FREYR Battery SA

NYSE:FREY

Earnings Call Analysis

Earnings Call Transcript 2024-Q2

[Jeffrey Spittel, executive]

Hello, and welcome to FREYR Battery's Second Quarter 2024 Earnings Conference Call. With me today on the call are Daniel Barcelo, Chairman of FREYR's Board of Directors; our Co-Founder, Chief Executive Officer and Board Director, Tom-Einar Jensen; and Evan Calio, our Chief Financial Officer.

During today's call, management may make forward-looking statements about our business. These forward-looking statements involve significant risks and uncertainties that could cause actual results to differ materially from expectations. Most of these factors are outside FREYR's control and are difficult to predict.

Additional information about risk factors that could materially affect our business are available in FREYR's S-1 and Annual Report on Form 10-K filed with the Securities and Exchange Commission, which are available on the Investor Relations section of our website.

With that, I'll turn the call over to Daniel.

[Daniel Barcelo, executive]

Thank you, Jeff, and welcome, everyone, to our Q2 '24 earnings call. Since this is my first opportunity to address you as FREYR's Chairman of the Board, I'd like to spend a few moments highlighting the strengths of our outstanding management team, and emphasizing our commitment to generate value for our shareholders, customers, partners and employees around the world.

Our collective goal as FREYR's Board of Directors is to establish a profitable business as soon as possible. As Tom and Evan will detail shortly, the industry and the capital markets are evolving rapidly, and we must evolve with them. Our strategy has adapted to this challenging landscape, and the recent appointments to our Board and leadership team best position FREYR to build on the progress we have made, and to execute our strategy.

FREYR's Board of Directors now includes our Co-Founder, Tore Ivar Slettemoen; Todd Kantor, the Managing Partner of Encompass Capital; David Manners, who has extensive experience in the U.S. government; Peter Matrai, a co-founder and energy industry expert; Jessica Strine, a seasoned institutional investor, CEO and industry adviser; and Dan Steingart, professor of chemical metallurgy at Columbia University and the Chair of FREYR's Technical Advisory Board.

We are fully aligned in support of Tom Jensen, our CEO; Evan Calio, our CFO, and the rest of our leadership team. And we have the utmost confidence in their abilities to lead this organization on an accelerated path to profitability.

Our focus for the remainder of 2024 is to advance our attractive business development opportunities. During his time, as our Executive Chair, Tom continued to spearhead our Global Business Development endeavors, so his return to the CEO role dovetails with FREYR's top priorities.

We're also delighted to have Evan Calio on our team as CFO. Evan brings deep global energy sector, capital formation and deal-making expertise to FREYR, having previously run businesses at BTIG and Morgan Stanley, as well as having served as an attorney for the U.S. Securities and Exchange Commission. Evan will be instrumental in our journey to create lasting shareholder value.

Before I turn the call over to Tom, I'd like to thank you, our shareholders, for the continued support, which is reflected by the passing of resolutions at our AGM in June. We are excited about the opportunities ahead for FREYR, particularly in the battery technology and energy storage space.

And with that, I'll turn the call over to you, Tom.

[Tom-Einar Jensen, executive]

Thank you, Daniel, and welcome, everyone, to our Q2 2024 earnings call, FREYR's 13th earnings call since we went public and my first earnings call since I came back into the CEO role.

I'd like to start today's call on a personal note. As most of you know, I have been with FREYR from the start, and I care deeply about our people, our investors, our customers, our partners and our success. And although the capital markets have been chaotic lately, it is nothing we haven't seen before. You may recall that we raised the initial equity to go public on the New York Stock Exchange in early 2021 via virtual roadshows in the throes of the pandemic.

I am delighted to be 65 days into my second tenure as CEO of FREYR. While I know we have still a lot of work to do and that confidence in us has been challenged, I want to firmly state that I would not have stepped back in if I did not see that we can deliver stellar results and groundbreaking developments similar in relative impact for us as a company as when we went public back in 2021.

Back then, we had a conceptual ambition to become a battery company with a small team and a limited balance sheet. Now we are one of the few companies globally to have proven that we can produce functional batteries using next-generation equipment on the 24M SemiSolid platform.

We have a global partnership and customer network. We have a cash position of more than $200 million, with no debt on our balance sheet. We have strategic assets with which we can execute projects and unlock value. And we have an increasing number of highly-promising opportunities to establish a deeply profitable business.

We have globally leading partners across the entire battery value chain, including our Energy Transition Acceleration Coalition partners, with added interest and participation from energy majors, hyperscalers and ultra-large tech caps, who see the critical role and vast potential that the battery industry represents, both in terms of decarbonization but also in terms of unlocking next-generation computational power in a sustainable manner.

We know, however, that our investors are eager for concrete news, and we recognize that your trust and support must be earned by delivering. So if you take one message from today's call, is that our revamped Board and management team, 65 days into working together, are acutely focused on execution. And this is what I'm doing, together with our excellent team, in a constantly changing and dynamic environment.

Since my return to the CEO role, I have begun to sense a familiar feeling from our formative days. I'm hearing many of the same messages from existing and emerging partners, and I see real momentum behind the scenes.

The key distinction is that FREYR is no longer merely a company with a vision to produce batteries. We have now proven to industry leaders that we possess the technical and operational acumen to justify a seat at the table. And we are capitalizing on that privilege. I am energized about the opportunity to serve as FREYR's CEO once again, and I'm excited about the road ahead.

Turning now to Slide #4. We are leading with our conclusion by summarizing our value proposition to investors. As we saw in this morning's press release, our singular focus is to build a profitable business that generates first revenue and EBITDA as soon as next year.

We intend to achieve this by unlocking value from our real assets which include Giga Arctic, Giga America, the CQP, our land position in Finland, and our technology licensees. With publicly-traded battery startups deeply out of favor, our equity currently trades below cash, so there is meaningful hidden value to generate from our assets.

In the current financing and battery cell pricing environment, adaptability is key to success. As such, we have refocused our business development efforts on projects that are the quickest to market. The downstream module and pack opportunities we are advancing are financeable because of their relatively modest capital intensity and they offer highly attractive economic returns.

We are finalizing commercial agreements and technical solutions with top-tier partners, and we will be announcing specifics on economics and time lines as soon as we are ready with value-accretive deals.

We are mindful of the challenges the battery industry is facing, and we prioritize solid value-accretive deals over speed, but we are now very close to the initial finishing line. So we'll ask for a bit more patience until we can announce specifics, but our plans include commissioning and startup of our production, revenue and EBITDA generation during 2025.

Our strong balance sheet is another source of strength for FREYR. Although external project-level equity and debt are available for bankable projects today, our significant cash balance and debt-free balance sheet give us the flexibility to be patient while we prioritize capital formation that is tied to specific projects. And to provide additional flexibility, we are implementing additional measures that will extend FREYR's runway to approximately 36 months without assuming the addition of any new sources of funding.

We're obviously also pursuing various sources of nondilutive funding linked to our increasing product portfolio, but we take nothing for granted and seek to control what we can, while pursuing additional opportunities to augment our ability to grow further.

Turning to our third point. For all the capital equipment intensity of the battery industry, it's human capital in the form of technical and operational talent that is the primary source of value creation and competitive differentiation. With our recent successes at the CQP on the 24M platform, we have demonstrated to our current and prospective partners that FREYR has world-class people who know how to find solutions to highly complex technical issues.

Under the leadership of our newly appointed Chief Operating Officer, Mike Brose; our Chief Technology Officer, Andreas Bentzen; and our EVP of Project Execution, Einar Kilde, we have developed deep subject matter expertise for a variety of battery value chain solutions, which continues to drive new opportunities.

And finally, if we lift ourselves out of the tyranny of the moment in these volatile capital markets environment, FREYR's story is still tied to secular growth trends that should ultimately resonate with investors. Battery solutions will increasingly be recognized as the key enabler of the energy transition, highlighted by the need to provide reliable, affordable, clean, dispatchable energy as the global power grids grow more reliant upon intermittent renewables amidst surging global electricity demand. FREYR is increasingly at the forefront of this energy revolution.

Turning now to Slide 5. Let me update you on the pillars of FREYR 2.0 strategy that we have alluded to in previous calls. We are accelerating our conventional technology strategy and we expect to lead with downstream projects focused on module and pack production.

This approach is grounded in market fundamentals as follows. The economics of module and pack projects benefit from the surplus of battery cell capacity while finalizing end-user applications with local content requirements and battery management systems.

Financing is available for these projects because they're far less capital-intensive than battery cell Giga factories. FREYR has already been working on downstream technology configurations to support cell production, so we can channel that momentum to manufacture purpose-built storage solutions for our customers. And the construction lead times for module and pack facilities are much shorter, enabling us to accelerate our path to market also given that we have building and infrastructure assets inside the company.

The second pillar of our FREYR 2.0 strategy is our emphasis on financial discipline and our strong balance sheet. In today's challenging financing environment, cash is king. Accordingly, we have built-in flexibility in our operating model to adjust our cash burn rate to extend our runway to at least 36 months without raising any additional capital. In conjunction with this priority, we're also pursuing multiple options to generate value from our existing assets, including Giga Arctic.

Our commercial efforts are also in high gear. We are simultaneously evaluating potential inorganic opportunities while we mature the FREYR 2.0 commercial pipeline of conventional technology projects. Our team is eager to share what we've been working on in the public domain. And as we move from confidential negotiations to formal commitments, we will communicate our progress accordingly to the market.

While we focus on accelerating FREYR's path to commercialization in the near term, we remain committed to establishing a long-term competitive moat around our unique position with 24M's SemiSolid technology.

The technical, milestones we have announced this year at the CQP have proven that we as a team can produce batteries on a novel technology platform. And those achievements are attracting attention from potential partners across the battery and adjacent industries.

The battery industry's future rests on improving battery safety, increasing energy density, driving down raw material and conversion costs, and improving both electrochemical and electromechanical aspects of battery production.

There are multiple additional opportunities around the 24M platform, which includes novel materials, LFP recycling options, improved cell designs and much safer separator solutions, which we believe ultimately could be a material part of a differentiated next-generation tech stack at ultra-low costs with all safety aspects under control.

We will, in a resource-sensible way, continue the work with current and new partners to develop competitive battery solutions based on the 24M platform, gradually test and include additional aspects of the 24M portfolio, and explore complementary avenues to leverage the digital assets we have developed in-house in FREYR and at the CQP.

Turning to Slide 6, let's spend a few minutes panning out to assess the big picture opportunity for FREYR. The data from numerous sources continue to support our view that we are in the early stages of a structural and exponential growth trend for batteries, which are the key facilitator of the energy transition.

In FREYR's core end-markets, batteries are the solution for a structural dilemma across both the supply and demand spectrums for power. Furthermore, I want to underline that these secular growth trends are underpinned by learning curves, which will continue to drive down costs and accelerate deployment further.

Traditional estimators and conventional energy analysts still struggle to take on board the momentum in the transition as has been the case consistently for the last decades. In the end, however, these trends are driven by economics, and exponential growth will continue as we are in the early stages of the S curves as depicted in these charts.

While the economics drive global growth, policy has a role to play for temporary localized deployment. Allocation of capital will gravitate to the markets which benefit from temporary incentives, like the Inflation Reduction Act, which is one of the reasons why FREYR redomiciled to the U.S. earlier this year and why we are accelerating our presence in the U.S. energy transition.

Power grids worldwide are becoming more reliant on intermittent, renewable electricity sources through accelerating wind and, in particular, solar power generation deployment. These require battery backup in the form of battery energy storage system solutions to ensure dispatchable, affordable supply.

Irrespective of the source of power generation, however, and the notion that increasing intermittent power supply drives demand for batteries, low-cost battery solutions are very useful in supporting grid reliability irrespective of the source of the power supply.

Demand for electricity already fluctuates daily and seasonally with weather and during each day with peaks and troughs in usage patterns. Batteries used in storage applications enhance reliability, reduce costs and support the ongoing deployment of new applications such as microgrids, electrified home heating and the uptake of electric vehicles. As learning curves continue to improve performance, safety and costs of batteries, everything that can be electrified will be electrified.

Decentralized and decarbonized renewable energy based microgrids, coupled with renewable energy based utility-scale solutions, will increasingly be deployed, incentivized and supported. FREYR is one of few companies with fundamental exposure to this secular trend on both sides of the Atlantic, and we have pedigree partnerships in existing and next-generation battery technology solutions, providing a unique exposure for investors to ride this continuing and accelerating energy transition wave.

And now it is my great privilege to welcome Evan Calio to our team as FREYR's Chief Financial Officer. Evan was instrumental in FREYR's formation as a public company during his time at BTIG. So he knows our story. He understands our industry. And he has hit the ground running on several important initiatives during his first 65 days in his new role.

Evan, you are heartily welcome to the team, over to you.

[Evan Calio, executive]

Thank you. Thank you, Tom. Look, before I speak to Slide 7, I'd also like to share just some personal observations on why I joined FREYR in June and be on this side of the mic for the first time.

As some of you may know, I spent most of my career covering global energy markets as an investment banker, as an equity research analyst. And over that time, I've witnessed several cycles, worked with many companies across the value chain, in both traditional and renewable energy.

I joined FREYR with eyes wide open, right? As Tom referenced, we worked together. We were lead adviser in the de-SPAC IPO and retained close contact as an adviser really throughout the FREYR organization since the IPO.

And while I appreciate the challenges of establishing a business as a publicly-traded company in volatile markets, I believe FREYR has the right senior people, leadership, the right people. I believe they're in the right sector, battery and its adjacencies. I think it's the right position, relative balance sheet strength and compelling and advanced projects. And the right time, now. Now is the right time.

On people, I'm excited to rejoin Tom and Peter Matrai, co-founders of FREYR. Opportunity to work again with Dan Barcelo, Todd Kantor, Jessica Strine, all whom I've known for over 20 years. And in my first 60 days, it only confirms my conviction on the organizational depth and focus. So we have an exceptional group of leaders, and they're dedicated to building something meaningful and long-lasting, and that's appealing to me.

On the sector, Tom covered it more eloquently than I might. Electrification is happening. Stationary storage market has long-term tailwinds. The market is young and dynamic, and it will involve consolidation. That excites me.

On time, there's a saying in the energy business that's proven to be true throughout my career, that fortunes are made in a downturn. I'm betting this cyclical downturn for a secular growth industry will only add to that adage. And while the sector is out of favor, we are working diligently behind the scenes to find value-creating transactions, opportunities tied to our strategic capital, global network, technology footprint, to build a valuable business for our shareholders.

Tom and I have a standing call every weekday. 5:00 a.m. to 6:00 a.m., we're in different time zones, and I wake up everyday excited for that. So I appreciate your trust in us, and I can assure you that I'm all in.

So let me now just address -- I'll walk you through the financial overview, which is Slide 7. And while I highlighted the value of cash in a cyclical trough, my job is to preserve and extend it, okay? And when capital is scarce, and expensive, as it is today, cash is king. Our debt-free balance sheet, our cash position, our relative competitive strengths, and we're determined to safeguard and fortify it.

Accordingly, as was referenced, we're implementing a cost control initiative to extend our cash liquidity runway to 36 months. And I expect to see those effects in the fourth quarter this year.

With our focus on conventional technology strategy, we don't need to spend meaningful capital to advance our opportunities. So capital spending will decline until we have definitive agreements that catalyze both development and, hopefully, EBITDA, cash flow visibility. In the interim, we'll continue to reduce operating expense.

Regarding capital formation, which is my previous career on Wall Street, you should expect -- you shouldn't expect to see activity before we have concrete agreements in place tied to specific value-creating opportunities for our equity. We now have 2 of our 5 largest equity investors on the Board 10 days -- sort of similar, very similar start date to me. So our team will continue to be very thoughtful about value-enhancing capital formations.

On the slide, total cash used in the quarter was $31 million, ending 2Q '24 at $222 million. This is higher quarter-over-quarter by $8 million over the first quarter. Yet adjusting for nonrecurring property deposits and FX, it was down $2 million. So largely in line quarter-to-quarter. Year-to-date, a $54 million cash use.

This reflects 2Q activity at the CQP related to our successful cell production trials, and we expect these costs will continue into the third quarter. However, into the fourth quarter, and 2025, we expect to see the effects of cost and activity reduction that support our 36-month cash liquidity runway outlook.

And that's it. With that, I'll turn it back, Tom, to you and look to close this out.

[Tom-Einar Jensen, executive]

Thank you, Evan. I also look forward to our early afternoon calls, your morning calls. That virtual coffee is a highlight of my day.

Moving now to Slide 8, we'll conclude with our key messages. Our team is moving forward decisively with our conventional strategy, which presents multiple paths to stand up a profitable business. Our collective goal is again to achieve first revenue and EBITDA as soon as 2025.

As we've said earlier, we are continuing to progress cell production opportunities, but in the current state of the global capital markets and ahead of the U.S. election, our downstream product opportunities clearly offer a faster path to market. And as importantly, the economic returns associated with module and pack production on either side of the Atlantic are highly attractive.

These projects require a much smaller quantum of capital relative to cell production and the construction cycle times are considerably shorter. So we're excited about these opportunities. As we finalize the technology agreements we're working on, we look forward to sharing more details with the investment community in the near term.

Evan and I discussed how valuable our cash position and balance sheet is, but I will underscore that point one more time. FREYR is in an early-stage secular growth industry that is currently out of favor, so maintaining ample dry powder to take advantage of strategic opportunities is a critical element of our plan.

We have multiple opportunities to generate value from each of our real assets, but Giga Arctic provides some particularly interesting use cases given the scale and flexibility of what we already have on site. As we mature and finalize decisions, we'll be sure to update you accordingly.

Consolidation is beginning to happen in the renewable energy space. And given the essential role that batteries play across the value chain, our deal teams are very active. We understand that our investors want to hear more about what the opportunities are, and we are eager to share more about these potentially transformative deals as we get through confidential discussions.

And finally, the achievements that Mike, Andreas, Einar and the entire team made at the CQP during the first half of 2024 by producing batteries on the 24M SemiSolid platform at industrial scale have attracted significant attention from new and existing strategic partners.

We cannot control or predict when risk appetite in the capital markets will return, but by demonstrating our ability to produce functional battery cells with the SemiSolid technology, we have established a unique position. And we fully intend to build a long-term competitive moat around it. In the interim, FREYR's emerging digital platform, the CQP and Giga Arctic, is unveiling new potential commercial pathways and triggering discussions with forward-thinking partners.

To the point Evan made earlier, the challenges facing the battery industry are yielding opportunity for the companies that manage capital prudently, adapt quickly and decisively to market conditions, and execute against the definitive but flexible plan with embedded optionality.

Our team's resolve is steadfast. We're focused on delivering during our strategy, and we are enormously grateful for your continued support.

And with that, I'll hand it back over to Jeff so we can take your questions. Thank you for your attention.

[Jeffrey Spittel, executive]

Krista, we're ready to open up the line for Q&A, please.

[Operator]

[Operator Instructions] Your first question comes from the line of Tyler DiMatteo with BTIG.

[Tyler DiMatteo, analyst]

Tom, I wanted to kind of start with, with you being back into the seat now, just what are some of the key takeaways that you have? And I guess really what I'm wondering is, how do you prioritize the various business opportunities that you're alluding to and kind of pursuing here? I'm just curious how you think about that.

[Tom-Einar Jensen, executive]

Yes. Tyler, so as we articulated during the call, our primary focus is to get into revenue and EBITDA generation as quickly as possible. And as you know, raising capital for cell manufacturing in the West is a challenging endeavor. We are, of course, pursuing multiple opportunities in this regard. But the surplus of battery production in Asia allows us to pursue less capital intensive but still cash accretive and value accretive opportunities in the module and pack space. So that is what we are targeting initially.

And then we are pursuing other opportunities also upstream, midstream and downstream. But the only way that we're going to sort of pursue that in a value-accretive way is when we can link it to relevant financing activity. So you should expect us to focus a lot on generating revenue in the not-so-distant future, coupled with EBITDA generation. And then we'll build up on that additional exposure into the value chain of batteries.

The final thing I'll say is, given the challenging financing markets and -- challenging capital markets, I should say, over the last sort of 12 to 18 months, coupled with these tectonic shifts in the battery space that the IRA represents, but also the dramatic reduction in cell manufacturing costs and prices from China, I do think you will see a lot of opportunity for consolidation in the space.

So we are being approached by a broad variety of companies that are interested in discussing how combination opportunities create more value. We are quite selective in who we are discussing opportunities with in this regard. But we are, of course, open for dialogue. But principally, the focus is generate revenue and EBITDA as quickly as possible.

[Tyler DiMatteo, analyst]

Okay. Great. No, very helpful. And then I wanted to just kind of come back to the CQP here. One of the slides, it was alluded to, we're going to continue to progress on self-production there as well. I guess, Tom, to date, what are some of the key learnings from having that facility up and running? And I guess the other thing I wanted to kind of get some color on was the new business cases for the CQP. Any color there?

[Tom-Einar Jensen, executive]

So putting into operation a next-generation battery technology is not a trivial endeavor, I can say that. It's been quite a tall order. And the team at FREYR, an exceptional amount of capable people, including a lot of stakeholders and people from our partners, have been working day and night over the last -- well, essentially, since we made that investment decision back in August 2021, just really stand up a next-generation battery manufacturing technology.

The fact that we have been able to both build it, direct it, commission it, and start operations of it, speaks heaps and bounds, in my opinion, of the team that's been able to take that to the scale that it is.

However, the tectonic shifts in the market and the requirement to both produce safer, higher energy density, longer cycle life and also lower cost batteries does require us to think through what additional elements we need to prove up in that system.

We have excellent working relationships with not only the 24M experts, but also the entire 24M ecosystem, as well as a number of additional companies around it. So we will be testing out a broad variety of solutions to ensure that we can generate a pathway and a road map to even better and even lower cost solutions for next-generation technology.

So the fact that we have an operating asset where we have proven that we can run and produce batteries will give us an opportunity to start implementing additional measures to become even more competitive as the market evolves moving forward.

[Operator]

[Operator Instructions]

We have no questions at this time. I will now turn the conference back over to the speakers for closing remarks.

[Jeffrey Spittel, executive]

Thank you, Krista. Well, thank you, everyone, for your attention and your interest in FREYR. We look forward to seeing you out on the road. We have a number of events planned for the coming quarters. So we will talk to you all soon. Please don't hesitate to follow up with questions; we will be around to field them today and the remainder of next week.

Thanks very much. This will conclude the call.