Heliogen, Inc. (HLGN) on Q2 2022 Results - Earnings Call Transcript
Operator: Good morning and welcome to the Heliogen Second Quarter 2022 Earnings Call. As a reminder, todayâs call is being recorded. At this time all participants are in a 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, Heliogenâs Vice President of Investor Relations for opening remarks and introductions. Please go ahead.
Louis Baltimore: Thank you, operator and good morning to everyone. Weâre glad you could join us today for our second quarter 2022 conference call. With us on todayâs call are Bill Gross, Heliogenâs Founder and Chief Executive Officer; and Christie Obiaya, our Chief Financial Officer. 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 companyâs future operations, and financial performance, including our guidance for full year 2022, the status and impact of proposed legislation, 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 yesterdayâs press release and other documents filed with the SEC by the company from time to time including our amended annual report on Form 10-KA. 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 an isolation from GAAP results. More detailed information about these measures and a reconciliation to the most comparable US GAAP measures is contained in the press release issued yesterday, which is available in 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, Iâm pleased to turn the call over to Bill Gross, our Founder and Chief Executive Officer.
Bill Gross: Thank you, Louis, and thanks to everyone for joining us this morning. Iâm incredibly excited to speak with you today on what is now our third earnings call as public company. First, Iâll provide an update on our progress as relates to the key milestones that we laid out for you earlier this year. Our mission is to build an enduringly profitable and scalable business that contributes to achieving global net zero ambition by decarbonizing heavy industry. We chose to focus on heavy industry because itâs the largest energy consuming sector in the world, and is currently wildly underserved by renewable energy. Our systems, which replace industrial burning of fossil fuel with concentrated sunlight, are especially needed right now. And we have developed proprietary technology that we believe meets the energy needs of heavy industry. Our technology concentrates sunlight to extremely high temperatures, using an AI based control system that turns a field of small mirrors into an effect a self-adjusting magnifying glass at very large scale. We use that to create 100% carbon free solar thermal energy at temperatures up to 1,000 degrees Celsius, which can be used to make heat, steam, electric power, or green hydrogen. We call these end products, HelioHeat, HelioPower, and HelioFuel. If youâre new to Heliogen story or would like a refresher, Iâll refer you to our full year 2021 conference call from March 29, during which we provided a more detailed overview of our business. Despite a current difficult macroeconomic backdrop, our prospective customers in the mining and resource extraction sectors are seeing very strong earnings and cash flows as a result of sky high commodity prices. However, because these customers are huge energy consumers, todayâs higher fossil fuel prices are offsetting some of the margin tailwinds theyâre seeing from higher metals and mining revenues. We believe this makes Heliogen an even more attractive proposition because we can offer prospective customers an opportunity to avoid both the higher costs and the wild volatility in fossil fuel prices, and also to reduce their carbon footprint. Heliogenâs method of producing carbon free heat from concentrated sunlight is a direct replacement for heat generated from fossil fuels and as thus one of the best ways for our customers to decarbonizes. Before we get into our progress on individual milestones, I am pleased to say that we remain on track with the plan for this year that we laid out on our full year 2021 earnings call and reaffirmed on our last earnings call. Given the rapid pace of growth and goals we set out to achieve, I am proud of what our team has done so far. If you turn to Page 6 in our Q2 earnings presentation posted on our website, youâll see the key milestones we have laid out to track our execution progress. We continue to make meaningful progress towards meeting each of these milestones. And given the second half weighted nature of the timing of these key events, we expect to have an eventful rest of this year as we accomplish more of the goals within the next weeks and months. Iâd like to give you a progress update on our assembly line heliostat production. Heliogenâs concentrated sunlight, fossil fuel replacement technology is unique and that itâs produced in an automated factory as opposed to individually constructed in the field. That is the result of our revolutionary software control system that enables the control of many thousands of small factory made heliostats. In the last quarter, we have made significant strides in our field operations as we prepare for our first commercial scale customer projects. We demonstrated the ability to install each heliostat in under two minutes in our field trials at our Lancaster facility. This is a new record for Heliogen and we plan to continue to drive these times down from minutes to seconds over the coming years. We will be using these techniques to drive our gross margins up and our goal of sector leading profitability. We also continue to make strides in driving down cost and driving up performance of our heliostats. If you turn to Page 7, you can see photos of each iteration in our heliostat evolution. In November of 2019, we deployed hundreds of our generation three heliostat in Lancaster, California. Those heliostats achieved one tenth of a degree of tracking accuracy and enabled us to achieve temperatures of 1000 degrees Celsius. We just completed the installation of over 300 of our generation four heliostats and those are 2x more accurate still achieving better than one twentieth of a degree of pointing accuracy. These heliostats were all produced in our new Long Beach factory, fully testing and validating our supply chain, inspection, production, shipment and installation process. We will be ready to produce the first 7,500 heliostats for our first commercial scale facility as soon as permitting is complete. If you turn to Page 8 in our earnings presentation, youâll see the first several hundred heliostats installed in Lancaster last week are in the identical arrangement to be used for our customers and include our first implementation of wireless power and control with the solar power on our tracker at the end of each aisle of mirrors. This will eliminate the need to send electrical power from the grid out into the field and makes the entire operation of the mirrors fully solar powered. And finally, we have advanced our robotic autonomous cleaning and maintenance vehicle from last yearâs technology demonstration design to todayâs gas redesign vehicle, ready for customer deployment. This vehicle designed and built entirely in-house using LIDAR, cameras, GPS, and our own proprietary software, cleans the mirrors each night, dramatically boosts performance and lowers cost of maintenance. We have already designed, manufactured, deployed and started testing the first customerâs autonomous cleaning vehicle at our Lancaster facility. If you turn to Page 9, you can see a picture of this impressive vehicle on site. Now, I would like to give you an update on our commercial contract progress. We recently signed a non-binding letter of intent with Dimensional Energy to produce sustainable aviation fuel or SAF for short, at our demonstration facility in Lancaster, California. Youâll find an overview of this on Page 10 of the earnings presentation. Dimensional Energy has developed a process to synthesize sustainable fuels from sunlight and air utilizing the Fischer-Tropsch Process. The Fischer-Tropsch Process is one of seven ASTM approved sustainable aviation fuel production pathways. Meaning it can be used today in a blend of up to 50% of the fuel used in commercial airline flights. We plan to deploy our HelioHeat technology to convert sunlight directly into thermal energy in the form of high temperature steam and air that we used to produce green hydrogen for Dimensional Energyâs reactor platform. As part of the collaboration between Heliogen and Dimensional Energy, the LOI includes a goal of building a fully integrated sustainable aviation fuel demonstration to produce approximately one barrel per day, both Heliogen and Dimensional expect demonstration project to be a first step to develop a pipeline for approximately 3 million barrels of fuel over the next 10 years. Sustainable aviation fuel is a great case study demonstrating the potential for Heliogenâs unique clean energy technology to decarbonize sectors that lack a solution that is both technically and economically feasible today. As a drop in fuel sustainable aviation fuel is functionally identical to traditional jet fuel refined from crude oil. It can utilize existing jet fuel infrastructure at airports, either on its own or blended with fossil jet fuel. It can also be burned in existing aircraft engines, all without upgrades or modifications. This is important in the context of the airline industry and its reliance on aircraft utilization, turnaround time and flexibility. Since sustainable aviation fuel can be made with low or zero carbon feed stocks using renewable energy the end result is a fuel with significantly lower life cycle carbon footprint that can be used today. Cost has historically been a hurdle to sustainable aviation fuels adoption. Heliogen and Dimensional Energy aim to ultimately produce this fuel at a cost that is competitive with traditional jet fuel. While I just outlined some of the ways we utilize our Lancaster site to test our equipment and validate installation and maintenance techniques out in the field. This project with Dimensional Energy is another example of how we leverage the same assets to accomplish goals on the commercial side of our business too. We continue to make progress with the permitting and approval process for our Woodside project. This is a five megawatt electric demonstration facility, and also include the scope of funding of our previously announced $39 million award from the U.S. Department of Energy. At this point, we have completed all the necessary environmental impact studies and permit applications. These have been submitted to the relevant regulatory bodies, and we plan to break around in this project after receiving the necessary approvals. Now, Iâd like to turn the call over to Christie Obiaya, our CFO.
Christie Obiaya: Thank you, Bill, and thanks to everyone for joining us. Before getting into our Q2 results, I want to first express our enthusiastic support for the proposed Inflation Reduction Act of 2022. If signed into law, we believe this legislation would bring meaningful benefits to Heliogen and to our customers while providing a much needed boost in our countryâs efforts to combat climate change. As written, the bill includes a suite of provisions that will make industrial decarbonization more economical by lowering the cost of renewable energy and by providing longer term market certainty for companies like Heliogen that are actively investing in domestic, renewable energy manufacturing and technological development. There are several financial incentives in this bill that ultimately improve the return on investment for our prospective customers. We expect this will increase their willingness to move forward with Heliogen projects and potentially with larger initial projects. For a high growth company, with a business model that benefits greatly from economies of scale, this adds a substantial tailwind for us. Additionally, since our offerings to customers includes solar energy, thermal energy storage, and hydrogen solutions, the bill can benefit Heliogen from multiple different angles. The Dimensional Energy LOI for sustainable aviation fuel is a perfect example. There are new SAS credits that start at a $1.25 per gallon and increase depending on the reduction in life cycle greenhouse gas emissions. By using sunlight, air, and water as a feed stocks, as we plan to do with Dimensional Energy, we expect the airlines will view our production process, very favorably. Turning to our second quarter results, which you can see on Page 11 of our earnings presentation. Heliogen reported $2.4 million in revenue on contracts in progress, bringing our total revenue during the first half of 2022 to approximately $6 million. Weâve said previously that we expect our revenue this year to be second half weighted and that is still the case. We expect our revenue to ramp up considerably in the third and fourth quarters as we begin placing orders for additional long lead equipment on our first project for Woodside Energy under the contract, we signed back in March for a five-megawatt electric power demonstration facility in Southern California. We continue to make progress on negotiations with multiple different customers on additional contracts. This includes the HelioHeat module that weâve been selected to deploy for Rio Tinto at their mine in Boron, California. Our team has been working to finalize the design of this facility, and weâre pleased with the progress that weâve made. This contract along with the Woodside deal we signed in March would get us the low end of our modules contracted guidance for 2022. The modules that we contract this year will serve as the foundation for our revenue growth over the next few years. And our sales team continues to make great progress with the other prospective customers that are newer to our pipeline too. These include a number of applications of our HelioHeat technology for industrial heat applications ranging from aluminum refining to high value mineral mining in our target geographies. The LOI we recently announced with Dimensional Energy is another example of demand for our technology as we work to harness new applications of our product offerings. In this case for production of sustainable liquid fuel, which is another major growth avenue in the United States and abroad. As is the case with most of our other key commercial and execution milestones, weâve been expecting a busy second half of 2022. And we look forward to sharing further progress with you as this unfolds. And with that, Iâd now like to turn it back to Bill for closing remarks.
Bill Gross: Thank you, Christie. Iâd like to conclude todayâs call by saying how thrilled I am to lead Heliogen as we work to help heavy industry decarbonize by cost effectively eliminating fossil fuels from their energy intensive processes. I look forward to providing you with additional updates as the year progresses. Before we open it up to Q&A, please turn to Page 12. What we have laid out for you here is what I believe will enable Heliogen to succeed in its mission, while also generating high returns on the capital we are deploying. Heliogen offers a differentiated product to the large and growing industrial market by leveraging its proprietary technology. This technology is underpinned by cutting edge software that generates efficiencies we believe have never been seen before in solar energy production. We expect our extensive patent portfolio, our trade secrets and our learnings to help us maintain and defend these competitive advantages. The potential of this software extends beyond the field too as we plan to apply AI technology across the entire value chain to reduce costs. Thank you so much for your attention, and we look forward to answering your questions.
Operator: Thank you. We will now be conducting a question-and-answer session. Your first question comes from Rob Wertheimer with Melius Research.
Rob Wertheimer: Hey, good morning, everybody.
Bill Gross: Good morning, Rob.
Rob Wertheimer: I wanted to start with â got you. I wanted to start with end markets if I could, and Dimensional sort of an interesting with sustainability aviation fuel expansion or new direction. How does Heliogen technology work above others if it does for sustainable aviation fuel? I donât know thermal into the process gives you an efficiency advantage. I donât know if youâre one of many different ways theyâre going to approach this. I wonder if you just comment on how that technology fits into that end use application?
Bill Gross: Yes. Our key benefit is we make low cost, continuous thermal energy from the sun, and that thermal energy can be applied all over the place in industry and in this sustainable aviation fuel example. To make sustainable aviation fuel, you need a lot of thermal energy because you need to break up H2O into H and O. And you need to break up CO2 to get the C. Both of those things need a huge amount of thermal energy and thatâs our specialty. So we look at this as just one more area where our low cost thermal energy can be used to reduce CO2 footprint across the board.
Rob Wertheimer: Okay, perfect. I think I understand that. And then secondly, just how does the inbound interest from your various end markets? How is that shifting over time? I think maybe thereâs a shift to thermal, as you mentioned, where your advantage is strongest. I donât know whether youâre seeing more inbound demand from mining than you wouldâve or just any comment on where the interest is highest in your various end market target?
Bill Gross: I would say with whatâs happened in the world most recently. Thereâs a huge demand from mining of all kinds. And Elon recently said that investing in lithium refining is a license to print money because lithium is so valuable right now because of the electrification transportation and the fact that people need thermal energy for all of these mining operations really makes us perfectly suited for that, because what weâre making thermal energy, weâre almost three times more efficient than converting sunlight to electricity. We start off with a very big advantage, and of course, thermal energy is hugely needed in all of the mining operations around the world, and also perfectly matches the geographic targets that we have of the United States, Mexico, Chile and Australia. And thereâs a huge amount of demand from mining in Australia.
Rob Wertheimer: Okay, perfect. Just continue on there, Bill, you may have seen and maybe not, but thereâs a handful of thermal energy projects coupled with PV that have been talked about around the world. I think you just touched on the Heliogen advantage, which you collect more energy, collect more photon, you collect the whole spectrum, I suppose. Is there anything else as solar PV cost curve comes down that continues to give you an advantage in solar energy? Is it just energy collection? Is it the ability to generate a 1,000 C thatâs harder to do with resistance heating or anything else?
Bill Gross: Yes. Two things are critical about our technology. First is the storage, because we can provide industry 24/7, which almost all of our customers need. And second is the higher collection efficiency, and it really is about replacing the thermal energy at the best avoided cost possible. And by using the entire spectrum, as you said, with our mirrors, we get such a higher reflectivity than the conversion of photons to electricity in a PV panel that even as the cost of PV comes down, if you donât need electricity and you need the heat, weâre a much better way to go. And thatâs what our customers are finding.
Rob Wertheimer: Perfect. Thank you. Christie, could I ask you one just on the IRA and does it change in any way your access to capital for funding Heliogen itself? It seems like thereâs a ton of advantages for support fee end markets for your customers. Thereâs various incentives for solar PV construction. I donât know if anything applies directly to Heliogen, any thoughts on your path on access to capital?
Christie Obiaya: Yes, absolutely. Hey, Rob. Good to talk to you this morning and great question. We see the Investment Recovery Act as a huge advantage, because the act will extend and expand several different investment and production tax credits in ways that are directly applicable to our projects. Heliogen is a uniquely strong position to benefit because our focus on industrial decarbonization includes process heat in addition to power and hydrogen and storage. And so the solar tax credits, energy storage and hydrogen benefits will help to defray the upfront cost of few agentâs projects for our customers, which is great for giving us more market momentum. And then the domestic clean energy manufacturing provision directly improves Heliogenâs own access to capital.
Rob Wertheimer: Okay, perfect. And maybe my last one, Bill, could you just; I mean it was fascinating to see the fourth generation, at least thatâs in the progress youâre making in the robotic cleaning as well. Can you just talk a little bit about production capacity and what the status is? And how comfortable you are with bringing the factory for lease that production online by your second half of the year? Just any hurdles, any progress, anything else to talk about there?
Bill Gross: We have already achieved the production rates and the installation rates necessary for our first installations. And we can go to additional shifts to produce even more capacity, and we are continuing to refine the process. But weâve already achieved our benchmarks in our manufacturing facility in Long Beach. And we plan to give a tour of that on our Analyst Day. So, you can see that in operation, weâll share videos of it. And itâs really impressive robotic operation for the production of the heliostats. And as I mentioned in my comments earlier, I believe weâre one of the only if not the only heliostat production ever thatâs done in a factory because our heliostats are small enough to be made in a factory. We can actually produce them using the automated assembly techniques that other people have not been able to take advantage of. So, weâre really proud to show that off and the capabilities are already there to meet our first customers.
Rob Wertheimer: Fantastic. Okay. I look forward to that. Iâll be there. So thank you very much. I think thatâs what I have for now. Thank you.
Bill Gross: Thank you, Rob.
Operator: Your next question comes from Gabriele Sorbara with Siebert Williams Shank.
Gabriele Sorbara: Hey, good morning, Bill and Christie. With the primary catalyst being proving up the commercial viability of the modules, can you give a little bit more color on that first module with Woodside, Bill you talked about the permitting talked about kind of waiting on approvals to break ground. I would just wanted to see if there was a little bit more of a wholesome update, a little bit more color around the timeline, maybe with estimated building installation timeline and when that is full in service. Is it a late 2023 event? If you can give a little bit more color there. Thanks
Bill Gross: Christie?
Christie Obiaya: Sure. Hi Gabe. How are you?
Gabriele Sorbara: Doing well.
Christie Obiaya: Good. So good question. So on Woodside, on the Capella project, not to get into every step of the permitting process, but in summary, as Bill mentioned weâre working through the permitting process now and itâs been going as expected. So, we plan to begin in construction during 2023, after receiving all the necessary permits and approvals. And our expectation has been that the Capella project, which is this project for Woodside Energy will take beyond 2023 to complete due mainly to the novel scope associated with the DOE awards. So as a reminder, this project includes some very innovative aspects, such as super critical CO2 to drive the turbine generator for producing power. And so with all these elements and the application of the Department of Energy award to this project, which will be greatly beneficial for Heliogenâs overall future in power. We expect this project to be more like a, operating beyond 2023, but we do expect to start construction in 2023.
Gabriele Sorbara: Okay. Thank you. And it seems like youâre moving forward to Rio Tinto on that module. Can you speak, would that come online sooner than the Capella project?
Christie Obiaya: Yes, absolutely. Great question. So our, HelioHeat module with Rio is underway in terms of frontend engineering. And we continue to work on that definitive agreement, which we do still expect to find before the end of this year. And so weâll be in a great position to still be completing that project as planned during 2023. And so yes, overall HelioHeat is the kind of the simplest and fastest to construct offering that we have, whereas HelioPower and HelioFuel ends up taking longer than HelioHeat because of the additional components and elements in the design. And so youâre spot on the, the Rio Tinto module we do expect to come online in 2023 and therefore sooner than the, the Woodside Capella power project.
Gabriele Sorbara: Okay, great. And last one, inflation has been very topical. Can you speak to the environment for you guys? Are you having any issues, procure materials? I guess what are you doing to ensure that you have smooth execution, no hiccups or delays?
Christie Obiaya: Yes. Weâre certainly seeing impacts just like the rest of the economy. We do expect, based on the, the analysts, the global analysis that our supply chain team follows, we are seeing the prospect of a drop in cost of critical commodities starting later this year and hopefully sustaining over the next couple of years. And so at least, itâs looking like weâre coming down from some of the peaks that weâve seen over the last year, but weâve certainly felt it. And Iâll say that our customers willingness to pay being largely driven by comparison to their avoided cost of fossil fuel at least helps us be able to work to offset some of that impact on inflation of our material cost. And so that, thatâs certainly kind of a positive offset given where fossil fuel prices have been.
Gabriele Sorbara: Okay. Thank you. Thatâs all for me. Iâll turn it over.
Christie Obiaya: Thanks, Gabriele.
Operator: Thank you. I would like to turn the floor over to Bill for closing remarks.
Bill Gross: Well, thank you very much everybody for your questions. And thanks for joining us today. I feel that climate change is having its Netscape moment right now. And we are perfectly positioned to play in this new transition in a world on fire where we must stop burning things. Heliogen is helping heavy industry to stop burning things. And weâre really excited about the contributions we could make both to helping companies, avoid their cost of fossil fuels, but especially to reduce their carbon footprint and make, meet all the objectives and the claims that theyâve set for themselves. Thank you very much again for joining us. Weâre so excited to show you our progress and we look forward to sharing with you again, next quarter.
Operator: This concludes todayâs teleconference. You may disconnect your lines at this time and thank you for your participation.
