Redflow Ltd

ASX:RFX

Earnings Call Transcript 2024-Q2

[Ronn Bechler]

Good morning, everybody, and thank you for joining us today for webinar for RedFlow's Q2 FY '24 webinar. Firstly, I would just like to apologize on behalf of the company for the delay. We had scheduled this [ 6:30 ] a.m. Australian Eastern Daylight Savings Time, had to push it out for an hour. Unfortunately, there was a delay with the release of the materials with the ASX. The ASX had requested that the H1 FY '24 guidance that you'll see that's been launched -- also be launched separately. This was the same material that was included in the quarterly release that was launched this morning as well. So we apologize for the delay.

As I mentioned, on an e-mail to everybody, if you are unable to attend the entire session today because of other commitments, we do apologize for the inconvenience. There will be a recording of this webinar put up on the company's investor page later today. [Operator Instructions]

You will see on the screen, Tim Harris and 2 other gentlemen. I'll let Tim, the Managing Director and CEO of RedFlow, make the introductions of who's with him in the room, and I'll put up the slide deck while he does that.

Thanks, Tim. I'll hand over to you.

[Timothy Harris, executive]

Thanks very much, Ronn, and good morning, everyone. Again, just echoing Ronn statement, thanks everyone for their patience in enjoying this and delight that we've had this morning.

So delighted to join you this morning to talk about our recent results, but also concentrating and I look forward to where we see ourselves go into over the next 6 months and beyond. Ronn, do you just want to go to the next couple of slides, please.

As Ronn mentioned, delighted to be joined by 2 of my colleagues today, Michael Hipwood, who is our new Chief Financial Officer. I'll allow Michael to introduce himself and his background who joined us about 2, 3 weeks ago, so fairly fresh into the seat, but I think he's already making a significant impact in terms of where we are today and going forward. And also joined today by Tim MacTaggart, our Chief Operating Officer. Tim rejoined RedFlow back in 2019, and was appointed as COO in August of 2022. What I might do, Michael, is just ask you to introduce yourself and background, and then Tim you do the same.

[Michael Hipwood, executive]

Thanks, Tim. Hi, everyone. Once again, thanks for joining. A little bit about my history. So I've been a CFO since 2006. Some of the more -- companies that you may be familiar with, with Nikon, which is the mining software company. When I came in, the turnover was $200 million and a loss of $25 million. In 2 years, with the executive team, we're able to turn that around to $200 million revenue, no increase in revenue but $25 million profit.

At Boeing, I was the CFO and Director of Boeing Australia. There, turned Boeing around in Australia from $300 million revenue to $900 million revenue in 4 years with approximately $4 billion worth of backlog of orders. And most recently, at Tritium, when I started Tritium, the turnover was $30 million. When I left, it was $100 million and also listed that company on the NASDAQ.

Things which attracted me to RedFlow was the very good commercial traction with A-grade customers, including a number of government-backed entities and also the long history of the technology and the potential for us to evolve that technology to be competitive with not only flow batteries, but with all battery technologies, including lithium in the coming years.

[Timothy Harris, executive]

Thank you very much, Michael. And look, I think just echoing what Michael said, delighted to bring Michael on board with his caliber and experience and preparing ourselves to the next stage of our journey in terms of ramp-up and execution as we start to grow the company significantly. So delighted to have you on board, Michael.

Also, Tim, maybe a brief introduction. This is your second [ event in RedFlow ].

[Tim MacTaggart, executive]

So my background is in engineering and infrastructure, project management across telecommunications in the electricity industry. The last 20 years or so mainly in the electricity industry, from line construction through the engineering design works, large-scale solar plants and wind, we have 2 years of the company by an initial IPO in 2010. We're [indiscernible] deployment of systems under commercial contract.

I left the company, spent some time doing more electrical infrastructure and also working in technology commercialization with QUT here in Brisbane, rejoined the company in 2019. Again, all go through our field maintenance work and a right of other things around the company and took the COO role onboard in August of 2022. So now looking after a range of operations including the engineering design work quality, health and safety and a fairly tight integration with our manufacturing facility in [ time ].

[Timothy Harris, executive]

Great. Thank you, Tim. Perhaps, Ronn, we can just join to -- jump on to Slide 4, where we can talk about the summary. So if I sort of had to characterize, I suppose, where we were, look, I think we've made very good progress as a company over the last 3 months in terms of continued growth in the pipeline and market visibility. I think as we -- all investors know and people on this call, we have been challenged by the supply quality of the HDPE sheet that didn't materially impact production over the last quarter and, of course, has impacted the revenue numbers from that.

What I can say on a positive note is that we've been working very hard on fixing the supplier issue, which are now confident has been addressed. And we'll be back into customer production literally this week with an accelerated ramp-up plan to meet our customer project deliverables.

Now that's a slight delay to guidance from -- that we had in November when we sort of targeted that date at the end of the calendar year, but we've taken a very conservative view to this issue and the introduction of the new part. And Tim will be undertaking a deep dive around that over the next few minutes just to give a little bit of color about what we've been doing and how challenging that has become, but also how we have really strong light at the end of the tunnel for that.

In terms of other positives that we see over the quarter, we're seeing the sort of opportunity for us in large-scale projects, which is accelerating our current pipeline. And that's also creating new opportunities and also the opportunities for repeat customers, which is very important for us. And I think notably, the U.S. government following some of our announcements around the U.S. DOE and U.S. DoD has certainly kind of elicited some interest.

And that reflects our strategy of focusing on larger systems, getting some of those reference projects and deployments done, which has a very strong virtuous effect in terms of our credibility and capability to go and target large other multi-megawatt hour projects in our target markets, notably the U.S. and Australia and also reacting to other opportunities in other markets as we see.

And as you'll see in the 4C, we have highlighted a number of opportunities that we think are very exciting in front of us including a 55-megawatt hour opportunity here in Australia through the 8-megawatt hour opportunity with our customer in the financial services sector for one of their campuses that we've been working on for quite some time, but it's now kind of finally starting to accelerate.

And a number of other opportunities that we think: a, provide some very strong reference points for us; but b, are customers that may have the opportunity and need for hundreds of megawatt hours in the future. So there are opportunities absolutely worth pursuing.

In parallel, what we have been concentrating on is also raising our market visibility. Having that confidence to go out and engage with end customers, partners and also government in Australia and the U.S. about our leadership in the long-duration energy storage space, which is creating opportunities both from an end customer and project point of view, but also the potential for us to accelerate nondilutive sources of capital to support our product.

And in parallel, what we are seeing is that the LDES market and focus on that long-duration 8, 12-plus hours is really where our sweet spot is, is also starting to accelerate as well across our kind of target markets. And that's very exciting for us because we think we have diligently position ourselves to be able to capture those opportunities as they start to come forward.

On the sort of slightly sort of frustrating element, we have had some delays in terms of the final notice to proceed on some key projects, notably our project with the California Energy Commission and the Nomlaki Band of Paskenta Indians (sic) [ Paskenta Band of Nomlaki Indians ] that has sort of been shifted to the right as we waited for those that kind of notice to proceed. The reason for that, there's much more around negotiations between the CEC and the Native American tribe to finalize the contract that's had a sort of follow-on effect in terms of the megawatt hours that we're going to be proceeding with on Stage 1. But we are now have confirmation from the CEC and from our partners, they're expecting that in the coming weeks.

And as we look at where we have been over the last few months and focused on making sure that we can introduce some of these parts into production in a very low risk way and focused on quality and a methodical and linear ramp-up. Actually, there's a bit of a silver lining there that we are actually ready with the introduction of these new materials that we can meet our customer delivery schedules as they kind of stand today.

So look, we've been making progress, I think, over this quarter, a bit frustrated about some of those delays around the key projects that haven't gone away. But also, we know that the financials have been impacted by that kind of very key supply challenge that we have had. But actually, we're taking a long-term view, making sure that we can focus on a solution that's going to put us in a good position as we start to execute on those key projects.

Ronn, if we go on to the next slide, if we can, please. What I might ask now is Tim, just to provide some commentary around sort of background to this the sort of supplier issue that we've had and what progress that we've made over the coming months and where we find ourselves today. Over to you, Tim.

[Tim MacTaggart, executive]

Thanks. So we used a number of high-density polyethylene glass-filled sheets in construction of the battery. The percentage of glass that we use in those sheets make it a [ reasonable niche ] and difficult material to work with. We've had a stable supply from our supplier for a number of years that are needed during COVID, the raw material supply chains for that HDPE sheets have broken down and suppliers drawing down stockpile material. But coming into 2024, they had a [ source ] alternative suppliers of raw material.

What that has meant because it's very difficult material to manufacture that suffered a number of quality issues. And we've had repair issues, a variability of quality within a batch of being provided [ with ] and across multiple batches.

In response to that, through late 2024 with the [ source ] alternative suppliers and alternative raw material to supply to our manufacturer of that sheet. But unfortunately, now that's yielded a consistent results that we've been able to integrate in our batteries on a regular basis.

So the action we've taken in addition to trying to find alternative suppliers has been to engineer that particular product out of the battery. So rather than using an extruded HDPE sheet, we've moved to injection molding the part. And on the right, there's an illustration of the piece that we've been working on that we had antennas to introduce into production in December, which has been delayed a little as we kind of refine that tool after some initial trial in the factory.

However, those parts have now been delivered through our factories in Thailand as of yesterday and be integrated into the customer-grade batteries later this week. We're also engineering our other HDPE extruded sheets, which again help us to improve quality, increase the yield, reduce costs. There's a number of side benefits associated with moving to injection molding and away from the third-party supplier extruded sheets.

So to date, it's been a long journey, having problems from that supply chain. We've derisked that now by taking that on board ourselves by doing injection molding. We currently injection molded a number of similar parts [ in time ]. So it's a low risk from our perspective. So the complex tool has taken a little bit of time just to get correct. But all good to go from February.

[Timothy Harris, executive]

Thank you, Tim. Look, I think just echoing some of Tim's sentiments and comments there. I think over that period, this focus on the injection molding approach for these kind of critical parts that would allow us to eliminate that HDPE sheet has been a 6-month journey for that. In the meantime, we have tried to work with our current supplier to kind of make sure that they can bring their quality up to where it's needed to be. But our efforts to kind of diversify that supply chain has probably been inhibited by just kind of type -- typical specifications we have in this and our inability to put significant volumes on -- into that kind of new supply base because we have foreseen the introduction of injection molded part.

So that's had, I think, a material effect in terms of just the amount of batteries that would be able to produce over the last quarter. But as I mentioned before, we've been very much focused on the quality and the long-term solution to this rather than kind of sticking around over and leaving ourselves exposed as we start to ramp up to these kind of materials as we see today.

I think the other aspect that we've had is we have an extremely rigorous approach to this injection molded part, significant analysis, use the third-party consultants to make sure that we have got the molds that's absolutely correct, and we are very confident as we start to move into production.

So for Australia [indiscernible]. I think in the spirit of kind of asking ourselves the question, I think when we start to look at the Gen3 model, we probably underestimated the complexity of this material on that dependency on that single supplier as we start to look forward and ramp up. But as soon as we recognize we've got a problem, we've been focused on that long-term solution. And I'm confident as we introduce that into manufacturing, the pathway to ramp-up of a high-quality battery stands for us.

Moving now to the next slide. Tim -- Ronn, thank you. So just an update around the key projects that we've had in terms of deliveries. As Tim has mentioned, we have still been able to produce a limited number of batteries over the last quarter that we've been able to focus on and deliver to customers. And one of those is the Pod that we've had for Acciona. As investors will know, Acciona is an extremely large Spanish-based utility, conglomerate focused on renewables, and we're selling one of the Energy Pods. So we're hugely excited about that project. That's due to arrive on the customer side, I think in the next week or 2, and we're going to be targeting commissioning of that in March time. So that's truly exciting for us.

In terms of Energy Queensland, we're continuing to engage with the design and engineering aspects around that 4-megawatt hour project. And also proceeding on the signing of the MSA, which we're expecting in the next couple of weeks and then moving into kind of final contract signing. So again, that's a 4-megawatt hour project just down the road and our first utility project that we're having in Australia. So hugely excited about that as well.

For the U.S. DoD, we're continuing to work on the engineering design to meet the U.S. DoD requirements and milestones and looking at the overall design and making sure that they can integrate for the overall system and requirements. And again, we're expecting system delivery and commissioning of that in kind of early Q1 of FY '25.

And then for the Paskenta Microgrid project, as I indicated previously, the original size that we had announced and we had both announced with the CEC around that was 20-megawatt hours. As negotiations between the tribe and the funding sources within the CEC have progressed, that Phase 1 of that project has dropped slightly to about 15.4 megawatt hours. We are along with the CEC targeting additional budget to bring that project back up to 21 hours in terms of Phase 2. But the view is let's just get on and get moving with that 15.4-megawatt hour project.

So we're expecting that final notice to proceed in early February. And after that, we'll be delivering, we believe, the kind of projects around that in kind of early FY '25.

And then lastly, the 34-megawatt hour project that we announced for the Valley Childrens Hospital, which is funded by the U.S. DOE and also the California Energy Commission also supported by Faraday that is delivering the project for Paskenta. Negotiations are continuing around that. As I think we've notified that U.S. DOE and CEC that will need to come to the table about the final design and budgetary specifications. We're expecting that contract to be finalized in early H1 FY '25. Design and engineering is progressing, and we're expecting that delivery timetable to kind of be -- to go through to FY '26.

So the key message, I supposed, we have here, big projects still on track. Some of those kind of slightly delayed, but actually, that's aligned with where I think we are in production and our ability to ramp up and meet the projects in the time frame that we've defined here.

Next slide, please. As I mentioned, in parallel, one of the things that we have been doing on -- particularly on the back of some of those very large-scale megawatt hour announcements that we've made is making sure that we are positioning ourselves both with end customers, but also major stakeholders, both at the federal level and also at the state level, particularly here in Australia. And we were delighted to spend some time with the Queensland Minister for Energy, Mick De Brenni back in December, where he talked about the ambition for Queensland to be a global leader in non-lithium energy storage solutions.

We're also delighted to spend some time with Steven Miles, the new Queensland Premier in Dubai at COP in December as well. And back in October, I think as we talked to investors, we were delighted to be a guest to the Australian government for the official statement by Prime Minister Anthony Albanese to Washington as really one of the leaders in the green energy technology, which underpins a lot of the alliance that's happening between the U.S. and Australia around green energy technology.

And the impact, I suppose, that this gives us, it gives us great visibility. We know that there are potentially funding sources at the state level and federal level that we can start to tap into as we start to think about our ramp-up. But also, I think it reflects the credibility that we have in the market as a proud Australian Queensland company that's taking our global technology onto the global stage.

And in parallel, our market activities is continuing. We had a huge response to us at the All Energy Conference in Melbourne that was held last month. And that just, I think, reinforces the fact that some of these project announcements that we have made are having a hugely accretive effect in terms of our visibility and interest in the market and our leading solutions, particularly at the multi-megawatt stage -- sort of projects, both in [ C&I ] and utilities that we have stated is really our key focus going forward.

Next slide, please, Ronn. So what I'd like to do now is maybe hand over to Michael just to talk about the financial summary for the quarter and some of the guidance that we're giving around the half year.

[Michael Hipwood, executive]

Sure. In Q1 FY '24, net cash used in operating activity, investing activity was $3.9 million. In Q2, it was $2.78 million (sic) [ $2.798 million ]. So an improvement of $1.1 million. That was mainly due to the receipt of the R&D tax credit payment of $2.4 million. It was offset by increased operating costs of $1.354 million, mainly in the activities that Tim has already explained in getting the quality improved in the factory.

The net cash used in operating activities, therefore, for the whole of H1 was $6.699 million. Now going forward, the results for -- sorry, Half 1 F '24, we expect to be a loss of $14 million. Now this is a result of the lower-than-expected customer revenue, so arising from the supply chain issues and also adjustments to the balance sheets, which include increasing warranty provisions.

So the net assets at 31st of December are expected to be $6.5 million versus $9.1 million. The -- it is a conservative view. As Tim said, I've only been in the role for 3 weeks. The audit takes -- begins to take place next week. And so it is a very prudent and conservative view and may improve by the time the audit is concluded. The final results will be released as usual in late February.

Also in mid-March, we should have completed a refining of the 4-year Path to Profitability Plan. Now this is key for RedFlow. This will include 3 key aspects. The first one being an explanation and a road map of bringing a new product, the X10, which will be competitive with all battery technologies, including lithium. So that's the aim. So that will be a road map to get there. It will also include the manufacturing ramp up, which will look at the viability of onshoring manufacturing back to Australia and probably automating the factory to allow for that ramp-up and possibly also a factory in the U.S. to comply with IRA legislation.

And thirdly, the funding requirement for that plan. So it will include, obviously, shareholder contributions, but also grants. There's some significant grants in a previous role at Hysata, which was a hydrogen electrolizing company. We're able to secure significant grants for a new product and the factory from ARENA. I don't know if the amounts have been disclosed, but it was sufficient to have at least 50% of that funding required from ARENA, which is a federal government grant body.

And also looking at the R&D tax credits, which this year was $2.4 million, but if we accelerate and increase the amount of R&D, that should increase as well. So that will also be outlined approximately in mid-March and showing the market and shareholders our path to profitability over that full year period.

[Timothy Harris, executive]

Thanks, Michael. Ronn, if we just go to the next slide, please. So look, in terms of the priorities across the next half and beyond are pretty clear. We want to finalize these contract negotiations, secure the notice to proceed and then sort of get on with it.

We know that there's additional key deals in the pipeline that we've cited to and we saw the richness of the pipeline continues to grow. As we said before, on the back of the announcement of some of these deals, we think it will continue to grow as we start to execute on some of these other key projects such as the CEC and the Energy Queensland.

And we know that there's further opportunities that we can do and build in terms of industry partnerships and government relationships to accelerate our sales momentum in our kind of key markets.

The next element is just relentless execution. We've talked and we've been transparent with investors about some of those challenges we've had with that supply base over the quarter. When you take those lessons that we need to take an absolutely conservative approach to kind of stabilizing production and making sure that we can ramp up. What I can tell you is that the time line that we have against the CEC, DoD, Energy Queensland, et cetera, will align with the ramp-up that we have that we are extremely comfortable with as we start to put this new tool, this new component into production.

The key thing that we want to do there is really maximize the rich pipeline and capability, making sure that we can scale that, we get the productivity benefits that we need, and we have that unit cost impact both in terms of supply base pricing, but also productivity and efficiency that we can make through that. And also looking to see how we can make productivity, cost, quality and supply diversification improvements to kind of cause ZBM3 because we know there's lots of improvements that we can make even within the Thailand facility [ mean within the current metric ].

As we start to look up, focus on that kind of scale up and what is that pathway to profitability. I think as we've signaled really to investors, we want to leapfrog where we are in Thailand and look for that kind of next scale of manufacturing because we are confident that demand is there and particularly some of the discussions that we're having with some customers very clearly beyond what we believe Thailand can scale up to. And we want to make sure that we are in a very strong position that we know exactly what that target facility looks like, where it can be ultimately located and what the business case of that is.

And at the same time, I think, as Michael has referred to, really progressing some of those opportunities for non-dilutive sources of growth to allow us to scale up that in ways that means that we can leverage the balance sheet that we have in other sources of capital, particularly from government in the U.S. and in Australia that were very much suited towards.

So if we just go over to the next slide, which will be our last slide about where we are. So look, when we start to look at the projects that we've announced, we have a full production outlook for the remainder of the calendar year and well into the next calendar year 2025. And those projects critically allow us to participate in the large-scale market with utility scale and industrial customers and also seek that repeat business that we talked about before.

And importantly, one of the key reasons that we've talked to investors before about pursuing those is that these customers have the ability to have repeat orders with huge energy storage needs in the future. And we feel that we're very well placed for that, and also setting that foundation for further U.S. and Australian expansion as a kind of key market. And we know, as we said before, is that we've got a very exciting pipeline and a number of key deals as highlighted in our 4C commentary are advancing.

Fundamentally, we have some of the world's leading engineers experience and expertise around this. We've talked before about how we -- as we start to get to the next phase of our growth, we need to augment what we've already got. And I think Michael joining as a key example of that of just bringing that next level of high growth capability into the executive team, and we'll be making some further announcements around some changes to key management and expertise as we start to scale in the coming future and also mentioning the sort of non-diluted sources of capital growth that actually are in progress, and we're pretty excited about some of those starting to do something very tangible in the coming months.

And more broadly, I think in terms of our fundamentals and our market positioning, the market for long-duration energy storage is just starting to grow increasingly. And we feel in terms of our target markets with the product that we have, with the operational experience that we have and with the reference projects that we've talked about here, we find ourselves in an extremely good position to be able to go and leverage that.

I recognize that it's been a bit of a frustrating experience for investors over the last quarter but we are thinking long term. And we've invested our scarce resources into thinking about long term and coming up with solutions that as I think Tim mentioned before, we're starting to put into production literally this week. So we're very excited about the future, delighted that Michael has joined us, and we look forward to sharing news and updates with you as we progress.

So Ronn, I think that's the last slide. So we're happy to now turn it over and answer any questions that we have from the audience.

[Ronn Bechler]

Thanks, Tim and gentlemen, for the presentation this morning. I have quite a number of questions that came in over the last day or two, several of which were covered off in the presentation. Obviously, a lot of questions around what's happening with the -- on the supplier side and the manufacturing. There are questions that have come in as this webinar has been going. I will try and cover off all of them as much as possible as we have within the time. [Operator Instructions]

So I might try and cover off the questions that have come through on the manufacturing issues, but obviously, some of them have already been covered off. So I won't ask them. But maybe one question that's come in is if the manufacturing is delayed, are we at risk of losing contracts?

[Timothy Harris, executive]

I think the short answer to that is when we start to look at the material projects that we've announced here, the answer to that is no. Actually, as I indicated before, the CEC project has probably slipped to the right by a number of months where we probably had originally anticipated back in September, October. That's got nothing to do with us or our battery design or production, that's actually more orientated around the budgetary sources from the CEC that's actually changed materially, but also some of the final negotiations between the other parties, notably, the Native American tribe, the end customer, our EPC customer and the California Energy Commission.

And actually, so the silver lining in that is that it's actually allowed us to kind of make sure that we are producing batteries for that, we have introduced this new path that addresses the supplier issue that we've had and sort of been challenged with over the last few months. So from a material asset perspective on all the projects that we've talked about here, we don't see any risk of those being canceled because of the production numbers.

[Ronn Bechler]

Okay. And is the new injection molded plastic part ends up proving not to be reliable, what alternatives are being investigated?

[Timothy Harris, executive]

Yes. So what I think Tim spoke about before is that we've done a highly rigorous approach to this injection molded part that's been in progress for the last 6 months. We've had third-party engineers look at this and look at the molds. We've done extensive testing around that part. As a plan B in parallel, we've also sought to qualify additional suppliers of HDPE sheet. Some of which are formed by the [ wayside ], where we haven't had any confidence about their ability to execute, but others we've got a reasonable level of confidence that they can actually supply us with the right materials.

And so as a backup plan, we're continuing to engage with those suppliers. If for any reason that the collector -- injection molded collector is delayed for some reason, we're confident it's not, but you always have a good plan B. And so we have been sort of validating some of those other suppliers.

Tim, do you want to make any comments around that?

[Tim MacTaggart, executive]

No, I think it's fair. I mean there's a number of -- is it takes time to qualify because of the specialized nature of the material, and the delivery time frames that go with that. So there's a number of suppliers which we still think can deliver for us, including the original supplier where we continue to work with them. So as Tim said, that's a viable alternative to introducing. But I think it's probably fair to say the injection molding of the part is a much better control over the quality of that part. And it's also a technique that we use for manufacturing electrode at the moment. So the risk of that being a problem quite expected, we think is very low.

[Timothy Harris, executive]

And just as an example of that, I suppose, Ronn, we had targeted December to introduce this material, the mold came out. I think it was at 2.25?

[Ronn Bechler]

0.25...

[Timothy Harris, executive]

Millimeter difference from the original design, we'd probably we're pretty confident that, that could work in a machine, but we took a highly conservative view and just refined that mold to make sure we've got that sizing that absolutely precise. So it's been a lot of time and even into that. As we said before, it's [ grade a little bit of that squeeze to ] suppliers, but we're confident that we'll be back in customer production literally this week.

[Ronn Bechler]

Okay. You actually answered the question that came through the live stream Q&A around are you dealing with 1 supplier or multiple so we make that off. And maybe if we can just keep talking about the Thai manufacturing plant. Can you please confirm the expected unit capacity of the facility in 2024?

[Timothy Harris, executive]

Yes. So as we've said to investors before, we believe that, that facility could probably stretch up to about 80-megawatt hours, possibly even a little bit more, as we start to introduce some automation and other aspects into the facility. At the moment, aligned with the customer delivery time tables that when these customers want to receive those batteries, probably the line of sight we've got is getting to 40-megawatt hours per annum probably in the second half of this calendar year.

Any plans to move beyond that, I think, will be based on 2 things: one is we were starting to see that really emerging demand and some of the thinking that we have around the next manufacturing facility because we don't want to spend CapEx that's been redundant if we think that we can accelerate a further CapEx for a new facility, and the second aspect is really confidence around customer demand as we start to scale. So we're very confident about that on a 40-megawatt hour top mark. Anything beyond that, I think, has got to have those 2 components coming together and making sure that, a, it's worth spending that investment capital to kind of get to that point.

I think -- well, the other thing I'd probably just say on that, and Michael alluded to, was this kind of next generation of battery that we've been doing a bit of work on at the moment. As we start to look particularly at large multi-megawatt hour scale, we recognize that some of the scale effects with our current form factor in battery start to diminish as we start to get to scale. And if our customers are looking for much bigger projects, do we have the ability to take what's great about our existing battery, particularly around the stack and stack technology, and put that into a larger form factor that's going to enable us to get a step change in terms of our cost profile, margin and market competitiveness.

And so we want to take what's great and then we want to take that and see how can we add automation to that, how can we add scale and how can we add through the design iteration that's going to radically make us more competitive, particularly at that very large-scale utility market.

And so that stuff is actively in process at the moment. And when we start to talk about that kind of March release, we'll be giving some more details about some of our thinking there and how we're going to pursue that, mainly, to some of those discussions about what that manufacturing strategy is.

But look, the key thing is if we wanted to really stretch that Thai facility, we have the ability to do so. But we're not going to make that decision yet until we see a couple of those -- a couple of other points coming through.

[Ronn Bechler]

Maybe we can just touch on -- you talked about multi-megawatt hour projects. Maybe we can touch on -- we had some questions coming on smaller battery. Queries, when will more residential style -- 2 questions. When will the RedFlow 10-kilowatt hours battery be available in New Zealand? And what would its price point be?

And someone else mentioned, they've tried a couple of times to receive info about buying the battery system for their house and what the price for a small [ battery ] would be, but hadn't heard back and we're wondering if customers were having the same problem.

[Timothy Harris, executive]

Look, bit disappointed to hear that. I mean, in terms of our strategy, we've been pretty consistent about where our focus is for customers over the -- as we start to look forward, we think our future is into a larger scale. We still continue to do some smaller scale, but that's more probably behind-the-meter sort of smaller C&I type customers where we see the potential for significant volume against that even at the smallest [indiscernible].

And so in terms of our emphasis on residential, we don't think that's really, a, a great market for us. It's a very high maintenance channel. You need a really strong support system around that and I'd much rather sell 500 batteries to 1 customer than try and sell 500 individual sales to residential. So -- and because of that sort of track record that we've steadily built on the back of Energia and other sort of megawatt projects, the sales cycle that we're seeing there is necessarily becoming shorter.

And so that's really where we see our future to be because that also allows us to drive volume into our business, that allows us to kind of negotiate supply contracts, that allows us to iterate the design of the battery to get us more competitive.

And so in terms of New Zealand and residential, that's probably not a market that we see as a priority for us at the moment.

[Ronn Bechler]

Maybe we can just talk. So now we think on the larger scale and the industrial opportunities, commercial opportunities, can you provide -- we had a question regarding if you can provide a little clarity on the value proposition to those potential customers in terms of above and below 20-megawatt hours? How many modules, what delivery rate and recharge time compares to in terms of other tech?

[Timothy Harris, executive]

So -- and I'll sort have Tim to support me on this conversation. So when we talk about commercial and industrial customers in our target markets, usually those kind of opportunities are what we call behind the meter. So end customers wanting to maximize their renewable energy penetration, they usually have some kind of solar that they've got on their kind of site, but also wanting to meet their renewable energy obligations and targets. And lastly, wanting some kind of energy and price security.

We've seen huge volatility in terms of energy prices not just here in Australia, but in Europe and in the U.S. over the last kind of couple of years. And increasingly, customers who view energy and electricity as a key part of their infrastructure are wanting to have that energy security. So for example, one of our key suppliers who's got multiple operations in Europe last year shut down some of those operations because of the energy costs. And so that's driving for a major focus on sort of energy, sort of security and sovereignty.

And so when customers look at our battery, they want longer duration. So they usually want solar kind of soaking or maximizing renewable energy. And so taking a lot of excess energy that's generated during the day and then just charging that into the evening over a kind of 8- to 12-plus [indiscernible] period and that's when flow batteries are -- and our batteries are really well suited to.

There's also the business case to make sure that I can buy low and sell high. So taking energy when it's super cheap and then discharging it when buying from the grid or from other sources is really expensive. And that's a key driver for flow batteries in terms of their day in/day out with also charging and discharging.

A couple of other aspects that's driving, I think, customer selection for us is safety. So I think we've seen some well-publicized examples of thermal runaway risk with lithium-based batteries. And when you combine that with longer-duration flow batteries, we think our chemistry are really well suited. And when we look at the kind of flow battery space, we have key advantages, we think, around [ rapid ] efficiency, footprint and low cost of deployment versus other solutions in the market. And so we think we've got a really strong value proposition.

Now as we start to grow and we start to look into utility scale, we do know that price becomes a huge factor and levelized cost of storage becomes a huge factor. And hence, some of our thinking as we start to target some of those multi-megawatt hour, even particularly hundreds of megawatt hour options, our ability to create a step change in the cost that meets these customers kind of target price and LCOS numbers is a clear line of sight that we have and we're going through that process of validating that. And that's just going to open up the market for us kind of tremendously.

And so it does take a little bit more time in terms of the sales cycle, but we know that the opportunity that we have there is absolutely real and is very well suited to our battery and our chemistry and also the operation history that we've established. A lot of the customers are saying, we don't want a new technology that's just coming out of the field that's got 0 miles under it in terms of supporting microgrid infrastructure. I actually want to see your battery performing in the field. You've got some lessons in the field, but that's actually accretive to your value proposition because I know that you've learned from that and integrated that into new versions of the battery.

[Ronn Bechler]

We've got a question from a shareholder: how competitive are RedFlow batteries with longer-duration lithium batteries that are now being packaged as 4 hours or sometimes even 8-hour duration?

[Timothy Harris, executive]

So really good question. We're seeing a few 8-hour systems come out on lithium that are pretty small, but basically a replication of 2-, 4-hour batteries. Based on our numbers and where we see it, we're probably a little sort of 20% to 30% away from that market at the moment.

But as we start to grow and drive scale into our business, we know that we can be competitive at the kind of 6- to 12-hour market. And increasingly, we're also seeing RFPs and tenders that are specifically excluding lithium for various reasons around that.

And so that 55-megawatt hour project that we've talked about is a long duration, I think that's an 8- to 12-hour duration, which is in front-of-the-meter type application, and the tender of that or the OI that we had around that specifically excluded lithium batteries.

So you're also starting to see the market appreciate that while lithium might come up for 4 hours or 6 hours or so, actually the market for us is that intraday cycling that we still have some really blue water that we can start to compete in.

And so we're not particularly sort of -- we watch it, but our key focus is making sure that we can add the best value proposition that we possibly can around that kind of 6- to 12-hour mark.

[Ronn Bechler]

A question from another shareholder just staying on this comparison discussion that we're on at the moment: how is the company progressing on reducing cost of the battery to ensure long-term competitiveness against other tech?

[Timothy Harris, executive]

Yes. So we really see our competitiveness, but also the need to drive the gross margin into the business coming from 3 key sources. One is basically just getting better deals from our suppliers. I mean, I think we've talked about this a number of times. One of the benefits of these larger projects that we've announced is we can finally have discussions with some of our strategic suppliers and get some commercial scale frameworks in the best kind of cost down you can possibly get right. You're just getting the same cheaper so it doesn't require any kind of engineering effort.

The second aspect, and we've got some very promising discussions and engagements happening here that's going to enable us to get a good step change, but also be a bit strategic about our purchasing, right. So things such as electronics. If you purchase forward, you get a much better discount than buying in the spot market. And so having some of those large contracts enables us to do so.

The second aspect, I suppose, in terms of the cost down is basically just driving performance improvements out of battery. We know that we have a great battery that works at the moment. We know that, alongside quality, we can actually get better operational performance out of the battery that leads to a better outcome for customers and a better value proposition than it can provide to customers. And so that's also some work in progress, and we're hopeful to sort of probably make some announcements about that when we start to get to the strategic update.

But then the last point is that kind of design iteration. What can we do to kind of get more efficient, both in terms of productivity and manufacturing but also some core design changes that we know that we can make as we start to scale that enable that step change in where we are today? And this kind of move to kind of automation, it's just not a binary thing. There are certain things that we can do today in the factory in Thailand that's going to bring immediate productivity improvements. For example, we know that we've just done some productivity improvements in terms of our CNC machine that's brought down the use of that CNC machine by about 40%. So that's, again, some kind of incremental innovation that we can have that just makes us more productive. But we know the next big lever is we move into a much larger battery facility and introduce some modern automation into our battery.

In parallel, as we've spoken before, this kind of X10 concept, where we can make something bigger, better, more aligned to automation that actually starts to remove significantly some costs that we have in the battery through that bigger form factor. And so that kind of step change is something that we're actually focused on as well.

So there's sort of short-term things that we can do, the incremental stuff. There's a medium-term stuff that we're focused on and there are some big stuff as we start to get to deliver the multi-megawatt projects. So we're very confident about executing and getting up a very competitive product at that utility base scale.

[Ronn Bechler]

One more question on lithium is the reduction of lithium prices impacting demand for flow technology.

[Timothy Harris, executive]

Good question. Not that we've seen so far. I think we're going to see a lot of volatility in lithium-based prices as we go through and we know because lithium-based systems are so exposed to commodity prices now. Movement in commodity prices does affect the price of lithium in the market.

So I probably see that you're going to have quite a bit of volatility in lithium in the near-term future. You're going to see some announcements where lithium prices were high and then those projects are canceled and then you start to see some kind of stabilization of lithium prices [ when ] that demand-supply element becomes equilibrium.

But we're not starting to see too many impacts in terms of the short-term opportunities where we are. If we think about much longer opportunities, then we need to be conscious of where we think lithium is going to be. But when we do think about the levelized cost of storage, we do think we've got a competitive advantage as we start to get that longer duration versus the core chemistry of a lithium system.

The only thing I would mention there as well is particularly [ headlined ] to me on that trip to the U.S. and also discussions in Australia is there's a real focus and push on what we call kind of national energy sovereignty. If you start to look at the profile of the value chain around lithium-based systems and the focus on concentration in China that you have on that, people in the U.S. administration, the Australian administration are very keen to ensure that they have diversification as the world moves to electrification.

And depending on one technology and one supplier, particularly when you've got concentration of processing, of IP all in a country where you see the geopolitical tectonic plates starting to shift, there's an absolute interest in our battery in terms of our diversification, national energy sovereignty play from that perspective.

[Ronn Bechler]

And maybe one last question, but it's more around the next-gen battery that you touched on and then we'll talk about capital structure and also project progress and growth opportunities. If you iterate to the X10 battery, will you still keep the 10-kilowatt hour battery in production?

[Timothy Harris, executive]

Yes. So the thinking is this thing is probably not going to be a switch over. We probably will have some kind of formal function around the X10 and the X10 and the current ZBM3 because, as we said, we know we need to execute on current projects but also there's lots of performance iterations that we can do there.

When we start to look at the core of the X10, the core of the X10 and the thinking at the moment is we are taking the core of that stack that we have built up and basically multiplying that over a single system. So think about the X10 means something as you're taking 10 of our existing stacks and putting that on our larger systems. So the core of all the investments we've made or the experience we've had, all the trade secrets and IP that we've developed is around that stack, and that's what we're going to be continuing. So absolutely our ability to continue those projects in parallel is absolutely the focus on where we are.

And we don't want to throw things away and start from a blank sheet of paper. This is all about leveraging all of our kind of knowledge and experience and IP, supplier relationships, performance characteristics that we have in the existing battery but focus on some of those step changes on the rest of the battery system outside of the [ step ] to get that step change in performance and also quality and also cost.

[Ronn Bechler]

Maybe we'll touch on a couple of capital questions. Given this year -- this came through pre this webinar. Given the share price underperformance, is RedFlow planning on undertaking another share consolidation?

[Timothy Harris, executive]

Well, I think the answer to that is no. We -- I think we're as disappointed with our other investors about the share price performance. That's something that we can't directly control. We're just focused on the business and executing on the business.

But as I said to one investor, we talked about that, that it's a frustrating to see, but we just focused on executing where we are and executing on the plan. And hopefully, the market will start to reflect that and get further confidence that will then be reflected on the share price.

I think from kind of where we sit today, it's all about execution. And we're very aware and conscious about -- conscious of the fact it's been a frustrating period for investors. But I think as we've highlighted, we're looking forward now and we're confident about getting back into production and putting the kind of last 3, 6 months behind us with a really strong solution. And once we do that, we think that the market will take that on board.

[Ronn Bechler]

Just another question off the back of share price performance. How will existing shareholders be protected by excessive dilution?

[Timothy Harris, executive]

Look, as I think we've mentioned before, we're at a position now where we have big contracts. We have a line of sight to other big contracts and we have a number of other discussions happening about potential sources of nondilutive capital. I think Michael mentioned to the market before his success about engaging with other parties such as ARENA for actually non-dilutive sources of funding to be able to go and do that. We do have a lot of discussions going at the state level and at the federal level about sources of growth capital that we can tap into.

And the other fact that we have is a very clean balance sheet. So if you look at our peers, they've loaded up their balance sheet significantly with debt to kind of fund their progress. As we start to get these bigger contracts, the ability to finance some of our growth capital and working capital through other sources become evident.

And so there's a very clear strategy of focusing some of those bigger systems because that has a virtuous knock-on effect in terms of our ability to kind of source, grow capital from other sources as well.

But needless to say, look, we think the opportunity in front of us is significant. 55 megawatt hours of opportunity that we've been shortlisted to, we wouldn't have been there 2, 3 years ago, right? And so this business is about scale. We want to invest to capture that opportunity in a multitrillion dollar market. That is going to take capital, but we're also very conscious that we want to tap into other sources of nondilutive capital alongside any potential shareholder support we might need in the future.

[Ronn Bechler]

We have last question on capital structure, and then I want to focus on sort of some of the project updates and some of the growth stuff and we've got a whole bunch of questions on them. But a question that came in from a shareholder: it seems Michael will be a good addition to the team. And I wonder if there's any thoughts about relisting RedFlow in the U.S. where there may be more appetite for this type of technology investment?

[Michael Hipwood, executive]

Is that a specific question for me?

[Timothy Harris, executive]

Why don't I answer? Clearly, with Michael's experience, it's a logical question. I mean, I think the fundamental answer to that is [ as in ] dialogue with the Board and then Michael, we want to do what's best for our existing shareholders as our primary focus and objective. If that means we need to explore other potential capital structure and options that we think is going to deliver the best return to our current investors, then we'll definitely explore those. But that's front and foremost on our mind.

It is a fair question to say and if you start to look at the topography of our sort of projects that were announced and the size of the market in the U.S., there are potential growth options there, but it's something that we're going to approach very prudently.

But I'll ask Michael give his thoughts.

[Michael Hipwood, executive]

Yes. No, I think you answered everything I was going to say. As the [ center of mass ], if it goes to the U.S., then most certainly we do have opportunities to list in the U.S., and like the shareholders said, deeper and wider sources of funding over there. But as Tim also said, our major focus at the moment is -- well, always a focus, is to execute on our plan. So once we have the runs on the board, then all those opportunities open up for us.

[Ronn Bechler]

Maybe we can focus now on projects and some of the growth opportunities. We've had a few questions come in regarding getting an update on the Fortune 500 company opportunity. Where is that at? And one specific shareholder asked how much longer will we need to wait?

[Timothy Harris, executive]

Look, a fair question. As highlighted in our 4C where we talked about where we've been the preferred technology for an initial 8-megawatt hour project for a campus in the U.S., that's actually that financial services company. I can't divulge any more, but the big milestone we've had around there is they've given the EPC company that's partnering with them on their approval to proceed to detailed design level using our batteries.

Now we've got to make the business case stack up and they've got to make the overall business case stack up. But it's been a long kind of hard road and I don't think it's anything to do with our technology, but with the pace of the renewables program that this company is facing. But that is making real and kind of tangible progress, albeit sort of much, much longer than we had presumed.

But I think as we've indicated before, the caliber of that customer and the overall needs that they have indicated to us in terms of renewable energy storage and their preference around technology means that we think it's an opportunity that's worth continuing to invest in. And so that has made tangible progress over the last quarter.

We've indicated that we hope that's going to get to business case, I think, in sort of June, July. So it does take time, but we think, again, we're standing alongside that end customer and the EPC and trying to make that happen.

[Ronn Bechler]

What's happened to the Semini's project in WA?

[Timothy Harris, executive]

So the Semini Grain project, that's still there. I mean that's been, I think, delayed in terms of some elements with the end customer and the partner that we have there. We still continue to be enthusiastic about that.

I think one of those things that our sort of limited production has probably impacted that a little bit. But as we've been in discussions with the end customer and our partner, our ability to execute that in the coming months as we restart production is definitely part of our objective.

[Ronn Bechler]

We've had one shareholder point to remote mining communities in Australia as being an excellent target market for RedFlow's batteries. Has the company's sales force actively targeted those remote mining communities as potential customers?

[Timothy Harris, executive]

Yes. So look, we can confirm that we have some discussions ongoing with some very large mining companies that have that exposure. They're deeply committed to decarbonization. They're huge users of diesel generation and gas, so they know they need to make a fundamental shift in terms of moving to renewables, but we also know they're deeply conservative in terms of protecting their critical infrastructure and their operations.

But I can confirm that we have some pretty exciting opportunities alive at the moment to explore how we can use some of our batteries at least initially in pilot phases and across some of the critical infrastructure.

The other thing that's worth noting that last year, I think we were announced as part of their mining electrification consortium out of WA as part of that includes technology companies such as us, but also some very large other kind of mining companies.

But the investor there is absolutely right. It should be a rich picking for us. But we also note that the sales cycle is [ at times ] slow, it's because of the conservative nature, but based on supporting critical infrastructure, their existing dependence on diesel generators, but also just things like safety, et cetera. But we think that's a major positive for us. And so we hope we'll progress some of those opportunities over 2024.

[Ronn Bechler]

Is there any update on RedFlow's participation in the ARENA community battery program that was being developed through last year?

[Timothy Harris, executive]

Yes. So we can confirm that we are actively involved in some discussions around the kind of community battery program.

[Ronn Bechler]

Okay. Maybe we can touch on the U.S. There's an election coming up next year for the President. What's the company's perspective around the future of the Inflation Reduction scheme in the U.S. if there's a change of government?

[Timothy Harris, executive]

Look, it's an interesting one. And I think if we all had a crystal ball, we'd be in a different position that we are now. So it's really difficult to kind of predict the future. But we do think it's a potential Trump-versus-Biden presidential election this year and the Republicans to prevail.

It's a difficult one to know that our current underlying view at the moment is we don't think that's going to derail any projects that we've announced or progress that we're having, particularly in California that we know a lot of that funding is state level versus federal level.

The only thing that we note as well under the U.S. Inflation Reduction Act, a lot of the benefits of that Inflation Reduction Act and the tax credits, et cetera, that accrue to end customers and sort of subsidize energy storage projects are based in heavily Republican areas.

So a lot of those communities that are actually going through kind of the energy transition are actually directly impacting and benefiting from the components of the Inflation Reduction Act. So you can never predict what's exactly going to happen and this is U.S. politics and Donald Trump on top of that. But from what we see today, we don't think that detracts from our focus and excitement about the U.S. energy storage market and both at the state level, but also at the federal level as well.

And I think the other thing to bring into context here is when you start to look at some of the corporate customers that are deeply committed to decarbonization are announcing publicly their determination to get to those points, that's going to survive through election cycles. And so we see that kind of corporate industrial focus for us continuing notwithstanding anything that comes through at the Presidential election cycle.

[Ronn Bechler]

We don't have any further questions [ we got ] either through the presentation and then Q&A the questions that came in pre the webinar. And we've also covered off all the questions that came in while we were live in this webinar.

So I might close out with one final question, if I might, and it touches on the increasing market engagement and visibility of the company in the U.S., a key market. Tim, you've had some very important meetings as the U.S. management have also over in the U.S. with various leaders at federal, state level and business. Can you give us a sense of what you took away from the meetings in terms of where the company is engaging and how you see the opportunity in the U.S. going forward because clearly a number of the big projects that have come through have been out of the U.S. so far.

[Timothy Harris, executive]

Yes. So look, I mean, to take a step back. I mean, the U.S. is the world's largest in the storage market. It's growing 30% CAGR per annum and so it's a huge market that's only going to grow larger.

The second point is that when you start to look at the AUKUS, the key third pillar of the alliance that was publicly announced between Biden and Prime Minister Anthony Albanese is around renewable energy and the energy transition. And when you start to look at the cornerstone of that energy transition, energy storage sits at the heart of that. And when you start to look at the MOU that was announced and signed by both parties, emerging energy storage technologies was specifically mentioned.

So when you take a kind of macro view, we sit right at the heart of that dialogue. And so we've had lots of discussions, both on the U.S. side but also on the Australian side about how we can support those efforts, but also be a really strong poster child about how Australia has got some super world-leading green energy technologies that actually has got a major role to play in the U.S. transition.

On the other side, some of those thematics around scale, driving cost down, support from the California Energy Commission and also that energy security and diversifying away from lithium alongside that focus on longer-duration energy storage is a major role. And I think we are the only Australian company that has got projects with the CEC. We're the only Australian company that's got that project around the U.S. DOE long-duration energy storage program.

And that's a great place for us to be because our visibility, highly visible projects, great support from government on both sides is a springboard for us to kind of leap into further government contracts, but also into the private sector as well. And so we've worked really hard for those projects. We think they are massively strategic in nature, such as the U.S. Department of Energy, and provide us a really strong platform for us to continue to grow and invest in the U.S.

And look, we think it's a really strong pathway. We've got a great team there. And we look forward to making further announcements and further progress in the U.S. market, particularly as we start to execute against some of these projects as well.

[Ronn Bechler]

A very late question that came in off the back of what you said, Tim, is how does the AUKUS agreement see Australian suppliers in terms of sovereign supply?

[Timothy Harris, executive]

Good question. There's lots of dialogue going around about what that alliance actually means and whether Australia is going to be classified as a domestic producer in the eyes of the U.S. Inflation Reduction Act.

So we're watching that very closely. We're watching about some of the definitions about what constitutes domestic product in the U.S. so we can align our manufacturing strategy and sourcing strategy alongside that. And I think we've also noted that we've already sort of qualified a number of U.S.-based suppliers that make sure that we could meet some most U.S. IRA compliance elements. So a lot of that stuff is going to come out in the wash, I think, over the coming months, but we feel we're incredibly well positioned to be able to go and tap into that.

And as I said before, we're a lighthouse for what Australian companies can do on a global stage and being a guest of the Australian government at the COP in Dubai as a technology that's not in the lab, it's actually proving and supporting critical infrastructure, we think, is a great advertisement for companies like RedFlow and the support that we can perceive and need to receive from Australian government to kind of get to the next leg of our [ product ].

[Ronn Bechler]

I'm conscious we've gone over time. We've covered off all the questions that have come in. Again, I apologize to shareholders that we had to start an hour late. Unfortunately, it was beyond our control and we needed to make sure that the materials have been released by ASX before we could have this webinar.

Tim, Michael, Tim, thank you very much for your time this morning. And obviously, if anyone has any other further questions off the back of this webinar, please reach out to me, Ronn Bechler. My details are on the ASX releases.

Maybe I'll just hand back to you, Tim, to close off this morning's conversation. Thanks, Tim.

[Timothy Harris, executive]

Thanks so much, Ronn, and thank you all for going over time and the changed time, as Ronn mentioned. First, I'd like to thank you everyone for their ongoing support. I know that we've sort of navigated a particularly tricky time. And I think we've mentioned before, we have a very clear runway and I think 2024 is going to be a great year for us not only in terms of the projects we've got to execute on, but the great work that's done by Tim and his team around fixing the engineering issue, but also bringing on people like Michael that's just having a really good fresh eyes against the company, our strategy, our growth strategy and also the capital strategy that we talked about before.

And so we'll continue to give investors regular updates as we proceed because we know confidence in us is really important as we start to go forward, and that's a real focus on the half year results, but also, as we've noted, that kind of update in March about our pathway to profitability and we think it's a really exciting time for us.

So thanks, and we look forward to sharing more information with you in the coming weeks and months.

[Ronn Bechler]

Thank you, everybody, for joining today and have a terrific day. That ends our webinar.

[Timothy Harris, executive]

Thanks, everybody.