HELIOGEN, INC.
The following management's discussion and analysis ("MD&A") provides information
that management believes is relevant to an assessment and understanding of our
consolidated results of operations and financial condition, and includes
forward-looking statements that involve risks, uncertainties and assumptions.
The MD&A should be read in conjunction with our condensed consolidated financial
statements and related notes included in Part I Item 1 in this Quarterly Report
on Form 10-Q, and the section titled "Cautionary Note Regarding Forward-Looking
Statements" included in the forepart in this Quarterly Report on Form 10-Q.
Overview
Heliogen is a leader in next generation concentrated solar energy technology. We are developing a modular, artificial intelligence ("AI")-enabled, concentrated solar energy plant that will use an array of mirrors to reflect sunlight and capture, concentrate, store and convert it into cost-effective energy on demand. Our unique system will have the ability to cost-effectively generate and store thermal energy at very high temperatures. The ability to produce high-temperature heat, and the inclusion of thermal energy storage, distinguishes our solution from clean energy provided by typical photovoltaic ("PV") and wind installations which do not produce thermal energy and are only able to produce energy intermittently unless battery storage is added. The system will be configurable for several applications, including the carbon-free generation of clean power (electricity), industrial-grade heat (for use in industrial processes), and green hydrogen, based on a customer's needs. We have developed innovations in the process of concentrating sunlight which we believe fundamentally improve the potential to efficiently and cost effectively collect and deliver energy to industrial processes. We believe we will be one of the first technology providers with the ability to deliver cost-effective renewable energy capable of replacing fossil fuels used in industrial processes that require high temperature heat and/or nearly 24/7 operation. In addition, we believe our disruptive, patented design and A.I. technology will address a fundamental problem confronted by many renewable sources of energy: intermittency. An intermittent power supply does not match the continuous power demand of industry and the grid. Without storage, wind and PV-based renewable energy generation may rapidly fluctuate between over-supply and under-supply based on resource availability. As the grid penetration of intermittent resources increases, these fluctuations may become increasingly extreme. We believe our technology will contribute to solving this problem. Our solar plants will have the ability to store very high temperature energy in solid media. This energy will then be dispatchable, including during times without sunlight, to cost-effectively deliver near 24/7 carbon-free energy in the form of heat, electric power or green hydrogen fuel.
The three use categories for the backbone of three business lines will be configured as follows:
HelioHeat - The production of heat or steam for use in industrial processes will be enabled by the baseline system.
HelioFuel - Building on the Power system described above, hydrogen fuel production will be enabled by further adding an electrolyzer system to the baseline system.
Our technological innovations will enable the delivery of our HelioHeat,HelioPower and HelioFuel solutions to customers. HelioHeat plants will produce carbon-free heat (e.g., process steam or hot air) to support industrial processes.HelioPower plants will deliver solar thermal energy to a heat engine to produce electrical power. HelioFuel plants will couple aHelioPower plant with an electrolyzer to produce green Hydrogen fuel. All three solutions will be enabled byHeliogen's proprietary heliostat design and AI technology, and will integrate thermal energy storage to enable operation nearly 24/7, overcoming the intermittency of other solar energy technologies.
For each of the three above solutions, we are offering multiple support models
to customers looking to deploy
•Contracting with owner-operators to build turnkey facilities that deploy
•Selling heliostats (and associated software control systems) to owner-operators and/or EPC contractors;
•Providing asset maintenance support services during operation, for completed
facilities that use
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--------------------------------------------------------------------------------•Providing project development support services to help customers advance readiness to break ground in advance of final investment decisions.
In the future, we will also be prepared to offerHeliogen's intellectual property through a licensing model to third parties interested in manufacturing and installing the hardware or may enter into long-term power or steam purchase agreements with customers and sell the project to third parties.
Recent Developments
Memorandum of Understanding for Green Hydrogen Generation Facility
OnNovember 7, 2022 ,Heliogen announced it entered into a non-binding memorandum of understanding ("MOU") with theCity of Lancaster, California to deployHeliogen's technology for a green hydrogen production facility. The facility is expected to generate up to 1500 metric tons per year of carbon-free hydrogen, which can be sold to industrial customers inLancaster and the greaterLos Angeles area. This relationship is expected to accelerate the novel use of concentrating solar thermal energy for a commercial hydrogen generation facility. The MOU is subject to negotiation and of execution of a definitive agreement.
OnSeptember 27, 2022 ,Heliogen was selected to receive a$4.1 million award from theU.S. Department of Energy Solar Energy Technologies Office to accelerate the large-scale development and deployment of concentrated solar-thermal power (CSP) technology for industrial decarbonization and electrical power generation and storage. This project will aim to demonstrate a first-of-its-kind CSP process for decarbonizing the heating of limestone to 950°C, which could reduce the carbon emissions associated with cement manufacturing.
Letter of Intent with a
OnAugust 8, 2022 ,Heliogen announced it had entered into a non-binding letter of intent ("LOI") with a sustainable fuels company ("SFC") to jointly produce sustainable aviation fuel ("SAF") atHeliogen's concentrated solar thermal demonstration facility inLancaster, California . This first-of-its-kind collaboration aims to synthesize sustainable jet fuel from sunlight and air to enable the rapid decarbonization of the aviation industry. The companies will work to deployHeliogen's proprietary, AI-powered HelioHeat™ technology to convert sunlight directly into thermal energy in the form of high temperature steam and air that will be used to produce green hydrogen for SFC's Reactor platform. The hydrogen will be produced leveraging the previously announced successful demonstration ofHeliogen's concentrated solar technology. As part of the collaboration betweenHeliogen and SFC, the LOI includes a goal of building a fully integrated ~1 barrel per day drop-in ready SAF demonstration. The parties expect a demonstration project to be a first step to develop a pipeline for approximately 3 million barrels of fuel over the next ten years. The LOI is subject to negotiation and execution of a definitive agreement and we cannot provide any assurances that we will be able to do so.
InDecember 2021 , theU.S. Bureau of Land Management (the "BLM") awarded the Company the exclusive right to lease land in theBrenda Solar Energy Zone (the "Brenda SEZ").Heliogen intends to develop a green hydrogen facility on the Brenda site, capable of producing approximately 20,000 metric tons of hydrogen per year. The Brenda SEZ is an ideal location for commercial-scale green hydrogen production due to the ample local water supply and its close proximity to potential offtake partners and key distribution channels. InApril 2022 , the Company's wholly-owned subsidiary,Heliogen SR2, LLC , executed a right-of-way lease agreement with the BLM for 3,343 acres within the Brenda SEZ. As ofJune 30, 2022 , the right-of-way lease had not commenced. InOctober 2022 , the lease payments were finalized.
Installation of Fourth Generation Heliostats
InJuly 2022 ,Heliogen completed the installation of its new fourth generation heliostats at its demonstration facility inLancaster, California . As with the previous generations of our heliostats, each successive iteration is designed to be less expensive and more efficient to manufacture, install and maintain, while also improving performance and reliability of the solar field. These heliostats were produced on our pilot lines as part of the manufacturing validation process. We also installed them inLancaster using the same installation methods and equipment that we plan to use for our first commercial-scale HelioHeat facility. 24 --------------------------------------------------------------------------------
Autonomous Cleaning Functionality Testing
InSeptember 2022 ,Heliogen completed its latest round of testing on its ChariotAV autonomous cleaning vehicle, which validated the design of the vehicle and proved its ability to navigate the heliostat field autonomously while effectively cleaning the mirrors.Heliogen is confident in the vehicle's ability to accurately and repeatedly clean the mirrors to maintain optimal light reflectivity.
Key Factors and Trends Affecting our Business
Inflation Reduction Act
The Inflation Reduction Act of 2022 ("IRA") was signed into law on August 16,
2022 . The IRA contains many provisions intended to incentivize domestic clean
energy investment, clean energy production and manufacturing of necessary
components, specifically: (a) the extension and enhancement of the Investment
Tax Credit ("ITC") program, which the IRA extends to thermal energy storage
equipment; (b) the addition of Production Tax Credits ("PTC") of $3.00 per
kilogram for clean hydrogen and a three-year extension and modification of PTCs
for facilities that begin construction before December 31, 2024 ; (c) the
creation of the Advanced Manufacturing Production Credit that applies to the
solar components we plan to manufacture at our facility in Long Beach,
California ; (d) the creation of a new tax credit for sustainable aviation fuel
up to $1.75 per gallon, depending on the lifecycle carbon emissions reduction of
the fuel; and (e) the increase in total funds available for the U.S. Department
of Energy's Title 17 loan guarantee program by $3.6 billion , bringing the total
to $40 billion . The ITC and PTC amount can be increased if certain domestic
content requirements are satisfied or if a project is located in (i) an "energy
community" or (ii) low-income community, each as defined in the IRA. Heliogen is
continuing to evaluate the IRA to understand the full impact of these provisions
and additional potential benefits and believes many of these provisions will
drive increased demand for its renewable energy technology and related products
while helping the United States to reduce its carbon footprint more rapidly.
Global Events including the COVID-19 Pandemic
Our operations have been and may in the future be impacted by several global events including changes to existing geopolitical dynamics such asRussia's invasion ofUkraine , social and economic instability, and the impact of the COVID-19 pandemic, which have resulted in increased market volatility, changes to the labor market, inflation, which has resulted in increased commodity prices, and supply chain constraints. Recently, we have seen a recovery in shipping costs and lower commodity prices, however, the future remains uncertain. The ultimate extent the impact these global events and economic conditions will have on our businesses, operating results, cash flows, liquidity and financial condition will be driven primarily by the severity and duration of the direct impact on products in our supply chain and the broad impact to theU.S. and global economies. Results of Operations
Key Components of Our Results of Operations
Revenue - For our contracts with customers, we recognize revenue over time using the incurred costs method for projects under development and engineering and design services. For government grants, we recognize grant revenue based on the amounts determined to be reimbursable for costs, including permitted indirect costs, incurred during a given period for which we have reasonable assurance of the funds being received under the grant.
Cost of Sales - Cost of sales consists primarily of direct labor and direct external vendor costs related to our revenue contracts. No allocation of depreciation and amortization has been recognized due to the nature of work being performed.
Selling, General and Administrative Expense - Selling, general and administrative ("SG&A") expense consists primarily of salaries, share-based compensation, and other personnel-related costs, professional fees, insurance costs, and other business development and selling expenses.
Research and Development Expense - Research and development ("R&D") expense consists primarily of salaries, share-based compensation and other personnel-related costs; the cost of products, materials, and outside services used in our R&D activities.
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Comparison of the Three and Nine Months Ended
Three Months Ended September 30, Nine Months Ended September 30,
$ in thousands 2022 2021 $ Change 2022 2021 $ Change
Revenue:
Services revenue $ 1,367 $ 2,202 $ (835) $ 4,375 $ 3,563 $ 812
Grant revenue 1,733 - 1,733 4,656 - 4,656
Total revenue 3,100 2,202 898 9,031 3,563 5,468
Cost of revenue:
Cost of services revenue
(excluding depreciation and
amortization) 1,690 1,375 315 5,668 2,736 2,932
Cost of grant revenue 1,733 - 1,733 4,656 - 4,656
Provision for contract losses - - - 33,737 - 33,737
Total cost of revenue 3,423 1,375 2,048 44,061 2,736 41,325
Gross profit (loss) (323) 827 (1,150) (35,030) 827 (35,857)
Operating expenses:
Selling, general, and
administrative 18,268 8,687 9,581 60,733 15,099 45,634
Research and development 11,168 4,618 6,550 26,448 8,891 17,557
Total operating expenses 29,436 13,305 16,131 87,181 23,990 63,191
Operating loss (29,759) (12,478) (17,281) (122,211) (23,163) (99,048)
Other income (expense), net:
Interest income, net 259 197 62 666 407 259
SAFE instruments remeasurement - (15,533) 15,533 - (62,993) 62,993 Gain (loss) warrant remeasurement 369 (322) 691 12,679 (2,604) 15,283 Other income, net 1,256 (140) 1,396 1,071 (312) 1,383 Net loss before taxes (27,875) (28,276) 401 (107,795) (88,665) (19,130) Income tax benefit 46 - 46 781 - 781 Net loss$ (27,829) $ (28,276) $ 447 $ (107,014) $ (88,665) $ (18,349)
Revenue and Gross Profit (Loss)
During the three and nine months endedSeptember 30, 2022 , we recognized revenue of$3.1 million and$9.0 million , respectively, driven primarily by project revenue for work associated with the development and planned deployment of our technology and product offerings on a commercial scale, including$1.7 million and$4.7 million , respectively, of grant revenue recognized under theU.S. Department of Energy Solar Energy Technologies Office (the "DOE Award"). Pursuant to the terms of the commercial-scale demonstration agreement (the "CSDA") executed withWoodside Energy (USA) Inc. ("Woodside") inMarch 2022 , we will complete the engineering, procurement, and construction of a new 5 MWe concentrated solar energy facility to be built inMojave, California (the "Facility") for the customer's use in testing, research and development. The Facility is expected to serve as a fully operational model for the customer's use in demonstrating the Company's technology and product offerings on a commercial scale to aid in the development, engineering, and construction of larger, commercial scale facilities under separate agreements between the Company and the customer or other third-party customers. During the three months endedSeptember 30, 2022 , we recognized a gross loss of$0.3 million associated primarily with the CSDA. During the nine months endedSeptember 30, 2022 , we recognized a gross loss of$35.0 million driven primarily by recognition of a contract loss of$32.9 million related to the CSDA and Facility. The contract loss reflects our best estimate of the full expected loss on the Facility given the consideration expected to be realized under the CSDA (net of the fair value of related warrants granted to the customer) and theDOE Award relative to the total cost at completion. Revenue expected to be recorded for theMojave, California project is approximately$84.5 million over the full term of the project, consisting of$45.5 million for the CSDA, of which$40.4 million is identified as noncancellable atSeptember 30, 2022 , and the DOE Award of$39.0 million . Our cost estimates as ofSeptember 30, 2022 for the anticipated final scope of 26 --------------------------------------------------------------------------------
the Facility are subject to further refinement as we continue detailed engineering and design with the customers, obtain firm pricing from subcontractors, order long-lead items, and better understand short- and long-term commodity and market impacts on cost inputs to the CSDA and Facility. As a result, the actual loss for the CSDA and Facility could vary from our current estimates.
During the three and nine months endedSeptember 30, 2021 , we recognized revenue of$2.2 million and$3.6 million , respectively, and$0.8 million gross profit associated with engineering and design services contracts which was largely related to a predecessor contract to the CSDA.
Selling, General, and Administrative Expense
For the three and nine months endedSeptember 30, 2022 , SG&A expense increased$9.6 million and$45.6 million , respectively, compared to the same periods in 2021, driven primarily by our growth to support commercial operations, resulting in higher headcount and related employee expenses of$8.0 million and$35.4 million , respectively, with the most notable increase being non-cash share-based compensation expense of$6.3 million and$27.0 million , respectively. For the same comparative periods, professional and consulting services increased by$0.3 million and$4.7 million , respectively, associated primarily with being a newly public company and the corresponding need to support and develop our accounting, legal, and information technology infrastructures. Facilities and office related expenses increased by$1.3 million and$5.5 million , respectively, to support space requirements for our manufacturing facility inLong Beach, California and corporate headquarters inPasadena, California .
Research and Development Expense
For the three and nine months endedSeptember 30, 2022 , R&D expense increased$6.6 million and$17.6 million , respectively, compared to the same periods in 2021, primarily due to headcount growth and related consulting services associated with our efforts to ramp up and further develop our commercial-scale offering.
SAFE Instruments Remeasurement
In the first half of 2021, we entered into Simple Agreements for Future Equity
("SAFE Instruments") financing transactions with third party investors in
connection with a private round of funding to provide investors an opportunity
to convert the SAFE Instruments into common or preferred stock upon defined
triggering events. Pursuant to the terms of these agreements, the SAFE
Instruments were converted to common stock immediately prior to the closing of
the Business Combination on December 30, 2021 . Due to the terms of the SAFE
Instruments, the SAFE Instruments were measured at fair value at each reporting
period resulting in the recognition of losses of $15.5 million and $63.0 million
during the three and nine months ended September 30, 2021 , respectively.
Warrant Remeasurement
As part of the Business Combination, we assumed the outstanding public and private warrants of Athena, which are accounted for at fair value based on the closing share price of the Company's common stock. The warrant remeasurement gains of$0.4 million and$12.7 million for the three and nine months endedSeptember 30, 2022 , respectively, and losses of$0.3 million and$2.6 million for the three and nine months endedSeptember 30, 2021 , respectively, are associated primarily with changes in the Company's closing share price. The Company's share price declined from$15.52 onDecember 31, 2021 to$1.86 onSeptember 30, 2022 and the Company's share price increased from$9.61 onMay 7, 2021 , the date of Athena's initial public offering, to$9.93 onSeptember 30, 2021 . 27
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Liquidity and Capital Resources
Heliogen's principal source of liquidity has historically been proceeds from private investors through the issuance of SAFE Instruments, preferred stock, and common stock. Upon closing of the Business Combination with Athena completed inDecember 2021 ,Heliogen received net cash proceeds of$159.4 million . InMarch 2022 ,Heliogen entered a series of commercial agreements with a customer for the commercial-scale demonstration and deployment ofHeliogen's AI-enabled concentrated solar energy technology inCalifornia and the marketing ofHeliogen's technology inAustralia and is in the process of negotiating further revenue contracts. These contracts will provide a significant source of cash for the Company. Our principal uses of cash are for project-related expenditures, SG&A and R&D expenditures in support ofHeliogen's development of its technology and operational growth efforts. To date,Heliogen has not had any material bank debt and has no material outstanding debt on the balance sheet as ofSeptember 30, 2022 . Total liquidity forHeliogen , including cash and cash equivalents, available-for-sale investments, and other liquid securities with maturities greater than one year is as follows: $ in thousands September 30, 2022 December 31, 2021 Cash and cash equivalents $
35,444 $ 190,081 Investments, available for sale (maturities less than one year)
124,034 32,332
LT investments, available for sale (maturities greater
than one year)(1) 4,769 -
Total liquidity $ 164,247 $ 222,413
________________(1)For more information on other liquid securities with maturities greater than one year, see Note 12 to our condensed consolidated financial statements.
With the funds raised in connection with the Business Combination, we believe that our existing liquidity should provide the ability to meet our contractual obligations and continue our current R&D efforts and development of our first commercial facilities and will be sufficient to meet our cash requirements for the next 12 months. However, we could potentially use these available financial resources sooner than expected due to delays in project execution or higher than anticipated costs and therefore may need to incur additional indebtedness or issue additional equity to meet our operating needs. In the event that additional financing is required from outside sources, we may not be able to raise it on terms acceptable to us or at all. If we are unable to raise additional capital or generate cash flows necessary to expand our operations and invest in developing our new technologies, this could reduce our ability to compete successfully and harm our business, growth and results of operations. While we believe we will meet longer-term expected future cash requirements and obligations through a combination of our existing cash and cash equivalent balances, cash flow from operations, and issuances of equity securities or debt offerings, our future capital requirements and the adequacy of available funds will depend on many factors, including those disclosed in Part I, Item 1A Risk Factors in our 2021 Form 10-K/A for the year endedDecember 31, 2021 .
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