Redflow Ltd

ASX:RFX

Earnings Call Analysis

Earnings Call Transcript 2024-Q3

[Craig Sainsbury]

Welcome to RedFlow's third quarter FY '24 quarterly results. With me today, CEO, Tim Harris; and the CFO, Michael Hipwood. Tim and Michael will give a presentation followed by the chance to ask some questions. [Operator Instructions]

Tim, with that, I'll hand it across to you.

[Timothy Harris, executive]

Great. Great. Thanks very much, and welcome, everyone, to today's third quarter quarterly results. As Craig has said, joined here by our CFO, Michael Hipwood, that will cover over some of the financial results as well.

Perhaps we adjusted in slide for Craig. And so it's been a very busy quarter for RedFlow. And I think we've made tremendous progress over the quarter across a number of dimensions that are very important for our short term but also our long-term future.

Critically, on the top side during the quarter and subsequently in April, we've been able to announce a number of important projects for large-scale customers, including repeat customers that we think provide an exciting pathway for us going forward.

We now have over 62 -- or around 62-megawatt hours of projects that we have announced over the last kind of 11-ish months and a number of those have continued to progress well, and we'll go through that in a little bit detail later on.

And also, we have a very exciting pipeline. We've talked before about our transition to larger megawatt hour systems and the virtuous circle that we're looking to create about announcing smaller projects that lead on to bigger projects and broadening our relationship with existing customers but also new customers, and we're pretty excited about some opportunities that we have in the pipeline.

In terms of manufacturing, the key messages, we're back on track. We announced 3.5 megawatt hours of annualized production in March, and we're on track to hit that 20-megawatt hour target in June, July this year and then tracking up to kind of 40-megawatt hours in our Thailand facility.

And we have a number of engineering projects that are in place now or have been executed against that's going to allow us to achieve those numbers, improve quality, improve productivity but also reduce cost as well.

And we'll talk a little bit more about this feasibility study that we announced during the quarter around looking at the business case for our large-scale manufacturing facility in Queensland sitting alongside the evolution of our product, specifically the X10.

Other key highlights for the year is clearly we've had Michael join us in the quarter, which I think is already having a really significant impact for us as we start to think about our growth trajectory, but also a new chief engineer, and I'll talk about that shortly.

And I think here -- on the call here, we'll be aware we announced an entitlement offer on the 15th of April, again, and we'll talk about that a little bit later on.

If we go to the next slide, please, Craig. So I just want to spend a little bit of time about some of the projects that we've announced during the quarter because I think each of these have a different characteristic, but also reflect the growing momentum that we've been having with our customers as RedFlow's credibility in the megawatt-hour space starts to grow and the market for long-duration storage also start to expand.

And so a couple of weeks ago, we announced our second contract with the U.S. Department of Defense as follows the announcement we made around the Stewart Air Force base last year. So less than 12 months, we've secured our second contract with the U.S. DOD. This is to support a resiliency exercise at the Sigonella Naval Air Station in Italy, that's the second largest Air Force base outside of the U.S. So we're incredibly excited about that. And we continue to work with the U.S. Department of Defense around other opportunities.

I'd like to remind people on this call that we are the only Australian energy storage company that's been selected for these projects by the U.S. DOD after fairly extended engagement with them. So we're incredibly excited about executing against these key projects, but also about what the future might hold. And as the U.S. DOD look at resiliency, look at nonenergy storage solutions that don't have the factor of them runway and they can diversify and achieve their energy storage and decarbonization goals.

So we also expect to deliver this project into that base towards the end of this calendar year, so the second quarter of the financial year. And I would also note when we start to think about the previous projects that we had, this is less than 12 months, and I think provides us with an exciting pathway in terms of delivering these high-profile projects to the U.S. DOD, but other opportunities as we start to go forward.

The second project that we announced back in March was our second project with an Australian utility. And that's the Horizon Power to install 2 of our energy storage pods as part of their remote group's network program. Two important things here, I think it's worthy to talk about a little bit.

The first one is our first project with Horizon Power, we've been speaking with Horizon Power for a couple of years now and really excited about being able to announce this first project. Clearly, Horizon Power has got a very big program around energy storage across Western Australia as they look at resiliency but also a community-based systems.

And the other important thing that we have here is this is a project that's also been sponsored by ARENA. To our first project in partnership with ARENA. So we're incredibly excited about that. And again, I think this also reflects the progress we're making and the fact that the second utility project that we're doing in Australia with a customer that has potentially hundreds of megawatt hours of demand going forward for long duration and non-lithium based solutions. We're incredibly excited to have announced that in March.

And then the last one to highlight here is the projects that we had with the Barona LDES project that we announced back in February. This is a 6.6 megawatt hour project that now has been formally recommended for grant funding, so that's in the public domain. That's for the Barona community trial project, again, for resiliency that goes into sort of formal brand negotiations. So we expect to deliver on this project in around FY '26, knowing the sort of pathway that we've now more experienced around in terms of the California Energy Commission.

But what I think is important to note is this is now the fourth project at the California Energy Commission is doing with us. Just reminding investors, they sponsored the first project in California, the 2-megawatt project that we had with Anaergia that's now been operating for 2 years. They've supported the Paskenta project that supported our project with the U.S. DOE at the Valley Children's Hospital and then we have the support project here.

So look, I think that's a great reflection of where we see ourselves and the potential of opportunity and demand we see in California as they look to decarbonize their network. And just reminding investors that when we start to look at the potential demand in California, that's anywhere from 50 to hundreds of gigawatt hours of long-duration energy storage that the market thinks is going to be required to help them achieve their decarbonization goal. So we feel, again, California is a great market for us. We've got our COO and President of Americas Mark Higgins, based out of the Bay Area who's making great progress, and we're incredibly excited still about the opportunities that lie in front of us in California but also in other markets across the U.S.

Next slide, please. So just a further update about projects that we have announced and when they're on the delivery schedule. We last presented this a couple of weeks ago as part of our strategy update, and it's probably important to note that not too much has changed. With the Paskenta Microgrid Project, we are now awaiting the initial deposit that we know has been released by the CEC to our EPC partner, Faraday, so we are expecting that very imminently as it starts to get wine towards us. So that project is on track, and we're looking forward to kind of scaling up production according to the customer needs.

With regards to Energy Queensland, we have now aligned ourselves against the Master Services Agreement and now digging into the specific contract. For that project that we expect to be concluded in -- over the coming weeks with delivery across the last quarter of this financial year and into Q1. And again, that's a 4-megawatt hour high-profile project at a substation within Ipswich, which is just down the road for us here that we think will create a great high visibility project and support the Queensland energy Jobs plan and decarbonization targets for the state.

With regards to ACCIONA, I think we've notified across social media platforms that we delivered that side during the quarter. We had our engineering team go over to Spain and work with the ACCIONA innovation team to set that up. That's on our working. We're excited to see the results in working with the ACCIONA innovation team in Spain. But also critically, that's led to other discussions that we're having with ACCIONA across the world, also in Australia.

We hosted the ACCIONA's -- their product development team a couple of weeks ago here as they started to get familiar with the technology. So again, this is, we think, a first step hopefully of a deep and enduring relationship with ACCIONA as they start to think about their long-duration energy storage needs, and we're incredibly excited about that relationship and moving forward with them.

With regards to the U.S. Department of Defense Grids, that's continuing to engage. We have -- now have a dedicated team that we're working on that and close relationship with the DOD project team. Again, we expect that system delivery to be towards the end of this kind of calendar year. And again, we're incredibly excited about that opportunity.

I would just take a moment just sort of to note that the U.S. Department of Defense got about 450 bases of this kind of size and magnitude around the world. And this project is a 1.2 to 1.4 megawatt projects that we've been -- has been indicated to us is around about 10% of the overall potential energy storage needs of that Stewart Air Force base. So we do think that we have a great platform of reference projects with the U.S. Department of Defense with this new project in Italy, but also this project in New York State. And we look forward to continuing to execute against those and continue on and pursuing other opportunities that we had with the U.S. DOD.

And lastly, with our 34-megawatt project, which is a partnership with -- between the U.S. DOE and the California Energy Commission. Those negotiations are continuing also with the end customer, and we're expecting final contracting on that to be completed towards the end of this year.

So I'd just like to highlight then, as we noted, the changes to the engineering -- the executive team that we've been able to execute over the quarter. Again, as I mentioned, delighted to bring Michael Hipwood on board as our CFO, bringing in deep experience around scale-up companies and technology companies into RedFlow. We were also delighted to have Juergen join us as our Chief Engineer. Juergen comes with 20-plus years' experience within Ford, one of the leading automakers based out of Melbourne. And he joins us to lead our engineering team, both in terms of mechanical and also electrical engineering.

And this appointment comes at a very important time in terms of our evolution. And Juergen will be leading our efforts to ensure that we can have a great trajectory in terms of scale up. but also working towards the next scale of our manufacturing facility and product evolution, notably the X10 that we'll talk about a little bit later on. And we will Juergen the ability to talk about his plans his team and give you a bit of an insight into Juergen at later stages. But again, I think this is an incredibly important hire at a really important time in our evolution and delighted for Juergen to have joined us.

I now just want to talk about -- a little bit about production and where we are now. And as investors will know, we've had a bit of a rocky road with Thailand, particularly towards the end of '23, but going into '24, particularly around some supplier quality issues. What I can say now is that we are back on track. That injection molder collector is in production, and you can see an image of our worker using that injection molder collector there, that's a photo I took about 4 weeks ago when no one's visiting the plant and sort of delighted with the progress that we're making.

So we managed to achieve about an annualized 3.5 megawatt hours of production as of March. We executed against a number of engineering projects over the quarter, notably the introduction of the injection molder collector, new iterations to the CNC machines that's dramatically reducing the run time that we have to have to produce our batteries, particularly our set and introduction into of a new tech that allows for a front filling that also makes any essential mentions that we have in the field much easier as well. So still continuing with a number of kind of engineering projects.

When we start to look at about where we are in April, we had an annualized sort of 7-megawatt hours even take into account Songkran, which is a significant public holiday event that we have in time. And so we've got a very clear plan for us to scale up to 20-megawatt hours around about the end of June, July and then be able to reach that kind of 40-megawatt hours in around September of this year.

And this is absolutely aligned to the delivery program of our customers. We don't want to get too many -- too ahead of ourselves in terms of production. We don't want to get too far behind. And just the kind of right Goldilocks moment about scaling up. So we're using efficient uses of capital and materials, and we're able to deliver to our customers as we need to.

And further scale up beyond Thailand, beyond that kind of 40-megawatt hours as we said before, we believe that factory is capable of its kind of scaling up to around 80-megawatt hours, but that's going to depend a lot on the size and scale of customer contracts and timing of delivery, but also some of our plans around that bigger and broader set of manufacturing capabilities that we're keen to develop, as we've spoken about before, and we'll cover a little bit kind of later on.

And at the same time, we're building ourselves to make sure that we can execute against that kind time table with a number of kind of engineering and efficiency projects underway. We're introducing a new spray line that's going to increase yield and that by at least 50%, basically allowing better throughput. And we're increasing the number of test days that we have to allow us to test much more batteries more rigorously to allow us to kind of hit those targets.

And so as we start to look forward, we'll talk about that Queensland feasibility plan a little bit in the future. But also we want to be clear that, that facility based on our current plans and what we see today is going to be very much a complement of that existing facility.

Look, so where we kind of sit today, we're now producing batteries. Some of those will be going to new customers. Some of those that we have decided to make some selected replacements into the field based on some of the experiences that we're having with Gen 3, where some of those batteries have not quite worked the way that we wanted them to. But we now have all those kind of issues behind us. We're now producing good, high-quality batteries. And I think we can look forward to absolute confidence in terms of delivering on these kind of critical projects than where we are today.

Can we just go on to the next slide, please. I'd like to probably hand it over to you, Michael and cover couple off the financials.

[Michael Hipwood, executive]

Yes. Thanks, Tim. So the quarter saw us manage our cash quite diligently. Our operating and financing costs were actually $700,000 less than the previous quarter. And this morning, we were notified that the $6 million from Paskenta has been wired to us. So we'll receive that overnight. So our cash going forward is looking very strong.

I think that's probably it on the financial expense.

[Timothy Harris, executive]

Okay. Thanks very much. Michael will go into the next slide. So this is a slide hopefully investors are getting a bit bored of, but actually, we think it's very relevant because -- and for a number of years now, we've had a clear and consistent strategy about what we believe is going to take and where our focus should be to be successful as a company.

Again, that's energy-focused applications, it's focusing on those customer or industrial customers and also kind of spreading into utility and utility scale, promoting some of the unique characteristics of our battery, particularly around long duration, lack of thermal runaway risk, our ability to provide that kind of hibernation mode and resiliency, which again is one of the reasons that the U.S. DOD chose us. And we're continuing to make progress in our U.S. and core markets. As we said before, we think there's huge opportunity for us here, and we noted a kind of high profile, I suppose, sales opportunities that we have in that 1.6 gigawatt hour pipeline.

But also, we are really approach for other opportunities outside of those markets. And there's a few of those that we believe are worthy to pursue, but we only do so selectively given that we need to focus our scarce resources very intelligently, and we think there's lots of opportunities for us here in Australia but also in the U.S. market.

Next slide, please. One thing I wanted to do is just spend a few minutes talking about the dynamics that we're seeing in Queensland. As investors will know, Queensland has played a significant emissions contributor, I suppose, to Australia, around over kind of 30%. But we also know that they had some very ambitious emissions reductions targets to kind of get sort of 80% renewables reduction by 2035.

Last year, the Queensland government announced its energy and jobs plan that has a very clear target to drive where they need to be, which includes a specific statement about retirement of regular use of coal-based assets by 2035. And this quarter or the quarter that's just been, the Queensland government announced its battery industry strategy. And I think it's just worth highlighting some aspects of that.

One, that's a $570 million program that has a number of initiatives that we think are accretive to us. It also includes inside the $100 million Queensland Critical Minerals and Battery fund, of which we are receiving $1.2 million as part of the feasibility study that we announced during the quarter.

But also, I'd just like to draw investors' attention to that focus on flow batteries. I think there's a very clear signal that we're seeing from the Queensland government that in terms of encouraging a battery industry here in Queensland, that also complements federal initiatives that focus on flow batteries, we think puts us right in the sweet spot of what the Queensland government is trying to achieve. And we think with our technology and our heritage that we see in Queensland puts us an enormous opportunity that clearly, we're trying to execute as best as we can.

So what we can say is that we've been very well supported by Queensland government as we go through that feasibility study. We'd like to tap in further into that $570 million opportunity that we see in front of us. And I can say that we have a number of discussions with the Queensland government, which are continuing.

Next slide, please. The good thing also that we'd like to iterate is the evolution in terms of our thinking of a product that we want to have to market. For the next couple of years, we'll be delivering against our ZBM3 that we think is very fit for purpose for the projects that we've announced. But as we start to look at those multi-megawatt hour opportunities that we see in front of us, we know that we want to and need to evolve our product and our product evolution. And over the last sort of 6 to 8 months, we've been work on what we call that X10 product, which is basically taking a ZBM3 and timing it by 10, roughly.

And seeing how we can use that to drive down costs significantly from where we are today to drive further performance but also aligning with what our end customers have been telling us, drive things such as footprint and energy density to make sure that we can be competitive.

And so we've been doing quite a bit of work on this so far. We've got some prototypes that we're planning or some profiles that we're planning internally over the coming months and the plan is to launch a pilot project with that extend prototype next year, and we have a number of discussions with large-scale Australian companies, but also U.S. companies that have signaled to us their willingness and interest to participate in that X10 trial, but also with a view that they have hundreds of megawatt hours of opportunity going forward as we start to execute on that extent.

So what we're using is we're using all the development and IP and technology and know-how that we're using for the ZBM3, particularly around our stack technology and thus making it bigger. And so getting the best of both worlds. So investors should look at that evolution of our product and a product that's going to bring us to a very market competitive product on a CapEx and a levelized cost of storage basis even when we compare to where we believe lithium is going to be in the future.

And I think in our strategy update, we provided a waterfall of where we believe we can get the cost down to against a very definitive set of engineering projects to get us to that point.

Next slide, please. The other point that we've announced during the quarter is the feasibility study to explore and advance manufacturing facility with the potential for that to be in Queensland. When we talk to our customers and refer to our pipeline of qualified opportunities of over 1.6 gigawatt hours, we know that the existing Thailand facility is not going to be big enough to be able to go and handle that kind of demand. And we're also seeing our customers sort of say, look, I'm prepared to do an initial project with you, but I want a very clear line of sight about your ability to scale up to meet what is hundreds of megawatt hours, if not gigawatt hours of their long-duration energy storage needs in the future.

And so we're delighted to kick that off. We're delighted to be partnering with the Queensland government around that and we're pursuing those plans about what the factory looks like, but also the execution plan. We highlighted to investors the goal and ambition that we have based on what we currently see is to have that facility up and running around mid- to late 2026. And that's very much aligned to where we see the demand for customers start to scale. So executing against current projects using our Thailand ZBM3 facility, starting to do some prototypes in 2025 of that extend alongside executing against those kind of ZBM3 products and then the ability to launch this in 2026 as a core part of our plan, driving down costs, driving good margin into our business but also being able to anchor we think, potential government benefits as we start to look forward.

And I do think this anchors, both the emphasis at the state level, but also in terms of federal level, a lot of that emphasis in terms of Made in Australia. And investors would have seen a bit of activity for myself and some of our other stakeholders about engagement with various government at the state and federal level. So we think this is actually very important for our future, and we find ourselves right at the sweet spot of that Made in Australia and Australia renewable superpower opportunity.

And when you start to dwell on those kind of 5 principles that Treasurer, Jim Chalmers has laid out about supporting companies and industries in the kind of Made in Australia, we think we fit right in the sweet spot of those. Namely, we had a competitive and comparative advantage around our zinc bromine batteries here. We're able to contribute dramatically and materially to the net zero targets that Australia has, is going to enable us to build capability and capacity in Australia and meeting potential national security needs of securing that renewable energy capability.

But it's also the stimulus that we think in terms of securing some of their government support that we can drive and drive further private sector investment into companies like RedFlow. So we are optimistic about some of those engagements that we've been having around the state and federal level. We look forward to the budget announcement, and we look forward to sharing the news and updates with investors as they progress. I think we signaled during the strategy update, we expect some of the results of those engagements to come to light over the next kind of 5 to 6 months.

Next slide, please. So as we said before, we announced the entitlement offer, which is a 1 for 2, on the 15th of April. Again, just noting to investors, I probably will be aware of this. That also comes with one free attaching option exercisable at $0.20 and expiring around 2 years from launch. And that couple of ways gives us opportunities for -- to execute on these announced projects, allows us to execute against that X10, scale up our Thailand manufacturing facility and convert some of those opportunities that we've talked about in the pipeline but it's also going to allow us to support ongoing discussions with the Queensland government and other agencies in terms of their further support that they can provide as we start to think about scaling up.

And I would just note that, that the entitlement offer closes on Tuesday, the 21st of May. And I can say that we've had very positive discussions with some of the institutional investors that we have in our register, but also other organizations that are not on our register yet, but can recognize the progress that we have made over the last 12 months and are watching us closely.

Can we go to the next slide, please. So we have a very clear plan. We have a production pipeline that is now full out to early 2025 with customer orders. So that's a great place for us to be. We have a detailed plan in terms of scale up. We have a optimization about how we can drive further cost down, efficiency productivity with ZBM3, but also in Thailand facility. And we're making headway very good progress against that extend iteration and design a product that we're really excited about and we'll be sharing some news and progress of that in the coming months.

And so our focus is on making sure that we're producing good quality batteries coming out of that Thailand facility. We're planning for that Queensland facility that will sit alongside that Thailand facility, so we get the best of both worlds. Ongoing strategic engagement with our suppliers and progressing some of those discussions that we've had that are noted before, to drive good margin into our business. Yes.

As we've noted previously, some of the recent announcements that we've had around the projects are driving a good positive product margin, but we know our business is about scale. And we're setting ourselves up to drive further profitability into the company and making sure that we can have a really robust long-term positive company that we're going forward that's providing good shareholder returns.

And so there's a lot to do. I feel that we've made some really good progress over the quarter. There's a lot to do, but I feel that we're in good shape to execute against the remainder of this financial year. And then I think we're going to get a really exciting FY '25.

Craig, over to you to maybe open the floor to questions.

[Craig Sainsbury]

Thanks, Tim. Thanks, Michael. Just a reminder to everybody, Q&A facility at the bottom of the screen, type your question in, and I will read it out to Tim and Michael.

Tim, there's quite a few questions that have come in around the Thailand facility. I might just group all of these into 1 question. 3.5 megawatts hours as we exited March, we're targeting 20 and then 40 by the end of September. Can you just talk through a little bit more detail around the initiatives and what needs to be done to hit those milestones, please?

[Timothy Harris, executive]

Yes. So there's a couple of issues that we talked about, which are very much key for that. The first one is the injection molder collector. Getting that right and getting that in place has been a really key element, and we know that we've -- being on a bit of a journey to be able to go and get to that point. But I'm really delighted that that's now in place. Its producing good, high-quality collectors that's, A, increasing quality, reducing wastage, but it's also increasing a lot of productivity that we have around that.

When we start to talk about -- think about the other things that's going to enable that 20 and then that 40-megawatt hours, the other key bottleneck we see at the moment is what we call our spray line. So that's where we spray our secret source over those electrode services that provide the right connectivity and resiliency that we see. And as I think we've said to investors, I think we're now on our 16th version of that we've developed and iterated over a good 10-year period.

What we have now is a potential bottleneck that we have there as we look at sort of scaling up. But what we have developed and we are going to be introducing into production, I think it's early this month, is what we call a narrow tank spray line that's basically going to enable us to double production through that facility and also while also kind of increasing quality.

So there are a couple of the key engineering projects that we've got. For us to then sort of scale to 20 and then 40-megawatt hours, we're going to have to buy a little bit of capital equipment. And I think Michael's got a very good handle on that to make sure that we can provide resiliency and throughput. But again, the key thing that we do there is the transition into a second and sort of 2.5 ships from where we are today. So that's just really a matter of scale up, and we can think that we can scale that up basically on a sort of 6- to 8-week trajectory as we start to push the button on that.

Now not all of those processes are going to require a double shift. So that sort of injection molder collector can actually produce enough for that 20 and then 40-megawatt hours even not going to that double shift, but we know some things are. So we have a very definitive plan about what we need to do and how we're going to execute against that.

But again, to summarize it, productivity increases. It's a few elements of machinery that we have in CNC machines to get us to that new processes that we're going to do that basically increases that yield and then basically a double shift to get to that point.

But we have a very definitive plan around that. We've got a great team up there. And with Juergen on our Board as well, he's already spotted a number of engineering opportunities that we can to kind of increase productivity as well.

[Craig Sainsbury]

Next question around Thailand. Strong order book that's out there. Is the slower rate up out of Thailand, is that stalling the delivery of some of those batteries out to customers and delaying some of the revenue? Or we've been able to meet most of the demand that's there at the moment?

[Timothy Harris, executive]

No, look, we're pretty confident about the scale up that we see today. I mean some of -- the sort of targets that we have for delivery, we've been really prepared for, but something that's at the end customer that's actually delayed some of the delivery trajectory for that. Sort of Energy Queensland probably being an example where that's probably going to shift by a month or maybe 2 based on the latest engagements. And those things are out of our control and sometimes out of our -- the end customers' control as well.

So when we look at the trajectory, of that ramp up, we're pretty satisfied that it's going to meet customer needs, and it's not going to give us lots of issues as we start to execute against those projects.

Looking at -- and I think as we've said before, our emphasis is on holding. We're playing a long game here. A lot of these projects, as we've noted, are strategic in their nature because these customers have the ability to order hundreds of megawatt hours from us in the future potentially. And so we want to get it right. And so alignment with the customer delivery timetable, alignment with where we start to ramp up and making sure that we can drive that productivity, cost and quality, I think we're in a pretty good space.

[Craig Sainsbury]

Next question, when you get to that 40-megawatt hours out of Thailand, is that the point where that plant in itself becomes sustainable from a cash flow and profitability standpoint?

[Timothy Harris, executive]

Look, it really depends on a couple of things I don't know Michael kind of provide his view on that. On all the times that we see a lot of the projects that we're doing at the moment, as we say, where they're kind of being product positive margin. But we still got some way to go to get to a really good gross margin that kind of allowed the business to be sustainable. And part of that is where the market is going to be in terms of pricing and how much we can drive that in that cost. And we have a very definitive targets, both short term and long term to drive down costs and be competitive in the market.

But it's really over the next kind of 2, 3 years that we think is it should be our strategic goal because that's allowing us to drive good margin into the business and allowing good yields, but I'm not going to Michael to kind of address that as well.

[Michael Hipwood, executive]

Yes, it's a good question. So it's definitely an aggressive decision to go from 40 to 80, and it will depend, as Tim said, on a number of things, the customer sales that we have at that point and the pricing that we get and also our ability to take our cost in terms of the bond and also production at that point. But to get to 80, we'd be very close, yes. It would be very close to be cash flow positive, if not. But yes, we've got to follow through on taking out some costs and also the final contracts with the customers. But we're in the ballpark at that point, yes, most certainly.

[Craig Sainsbury]

Last one on Thailand, again, a few questions around this, so I'll just summarize them. There have been a few issues with quality of battery previously. In the ramp-up that you're going to the 20 and the 40, what extra quality control measures you're putting in place to ensure the product going out to customers is going to be effectively fit the purpose?

[Timothy Harris, executive]

Yes. Look, it's a really good challenging question. I think for investors, when we start to think about the issues that we've had with the Gen 3 in particular, a lot of that time has been around [indiscernible] sheets. And I think we've talked to investors about those about what impact they have had. And we caught some of those in quality, but some of those did get through to customers, and we're addressing those.

But the key thing I suppose that we've done around that is we've eliminated that product using that injection molder collector approach. And so when we start to think about quality, the best thing you can do is remove the risk itself, fundamentally, right? And that's what we've been doing with that injection molder collector. Any other kind of minor issues we've had, I think reflect back on some elements we've had with a small batch of separators that we've now got a much better handle on in terms of quality controls and checks, but also making sure the incoming goods that we've got is on the right purpose.

And so from where I think we are today, clearly, quality is still a journey. I think we've got a good handle on that. We think Eric is our General Manager, he has got a good handle on that and actually Juergen on board as well that's been working for one of the world's largest automakers and has got a really deep experience around quality and good engineering, puts us into a good position as well. And so our emphasis is making sure that we can deliver good batteries, particularly to these large customers, and I think we're well on track for that.

[Craig Sainsbury]

Just a couple of questions around the order book. 60-megawatt hours worth of announced projects, it was 1.2 gigawatts worth of pipeline. What's the order book looking like through until the end of 2026?

[Timothy Harris, executive]

Well, we think pretty healthy. I mean if you think about -- I think it's about -- look, if you start to look to the 4C document that we put out, to investors yesterday, it does refer to a few of those specific opportunities that we start to see in that -- we start to see in that pipeline. I just refer it's actually 1.6 gigawatt, not 1.2.

But look, some of those specific opportunities we've been working at for some time now. We refer to an 8-megawatt opportunity for a campus in the U.S. and speaking to actually Mark this morning. We're pretty excited and positive about that individual opportunity, but also the ability for further follow-on work with that customer. We talked about being shortlisted for a 55-megawatt hour opportunity with a large utility here in Australia. But also sort of a new opportunity that we've been working on that we decided to share with investors as part of that disclosure is a potential opportunity, again, with a large utility here in Australia that has decarbonization targets, has got to -- is looking to retire some of its coal-based assets in the not too distant future and is very engaged with us around the kind of X10 project.

And so the goal for that is to announce some kind of partnership with them, do a [indiscernible] project next year around that extend, but also work on what we think we have agreed as a potential 500 megawatt hours opportunity. And so when you're starting to see the pipeline, there's some bigger projects in there that we're working on, but there's also potential smaller projects but strategic in nature. And it's a very clear pathway that we have around that is earning the right to go and play at that large end of town, and that's been a journey for us, but that's where we think the value is, and that's where the opportunity and that's where the demand we're getting from customers is.

And as part of this kind of extend -- exercise, we actually spend a lot of time speaking to customers, what are they looking for, what do they need? What's more important in CapEx, levelize cost storage? What helps you with deployment and you civils, et cetera, to make sure that we're designing a product that customers are actually looking for and desiring? And that's been a really positive exercise for us.

So firstly, we're talking to customers, we're in the door. They're actively looking for [indiscernible] solutions. They want to go on the journey with us. They're very encouraged by what they see around the X10 and the cost profile and performance that we can get and they're also very encouraged about that commitment to get to that 500-megawatt hours manufacturing capability in that time because that meets their own decarbonization needs.

So as we start to look forward, I think you can look forward to a number of other announcements at the top level. And we look forward to sharing those with investors as we think they turn into announce more projects.

[Craig Sainsbury]

Even To a degree, you answered the next question. But of that 1.6 gigawatt pipeline that's out there, what proportion of that would be from existing customers that are putting through multiple orders into a larger size?

[Timothy Harris, executive]

That's a good question. I would say it's probably about 35% to 40% of those that are potentially repeat customers of things that we have announced or have announced as part of our strategic pipeline, as I've spoken about that before. Other opportunities that we see that we've been working on in the background diligently for sometimes 12, 18 months, we haven't spoken about publicly, but we know that they are progressing quite strongly. And so there's a bit of a mixture in terms of both.

But what I would say, when we think about that sort of 1.6 giga hours, these are not sort of on meetings and then we're pulling a qualified pipeline. These are projects where usually, we've sat down with their technical teams, gone through a fairly detailed element about what our technology does, we've been through commercials, and we're starting to focus on specific projects or a specific program of work. So this is where we kind of see that we've been working hard to build up that pipeline.

I think as we noted before, some of these larger projects, it is strategic and it does take a longer sales cycle, but the richness and I think the quality of the pipeline that we're seeing today is significantly not even some 12 months ago. And that's helped by the announcements that we've made. Energy Queensland has had a positive effect on other utility-based discussions. What we're doing with the U.S. Department of Defense is having a positive effect on other discussions in the U.S. and our engagement with the CEC actually leading on to other specific opportunities in California as well. So yes, as we said before, it's all about momentum. And I think from where we sit today, the announcements that we've made and the projects that we're going to execute against provide us with good momentum. And we continue to believe that we're one of the global leaders in long-duration energy storage, and that's where the market is heading to and that's where the focus is.

[Craig Sainsbury]

Moving on to a couple of the contracts or the projects that have been secured. Questions come in contracts like ACCIONA and Horizon, how long do the trials last until there's the potential for some more orders coming through? And are there certain milestones that need to be hit from the battery technology to cascade into future orders?

[Timothy Harris, executive]

It's not a hard and fast rule around that, I suppose, I can respond to. We've been working pretty positively with ACCIONA. They haven't got a hard deadline in terms of when that project is going to be begun and completed. But -- and once they start to see 2 or 3 months of operating cycling and the performance that's coming out of that, I think they'll start to be pretty excited.

But as with ACCIONA, I think as I mentioned before, we had familiar Australian team. We hope the Australian team to take you further deep dive into our technology here in Brisbane a couple of weeks ago. So we see some of those kind of things happening in parallel. And according to either in the private sector or the public sector, a lot of decarbonization targets. A lot of these companies are recognizing that the runway is actually not that long. And so we don't think that the sort of projects with EQ or others need to last for 2 years before they start to talk to us about or commit to other opportunities, we actually think those things are going to run in parallel. Just because their decarbonization targets and what they need to do to the network to meet decarbonization and net zero goals. Actually, the runway is not that long.

And they realize that they need to select companies that have that good operational experience and there I say, a bit of grade here. They can see other battery systems working in the field, and we've got things like ACCIONA and other projects that have been working there for a number of years. And so it's not really a validation of the technology. It's actually been learning about how can I deploy it, how can I optimize the use of that solution in my network for what I need. And so that's very much a hands-on learning emphasize rather than improving the technology.

[Craig Sainsbury]

Again, that sort of answers the next question. But you mentioned in the DOD contracts that you're competing on -- there's the demand for non-lithium battery storage. What other technologies you're competing against? And why are you seeing your technology be chosen versus some of the others?

[Timothy Harris, executive]

It's a good question. And I suppose when we see things today, I mean, firstly, the DOD chose RedFlow for a couple of reasons. A, the lack of them will run away because they are very concerned about the risk of looking batteries on a lot of their kind of sensitive sites. The second aspect is that hibernation mode that we've talked to with investors about our ability to hibernate our battery for a very extended period. And that's a really strong resiliency proposition that the DOD has recognized and has informed us, they think that's unique in the kind of energy storage market. So we're pretty delighted about that.

And that's the reason other customers have chosen us, but maybe not likely the only kind of primary reason. When we start to look across the landscape, it will be electrochemical, flow battery fields. We know that there's vanadium and we know that there's iron flow batteries. What we're seeing is that, A, first of all, this is not a one winner takes all market. The market is going to be big enough to kind of, we think, support multiple different technologies and multiple kind of other flow technologies. And when we look at Horizon Power, they're not just using us, they're probably trying another vanadium flow battery at the same time, and we actually think that's a really good thing because they know that flow batteries have a role to play, and they're very happy about trialing a couple of them, and we're very comfortable about that. We would support that.

When we think longer term, in terms of our own kind of competitive differentiation I'll refer investors back to that kind of strategy document. Higher synergy density, lowest cost of chemicals that we have, very low deployment profile compared to other flow batteries, deep operational experience and a very modular approach that we can have. And when you combine all of those and the price points that we think that we can get to based on that kind of extend exercise we've showed to investors, we think we're on a winning ticket. But it's not one of those sort of beta versus VHS elements at the moment. This market will evolve. But we know that customers like Horizon, they're not going to select one technology, they're going to select several and we're very happy to be selected that because that's a validation in itself.

We referred back to the California Energy Commission, their long-direction energy storage. Again, we've been selected. We're now in the fourth project with them. They've only selected 4 other companies as part of the LDES program for multi-megawatt hour type deployments because they want to see customers at the right level of technical, operational and commercial maturity that can scale up to that 200, 400-megawatt hours in the not-too-distant future. And they've said that publicly.

And so we're the only Australian company that's in there, and we're a very kind of a selected group. So that's exciting for us and a really strong validation of all the hard work that we've done is paying off, and we're really well positioned to kind of execute at the next because the technology that you might see in a lab, that's only starting to be developed. I think [ Repos ] is a good example of any about the road that it takes to get to commercialization size and scale. And a lot of people that we talked to said that they can't afford to wait. And so that's why they're selecting companies like us. In us, the selected group of others to pursue their decarbonization and long-duration energy storage requirements.

[Craig Sainsbury]

Just moving to Queensland. A couple of questions around the potential plants that may be built. One is if the X10 stacks are imported and Made in Australia. Will that still effectively get the Inflation Reduction Act benefits?

[Timothy Harris, executive]

Yes. So look, we think there's actually a virtuous circle here about what we plan to do in Queensland and us also benefiting from the U.S. Inflation Reduction Act benefits of domestic production in the U.S. Now part of that is still due to kind of final legal definition and interpretation, and we've been working our way through that with a number of other parties to actually see what that significant transformation means under the U.S. Inflation Reduction Act requirements. But we see the potential best for us to be in both worlds.

You have one hub model where you're having one single factory or your -- either your electrode and/or stack manufacturing, you're exporting that stack to other markets and then doing the assembly and final testing in places like the U.S. So you can meet that production tax credit threshold and you're getting that kind of economies of scale, us also potential benefits in Queensland that we're targeting.

And so we're still working our way through that. But definitely, we see the opportunity for us to pursue that strategy. But we also want to leverage other low-cost locations for kind of subassembly elements such as China. So you can see the best of both worlds and other model that we are pursuing. And we think that also meets in with Australia's focus on developing strong partnerships with the ASEAN region as well.

We've had a number of engagements with the Australian government. I was invited to the ASEAN conference. And I think we were one of the only really true green technology companies that was invited along to a CEO with other multibillion-dollar companies that shows that relationship that we can establish between Australia and Southeast Asia to get to the best of both wells. But certainly, our strategy is, is that we'd have a hub-and-spoke model that you can leverage once in highly automated staff manufacturing plant and use that for the rest of your kind of global domination.

[Craig Sainsbury]

Starting on Queensland, Queensland government put out a very detailed battery strategy and also funding strategies to support the battery industry. Do you see any opportunities to that or potential threats to that from a change of government at the next time around Queensland go to elections?

[Timothy Harris, executive]

Look, I wish I had a crystal ball, but I don't. In terms of predicting outcomes of elections or if there's a change of government here in Queensland. I mean what I can say is that from what we see, the Queensland Energy jobs plan has got strong support from both sides of the house in terms of the emissions reductions and targets that's occurred. There may be differences of opinion about where we see the direction it's going to take. But at the moment, we don't see that detracting from what our strategy is going to be in Queensland and our ability to pursue that feasibility study. But also make a decision, we think, potentially in the next sort of 3, 4 months.

[Michael Hipwood, executive]

Yes. time frame that we have with Queensland government, if they're going to proceed to fund, this would be finalized and contracted in August. So it's before the election.

[Timothy Harris, executive]

So I'll just add that when you start to look at the battery strategy plan, it's got the typical reannouncement of other funding that's already been announced, but also some new funding that we think that we can kind of tap into both from a sort of grant and/or equity basis.

And I'll just note to investors that feasibility study that we've got that sort of [ $1.12 million ] comes from the $100 million Queensland Critical Minerals and Battery Technology Fund, which is in 2 stages: one is sort of supporting companies like RedFlow to do feasibility studies. But then that's up to $30 million in debt and equity to fund scale up. And so we see great intent. We see a strong strategy. We see joined up government trying to pursue these, and we see ambitious targets that knows and recognizes it will need lots of energy storage and also longer duration stores to achieve those.

And so we feel that we're in a pretty good position for that. We can't be definitive, but we're optimistic about our engagement with Queensland government.

And what I will also say is just in addition, you see things like the National Reconstruction Funds and other measures and activities and initiatives that are coming from this kind of Made in Australia initiative. That's $1 billion support for PV manufacturing in Australia. I think it's been publicly signaled by Prime Minister, Albanese that's just the start. And so if you're looking at developing a local economy, supporting jobs, enabling national security, energy security and sovereignty, but also tapping into our great resources, whether it's people or zinc. Australia being, I think, the fourth largest reserve of zinc in the world, we think we're well positioned for those.

[Craig Sainsbury]

Just conscious of time, there's been quite a few questions on the entitlement offer. So I'll just summarize those into 2. One is what's the use of funds from the entitlement offer, can you just detail that? And then the second question that is how much flex in that use of funds is that depending on the size of the take-up of the entitlement offer?

[Timothy Harris, executive]

So as we noted before, and the specifics of the use of funds, a detail on the entitlement offer, but on a broader basis, is going to allow us to execute on the announced projects. I mean we talked before about the sort of $6 million deposit that we're getting from as part of the Faraday, as part of that kind of Paskenta project, but also kind of support other projects because we know we had to buy materials as we start to scale up for those.

The second aspect is allowing us to continue execution against that. Key engineering projects to increase productivity and yield, but also allow development, further development of X10 and conversion of some of those pipeline opportunities. We need to make sure that we're sort of knee deep in some of those opportunities, and we're going to take a number of months to be able to execute and announce against that we feel we're in a pretty good space around that.

But it's also going to allow us to kind of engage in meaningful discussions alongside Queensland government and other funding agencies about securing nondilutive funding. Yes.

In response to the second part of your question, does that change according to what the size of the entitlement offer is. Probably, yes. But as I think RedFlow has got good experience around, we cut our costs according to what we see, and we focus on what's most important. And most important is sort of building up that momentum, continuing some of that engagement and making sure that we can continue to progress on where we are today.

But from what I see, we've got great high-quality customers. We've got great projects to execute. We've got a great pipeline. We've got great engagement, I think with nondilutive funding sources that if we get that across the line, we think we'll be very accretive to investors. And so -- and we've got a market that's turning towards long-duration energy storage and a key focus on looking at alternatives. And so we feel that we're in a great position at the moment. This entitlement offer will allow us to continue to execute against our strategy.

And I think what we can say is we've been consistent with our strategy for a number of years. We signaled opportunities in our pipeline, and we've been delighted to announce those. And so some of those opportunities, we would say, have been hiding in plain side. And I think we can look back and say some of the things that we signaled that we were going to do with investors, we actually are doing. And that's just getting consistency and focusing on the prize in front of us.

[Craig Sainsbury]

Last question. How important is RedFlow's Australian credentials when you're winning business with the U.S. Department of Energy, the U.S. DOD, when compared to alternatives out of China?

[Timothy Harris, executive]

[indiscernible] I mean speaking to anecdotally, I think we I can say that we were delighted and honored to be -- to join Prime Minister Albanese' official visit to the White House last year. We are one of the few companies. And speaking to the state government officials where they're going to see the sort of global strategic equilibrium for the last 20 years. They're starting to see that fracture and they don't see that getting any better over the short or longer term. So a lot of the questions that we get in the U.S. are, what's your supply chain? What's your exposure to China? And do you have any significant Chinese base investors, et cetera, on your register? Which we can answer kind of no, but also say that we've been busy qualifying other potential U.S. sources of our [indiscernible] materials as well.

And so to answer your -- a short answer to your question is, absolutely. We see those linkages across the [indiscernible] relationship and alliance continue to start to deepen. And we think we get extremely strong support from both Australian government, both at the state level and also at the federal level, but also from the U.S. government who are well aware of what we're doing and we already got some congratulatory e-mail, et cetera, when we announced our second U.S. Department of Defense contract right with state government officials.

So we know that we are on their radar screen, and we feel that we're well positioned to be a key part of that alliance going forward.

[Craig Sainsbury]

Thanks, Tim. Thanks, Michael. That's all for the questions today. Tim, I'll just hand back to you for any final clients.

[Timothy Harris, executive]

Well, Craig, thanks, I've spoken a lot. Look, I want to thank everyone for their loyalty and continuing to come on a journey with RedFlow. We know it's been a long run. But I think, as we say, we've been busy executing into our strategy. I think we are seeing the fruits of that strategy coming through. And I think we've got an exciting 12 months ahead of us. And I think there's a bit of time to be in energy storage, an Australian company with leading technology, making inroads in Australia and also in the U.S. And so we look forward to sharing good news with you and exciting developments and progress over the coming months. So thank you.

[Craig Sainsbury]

Thank you.