Heliogen, Inc.

Good morning and welcome to the Heliogen, Inc. Second Quarter 2023 Conference Call. As a reminder, today's call is being recorded. At this time, all participants are in a listen-only mode. 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.

Thank you, Operator, and good morning to everyone. We're glad you could join us today for our second quarter 2023 conference call. With us on today's call are Christy Obiea, Heliogen's Chief Executive Officer, and Sagar Karada, our Chief Financial Officer. Heliogen issued its results yesterday afternoon in a press release that can be found on the investor 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 prioritize sales of the company's industrial steam project and installation of commercial-scale projects, 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 from GAAP More detailed information about these measures and a reconciliation of the most comparable U.S. GAAP measures is contained in the press release issued yesterday, which is available in the investor section of our website and was furnished on Form 8K with the SEC. A replay of this call will also be available on the investor section of our company website this afternoon. And with that, I'm pleased to turn the call over to Christy.

Thank you, Louis. Good morning to you all, and thank you for joining us. Let's start by turning to page four in the presentation posted on the investor section of Heliogen's website. This slide essentially captures Heliogen on a single page. I'd like to begin by reaffirming our core mission, which is that first slide highlighted in orange on the page. Heliogen is on a mission to help decarbonize industry and enable a sustainable, low-carbon future. We're positioned to do this through our unique combination of concentrated solar technology thermal energy storage, and artificial intelligence, which allow us to produce dispatchable green energy in the form of heat, power, or hydrogen. Now, over the next five minutes or so, I'm going to walk through slides, which essentially double-click on other slices from this opening page. Our product and value differentiators, our market focus, and our offering. Turning to slide five, here I'll describe the needs we see in the market and how Heliogen's products can meet those needs. First, let's talk about heat, which includes steam. 30% of industrial heating applications require heat below 100 degrees Celsius, while another 27% can be met with heat between 100 and 400 degrees Celsius. In most cases, the onsite production of this heat is vital in order to minimize wasted heat that gets lost in transport to the point of use at the customer. We specialize in producing and delivering green heat because our energy starts as heat from the sun. Our first products will serve saturated and superheated steam applications of up to 550 degrees Celsius. This capacity enables customers to avoid high fuel costs, enhancing both sustainability and financial viability. Longer term, we see huge potential for the high-temperature heat products that are on our future products roadmap, as we've already proven at our demonstration scale facility that Heliogen's technology can generate temperatures in excess of 1,000 degrees Celsius. High temperature applications are especially compelling because they can address industries like cement and steel, which are among the most significant contributors to carbon emissions, specifically because their high temperature processes are currently served almost exclusively by burning fossil fuels. On the power side, the need for on-demand electricity is ever-present and tends to be much more universally understood as compared with heat. It's not a surprise to most that industrial and utility load-serving assets often require continuous power. So a resilient, economical, grid-independent solution with four and plus hour duration is essential. And the market has finally started to incentivize this commercially for renewable sources of power. Our power products will produce dispatchable electric power that is competitively priced inclusive of storage. Turning to green fuel, With around 95% of all hydrogen currently produced from fossil fuels, the call for green hydrogen has intensified. Heliogen's ability to produce both green heat and green power makes us uniquely suited for harnessing the efficiencies of a solid oxide electrolyzer to produce green hydrogen, which can leverage both steam and power as essential energy inputs for splitting the water molecule. Now, on the right side of the page, let's delve into the differentiators that set our products apart. Strategically, our solutions offer high capacity factors of up to 100%, low energy storage costs, no reliance on rare earth minerals, and greater than 85% recyclability. We are also well positioned to leverage regulatory incentives in the U.S. via the Inflation Reduction Act and many others abroad. Operationally, our AI-enabled closed-loop tracking for the heliostat field leads to over 30% more efficiency per square foot than traditional solar PV. without the thermal runaway fire risk associated with battery storage solutions. Our products are designed to use widely available materials with a diverse supply chain for stability and scalability. Finally, the modularity of our systems solves for scale by enabling tailored solutions to serve behind the meter needs for both small and large customer applications. Modularity also enables easier permitting and maximizes the ability for us to reapply engineering work and lessons learned from project to project. By aligning our solutions to the critical needs of our customers and differentiating our offerings through strategic and operational innovation, we are building a robust platform for growth within a massive addressable market opportunity. Moving on to page six, we'll explore Heliogen's value proposition through the lens of the different industries our technology can serve. Our technology is applicable and customizable across diverse sectors. The metals and mining industry is responsible for nearly 4% of total final energy consumption globally. And given the prominent role that critical minerals play in the energy transition, it faces a pressing need to use more sustainable energy sources. Heliogen is primed to replace aging fossil fuel energy production assets serving this market. Legacy renewable technologies have been an imperfect substitute to dispatchable fossil fuel energy sources. Our solutions for demand year-round can maximize the integration of renewables with low-carbon electricity. We're prepared to fully integrate our concentrated solar power with solar PV and storage for optimal levelized costs of energy, inclusive of storage. This integration offers a new standard that can be utilized by both utilities and industrial operators with on-site power generation. We're working to forge solutions-oriented partnerships with other service providers and vendors, along with clients that have a need for decarbonization that Heliogen's technology can solve. I strongly believe an all-of-the-above strategy is necessary for the world to achieve its ambitious and growing net-zero goals. And the attributes I've outlined here show why Heliogen's technology can be an essential contributor to achieving these goals. Let me now take the time to describe our commercial offering. Page 7 lays out how we operate today and provides a glimpse into our vision for the future. Today, we partner to develop and sell turnkey projects which deploy Heliogen's core technology. In this current model, we're not merely a provider. We're a partner. We plan, design, and build projects, ensuring they are functional and ready to use. This turnkey approach fosters efficiency and a seamless integration with our customers' existing operations. We work closely with our customers to align our solutions to address their unique needs and pain points. Then upon start of operations, we can provide operations and maintenance support through a long-term service contract. In the future, we expect our business model to shift more toward a licensing approach where we sell technology packages, which may include our heliostats, our proprietary software, and integration services. We expect to partner with third parties on project development and physical deployment, and this will help us amplify our reach and accelerate our market penetration. Now I'd like to share an update on our strategic priorities, summarized on page eight. We've made significant progress since our last business update. Our first priority is to close sales contracts, and we've continued to make strides in expanding our commercial reach. We've signed an $11.2 million sustainable green hydrogen production off-take contract with the City of Lancaster, California. Let me now take the time to describe our commercial offering. Page 7 lays out how we operate today and provides a glimpse into our vision for the future. Today, we develop and sell turnkey projects which deploy Heliogen's core technology. This includes planning, designing, and overseeing the installation of the projects to ensure that they are functional and ready to use. Taking on these roles helps us control our own destiny on our early commercial projects, and we'll work closely with our customers to align our solutions to address their unique needs and pain points. Then, upon start of operations, we can provide operations and maintenance support through a long-term service contract. In the future, we expect our business model to shift more toward a licensing approach, where we sell technology packages which may include our heliostats, our proprietary software, and integration services. We expect to partner with third parties on project development and physical deployment under this business model, and this will help us amplify our reach and accelerate our market penetration. Now I'd like to share an update on our strategic priorities as summarized on page eight of the presentation. We've made significant progress since our last business update. Our first priority is to close sales contracts. In June, we signed an $11.2 million sustainable green hydrogen offtake contract with the city of Lancaster, California. This represents not only a commercial milestone for Heliogen, but a shared vision for a cleaner future with the city as our partner. Looking ahead, our current prospects pipeline has grown to 825 megawatts, with 700 megawatts added since our last conference call in May. This remarkable expansion reflects the progress our sales and commercial team have made and positions us for securing additional customer commitments. Our second priority is to install our first commercial scale project, which will open up access to new prospective customers as well as continuing to help us evolve future generations of our products. This priority underscores our commitment to translating vision into tangible results. We're targeting groundbreaking by year-end, setting the stage for the construction of our pioneering green hydrogen project. We're executing on a well-calibrated plan to achieve mechanical completion by the end of 2024 and commence the first hydrogen production during the first quarter of 2025. Over the upcoming 90 days, we'll be focused on our permitting and long lead equipment activities. Our third priority is to extend our liquidity runway in order to position for robust growth. The cost reductions that we actioned at the end of the first quarter are now being realized. And in parallel, the shelf registration that we filed earlier this year is now effective and preserves optionality for how we add growth capital to the balance sheet. If you'll turn to page nine, you'll see we've outlined our commercial pipeline on a page for the first time. What you see on the page is a summary of our sales and marketing activity. This is how our chief commercial officer, Tom Doyle, and the commercial team now manage the pipeline internally. And going forward, we'll continue to status and share this with you as part of our business update on subsequent calls. There are four stages named at the top of the graphic, and we've defined those stages based on the status of engagement with each prospective customer. We only categorize an order as booked if we have a fully signed contract with a performance obligation under the sales. In terms of the big picture, we have a total of 825 megawatts across 22 potential customers. We've more than doubled the total number of potential customers in the pipeline. In terms of megawatts, we've grown that number by over six times, with our focus not only on adding customers, but on prioritizing those who may have energy demand across multiple operating locations where Heliogen may be a fit. So the average capacity per customer has increased. Let me take a moment to explain the stages of the pipeline. Each stage is defined based on the progress of engagement with the customer. In the lead generation stage of our sales pipeline, we are discussing site-specific details of the customer. We're in discussion about their goals, their pain points, their technical wants, and we're conceptualizing the approach to integration. As those interactions progress, we'll receive more detailed information from the customer that we use to generate an indicative proposal that we then submit. We currently have six customers in this submitted proposal stage, encompassing 34 megawatts. The next phase in the pipeline is the pre-final investment decision activities stage, or the pre-FID stage. By this point, it will often be the case that we'll have a letter of intent or a memorandum of understanding in place that outlines mutual intent between Heliogen and the customer. We progress through the necessary steps to help the customer make a final decision. This may include activities such as engineering design work, providing the client with a detailed equipment layout, and providing details on the scope, schedule, and cost estimate. Where possible, we'll structure these as customer-funded activities. The duration of pre-FID work will depend upon the type of customer and the nature and size of customer commitment. For example, for some projects, the customer may need to take the decision to their board of directors for approval. After executing a final contract, we move into the execution phase of the project. We currently have two customers in this stage. That includes the Proxima Green Hydrogen contract, as well as the Capella project with Woodside Energy, who continues to be an exceptionally strong partner for us. Projects in the booked orders stage enter our revenue backlog. I mentioned last quarter that we augmented and reoriented our sales team to grow our pipeline. And the numbers on this page are a testament to those improvements. As we work to close additional contracts, we look forward to updating you on our progress in the coming quarters. Before we move on to the discussion of our backlog and financial results, I'd like to introduce Sagar Karata, our new CFO and head of strategy, and to express my deep appreciation to Kelly Rosser, who graciously served as our interim CFO and has now returned to serving as our chief accounting officer. Sagar brings more than two decades of experience in industrial decarbonization and renewable energy, and he has a proven track record of developing and implementing financial growth strategies for disruptive companies in this space. Sagar, over to you.