Calix Limited (CALX) Earnings Call Transcript & Summary

All right. Good morning, all, and welcome to the Calix FY '25 Results Webinar. My name is Christineh Grigorian, and I look after Investor Relations at Calix. We will be hearing from Phil Hodgson, Calix MD and CEO; and Darren Charles, Company CFO shortly. But before we kick off, just a bit of housekeeping. [Operator Instructions] this session is being recorded. So without further ado, please to hand over to our presenters.

Excellent. Thanks very much, Christine, and welcome all to Calix's annual results presentation for the financial year '25. To splicking forward, this pack is available, of course, on the ASX platform. So -- it's -- anytime we want to go back and check it, you can download it from the ASX platform. First of all, just acknowledgment of country. We do acknowledge the First Nations people and traditional custodians of the land on which we live and work and recognize that deep and ongoing connection to the land and water and community and pay our respect still is and leaders past and present and extend that respect to all First Nations people. Just in terms of quick introduction to Calix, before we jump into the financials for those who are less familiar with us, it's technology, Australian homegrown technology. It's focusing on some very large industries in terms of decarbonalization. And so cement and lime, iron and steel, critical minerals, including lithium, alumina, and even direct air capture and also a growing revenue water business, which we'll talk about as well. Interesting enough, about 12% of the company is owned by staff and management and directors. A lot of that's our own money, too. So very heavily invested team in the future of this company. Just moving forward to the core technology. We've simplified the diagram here. So hopefully, people can have a look at the core technology and sort of understand it. Effectively, we -- it's a new way to heat stuff up, if you will, a new of [indiscernible] furnace. We were the largest steel tube -- we've already hit sort of scale for that to. We never need to build a bigger tube. All we do to scale from here is have multiple tubes. We hit that tube externally, using whatever energy you like, it could be burning waste, biomass, fossil fuels, it can be renewable electrons. And whatever we're heating goes down the middle of the tube. It's going to be a fairly small particle size. Imagine dust still flow, imagine dropping that industrial clout of the floor and watching it float down that's all that happens inside our tube. We've got a red hot tube. The material is just floating down over 20 to 30 seconds and the red hot walls the tube radiate into the particles and that's how we heat stuff up. Why do it that way? When it comes to things like limestone, which is nearly half by weight CO2, tracked in the rock if we can heat stuff up this way, then the CO2 that comes out of that rock is the cement lime industries heat that live state up at the moment. That doesn't get lost to the atmosphere. It stays inside the tube and exits as a pretty pure stream. And so that was the first application we started developing carbon catcher essentially for the cement and lime industries. But of course, some other businesses started to emerge for us as well, sustainable processing and some of the biggest opportunities in there include some of the biggest industries in the world as well. Iron and steel, alumina and an emerging industry, obviously, lithium, a very important industry as well. The last feature of technology that's becoming increasingly more important is this energy flexibility. And I'll talk a bit more about that. The fact that we can switch between fossil fuels or waste and renewable electrons is becoming an increasing part of the value proposition. Just in terms of the business itself, we've really sort of spent quite a bit of time making sure that we're focused we have a simplified structure, and Darren will talk about the impact of that simplification and focus in terms of the cost performance of the business. And so we're really focused on 3 lines of business. 1 in the carbon capture space, dealing with everything to do with limestone. The second one is sustainable processing, dealing with having to do with of industrial processes, including iron and steel, alumina, lithium are the 3 sort of key examples there. And then lastly, the Magnesia part of our business, which is focused on water. We did have some biotech that we're developing there. We've decided to put that on hold so that we can really focus in terms of growing that water business in revenues and gross profit. And so the key message is we're simplifying our businesses. We're making sure we have the right size and cost to focus on our biggest opportunities and those changes that we implemented during FY '25, Darren will cover in a bit more detail now. So without further ado, Darren, I'll hand over to you.

Thanks very much, Phil. I appreciate that introduction. So I'll just click on to my next slide. So firstly, good morning, everyone, and thanks very much for your time, obviously, and your interest in the company and how we've gone over the last 12 months. So in terms of the next few slides that I'll be presenting, essentially, there's 3 key messages for us to deliver: Continued great revenue growth across the business; tightly managed focused cost reduction; and extending our cash runway in order to give ourselves the time to execute the strategy around funding our projects and our subsidiaries at that project and subsidiary level. So that's essentially what we've been working on over the course of the last 6 months, and it's really pleasing to see both that continued revenue growth, tight management of costs and that extended runway. Just in terms of -- I'll kind of dive in now and dig into each one of those 3 elements in detail now as I kind of go through the next few slides. So just in terms of overall revenue growth. Our revenue topped up just to smidge under $34 million for the year, just complete, and we saw great contribution and strong growth right across Magnesia and Leilac and even a little bit of revenue within a sustainable processing line of business. So really pleasing to see good revenue contribution across all the elements. The one thing I'll add as well is when you get the opportunity to look through our financial reports as we've published them this morning in the segment note, you can actually see the revenue and costs by line of business, both for the year just gone and then also a comparative year for FY '24 as well. So moving forward, we will increasingly be able to illustrate to you the performance across each of our lines of business. We've delivered those -- that revenue growth at good gross margin, and we're certainly very happy with how our revenue is translating into great gross profit result as well. So in terms of then the revenue, again, I'll just dig into it kind of line by line and focus maybe on Magnesia, which represents the largest portion of our revenue -- contribution to our revenue, just almost 85% of our revenue. Again, really great revenue growth. And as you can see, it's accelerating. So I think out of the back of sort of '21, '22 when we're a little bit disrupted around COVID and what we could do with our U.S. business, it's really pleasing to see that kind of growth now starting to translate into some solid delivered results, both in the U.S., but also in Australia as well. We've made the point there that towards the back end of FY '25, we've secured some quite significant contracts from an Australian perspective for the Magnesia business in Queensland. And we're very happy with the performance of the Magnesia business in growing revenues, both in Australia and also in the United States as well. In the U.S., obviously, we've invested over the last couple of years in expanding our footprint, manufacturing or production capacity both into Texas and in Wisconsin. And again, we're starting to see the contribution of those -- that investment into growing revenues in the U.S. as well. So in terms of what's ahead of us in FY '26, again, continued revenue and gross profit growth. And we're in the process of expanding our production facility in the [ Calandria ] relatively small investment that we're making there. not huge dollars at all, sort of hundreds of thousands to upgrade the capacity of Calaundra facility in order to service those new contracts that we have in Southeast Queensland. So a great revenue success story across Magnesia. So then just turning attention to what we've done on the cost side as well. And I want to take a little bit of time on explaining this because it might not necessarily be immediately obvious when you look at the costs in FY '24 and compare them to reported costs in FY '25. We've significantly reduced our cost base through steps that we took towards the back end of calendar year '24 and the impact that, that's flowing through into '25. So you can see there that our second half cost base of $17.1 million is 23% down on what it was in the first half of FY '25. And again, you can't necessarily see that from -- when you look at the full year numbers. We've made some really tough decisions to streamline our organization, as Phil said, around focus on kind of key markets. And we've taken -- the steps that we've taken over the course of the last 6 to 9 months has taken something like an accumulation of about $10 million of operating costs on an annualized basis out of the business. And again, that won't really be seen clearly until you have a look at the FY '26 first half and FY '27 numbers. But you can see quite clearly there, obviously, the change in the second half of FY '25. And like I said, we'll certainly be able to demonstrate those changes, very difficult and challenging decisions, but ones that we've had to make to give ourselves the opportunity to pursue our strategy of funding the business and the technology development at the subsidiary level. The other point that I'll make on this slide is, hopefully, it's quite clear now in terms of the heavy capital investment cycle that we've been through over the last sort of 24 months is certainly coming to an end. There will be a significant reduction in the CapEx investment over FY '26, subject to us completing those funding rounds at the subsidiary level to begin to look at things such as the ZESTY demonstration plant and the other projects that Phil will talk to. But certainly, in terms of our head count level our investment cycle is complete and there'll be a substantial reduction in the CapEx spend in FY '26 as well. So just in terms of the kind of final slide for me before I hand back to Phil. So again, we've got a business that's growing it's revenues, strongly growing its revenues across Magnesia. It's tightly managing its costs and it's ensuring we've got the right focus and discipline to deliver those kind of key revenue targets and the key projects that are going to help kind of derisk our technology and enable us to serve our customers in those really large addressable markets. We've got an extended cash runway and we're pursuing our strategy to fund the business and those projects at the subsidiary level, and we've given ourselves the time in order to do that. Phil, I'll hand back to you now to take the next few slides forward.

Excellent. Thanks very much, Darren. Let's keep jumping forward. And look, despite a whole lot of area of focus around costs and growing revenues, which are fantastic, it's not just a story of cost of revenue because significant commercial milestones were achieved in FY '25 as well. We talked about lithium being one of those lines of business. Certainly, we had a bit of a pause of a lithium project that we're doing with PLS around October last year, but we're pleased we're able to announce the recommencement of that project with an additional $15 million in funding from the Western Australian government in February 2005. That project remains on target to complete construction in the December quarter of this year and remains on budget. And so it's not just the opportunity, I guess, with full minerals in the lithium market here that's interesting. There are other opportunities with other lithium players sort of coming into the sustainable processing pipeline, which are really quite interesting. And that pipeline is not just about I guess, having a chat, that pipeline is about starting and earning some revenues and continuing sustainable processing growth in revenues from paid studies. And so it's pleasing to see lithium really starting to grow in that way, not just with [indiscernible] but with other opportunities that are starting to emerge. Iron and steel, obviously, post balanced state. We're very pleased to be able to announce the grant from ARENA. So that's been executed. It does require match funding, which obviously, we're working through the process of getting in place right now. But that was very pleasing to occur. There are several other proof points that have occurred with ZESTY technology. There's -- we did a deep dive on ZESTY with and the Super Power Institute we published a report on the greenfield opportunity. Australia joined us on that deep dive, there's details in the appendix of this pack, if you want to go and have a look at that. But significant validation and significant due diligence to achieve their validations be occurred on ZESTY over the course of the financial year '25. And it was great to see that manifest at last in the public recognition via this ARENA ground. I mentioned first revenues into sustainable processing. So hopefully sustainable process you can follow in Leilac footsteps and start to build a nice pipeline there and a nice earning line with respect to paid studies and engineering work. Just in cement and lime as well. Obviously, the -- again, we're quite successful with some grant funding there back in July at the start of the FY '25 year, and that $15 million, some of that is coming into the company now. Match funding will be required for the heavy liftings starting on that particular project there, which will be next year towards the end of this financial year. But certainly, at the moment, that we're doing some co-work with matched funding and continuing to develop that project past prefront engine design was a lot about commercial milestones for last year. Interestingly as well, we've completed an upgrade of the Leilac-1 facility. The tube is electric-ready. And so to demonstrate that hybrid operation, switching between different fuels, we've done some work at Leilac-1. And we've also done some test runs there with some -- with Heidelberg Cement on more proof points on the technology, testing out the new tube and those test runs went excellently. And with Leilac as well. Paid studies and engineering work continues to grow in terms of the overall revenue number. So significant, I guess, commercial progress despite the fact that, obviously, there's a lot of focus around costs and priorities. But in these very large potential markets, some great progress being made. So just in terms of what we're looking at. Obviously, Darren's covered revenue. We're happy to put a stamp on it and say we're going to target continued revenue growth. We're going to have contributions from all of our lines of business to that revenue. We're going to significantly -- we expect a significant reduction in CapEx. We're going to continue to obviously manage our costs quite close in an ongoing sense and pursue equity or funding into subsidiaries, much the same as we did with the [indiscernible] Group and Carbon Direct in 2021. We're going to continue to focus on getting funding into the subsidiaries by project financing or equity into a sub. And the runway that Darren talked about is really about giving us plenty of chance to do that. And so with respect to our specific projects, what are we aiming to do? We're aiming to complete the construction, obviously, the midstream demonstration plant with PLS. We're going to continue to move through and get the financing targeting to get the filing together the ZESTY demonstration plant to match that arena funding. Work is progressing on the project, but the heavy lifting stage when we start construction, we'll need to find that match funding for ARENA. We're going to continue to pursue the permitting and funding of the Leilac-2 plant, and I'll talk a bit about that in a second. -- and complete the front-end engineering and design for Project ZETA, which is our South Australian Lime project. And so all the projects slate is up on this slide. In the back of the pack, we've got the blue slides, if you like, that we sort of summarize all of our projects in. Just -- we still don't have line of sight yet on permitting Leilac-2. It's still goes month in Europe, unfortunately, where not a lot happens. And so we just got a bit of a question mark on the permitting and when Leilac-2 permitting might be able to start the project to proceed. We've commenced site works, but we can't commence construction until that permitting is clear. And obviously, we're also looking for matched for some funding with respect to Leilac-2 as part of the joint venture with Heidelberg materials to build that facility. We also still don't have line of sight on the DOE funding. If you recall, the DOE grants that we announced in -- back in February, I think, or late January, were reassessed and are being reassessed by the Trump administration. We're not clear yet. They said end of summer. I think it's sort of almost end of summer in the U.S. We don't have a line of sight yet to those grants. So a couple of little question marks there. But other than that, our other projects continue to target the time lines as previously updated. Just moving through very quickly on areas such as headwinds and also tailwinds. I mean, obviously, it's been a tough couple of years in the clean tech space. There's clearly been a bit of a slowdown or pause in perception around decarbonization. And that's largely, I guess, led by sentiment around the U.S. and the administration there. I would like to point out that Europe has continued to double down and accelerate -- its acceleration goals. Areas such as Germany, for example, a $5 billion, $10 billion of that fund allocated towards climate and economic transformation. They're putting up to their parliament onshore CCUS, which a few years ago would have been inconceivable. And so there's a lot of progress in the U.S. that's really a tailwind for us there. Even in the U.S. there's an enhanced 45Q that the big beautiful great bill that Trump introduced, there's an enhanced 45Q, which means there's enhanced incentive with respect to capture of CO2. And so even in the U.S., despite the sort of sentiment, there's still a lot of tailwind behind CO2 capture in industrial processes like cement and lime. Obviously, in Australia and Asia, a continuation of the current government has been very positive for continuity in the programs that had been announced prior to the current term of the government. And lastly, in Asia, China has extended its ETS to heavy industries such as steel and cement. And a lot of the other countries in the Asia-Pac region India, Japan, Malaysia, Indonesia, Thailand, Vietnam, they're introducing regulatory frameworks. So U.S.A. and everything, it's 5% of steel and cement production. And the rest of the world is certainly moving ahead on decarbonization. So there are some headwinds, but there's also some pretty strong tailwinds in other parts of the world. So just quickly summarizing before we move to some questions. As we've said, the financial highlights, which Darren covered increased revenues, cost base reduced, cash runway extended. So 18 months cash runway again declared. We're focusing on lithium, iron and steel, cement and lime in terms of our commercialization milestones, obviously, growing our revenues and gross profit in the magnesia lines of business, but some significant commercial milestones achieved despite the focus on getting some costs out of the business and those sorts of things. And so that should not be looked aside lightly. We're going to continue to progress, derisk and commercialize the technology out of the team that we've got here, and it's a very focused team now around these themes. Just in terms of the outlook for '26 then, we are calling further revenue growth in Magnesia, we're confident of that. We're going to see the cost savings take effect. And those cost savings taking effect in line with the revenue growth that we're confident in calling out and the significantly reduced CapEx is what gives us confidence to give a 18-month runway forecast -- or not forecast our 8 month runway statement at this point in time. And in terms of the focus on continuing to achieve those commercial milestones, especially Leilac and sustainable processing via paid studies. So they're the focus for FY '26. So I'll pause there, Christine, and happy to take some questions.

[Operator Instructions] We're starting to get a few through. So I will kick off with what we've got here on the box. So the first one is, can you talk about how marketing for the lithium midstream product is going? Is there a potential for that to be revenue in the June 2026 quarter?

Yes. So probably a couple of questions in there. I'll try and break them down. First of all, in terms of marketing for the product or, if you like, demand for the product. I think when we first announced a lithium phosphate product has been the product for the midstream project with PLS, not too many people have heard of it. And so lithium phosphate, it's different from lithium carbonate and lithium hydroxide. They're sort of the 2 most common battery grade materials that -- or chemicals that are being made at the moment. Lithium phosphate, we felt was an easier product to make it a mine site and concentrate up to lithium. So you take costs out of supply chain and leave waste at the mine site. The other thing is that phosphate or lithium ion phosphate, it's 1 of the fastest-growing battery ministries and still is in China. And so we have felt the phosphate part of the lithium phosphate salt was a neat solution to that. We're only seeing increased interest in specifically lithium phosphate. Obviously, we can't talk about commercial discussions that are in confidence right now, but we believe we've chosen the right product here. Easy to make it a mine, concentrates up the lithium and a growing demand for it in the marketplace. Just in terms of the project itself, you'll see in the sort of blue slide pack stores in the appendices. Obviously, the start-up of the lithium facility with the [ Pilbara ], we'd love to do it as soon as possible. Market conditions will dictate that, however, at the moment, lithium is seeing a bit of a recovery. It certainly isn't back up to historical averages. And we sort of needed to be there to start that project in [indiscernible]. Obviously, we'll have a look at what we do with respect to commissioning and testing. But to start that project in annual we need lithium prices back to roughly their longer-term averages. So who knows? That could happen quickly? It could happen a bit more slowly. We'll have to wait and see how the market unfolds here.

Okay. Next one is revenue in Leilac looked lower in the second half than the first half. Was there less engineering work required in the June half?

Phil, maybe I'll answer that. And yes, so I think as we announced in -- Well, I guess, firstly, let's go back to January. So in terms of the Leilac pipeline, we're very we're sort of sitting there in January, very happy with the progress that we've made in terms of the pipeline and the opportunities that we've secured. So again, Leilac and its partners in the U.S. were awarded 2 USD 1.5 million grants to kind of progress engineering and feasibility work in the U.S. on those projects. Now that, that would have contributed probably $2 million to $3 million in additional revenue to Leilac over the following sort of 6 to 12 months, including some revenue in the first half. And as Phil mentioned, when the administration changed, obviously, the DOE kind of put those projects through a review process and that review process is continuing. And so we were very happy with the way Leilac was progressing. We were very happy to have received that additional funding or all those additional grant awards and then things were paused. So in I think May or June, we made a decision, given that, that pause had extended sort of 3 or 4 months that it was indicated to us that it would take, and as Phil mentioned earlier, now the latest is the end of summer. We took the decision to essentially review the resourcing within Leilac and make further changes to our cost base to ensure that the revenue that we were generating within Leilac is more closely aligned with the costs that we're incurring within Leilac. So yes, in terms of the second half, I think we had flagged that some of our revenue that we were hoping to secure was essentially put on pause, and we responded on the cost side of the business. So in terms of, yes, the kind of first half, second half split with Leilac, it was significantly impacted by that decision by the by the Trump administration to put those projects on pause. But we've responded in the right way in terms of tightly managing and controlling the costs and focusing the Leilac resourcing on those paid studies that they do have in hand. So I think that probably hopefully addresses the question, Christineh.

Great. Next question is, can you provide more detail on the permitting delay for the Leilac-2 plant? Is it now pushing the critical path back?

Yes. I wish I could. These things just seem to take longer, of course, than we hope or expect sometimes. Certainly, August, there was very little interaction with the authorities once Europe goes on summer, it's very difficult to continue to progress things forward. So unfortunately, we don't have line of sight at this point. Permitting is a critical path for the project. The heavy lifting, obviously, part of the project is going to rely on some funding and we're targeting to get our funding in place and progress that through this financial year -- by the end of this financial year commencing EPCM, but at the moment, permitting is the critical path. And so yes, we'll update the market as and when we can there. It's just that we don't have a line of sight at the moment, and we felt we needed to update the market that we don't have that line of sight.

All right. I've received a couple in advance. I'll get to those. In the past, you used to share a project pipeline. Why don't you include this anymore? And how is it looking now?

Yes, it's -- it wouldn't be too much different from the last time we shared it. So we've got 86 projects in the pipeline. I think we had 82 at the last -- we're covering nearly 45% of global cement and lime production with that pipeline in terms of the companies that are in there with specific projects that we're working on. So it's more, I think, important to show progress down the pipeline and that's manifest through the paid study work. And so as I guess the pipeline starts to progress and we can talk about it, which we're able to, during the year with Mississippi Lime or MLC. And of course, with TTN as well with the Rowan Oak Cement facility and other projects that we're developing through there, obviously, Heidelberg Materials, et cetera. Those particular aspects, I guess, in the pipeline are the more important ones now. So the pipeline has grown a bit since last time. The key thing is how fast we progress things down now. So that's what we're going to be focusing on and talking about.

Okay. And on a similar subject, please provide an update on patent and IP protection expectations and dates for the main product lines.

Well, that's a good question. We -- I don't have to hand exactly what dates are coming through when. So sometimes it enters a phase of approvals through different jurisdictions, and it takes different time lines for a patent family. So pursuing a patent in China, for example, may take a different time than pursuing a patent through the European Union and each of the members of the union or in the States. And so the patent list, if you like, is -- it's quite a complex question to answer in quite a short time. The key patent for the cement and lime industry, for example, the Leilac patent and there's several sort of layers to that patent as well. They've made their way through a lot of the major jurisdictions. ZESTY's a little younger, the iron and steel. And so it's entering its public phase right now. And so it's probably about 2 years behind the Leilac patent. So -- and the core patent itself which was first submitted in about 2006, updated again in 2016, and we've continued to update that pattern. And so we continue to enrich and I guess, with the latest advances in the technology, broaden the core patent as well. So yes, it's a fairly rich question to try and answer in a very short space of time. But yes, we've got our patent progressing nicely through the different jurisdictions.

I've got a series of questions on Green iron. So on capital access from North Asian partners, will oversee steelmakers who combine equity placement and offtake be viewed favorably.

Yes, absolutely. And I think there's examples of some of those who are operating in that space is not just Asia-Pac as well. there's steel and iron ore companies more broadly that have venture arms, if you like. And so those sorts of strategic investors are attractive with respect to progressing, if you like, an equity raise into a ZESTY special purpose vehicle. So absolutely, they're on the radar.

As a conversion note from Australian Super being considered to raise equity on the green steel?

I don't think so. It's not something that we've necessarily discuss. I mean, obviously, Australia Super is our largest shareholder. So -- but really, the focus with the -- what we're doing with ZESTY is similar to Leilac, we have a special purpose vehicle that will look to raise funds into -- from strategics and impact funds. And so impact funds are typically those venture capital arms and earlier-stage investments that typically don't like investing in the public space. And so the strategy that we followed with Leilac is exactly the same strategy that we're looking at with respect to ZESTY.

Would a trilateral JV such as an Australian iron ore company and a Chinese or Korean steel company work?

Absolutely. So if you look at the -- if you look at some of the successful subsidiary or capital projects that have been put together, I guess, overseas, they involve iron players, iron ore players, steel players, end-user customers, supply chain participants. All of that is desirable, if you like -- if you're looking to put a good consortium together to continue to develop technology. So yes, all of that is on the cards.

Moving on to lithium, a few questions there as well. Are other spodumene ores being tested besides PLS ore?

Yes.

Spodumene ore from Brazil and Canada compatible.

It's not necessarily by geography. It all depends on the geology -- so there'll be types of ores that will crush down beautifully for ours. There are others that will crush tend into larger particle sizes as part of the beneficiation process and there may not be nearly as much fines or any fines that are more for our process. So if those particular ore bodies would be processed you need to look at some billing, if you like, to be suitable for our technology. So it's very much geology driven, not geography driven.

Okay. And this is a little bit geology and geography together. Can Chinese [indiscernible] delight be used with this technology?

That's a good question. I'll put on my hand, so we haven't tested any Chinese ores yet. And again, it will be a bit of both geology and geography there. So to be determined.

And last on the lithium series, how is the midstream product interest received internationally? Scope 2 emissions and carbon border taxes come into play. How can this be used as a springboard for the company to generate revenues through JVs or licenses?

Yes. So this is a bit of a -- if I sort of hark back to the discussion ahead or the [indiscernible] lithium phosphate sold. Absolutely, it's gaining a lot of traction and interest. And obviously, we'd love to say more, but we can't just at this point. One of the areas of attraction interest apart from the utility, the phosphate power of the salt is the fact that if you can use a renewable energy at a mine site. And believe it or not, renewable energy may be the cheapest form of energy in the mine site. Energy is typically very expensive. -- to get to a mine site. Then you can produce a lower cost and b, a lower carbon product. And as soon as you can produce a lower carbon product and it also has lower carbon in the transport chain to the chemical converter then obviously, you have a product that is, I guess, in terms of carbon footprint, lower because one of the key threats here is that as carbon has a price. And you've already seen Europe start to do this, look at carbon border adjustment mechanisms to stop high-carbon products being dumped where you've specified lower carbon production processes. And Australia was actually talking about a carbon border adjustment mechanism. As those come into play, lower carbon products will naturally have an advantage. And the other thing is with respect to lithium sources, the 2 main sources are hard rock such as spodumene and sale brines, such as coming from South America. At the moment, Salebrines have a lower carbon footprint than spodumene derived lithium. Now that's because of the calculation step or the heating up step required in spodumene. So again, as soon as you can shift that spodumene and conversion into a renewable energy conversion, then you can turn the tables back on the salebrine in terms of carbon footprint. So it's an important -- it's a very important step, if you like, for spodumene and those hard rock derived lithium sources to be able to look at lower carbon options if they're going to compete in the world with this carbon board adjustment mechanisms.

Jump off for me -- Okay. Thank you, Phil. You have highlighted that grant funding for ZESTY and ZETA is subject to match funding being secured. The ZETA announcement was in July '24, but a year later, Calix has not secured the matched funding. Is this funding needed for the FEED study you have in your priorities for FY '26?

Actually, it's not needed for the FEED study. The -- we've got, if you like, in kind, which is recognized. So that's the cost of our engineers and these sorts of things we are working on these projects that's getting matched by the ZETA funding currently. So we're getting the revenue better, if you like, of some grand funding, depending upon the stage milestones of the way that funding is rolled out. The heavy lifting is when we need the match funding. So once we move past the feed, if we go past financial or final investment decision and into construction and procurement, that's when we need to match funding. So we've got plenty of time. That's to say we're not doing nothing. Obviously, we're having a look at different ways to fund how ZETA progresses, including project financing, or via the Leilac sort of Series B that we've talked about. But we've got plenty of time to do that. And at the moment, we're enjoying the benefit of grant work coming in for our in-kind contribution to continue to develop that project.

Okay. Connected with this, why should we believe that Calix can achieve much funding in the next 12 months for ZESTY given it's 3x as large as they do?

Yes, it's a good question because obviously, the capital markets have been pretty tough for the last couple of years. clean tech, especially has been tough, not only, obviously, in the public markets for companies such as us, but also in the private space. Our firm belief is that this won't last forever. There is perception around with respect to the pace of decarbonization, especially with the new administration in the U.S. and we can understand that perception. But from what we've seen, and what I've talked about with respect to tailwinds emerging and continuing to strengthen in areas such as Europe and APAC, we believe that the markets will swing back again. And we haven't been sitting still while we've been waiting as we've outlined in our commercial milestones during today's presentation, we've continued to progress the projects and the technology forward. We've continued to derisk the technology and take some commercial milestones and get some pretty good third-party verification of the way that the technology is progressing and its potential, especially on its steel, especially recently for that as well. So there's 2 things that are happening that sort of dictating timing here. We need the markets to improve a bit. We're seeing some green shoots. We're seeing a couple of earlier stage deals being done in the clean tech space. But also, we're not sitting still. And the derisking and the commercial milestones, we're ticking off continues to make the investments more attractive. So we've deliberately given ourselves 18 months runway. We feel that, that's pretty good in terms of creating the opportunities to get funding into the project and/or subsidiary level, which is the core strategy for the company.

And just on that one of those latest comments on tax through, can you confirm how you define cash runway when you say runway?

Yes. I'll let Darren answer that one.

Yes. I guess what we mean in terms of cash runway is that we've got a current amount of working capital, and we've got revenues that are growing and we've got costs that are coming down, and we've got CapEx that is coming down. And what we've got is kind of clear visibility that we've got sufficient time, the runway in order to execute that strategy that Phil talked about in terms of getting the funding into the subsidiaries to take those projects forward. Right now, we've got a growing and successful Magnesia business that's doing pretty well, both in terms of revenue generation, gross profit generation and even earning its own paying its way in terms of its contribution. We feel very strongly that we've got a very compelling technology with Leilac, competitively positioned very strongly. We feel very strongly that we've got a very competitive technology in terms of iron and steel decarbonization as well. And clearly, we've made solid progress as well with the midstream application of the technology in partnership with Pilbara. Now we think it's worth our while continuing to invest in taking those technologies forward and securing the funding to go to the next stage in terms of from pilot to commercial demonstration to full commercialization of those technologies. We think those technologies in those markets represent compelling opportunity for our company. And for us all as shareholders, as Phil said, we're all shareholders in the business. Now we want to give ourselves as much time as we can to basically make those strategy, bring those strategies to life. An alternative strategy, which is just to operate a very successful Magnesia business just minimizes the upside for the company. And so that's what we mean in terms of the runway, giving ourselves the opportunity to essentially take what we think is a very competitive technology in iron and steel decarbonization and a very compelling technology in cement and lime decarbonization, and translate it into significant value for our shareholders. So I think that's what we're talking about when we talk about runway. Every day, we look at our revenue and we look at our growth in revenue and every day, we look at our costs. And also, at the same time, we're continuing to make progress a lot of those other strategies. And so the runway is just giving us the time to execute that strategy.

Next question is, we have been hearing for a very long while about raising funds at sublevel, but without tangible progress. Can you talk to the capital market dynamics you are experiencing?

Yes. I think I sort of answered this one a bit earlier, Christineh. Certainly, very briefly, capital markets have been very tough, especially in the cleantech space many indices showing nothing from '21, it's just been a steady decline in the last financial year is probably the lowest in clintech investments since 2020 around that time. So -- it's a tough market. There are green shoots. I talked about some Series As and Bs that we've seen start to go into decarbonization technologies. And so just in the last few months, which is good. That's a good sign. And of course, the other thing, as I mentioned, is the other dynamic area is we continue to derisk and commercially progress the technology. So a combination of both of those is only going to keep increasing the chance that we move with respect to that particular strategy. We're not sitting still and doing nothing and waiting. Obviously, we're pretty heavily engaged in both of those specific sort of opportunities there in to Leilac and into ZESTY. So yes, it takes time. No one is saying that it's certainly taking longer than anyone would have thought sort of even 2 years or 18 months ago, deals are taking longer. Investors are much pickier, but we believe as we continue to derisk and commercialize the tech that would become a much more compelling value proposition for those funds as and when the market turns.

Okay. Next question is on [indiscernible] if we're able to provide any insights with respect to the new administration, imagine U.S., where are they in respect to Project Cypress? Has it stalled paused? Or is it still received funding -- receiving funding?

Yes, it's basically part of the pause and so when we made the announcements with respect to the DOE review that was taking place, certainly [indiscernible] was part of that. And so we're still waiting to hear the outcome of that. So that's part of the same bucket. It's all being looked at there. So certainly a pause.

Okay. Another one for Australian Super and the microscope. [indiscernible] in the graphite space, can we expect similar support in adverse market conditions as a plan B?

Like I can't talk about Australian Super and what they would likely do, Chistineh I hope to leave that question to the speculation of those out there, unfortunately.

That's right. There was a question. Can you please expand on paid study, and that's in respect to when it was mentioned when describing the feasibility projects with cement and lime groups?

Why don't I talk about that it's kind of linked to essentially the revenues. So yes, I think essentially, what we're talking about there is having customers and prospects pay for us to do work for them to essentially develop projects. And what I mean by that is that if a customer has an idea that they want to look at an opportunity to decarbonize a particular cement operation or a steel operation. They'll come forward. As Phil mentioned, we've got a pipeline of engagement with these customers, and they'll ask us to do some work for them. Now I think what we're saying is that's fine. You need to pay for us to do that work for you. I think as I said before, we've got growing confidence in the technology and its ability to operate -- to offer the lowest cost solutions in these spaces for decarbonization or electrification or all sorts of different value propositions that the technology represents. And so we are seeking in these engagements with our customers. We're saying, "Well, that's fine. We're happy to do that work for you, but you need to pay us. So you need to pay us to do that work to cover the costs. So essentially, that's where both Leilac and sustainable processing is generating its revenues from. It's generating its revenue from paid feasibility work and paid testing work at [indiscernible] as well. So we've obviously got these testing facilities at Bakes, where customers will send us a material and pay us to test the material and write reports for them. That's essentially what we mean in terms of paid studies from -- in sustainable process and in Leilac.

Right. Next question is the PLS project is due to begin commissioning in December. Is that still on track considering the very small increase in lithium prices recently? What is the upside to earnings from this project?

Yes. So certainly, what we're seeing is completion of construction remains on track for the December quarter. And with respect to commissioning an operation, that very much depends upon lithium pricing. So depending on what happens in the market when we sit complete construction, which remains on time and on budget as previously advised for the December quarter and on hold for the market conditions to improve. It would be silly to run the unit at a loss. And so it will be go button-ready effectively. So for when market conditions improve again. Now as I mentioned before, that could happen quickly. It's a very volatile market or it may take a little bit of time. But obviously, we want to get the project into go button ready. So that's the target.

Okay. And the second part of that question was, once the PLS JV is operational, what is the revenue cost model from Calix's perspective?

Yes. So Calix is 5%. member, if you like, in a joint venture with PLS is 55%. So that effectively means that costs, 45% of cash generated, et cetera, is to Calix. And so it's a very simple revenue cost model. Obviously, with respect to running the facility and those sorts of things, we've talked before about historical average spot you mean, historical average lithium carbonate equivalent, and therefore, historical average chemical margins, we'd expect to be the market conditions before we run the plant in Ag -- so yes, hopefully, that answers the question around the cost revenue model.

Phil, I might just add a little bit of comment there as well. Obviously, that's in relation to the operations of the midstream commercial demonstration plant. More broadly in terms of our relationship with Pilbara Minerals as we move beyond commercial demonstration plant into commercialization of the technology, it's not our intention to invest in plant and operate that plant. It's our absolute intention to operate a capital-light model across all of our lines of business. We invested in the commercial demonstration plan just to get it up and moving. But the idea is once the technology is proven at that scale, that what Calix receives is a percentage of the royalties associated with licensing the technology and utilization of the technology across the industry. So again, the commercial demonstration is an important milestone for us, but the much larger opportunity for Calix is licensing the technology to the industry to produce low carbon products and not putting any more capital into that -- the development in that application, but earning royalties down the track from licenses associated with people, other Pilbara as well as other industry participants getting access to that technology. Obviously, that's the ultimate medium- to longer-term goal, and that's the model, is a royalty -- is a light touch royalty stream kind of business model for us.

Okay. Thanks, Darren. Just a handful of other questions and just conscious of time, I'll set through them. So on ZESTY, will you build the demonstration plan on site at one of the major steel companies? If not, how will Calix insure it is tied into the value chain of Australian steel production.

I guess it is sort of a Site A, Site B, Site C that we're progressing. And all of those sites are in Australia, all of them take into account various factors, such as the availability of renewable electrons, availability of hydrogen, land, utilities and obviously, the iron ore and iron out. So all of those factors are come into play, if you like, with respect to where to locate a facility. It is a demonstration facility. Obviously, it would be great to see the facility continues to grow as others invest and want to have capacity in green in generation. But this is our only planned sort of heavy lifting part of the CapEx piece. So it will be a license model from then on. What's interesting for us is to see the SuperPower Institute's report on the green steel potential for Australia and the way they look at and analyze the different parts of Australia with respect to where to locate, if you like, a green oil industry. It could be Queensland, Gladstone. There could be South Australia in the Gulf area, Pilbara, sort of some pretty obvious choices there. Yes, one of the things that was quite interesting to us is the fact that a flexible green iron production unit in terms of especially if it's energy utilization, the ability to suck electrons down when they're cheap and not suck them down when they're not. And so the ability to switch on and off within minutes is one of the things that they see as key advantage. And so location of the facility where we can really take advantage of that feature of our technology to produce the lowest cost green iron is also another factor that plays into our thinking there. So few different options or will be in all those options in Australia I'll just be clear about that. And there's some pretty obvious places that we're looking at, especially if you consider the SuperPower Institute report.

Right. There was a related question as well. With China being a leader in natural resources and well positioned for the ZESTY technology do in conversation with Chinese steelmakers?

Yes, that's interesting. China, obviously, let's put a thumb on the and say roughly 50% of world steel production, obviously, a hugely important market for our own ore producers here in Australia. And obviously, the other thing is that China is growing renewables and cheap renewals supply. So China is one of those areas that is a high potential for the applications ZESTY technology, and the other thing, of course, as I mentioned before, the titer is introducing an emissions trading scheme. But we don't walk lightly into China. Obviously, a lot of the people we're dealing with here in Australia, some of the largest iron ore producers in the world have a lot of experience in China. And so rather than just walking to China ourselves, a partnership-type approach is probably one of the best ways to have a look at the Chinese opportunity.

Okay. Thanks, Phil. Then we've got time for one more question, and it's a financial 1 for you, Darren. You talk about operating cost base reductions being one of the levers for extending the cash runway. How should I go about thinking about the cost base for FY '26? Do I start in second half '25 and take off the annualized cost savings achieved after the balance date? Will there be one-off -- sorry, will it be one-off costs in FY '26 associated with these reductions?

Yes. I think that's probably a good start. It's not just take the second half cost base and double it. As we've said, we've essentially implemented further changes after -- as we announced in sort of May, June and early into July. There's not really any material one-off costs that will come in, in terms of those changes in FY '26. So in terms of what's ahead of us, like I said, is take what the second half was deduct some of the changes that were made late in the year, and you've kind of got a current annualized cost base. And that's essentially where we're starting the year and it sort of allows us to kind of pursue the opportunities that we talked about, both in terms of growing revenues within the Magnesia business and servicing those projects that we're actively kind of progressing that we talked about in terms of our project time line slides and obviously, the work to progress on funding at the subsidiary level as well.

Okay. And the second part of that last question was about revenue growth, which you just touched on with Magnesia, -- but if there's anything further you want to say in terms of visibility at the moment for the revenue growth, if you believe product and services revenues can grow by a similar amount as it has in FY '25.

Yes. So again, I think we tried best not to provide sort of forecast, but I think what we can say, just because I think we've got elements of our business that are growing from a very low base. So in terms of forecasting growth rate, that's somewhat can be challenging. And likewise, we kind of found ourselves coming across things like decision of the Biden administration towards grants and the decision of the Trump administration to put those projects on pause. So that's some of the dynamics that we're kind of faced with. However, what I will say is if you have a look at that Magnesia line of business, hopefully, we've got a track record there of growing that business. We're very pleased with how that business is performing. Some of those projects that we've talked about in Australia have only really come across our slate really in the last quarter of last year -- less projects, I guess, more customers -- new customers and new contracts. So I think that gives us a lot of confidence in terms of the performance of the Magnesia business. What we're focusing on in Leilac, like I said, is essentially making sure our costs do not and outrun our revenue generate an opportunity. So that's the key focus there. We do have opportunities in the pipeline. We are progressing those. We're working on paid studies right now. But that's a key focus in Leilac is making sure our costs are the right -- to kind of rightsized to meet -- to match the opportunity we're working on in terms of revenue. So we're very pleased with the revenue progress and as Phil said, we're targeting continued revenue growth and continued growth in gross profit. So that's our main focus for the year as well as tightly managing our costs.

Great. And that's actually all the time we have for questions and we came to the end of our questions. So I'll hand over to yourself, Phil, if you have any closing remarks.

Thanks, Christineh. Look, thanks very much, everyone, for your attention with respect to our annual results presentation. The slide pack, et cetera, is up on the ASX platform, just reiterating our focus it's absolute rightsized costs continuing forward. It's absolutely growing revenue as we've specifically looking at the Magnesia business were confident in terms of talking about growing revenues there and obviously, increasing the paid study proportion of those revenues as far as sustainable processing and our Leilac business is concerned. Maintaining that cash runway from today for another 8 months is important as well to give us the best chance to affect the strategy with respect to getting equity and/or project financing to advance those specific projects. So with all of that and continuing to move our technology forward with commercial milestones. So it's going to be quite an exciting FY '26. Especially as hopefully, fingers crossed, we start to get a bit more realism around where tailwinds are actually at with respect to decarbonization and the opportunities that, that will bring. So looking forward to FY '26. And thank you, again, very much for your attention.