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, A.I.-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 the first technology provider 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 will be configured as follows, forming the backbone of three business lines:
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 artificial intelligence 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 offer
Recent Developments Customer Contracts OnMarch 28, 2022 ,Heliogen entered into a series of commercial agreements withWoodside Energy (USA) Inc. ("Woodside"), a wholly-owned subsidiary of leading Australian energy producerWoodside Petroleum Ltd. for the commercial-scale demonstration and deployment ofHeliogen's AI-enabled concentrated solar energy technology inCalifornia and the marketing ofHeliogen's technology inAustralia . Pursuant to the terms of the commercial-scale demonstration agreement (the "Project Agreement"),Heliogen has agreed to complete the engineering, procurement, and construction of a new 5 MWe HelioPower facility to be built inMojave, California for testing, research and development. The two companies also agreed to include the scope and associated funding fromHeliogen's $39 million award from theU.S. Department of Energy's Solar Energy Technology Office (the "DOE Award"). As a result, in addition to commercial-scale demonstration ofHeliogen's 5 MWe power module, the project will also include the deployment and testing of an innovative approach to converting the thermal energy produced byHeliogen's facility into power with a smaller footprint than traditional steam turbines. In addition to the Project Agreement,Heliogen and Woodside also signed a collaboration agreement to jointly marketHeliogen's technology inAustralia with the objective to deploy further commercial-scale modules of HelioHeat,HelioPower , and HelioFuel offerings. Under this arrangement, the parties expect to define product offerings that useHeliogen's modular technology for potential customers (including Woodside) inAustralia and are establishing a roadmap to identify and engage with those customers.
Letter of Intent with a
Heliogen and a sustainable fuels company ("SFC"), recently entered into a non-binding letter of intent ("LOI") 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, artificial intelligence (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.
In
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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.
We recently manufactured, deployed and began testing the autonomous cleaning vehicle that we plan to use at our first commercial HelioHeat facility. These tests are being conducted using the fourth generation heliostats installed in the same radial pattern that will be used at the first commercial facility.
Key Factors and Trends Affecting our Business
Global Events including the COVID-19 Pandemic
Our operations are impacted by several global events including changes to existing geopolitical dynamics such asRussia's invasion ofUkraine , social and economic instability, and the ongoing impact of the COVID-19 pandemic, which have resulted in increased market volatility, changes to the labor market and supply chain constraints. Further, inflation has resulted in increased commodity prices, among other things. The ultimate extent of 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 pandemic and the war inUkraine , 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 and 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 - 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 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 Six Months Ended
Three Months Ended June 30, Six Months Ended June 30, $ in thousands 2022 2021 $ Change 2022 2021 $ Change Revenue: Services revenue $ 964$ 845 $ 119 $ 3,008 $ 1,361 $ 1,647 Grant revenue 1,428 - 1,428 2,923 - 2,923 Total revenue 2,392 845 1,547 5,931 1,361 4,570 Cost of revenue: Cost of services revenue 958 845 113 2,987 1,361 1,626 Cost of grant revenue 1,428 - 1,428 2,923 - 2,923 Provision for contract losses - - - 33,737 - 33,737 Total cost of revenue 2,386 845 1,541 39,647 1,361 38,286 Gross profit (loss) 6 - 6 (33,716) - (33,716) Operating expenses: Selling, general, and administrative 22,589 4,260 18,329 42,984 6,412 36,572 Research and development 6,147 2,665 3,482 15,752 4,273 11,479 Total operating expenses 28,736 6,925 21,811 58,736 10,685 48,051 Operating loss (28,730) (6,925) (21,805) (92,452) (10,685) (81,767) Other income (expense), net: Interest income (expense) 213 (41) 254 407 (1) 408 SAFE instruments remeasurement - (47,460) 47,460 - (47,460) 47,460 Gain (loss) warrant remeasurement 8,284 (1,979) 10,263 12,310 (2,282) 14,592 Other (expense) income, net (109) 72 (181) (185) 39 (224) Net loss before taxes (20,342) (56,333) 35,991 (79,920) (60,389) (19,531) Income tax benefit 125 - 125 735 - 735 Net loss$ (20,217) $ (56,333) $ 36,116 $ (79,185) $ (60,389) $ (18,796)
Revenue and Gross Profit (Loss)
During the three and six months endedJune 30, 2022 , we recognized revenue of$2.4 million and$5.9 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$1.4 million and$2.9 million , respectively, of grant revenue recognized under the DOE Award. Under the Project Agreement executed with a customer 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 at 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 endedJune 30, 2022 we recognized a nominal gross profit. During the six months endedJune 30, 2022 we recognized a gross loss of$33.7 million driven primarily by recognition of a contract loss of$32.9 million related to the Project Agreement and Facility. The contract loss reflects our best estimate of the full expected loss on the Facility given consideration expected to be realized under the Project Agreement (net of the fair value of related warrants granted to the customer) and the DOE Award. 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 Project Agreement, of which$41.7 million is identified as noncancelable atJune 30, 2022 , and the DOE Award of$39.0 million . Our cost estimates as ofJune 30, 2022 for the anticipated final scope of 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 Project Agreement and Facility. As a result, the actual loss for the Project Agreement and Facility could vary from our current estimates. 25 --------------------------------------------------------------------------------
During the three and six months ended
Selling, General, and Administrative Expense
For the three and six months endedJune 30, 2022 , SG&A expenses increased$18.3 million and$36.6 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 which contributed to the increase by$13.6 million and$28.0 million , respectively, with the most notable component being non-cash share-based compensation expense. For the same comparative periods, professional and consulting services increased by$2.3 million and$4.4 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$2.4 million and$4.2 million , respectively, to support space requirements in ourPasadena, California andLong Beach, California facilities.
Research and Development Expense
For the three and six months endedJune 30, 2022 , R&D expense increased$3.5 million and$11.5 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 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 onDecember 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 a$47.5 million loss on the remeasurement during the three and six months endedJune 30, 2021 .
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. We incurred a$8.3 million gain during the three months endedJune 30, 2022 related to the change in valuation on our warrant liabilities, compared to a loss of$2.0 million during the three months endedJune 30, 2021 . We incurred a$12.3 million gain during the six months endedJune 30, 2022 related to the change in valuation on our warrant liabilities, compared to a loss of$2.3 million during the six months endedJune 30, 2021 .
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, selling, general and administrative expenses 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 ofJune 30, 2022 . Total liquidity forHeliogen , including cash and cash equivalents, available-for-sale investments, and other liquid securities with maturities greater than one year included in other long-term assets totaled$185.5 million and$222.4 million as ofJune 30, 2022 andDecember 31, 2021 , respectively. For more information on other liquid securities with maturities greater than one year included in other long-term assets, see Note 13 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 26
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potentially use these available financial resources sooner than expected due to delays in project execution or higher than anticipated costs and, thus we 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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