven through nine if you've been on our calls for the past few quarters, you're not familiar with these extra slides.
You can see from slides seven and eight that we've continued to advance our pipeline we've grown our leads to over two gigawatts need advanced more prospects to submit a proposal stage at 151 megawatts and we've also increased our pre F. I D activity stage prospects to a 120 megawatts.
These are important steps towards large commercial scale contracts, which as a reminder, it does take time for capital projects on.
On slide nine you can see that the vast majority of our pipeline continues to be for power and we believe this reinforces that there is already a strong and well established understanding for the importance of clean and cost effective energy and power in particular in our global energy transition.
On slide 10, we've summarized targeted actions that were pursuing in 2024 with a focus on what are the things we need to do to start generating meaningful revenue towards building a sustainable long term business.
Want to call out a few of these elements.
To grow our revenue backlog there are a couple of actions that we believe are crucial we need to continue to advance engineering and secure engineering design contracts as a way to get customer funded progress on specific project opportunities.
We also plan to continue partnering with developers similar to what I mentioned in talking about the AUM in our joint development agreements.
One enabler for revenue generation will be progressing our ability to offer performance guarantees as feedback from many customers is that this will be an important requirement for accelerated use of our technology.
In order to establish the ability to provide a performance guarantee we have signed agreements with two leading insurance providers and we're underway with the work of generating additional operating data from our demonstration scale facility in Lancaster, California, and truly operating that as a plant.
Our first commercial scale facility in Texas will also be leveraged to augment the operational data.
Together. These two datasets will support the establishment of an insurance products that would be part of our commercial offerings.
We're also focused on extending our liquidity, reflecting on current market conditions. We are proactively engaged a financial advisor to assist us in reviewing strategic alternatives that will position us for growth and maximize shareholder value.
It is advantageous that we are doing this work now as we're starting from a position of strength with an operational plan that provides sufficient liquidity into March 2025.
Now we come to the finance section.
I will be providing the finance update on today's call I'm pleased to share that we have just appointed our new CFO Phelps Morris, who will start and he'd be a gentleman April 1st and brings significant experience in both the solar industry and in public companies during dynamic business cycles. Most recently at F. T C solar.
I look forward to Phelps, joining our team and contributing his financial leadership and perspective.
Now turning to page 11, we have seven megawatts and four projects in our contracted backlog representing $76 million in revenue.
During the fourth quarter as I mentioned, we signed a $1.6 million engineering services agreement with Woodside for crushed the Brenda Green hydrogen project, which adds to this backlog.
At the end of the fourth quarter, we had almost $63 million of contracted revenue remaining on our contracts to complete the capella projects with Woodside in the U S Department of energy.
On page 12, I'll walk you through our fourth quarter financials.
As a result of the revised capella cost estimate that drove an unfavorable $3 4 million cumulative adjustment to revenue.
We reported total revenue of negative $1 $2 million for the fourth quarter.
Our revenue is recognized over the duration of the project in proportion to total cost incurred using the percentage of completion revenue recognition.
Since our cost estimate increased this lowered the total percent of the project completed based on our incurred cost to date. So the revenue that we recognized was adjusted during the fourth quarter and you can see more detail on this in the appendix of our earnings materials.
On the cost of revenue side, the Capella estimate increase drove the bulk of this number as well.
I want to again emphasize that we do not see the latest capello cost estimate as the true cost is we're aggressively pursuing cost reductions and additional funding sources as I mentioned earlier on the call with the goal of not compromising on the projects groundbreaking objectives or outcome.
If you look at our adjusted SG&A expenses, we reduced our run rate SG&A expenses by another 12% from the third quarter to the fourth quarter of 2023. Additionally, we've reduced our total head count by over 40% from its peak in the fourth quarter of 2020 to you which is one of the several ways that were working to improve our liquidity.
And reduce our cash burn.
We will continue working to reduce nonessential expenses and simplify our cost structure without sacrificing our ability to meet our most important commercial and operation operational goals.
Turning to page 13 here will walk through some of our cash activity for the year.
During 2023, we spent $17 $5 million on project development and collected $15 $5 million in cash primarily from Woodside in the U S Department of energy.
It's not every day, an emerging growth company like ours can say that its first next generation commercial scale facility is being so largely funded by our customer and that is a testament to both the promise of our technology and the strength of our early customer partnerships.
We are fortunate to have such strong partners as Woodside and the department of energy leaning in with us on our commercialization efforts.
In closing as we continue on our mission to Decarbonize industry with our differentiated solar energy technology, we have made demonstrable progress and achieved significant milestones in 2023.
The year 2024 will be pivotal on multiple fronts and our overarching goal is to advance the company towards significant revenue generation on the path to building a sustainable business we.
We will be focused on advancing the prospects in our commercial pipeline towards full contracts to deploy our technology.
We'll do this by progressing the engineering design work of our hybrid offering for specific prospects and by working with our contracted insurers to establish a performance guarantee products of our technology.
We will also pursue the net cost reductions that I mentioned all have capella project. So that the advancements that we've made in 2023 can be brought to fruition towards ultimately having a fully commercial generation three CSP offerings.
And finally, we will execute the actions towards adding growth capital, including the strategic review process with our financial advisor to open up additional opportunities for maximizing shareholder value.
I also want to mention that today's call will be our last planned investors conference call for the near future.
We are laser focused on allocating our time to actions that will directly advance our goals for building a business and so by pausing our earnings call activities. We aim to allow our team to maximize our focus on driving our strategy to fruition.
With that I want to thank you for joining us this morning, and I extend my deep appreciation for your ongoing support of UV adjourn.
Now I'll turn it over to the moderator for any questions from the line.
Thank you.
Thank you at this time, we'll be conducting a question and answer session. If you'd like to ask a question. Please press star one on your telephone keypad, a confirmation tone will indicate your line is in the question. Kim You May press star two if you'd like to remove your question from the queue for participants using speaker equipment it may be necessary.
Pick up your handset before pressing the star keys.
Our first question comes from the line of Rob Wertheimer with Melius Research. Please proceed with your question.
Hi, Thanks, Good morning Christie.
Good morning, Rob good to hear from him.
You as well so I have a few questions you've touched on some of the things that have led to higher cost of capella and cooling materials labor, which is no great surprise I know you're also doing a lot of kind of groundbreaking engineering and work to make this happen. So any further color on what really overran there and does that affect the cost picture on other projects.
<unk> do you have sort of been that sales funnel are you back to other people in that sales funnel with different cost as you put a scope this out.
Yeah. Thanks, I'll tackle that last question first actually know this is unrelated to the prospects and our sales pipeline and the prospects in our sales pipeline and keep in mind. These are prospects that are focusing on are first to market commercial.
Scale offering and that is a combination of heavy agenda enhanced C. S. P attack.
Along with solar PV and thermal energy storage in the form of molten salt, which is the most commercially and technologically mature version of thermal storage used in C. S. P.
And so the the new first of a kind aspects on the Capella project are actually related to the unique aspects of capella itself that technology. That's series of technologies is comprised of three pieces actually and this is one of the things that attracted the Doa award one the particle receiver.
Which uses solid storage instead of the liquids thermal molten salts two is the political heat exchanger, which helps transfer the heat and then three is the power block with supercritical C O two and across each of those we've been working with our partners and are developing.
The tech in progress during this whole path to commercializing and putting our first plant online and so really of the of the three areas. We made huge progress on the political receiver, including our first demonstration at that scale that's ever been done in the world in our facility in long Beach, California, So a lot of progress on it.
Horton milestones, but to summarize it is not.
Not unique to our technology that any first of a client experiences some unexpected development costs.
Okay. That's very clear. Thank you and then how does Capello proceed from here because of weight on project funding do you continue working booking revenue anyway, but where do you go from here I'll call. It right now.
Yeah, there's two things that we're aggressively pursuing them, where the the two areas that I mentioned are both in a value engineering in terms of making choices that don't compromise. The core objectives now that we have the estimate back and then the other important piece is pursuing additional funding and so some examples of what we're pursuing there are.
Things like the California state tax exemption other renewable energy opportunities at both the state and federal.
Federal level, and we actually do have some soft commitments already supporting that and we've been doing this in partnership with Woodside energy, our customer and so we've already seen some progress on this front and our intent is to move forward. Once we see that path to closing the incremental cost gap.
Perfect and then.
Let me switch gears, a little bit if I could to some of the opportunities you mentioned software licensing.
And in the proving of that including for other externally pleased I guess I'm not familiar with the installed base and what that opportunity on software means how many people can actually can actually directionally point to heliostat. Some use your software and maybe you could expand on that opportunity on the brownfield side.
Yeah, I think that's right.
Yes.
Yes.
Absolutely so there are.
Something on the order of over eight Gigawatts of E. S. P installed today and there were a lot of projects deployed in China last year too. So that that's excluded from that eight gigawatt number as our focus is is outside of that and so in terms of what the brownfield opportunity could be.
We've already had some preliminary discussions on the potential for the software licensing that actually resulted from this announcement with Sandia about our or a third party validation of our software and so there are certainly opportunities that we'll be looking at to them have the early licensing revenue just on the software piece for the potential brownfield appointments. This wood.
Relevant anywhere where there is an existing field of mirrors pointing out a tower it doesn't have to be our mirrors in our tech and that's really what the one of the exciting pieces of this demonstration resulted in and then the second category of projects would be Greenfield projects. You know of course, we have our all.
All in the integrated offering which includes the.
He neogen design mirrors, but also for mirrors that might have already been selected for greenfield.
Projects that are under consideration, that's an area, where we could actually work with C. S. P developers on deploying our tech to that to those greenfield projects our software.
Okay, Perfect and then I heard your comments on your partner in Mexico, and how that kind of the phrase or share some of the.
Up work and so forth could you talk about how tangible potential projects there or did they come to you with you know what.
Concrete ideas I don't even know if they are in your pipeline of potential sales or their external to that.
Yeah. So our partner has come to us with concrete ideas. We're in the early days of the site selection now none of the projects in our published pipeline are actually from that Oh, Mannar J D. A.
As we're in early days of shaping a specific prospecting. So that's positive and that we don't we don't actually have something I'm in there at that time. So this will all be incremental to what's actually in the pipeline right. Now. One example of how the joint development agreement mm is shaping out and benefiting us already is we've.
Got it organized and set of meetings with potential off takers. This month in meeting with local authorities to seek their project support and so we're.
Aiming for and expecting something on the or whatever are the first product being a 50 to 100 megawatt type project and we do see enough perspective interest to support that type of all day offtake.
Our scale there I think the last one for me is just on the different sources of funding. We've seen this week. This month a lot of materials cost size grants come out of the.
Yes, Kevin the clean energy demonstrations someone that includes process heat wish you guys could could do for glass for cement and other stuff I think Bloom was and then there's also.
Electrolyze yours, so I wonder if you could give us a general overview as to whether you're in the arm for any funding like that well that's part of the backlog, where that's part of what you're what you're working on and just what that kind of initial sort of.
It seems like funding could be pretty linear channel.
Yeah sure. So we are absolutely looking at several different sources of government funding that are squarely aligned with our strategic focus areas that includes the generation three C. S. P technology for that enhanced thermal energy storage that would allow us.
Greater market access at a higher temperature applications and that also includes things like calcination, which we already do you actually have a 4 million dollar grant from the department of energy for solar thermal coal calcination that we announced last year and so those are among the kinds of things that we're continuing to pursue and that's both at the <unk>.
Federal and the state level and we believe that he laid into technology will be a strong fit for a number of those so stay tuned for more on that will absolutely be pursuing something like that.
Okay perfect. That's all I have for now thank you.
Thanks for the questions Rob.
Thank you ladies and gentlemen, there are no further questions at this time I'll turn the floor back to Mr. O'brien for any final comments.
Thanks Melissa.
But as he closes out I'll, just say that as you heard on the call. We've made significant progress from where we thought one year ago in terms of honing our strategic focus landing on our first commercial offering which combines heavy agenda innovative C. S. P enhancements with the most technologically mature thermal storage installing our first commercial scale project and making the tough calls.
Extend our liquidity the market opportunity.
<unk> for de Carbonization, and the energy transition is massive and were well positioned to serve that demand and deliver long term value to shareholders and that is what we'll be focused on in the months to come. Thank you for tuning in and for your support and look forward to updating you as we have more progress. Thank.
Thank you.
Thank you. This concludes today's conference call you may disconnect. Your lines at this time. Thank you for your participation.