Heliogen, Inc. (HLGN) on Q3 2023 Results - Earnings Call Transcript
Operator: Good morning and welcome to the Heliogen Inc. Third Quarter 2023 Conference Call. As a reminder, today's call is being recorded. At this time, all participants are in listen-only mode. A question-and-answer session will follow the prepared remarks. I would now like to turn the call over to Louis Baltimore, Heliogen's Vice President of Strategic Finance and Investor Relations for opening remarks and introductions. Please go ahead.
Louis Baltimore: Thank you, operator, and good morning, everyone. We're glad you could join us today for our third quarter 2023 conference call. With us on today's call are Christie Obiaya, Heliogen's Chief Executive Officer; and Sagar Kurada, our Chief Financial Officer and Head of Strategy. Heliogen issued its results yesterday afternoon in a press release that can be found on the Investors section of our website at heliogen.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 company's strategic plan and growth initiatives, plans to advance the company's PV hybrid product and prioritize installation of commercial scale projects, the expected capabilities and usages of our Heliostat for Generation 3 through 5, expectations for scaling the company's 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 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 may 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 release issued yesterday, which is available on the Investors section of our website 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. And with that, I'd like to turn the call over to Christie.
Christie Obiaya: Thank you, Louis. Good morning, everyone. Great to be with you. As you may remember from prior calls, upon stepping into lead the company earlier this year, I had outlined Heliogen's top three priorities for 2023. Number one, close sales, number two, install our first project and number three, extend our runway and growth capital. Those goals have not changed, and I want to open my remarks by sharing some headlines which demonstrate the strong progress that we've made during the third quarter. We have significantly increased our sales pipeline, having grown prospects in the stage of qualified leads to 1.8 gigawatts and pre-FID activities stage to 65 megawatts. These steps are a necessary precursor to growing the booked revenue backlog. We've initiated our demonstration-scale facility as an operating plant rather than its historic use as a platform for future R&D and that will strengthen our basis for future performance guarantees. We've broken ground on a small commercial-scale steam unit in West Texas, which will likely become our first operating commercial-scale facility. We designed a hybrid power offering that combines concentrated solar thermal energy storage and PV together at a single compelling offering for dispatchable renewable energy with long-duration energy storage. We completed design verification on a critical component of our integrated Generation 3 concentrated solar power plant, which we were proud to announce in partnership with our customer Woodside Energy earlier this quarter. We developed and executed a cost reduction plan that allows us to fully fund our business plans for 2024, and we recognized revenue of $2.3 million for the quarter, bringing year-to-date earned revenue to $5.6 million. These headlines show that our strategy is gaining steam in building operational momentum. Now, moving on to our agenda for the call this morning on slide four. We'll spend a little bit of time reflecting on how this company is going to create long-term shareholder value and will provide an update on key elements of the business before transitioning to our financial update using the same format that we had last time. And then we'll come back to closing remarks and 2024 priorities. Let's dive in on slide five, where I will spend a few minutes talking through how we're creating long-term shareholder value. Our shareholder value is across four elements that are depicted in the orange arcs across the page. Core IP, the technology that comes out of that core IP, the partnerships that help us promote and deploy that technology and finally, the applications that we were able to use that technology in. If we first take a look at the core IP, we can break it down into four key buckets, our proprietary Heliostat design that can be produced at high volume and low cost, our closed-loop AI-enhanced software that enables a pointing accuracy second to none. Our plant integration and modular design, which brings significant flexibility across a wide range of applications, and our next-generation technology, which is leading the way in Generation 3 concentrated solar power innovation. Within each of these buckets, we have established and are continuing to advance technologies that put our IP to work, as shown by the technology arc. And, we are leveraging the strength of a few key third parties, in many cases, through contractual relationships to perform scopes of work on specific projects and applications. Over the next two slides, I'm going to drill down into two of the sunrays on this page. Moving to slide six. First, to expand on our proprietary Heliostat design and manufacturing excellence. Ultimately, our goal is to have peak performance with the lowest cost to manufacture plus install. Performance is a combination of beam quality coming from the mirrors plus reliability. Our third generation heliostat was first deployed in 2019 at our demonstration-scale facility in Lancaster, California. Those mirrors had a reflective area of 1.5 meters squared and were a helpful source of iteration and learning. Today, based on our lessons learned, we've been able to design and manufacture our Generation 4 Heliostat. Our Generation 4 Heliostat has further improved upon the beam quality with a 1.92 meter squared reflective area, and it is a best-in-class in terms of wind resilience. It has the lifespan required for our first commercial scale projects underway for 2024 and the first half of 2025. This Heliostat is produced in our Long Beach manufacturing facility with a high degree of automation. With the beam quality performance optimized in this generation 4 Heliostat, we've now turned our focus to the cost side with Generation 5, and we expect to achieve the next leg of cost reductions by reducing manufacturing costs and bringing automation to the installation process. The design is looking very promising and is more or less at a point where we can say that we are a majority of the way there. We will selectively identify the right time to implement our transition from the Gen 4 production facility to the Gen 5. Now, let me shift gears and move to the third sunray focused on plant design and integration. So, if you move to slide seven, we summarize our road map to accomplish our goals for plant integration. You can see the summary of our definition of success outlined in the sidebar on the right-hand side. To that end, in 2023, we have begun operating our current solar field in Lancaster, California, in a way that allows us to deliver operating metrics that prove repeatability. What does that do? It helps us develop a very strong proof point on run time efficiency, further validate our software and plant controls, deliver constant energy to the receiver, and enable continued focus on measurement and improvement that will then feed into 2024 as we build out the balance of plant on our steam plant in West Texas, which will be installed and will be a showcase of the first commercial-scale application. Finally, on our Generation 3 CSP product, we expect the first deployment to be mechanically complete by the end of 2025, allowing us to showcase the first integrated next-generation solar thermal energy product using our novel particle technology for heat storage. We have an exceptional team leading our approach to integration and design that allows us to create scalable, flexible, concentrated solar thermal modules and gives us an opportunity to further expand margins of licensing and O&M. We also have strong partnerships with companies like Sener, Worley and Hanwha, who have deep relevant experience on an existing CSP technology that we're deploying for the first time along with Woodside Energy. In sum, this plan for our planned integration slides of value creation, puts us well underway to accumulate operating experience that sets us up for supporting a performance guarantee that will help us continue to drive commercial engagement and bolster our industry-leading intellectual property. All of that will reinforce the momentum around our commercial pipeline, which you'll see on slide eight is now at 1.8 gigawatts. Now, last time, we presented a similar page to you and thought it would be important at this time to update you on the anatomy of our growing pipeline. We've increased our lead generation from 825 megawatts to 1.8 gigawatts, which is more than double. We've also seen an improvement in megawatts across the first three buckets, although not a similar increase in number of customers, which means that we're seeing traction on larger-scale projects relative to last quarter. We've increased our submitted proposals by 20 megawatts, and a few of our submitted proposals have transitioned to our pre-FID activities going from 20 to 65 megawatts. Although our booked orders remain the same, like we talked about last time, it can be an 18-month process for items and lead generation to transition to booked orders, and we're taking all the right steps to get there. We do expect some of these pre-FID activities to manifest in the form of FEED studies and joint development agreements towards the contractual activity that we expect to round out our 2023 goal of closing sales. Moving to slide nine. Our pipeline spans across many of the industries that we've talked to you about, which is beneficial as we are not significantly exposed to any one major macroeconomic factor. For example, metals and mining customers are critical in the energy transition, and they're aggressively seeking to decarbonize given the focus on upstream environmental impact. Oil and gas are also experiencing record-high profit given the recent increase in energy prices, and they, too are looking to put some of those profits to work on meeting decarbonization goals. Our pipeline is also global in nature, particularly where solar resource is strong and where CSP is a well-understood technology. And as you might expect, because we started our real commercial progress only earlier this year, many of the CODs are commercial operating days for our projects that we're currently evaluating are in 2026 and beyond, which is what you would expect to see for a company that is where we are in our commercial journey. Moving to slide 10. I want to highlight the interest in our new hybrid power product and explain why it is so exciting for our mission. One compelling aspect of our power product is that it can be dispatchable over long duration, including during the times when traditional solar is waning while power demand is spiking. And the second compelling aspect is that our modularity can help minimize reliance on the existing transmission system because we can generate power on or adjacent to a customer's premises or major industrial demand centers. Despite our commercializing this product only earlier this year, it now represents the vast majority of our pipeline, about 80% of our projects. On slide 11, you can see the trend in power prices, as shown by this example, for CAISO, which is the independent system operator that oversees the operation of California's bulk electric power system, transmission lines, and the electricity market generated and transmitted by its member utilities. What you see on this graph is the price of energy for a particular year over a 24-hour period, but the bottom trend line showing 2020 pricing. As you go up in order of time on these graphs, it shows how pricing has increased from 2020 to 2023 and the predicted pricing case for 2030. These prices are continuing to rise due in large part to increasing natural gas prices, which have even more important of a firming source of power to back up intermittent renewable energy as well as due to the level of infrastructure investment required to modernize the grid and ensure reliable power delivery. These trends underscore the importance of dispatchable clean energy and why we believe our dispatchable power product is seeing traction. Building on this further, slide 12 shows what is happening for fossil fuel power plants across the US. The example on this slide is a valve natural gas plants that have been built over the last 30 years and the forecasted natural gas plant retirements that are expected over the next 30 years from where we sit today in 2023. The ones that are retiring far outweigh what is being built. We're seeing the emergence of some temporary gas generators at existing power plant sites in order to avoid blackouts and boost grid stability. And these are taking us backwards on the decarbonization trajectory; therein lies our opportunity to come in with cost-effective, dispatchable clean power using our concentrated solar energy technology and hybrid offerings. Now, let me move to slide 13. You'll see us build on to this slide further, and so I'm going to take you through it step by step. This slide introduces the empirical relationship between three different solar energy configurations using solar PV only, using PV plus battery energy storage systems or BESS, and using a combination of concentrated solar plus PV plus thermal energy storage or TES. The slide is divided into three vertical sections to highlight what happens if your objective is to operate with no storage, as shown by the gray section, where you can get up to 10 hours of energy by running a typical solar plant when the sun is shining or 1 to 4 hours of storage shown by the blue section or 4 to 14 hours of long-duration storage shown by the orange section. The path of the sun dictates the productivity of PV. Without using battery energy storage, we see diminishing marginal returns and trying to extend the number of hours of electricity that PV can produce into that blue vertical section. This is all despite very low levelized cost of energy for daytime solar PV, when the sun is shining brightly and directly on the panels. This dynamic is because in order to squeeze out more performance out of PB, you're ultimately oversizing the PB deal to get production during the hours when the sun has stopped shining on the optimality pointed panels. Even when using trackers, since the sun is not very powerful in the early and late portions of the day, you need to install more panels to get the same amount of energy as you would during the more productive times. Without battery storage, all that excess peak solar power generated by PV increases the overall cost of the power that you're generating. The most common way that people assume you can mitigate this is to use batteries to store that excess energy when the sun is shining the brightest. The problem with this is that battery energy storage is still prohibitively expensive. So, although you can get closer to near 24/7 dispatchable renewable power, which brings you to that 4 to 14 hours of storage realm in the orange section, there's an associated increase in the levelized cost of energy that would make this an undesirable option for most industrial processes or owner-operators of utilities that serve industry. Now, let's talk about where CSP fits in. CSP doesn't compete on cost with daytime or PV, but it doesn't have to because where CSP excels is where -- when it is paired with thermal energy storage. That's because the incremental cost of thermal energy storage is much lower than the incremental cost of batteries. So, the total cost of CSP plus thermal energy storage is attractive when around-the-clock dispatchable energy is the objective, and that cost gets even lower by integrating daytime PV into this combination. This is the crux of what we refer to in Heliogen as our hybrid power offering. It is really targeting the orange section of 4 to 14 hours of long-duration energy storage. The PV that we integrate can be any off-the-shelf commercially available PV equipment, whereas the CSP uses Heliogen's core IP to enhance concentrated thermal technology that already exists. Slide 14 layers on the revenue side of this equation. And by that, we mean it's revenue if you're selling the power or if you're consuming the power, it equates to the avoided cost to purchase the power from CAISO as an example. Slide 15 then adds the profit curves for each power generation setup. Our focus is on profitable long-duration power solutions for customers that need load following or baseload power. At some point, despite the low initial costs, more PV becomes a money loser when you're trying to achieve long duration and dispatchable energy. There's a short period of time where PV with battery energy storage can be profitable, but really only in those shoulder times and power prices at the highest. CSP plus PV plus thermal energy storage can be the most profitable and can earn the most profits per day. On Slide 16, this shows that profitability improves as grid power costs rise. This is a trend we've been seeing everywhere. Power costs keep going higher as more generation is built out and all that new generation requires transmission and related equipment upgrades. The profit line extends all the way up to 22 hours and beyond, giving you the maximum opportunity to maximize on the location with the right framework for both CSP and PV, along with thermal energy storage. So, in summary, although CSP has a larger capital outlay, the total all-in delivered cost of energy can be more competitive than PV with battery when we combine our CSP with thermal energy storage and solar PV. On slide 17, I'll spend a moment on our Generation 3 CSP progress. To ground people unfamiliar to the industry on what we mean by Generation 3, I'll start by describing Generation 2 CSP technology, which is how the industry, including the Department of Energy described the currently available forms of CSP with energy storage. Steam and Molten salt are examples of Generation 2 CSP storage technology, and these are already proven and in commercial operation today in existing facilities. Generation 3 CSP technology is defined in the industry as having thermal energy storage that has potential to support higher system storage capacity, efficiency and reliability, which ultimately drives down energy costs. For Heliogen, our Generation 3 CSP technology includes the items outlined on the right half of this page, and improved power conversion cycle, improved thermal energy storage, and our next-generation Heliostat. The benefit of our Generation 3 technology is that we expect to unlock gains and efficiencies that lead to an overall lower cost of delivered energy with long-duration energy storage. So it has the potential to be a game changer. I'm proud to share that during the third quarter of 2023, we were able to validate the design for our particle receiver, which is our Generation 3 thermal energy storage. We were pleased to share this milestone update during October and to discuss this at the Capella Project conference alongside our customer Woodside for whom we're building our first commercial scale unit, and we look forward to continuing to share progress with you all. Now, moving to slide 18, where I will highlight our Brenda development project located in Arizona. This project site is incredibly attractive based on its strength of solar and water resources, its geographic characteristics and its proximity to key infrastructure. On top of that, it's based in a federal solar energy zone which streamlines the permitting process. Our plan for putting this site to use is to leverage it as part of a green hydrogen project powered by Heliogen's hybrid power offering. We've had strong interest from equity investors on this, and we've been making great progress in the development stage, as you can see by the completed and ongoing activities listed on the right-hand side. In contrast to the Capella project, which is not a money-maker in itself, but instead it opens up future value, the Brenda project itself is a source of economic value to Heliogen and its shareholders, and we look forward to continuing to update you on our progress. Now let me hand it to our CFO, Sagar Kurada, to go over our financial results.
Sagar Kurada: Thanks, Christie. Good morning, everyone. Here on Page 19, first, on the backlog. At the end of the third quarter, we have 7 megawatts and three projects in our backlog, representing $73 million in contracted revenue. $61 million of this contracted revenue remaining is attributable to our ongoing project to develop a turnkey green energy production facility sponsored by Woodside Energy and partially funded by the DOE. Christie had discussed the scope of this project on page 17. Second, on what's not included in this backlog is an estimated $10 million to design, build, and operate a high-capacity factor steam product in West Texas discussed on page 7. Moving on to Page 20 as it relates to our third quarter financials. We earned $2.3 million in revenue in the third quarter, primarily driven from progress on Project Capella. Year-to-date, our earned revenue is $5.6 million as a frame of reference. Over the lifetime of the Capella contract, we will earn $80.6 million. We have recognized $19.2 million lifetime to date and retained $61 million in our contracted backlog. Moving to SG&A. On an adjusted SG&A basis, we have revised our operating structure to gain 11% cost productivity quarter-over-quarter. Year-to-date, our adjusted SG&A is down 24% versus Q4 2022. On the same basis, we forecast an additional $2 million in cost savings per quarter in 2024 as a result of executed cost actions. On page 21, we ended the third quarter with $91.6 million in liquidity. Year-to-date, we have received $12.4 million in cash for projects underway, and we have expanded project development expenses in line with cash receipts. We spent $32.9 million in SG&A year-to-date after adjusting for project costs, non-recurring costs, and non-cash items. Expected project funding for Project Capella from Woodside and the DOE is not included in our liquidity on hand. Our current liquidity position is forecasted to fully fund our investment and operating needs through 2024, allowing for us to focus on planned execution. Let me hand it back to Christie on page 22 to wrap up the presentation.
Christie Obiaya: So in closing, on Slide 22, I hope we've given you a sense of our strong progress during the quarter and where we're headed with the big picture. We've had significant accomplishments in 2023 so far, and we are on track to hitting our key targets. As we move into 2024, our priorities are to advance our hybrid power product to operate our Lancaster site as a plant to complete installation of our first project to begin the next phase of Capella projects, demonstrating our Generation 3 CSP offerings to advance at least one of our 2023 contracts to a positive final investment decision and to operate with a fully funded 2024 business plan. With those plans for 2024, we are confident that we will continue to grow the shareholder value that I outlined in the beginning of this call. As always, thank you all for your support.
Operator: Ladies and gentlemen, we will now be conducting a question-and-answer session. [Operator Instruction]
Louis Baltimore: Yes. This is Louis Baltimore from Heliogen. We have a couple of questions from the audience and for folks who couldn't be on the call today. Our first question comes from the audience. How does your recent movement of the New York Stock Exchange impact your plan?
Christie Obiaya: Thanks for that question. We are continuing to be highly confident in our plan. There's no impact of having moved off the New York Stock Exchange. At the end of the day, our cash position remains strong. We have the funding needed to execute through our near-term plans, including through the end of 2024. And we are looking forward to demonstrating the successful execution of the strategy that we outlined. And so, our strategic and operational plans remain the same, and we will also continue all of the governance and SEC filings that we did as we were on the New York Stock Exchange as well.
Louis Baltimore: Thanks, Christie. And this next one comes from Robert Wertheimer at Melius Research. Can you talk about the potential timeline from pre-FID to booked to order? I know this can be variable and is not ours to predict, but any insight is helpful.
Christie Obiaya: Sure. That's a common question that we've been getting. And I think part of this is just part of the education of the energy capital markets space. It's common for large-scale energy capital projects to go through different phases. And in the pre-FID phase, which is what we've defined on our sales pipeline slide, it's very typical for that pre-FID phase to take something in the realm of between, say, 4 to 12 months as projects go through front-end engineering design. For us, especially for our hybrid CSP PV thermal energy storage offering, these will be the first couple of projects that we're going to be building with that. And so we do expect that to be that front-end work that takes a little bit longer on the front end. And we're pleased to be in discussions with customers on having that phase be funded as much as possible. And so, we are driving for having signposts in these next couple of months that will be a mix of paid design studies to advance that work on a large-scale project in advance of a final investment decision, which is where a project will get added to our full revenue backlog. And so, you can expect to see that in the coming months, we'll be delivering the outcomes of our front-end engineering design, which is an important part of the pre-FEED phase. But all that work is progressing very well. As I talked about, the power offering that we have, there's a lot of interest and traction in the market. And so we're looking forward to continuing to share progress on that. And this is just part of the typical large-scale energy project process.
Operator: As there are no further questions, I would now hand the conference over to Christie Obiaya for any closing comments. Christie?
Christie Obiaya: Thank you, operator. Yes. So, we remain super confident in the global market opportunity. If anything, the demand for dispatchable clean energy is just getting stronger, and we're confident that we have a really compelling offering in our dispatchable power product, especially. And that represents the majority of our pipeline. We're looking forward to continuing to build on the momentum that we demonstrated during the third quarter and continuing to knock up the targets that we set for ourselves. And so, a lot of exciting time ahead for Heliogen, and we look forward to talking with you again soon. Thank you, everyone, for your support.
Operator: Thank you. The conference of Heliogen has now concluded. Thank you for your participation. You may now disconnect your lines.
End of Q&A:
