Heliogen, Inc. (NYSE:HLGN) Q4 2023 Earnings Call Transcript
Heliogen, Inc. (NYSE:HLGN) Q4 2023 Earnings Call Transcript March 26, 2024
Heliogen, Inc. isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).
Operator: Good morning and welcome to the Heliogen 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. 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 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 Obiaya, Heliogen's Chief Executive 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 company's future operations and financial performance, including implementation of the company's strategic plan and growth initiatives, plans for the company's cost reduction strategy, plans to advance its PV 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 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 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 US GAAP measures is contained in the press 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'm pleased to turn the call over to Christie.
Christie Obiaya: Thank you, Louis, and good morning, everyone. Page three of the materials shows the outline of topics we'll cover today. I'm going to start with updates and highlights from 4Q 2023, along with a commercial pipeline update and 2024 priorities. Then I'll go into an update on our financials, including our backlog, income statement review and cash before sharing closing remarks. Now diving into our 4Q updates on page four. We've continued to make tangible progress on our three strategic priorities of closing 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 Heliogen's technology in Mexico. Why is that agreement significant in 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 sites. 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 US, Chile and Australia. The reason why Mexico is 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 nearshoring 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 nearshoring companies as well as Mexico's own 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 Heliogen's technology. And third, the principles of Omanor, our leading developers of logistics and energy infrastructure assets, and they provide permitting and offtake services for renewable energy projects in the states of Baja California Norte and Sonora, Mexico. Therefore, we see a ton of synergy between what Heliogen brings and Omanor's strengths. We've begun the collaboration with Omanor by working together to evaluate specific locations that they've identified for our first potential projects there and we look forward to sharing updates as this work unfolds.
In addition to the Omanor agreement, it is worth noting a contract update on our Brenda Hydrogen Project, which is our development asset in Arizona. On the Brenda project, we intend to deploy our hybrid CSP-PV offering to supply clean energy to electrolyzers, which we anticipate will produce up to 20,000 metric tons per year of fuel cell electric vehicle-grade green hydrogen. We recently executed a contract with Woodside Energy to progress the engineering and development of Heliogen's design on the Arizona project site. While the revenue backlog is relatively nominal at $1.6 million, it's an indicator of the interest generated in this project as we've 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'll highlight on this page is that we've continued to advance our first commercial scale project, which is now underway in West Texas. Detailed engineering has significantly progressed and 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 Lab that our proprietary first-ever closed-loop software was validated at a Sandia CSP test facility. The test proved the capability of our advanced control system to significantly improve the pointing accuracy of the solar beam on the tower.
You can see the improvement visually in the before and after photos on the slide. The type of "spillage" that you see in the before photo has historically been a common challenge with CSP and Heliogen's 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 or mirrors. So although we have our own mirror 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 CSP 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 CSP-PV hybrid offering with thermal energy storage to produce power or heat. This offering uses the most mature commercially available storage technology on the market, which is molten salt. 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. The Capella project is therefore a key step along Heliogen's future road map as a technology company. Our customer and partners in the project are Woodside Energy in the US Department of Energy.
2023 was a banner year for the Capella project as we achieved a number of key milestones. We completed a successful test of a centrifugal particle receiver and we validated critical design improvements for scale-up. We received airspace approval, which is an important step in project site development and permitting. We conducted trials on the heat exchanger, which will be used to transfer heat to the power block. We also completed front-end engineering design or FEED, resulting in an updated schedule and cost estimate for the project. Feedback from industry participants is that Heliogen's work on the Capella project now positions us as having the most advanced Generation 3 concentrated solar technology in the world and we look forward to leveraging the Capella earnings 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 estimate as well as additional nonrecurring 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 Heliogen to absorb that future cash loss.
So in 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 license. 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 at the 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 potential for Generation 3 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 now familiar with these next three slides. You can see from slides seven and eight that we've continued to advance our pipeline. We've grown our leads to over 2 gigawatts. We've advanced more prospects to submit a proposal stage at 151 megawatts. And we've also increased our pre-FID activity stage prospects to 120 megawatts. These are important steps towards large commercial scale contracts which, as a reminder, does take time for capital projects. 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 we're pursuing in 2024 with a focus on what are the things we need to do to start generating meaningful revenue toward building a sustainable long-term business. I 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 Omanor joint development agreement. 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 accelerating 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 data sets will support the establishment of an insurance product that would be part of our commercial offering. We're also focused on extending our liquidity. Reflecting on current market conditions, we have proactively engaged a financial adviser 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. Although I will be providing the finance update on today's call, I'm pleased to share that we've just appointed our new CFO, Phelps Morris, who will start at Heliogen on April 1st and brings significant experience in both the solar industry and in public companies during dynamic business cycles, most recently at FTC Solar. I look forward to Phelps joining our team and contributing his financial leadership and perspective. Now turning to page 11. We have 7 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 to progress 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 contract to complete the Capella project with Woodside and the US 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 costs 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 Capella cost estimate as the true cost as we're aggressively pursuing cost reductions and additional funding sources, as I mentioned earlier in the call, with the goal of not compromising on the project's 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 2022, which is one of the several ways that we're working to improve our liquidity and reduce our cash burn. We'll continue working to reduce nonessential expenses and simplify our cost structure without sacrificing our ability to meet our most important commercial and operational goals. Turning to page 13. Here, we'll 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 and the US 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 a 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 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 will be focused on advancing the prospect 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 product for our technology.
We'll also pursue the net cost reductions that I mentioned on the Capella project so that the advancements that we made in 2023 can be brought to fruition towards ultimately having a fully commercial Generation 3 CSP offering. And finally, we will execute the actions towards adding growth capital, including the strategic review process with our financial adviser 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 the 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 Heliogen. I'll now turn it over to the moderator for any questions from the line. Thank you.
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