Capsol Technologies ASA (CAPSL) Earnings Call Transcript & Summary

Good day, everyone, and welcome to Capsol Technologies' Investor Update for Q1 2025. My name is Jacob Clausen Krovel, and since the start of May, I've been part of the team at Capsol Technologies as SVP, Investment and Strategy. Over the last decade, I've held several positions in finance, most recently as Head of Investor Relations at a formerly publicly listed technology company. At Capsol, I am excited to contribute to scaling the business and unlocking its potential, while connecting with investors. I am joined today by our CEO, Wendy Lam; and our CFO, Ingar Bergh. Wendy will start off by taking us through our Q1 highlights and an operational review. Ingar will then take us through the financials, and Wendy will conclude with some closing remarks. Please note that this presentation is being recorded and will be published on our website after the presentation. We will be taking questions at the end of the presentation, and you can type in your questions anytime during the presentation. I now hand the word over to you, Wendy.

Good day, everyone, and welcome to our Q1 2025 update, and thank you, Jacob, for kicking us off. We are excited to have you on the Capsol growth journey. In Q1, we reached a defining moment, not just for Capsol but for the carbon capture industry, as Stockholm Exergi made the final call to move forward with the world's first large-scale post-combustion BECCS project using our technology. This breakthrough validates our cost and energy-efficient solution, while also showing that carbon capture projects with Capsol's technology can be bankable. In other areas, we are also making progress. This is a picture of one of our CapsolGo demonstration units in action at Malarenergi, a biomass plant in Sweden. We just completed this campaign successfully with our partner, Sumitomo Foster Wheeler. We're also very proud to have successfully completed our first campaign in the cement sector with SCHWENK, and we have already started deploying the next campaigns for SCHWENK and Holcim. In addition, we have signed an LOI and are negotiating the final contract for the next CapsolGo campaigns. The results of the Stockholm Exergi milestone and our work in the field is that we are seeing accelerated commercial traction, including in the U.S., with BECCS and gas turbines. Now, let me summarize again who Capsol is. We are one of the very few publicly listed carbon capture technology companies in the world. We offer licensing of carbon capture technology with inherent heat recovery and generation in one system. Our system is all electric, easy to implement without need for additional steam and uses HPC, hot potassium carbonate, as safe and environmentally-friendly solvent. All of this enables capture costs that can be 20% to 60% lower than solutions using amines. This is driven by some of the lowest energy consumption numbers in the industry for systems at this scale. As mentioned, we have continued our mobile demonstrations at our customers, capturing CO2 from live industrial plants. We now have just over -- just under 19,000 hours of demonstration experience and on our ninth campaign. We have the most experience in the world using HPC for post-combustion carbon capture on industrial flue gases. And we are expanding the industries we serve. Our main focus has been on BECCS or bioenergy with carbon capture and storage, energy from waste, cement and gas turbines. Refineries and pulp and paper are examples of other industries we are seeing growing interest in, amongst others. We are remaining focused with a team in Germany, Norway and North America. However, we do see growing interest from other regions. Now, onto Q1 highlights. We have closed the quarter with some exciting developments. First, we continue to show strong pipeline growth and momentum across industries. What is most exciting is that Stockholm Exergi is moving ahead with Capsol's technology. Year-on-year, we had 28% revenue growth and over 70% mature pipeline growth to over 22 million tonnes of annual CO2 capture capacity. Commercial traction continues across a variety of segments in Europe and in the U.S. Second, as we develop the business, we are also seeing significant EBITDA potential in 2026 and beyond. Our project pipeline includes 13 projects with 6.5 million tonnes of CO2 capture per annum that have potential to reach FID in 2026. This represents over NOK 300 million of licensing revenue potential that goes largely to the bottom line. A risk-adjusted forecast shows potential for NOK 60 million in EBITDA in 2026, though we note that the range is wide. Third, we are working on new services to drive future value for the business. We have strengthened our position as a carbon capture technology leader with our new lab and developing services to support customers in their operations. With these activities, we can further innovate the capture process and chemistry. Although Capsol solution is commercially ready, we are just at the beginning of the optimization potential of the solution. We've already scoped out potential of recurring revenue of EUR 2 or more per tonne of CO2 captured from operational services in the future. With the foundation we have invested in and built over the past year, we are poised to continue making strides in the industry and create value for our shareholders. So next, I'd like to highlight the value we are creating for our customers with an example. When you compare the savings we can achieve with Capsol solutions versus the license fee, you can see a payback of less than 1 year. This is based on 20% to 60% lower capture cost than amine-based solutions and a license fee of EUR 10 to EUR 15 per tonne of installed capacity. In this example, we assume EUR 12.5 as a license fee. The example case here is based on a cement carbon capture project with 800,000 tonnes of capture capacity per year. At that capacity, the onetime Capsol license fee, assuming EUR 12.5 per tonne, is about NOK 120 million. On the other hand, the savings on this project can be NOK 180 million per year when you consider the inherent heat recovery and the lower energy use. Comparing this onetime license fee of NOK 120 million to the savings of NOK 180 million, you can see that the payback time for the license can be less than 1 year of operation. And the case can be even more interesting when we look at BECCS or waste-to-energy plants, where we can generate additional heat, which can produce more revenues for our customers. And then, for simple cycle gas turbines, our solution can also generate additional electricity. Next, I'd like to provide a view of the market. With Capsol's value proposition, we see a very attractive growth path based on various market outlook scenarios. There are varying estimates of how much CO2 capture capacity will be operational by 2050. Some of these estimates are based on net zero targets. Others are based on announced pledges, and other estimates are based on more conservative views, such as from DNV. What we are certain of is that carbon capture is a must-have solution for any decarbonization target. There is no scenario without it to prevent CO2 from being added to the atmosphere or to remove it. As we progress from 2030 to 2050, we expect that the post-combustion carbon capture share of the market will increase from around 41% to 50%. This includes industrial processes and power generation. Within this total addressable market, Capsol is defining a conservative serviceable market of 25% to 40% based on our technology competitiveness and geographical presence. Overall, Capsol can see a path to 4% to 6% and upwards total market share based on today's business model. Considering a conservative view of the market and our pipeline, we have a licensing revenue potential of NOK 3 billion between 2025 and 2035. And this is about the same as the potential revenue in our current mature project pipeline. So what do we think is driving market growth? In addition to national commitments and company targets, we are seeing some strong drivers for why CCS remains a must-have decarbonization solution for the future. Let me highlight 3 of these. First, we are seeing strong growth in the voluntary carbon markets where companies are paying for carbon removals to offset their own emissions. Companies like Microsoft, Frontier, Google and Amazon are entering into agreements to buy future carbon removal credits, which help to fund projects. These kinds of purchases have been increasing over the years. We are barely into May this year, and we already saw an 11 million tonnes of CO2 volume purchased, which is a large increase from last year. And we are very proud that Stockholm Exergi, who licensed our technology, has some of the largest purchases on record. This includes Microsoft's purchases of over 5 million tonnes of CO2 over 10 years of the plant's operation. The second driver of the CCS market is carbon price trends such as for the ETS, or the Emissions Trading System, in Europe. Free emissions allowances will be phased out, and they will no longer be allowed to emit for free in the coming years. The forecast consensus by many, including BNEF, is that prices can more than double by 2030 and triple by 2035. CBAM, or Carbon Border Adjustment Mechanism, will also no longer allow undecarbonized products such as cement to enter the EU without penalty. These dynamics are driving many of our customers to start CCS projects to stay competitive for the future. Third, CCS is really globally endorsed. In the U.S., on Earth Day, April 22, the Trump administration named CCS, along with nuclear and geothermal, as important technologies for the future. During the same week, China's President Xi, for the first time, directly spoke on climate, announcing that they would set climate targets for 2035 to cover the whole economy and include all greenhouse gases. And the EU is also incentivizing clean technologies and industry. So next, I'd like to give a word on our business model within the growing CCS market. Capsol's business model is scalable and capital-light, yielding attractive returns. Here, you can see a time line for a typical CCS project, which can be 12 to 36 months long from engineering to FID. Capsol works directly with industrial companies at the beginning of the cycle with sales engineering, followed by paid feasibility or pre-FEED studies. A demonstration campaign with our CapsolGo is also a possibility along this journey before moving towards high-value engineering pre-FID work in the form of a PDP, or Process Design Package, or FEED. After around FID is when the license fee of EUR 10 to EUR 15 per million tonnes of CO2 installed capture capacity would be paid. All of this is followed on by services we are working to introduce for the future. Our current business model with engineering, demonstration campaigns and technology licensing targets a pretax profit margin of 40% to 60%. Next, a few words on the Stockholm Exergi milestone. With this project, Capsol has booked our first licensing revenue and cash. This future plant will capture 800,000 tonnes of CO2 per year. The CO2 will be transported and stored at Northern Lights, owned by Equinor, Shell and TotalEnergies. And this is a great example of Norway making its mark on capture, transport and storage for one of the world's largest BECCS projects and marks a major milestone for the carbon capture industry. I already mentioned Microsoft's purchase of over 5 million tonnes of carbon removal credits from this project. Microsoft did its due diligence for the purchase with a third party called Carbon Direct, using newly developed criteria setting a standard for high-quality carbon removals. And one of the deciding factors for Microsoft was the ability for the capture system enabled by Capsol to generate additional heat for the district heating system. This project has further confirmed Capsol's technology for deployment and is opening up more opportunities for Capsol with industrial clients and project developers. We've already seen an increase in requests by customers to support their projects for the future. Looking at our mature project pipeline, we saw a 29% growth just from last quarter on this, and as mentioned earlier, over 70% growth year-on-year. We now have over 22 million tonnes of CO2 capture capacity from the customers where we have either had paid work or have supported project development. These include 5 EU Innovation Fund applications and work in the U.S. on BECCS and gas turbine projects. The 22 million tonnes was up from 21 million tonnes in our press release last week after adjusting for a gas turbine project that has been progressing recently. In this funnel, we have also removed projects where we know they will not proceed. In total, this pipeline represents a total of NOK 3 billion of total licensing revenue potential and the landscape of opportunity ahead. You can see by sector where the volume is coming from. Cement is the largest, followed by energy from waste and BECCS. And we're just starting the work on the other sectors and expect to see growth as we progress work in these areas. So zooming in, the mature project pipeline includes 13 projects with 6.5 million tonnes of capture capacity that have a potential for FID in 2026. This represents over NOK 900 million of potential total licensing revenue. Of this, about NOK 300 million could be paid at FID. And FID is based on many factors, some out of our control. So to risk adjust this, we account for whether the project proceeds or whether Capsol is selected. And with this, our estimate is NOK 60 million of potential EBITDA in 2026 based on licensing fees that largely go to the bottom line, recognizing that the range is wide. So as you have seen, we have some very strong growth potential, and we have a path towards breakeven. The investments we have made over the past year have increased awareness of Capsol as a mature alternative to incumbent solutions that can improve project economics. This is positioning us for higher value engineering work, including PDPs or Process Design Packages or FEEDs as we get closer to licensing revenues. With this path, we can see potential to breakeven in the next 12 months. And we will pace this considering what growth investment opportunities there are to stay competitive in a dynamic market where we are gaining share. We have a flexible cost base that will be balanced with activity levels, and we will maintain strict capital discipline as we progress work with customers on their first projects. To round off, I share a view for the future. As projects come to life, we have the potential to generate additional recurring revenues with services. Examples include solvent services, performance monitoring and remote support. We can already see an opportunity for EUR 2 per tonne of CO2 captured or more in annual recurring revenues for basic solvent services alone. Beyond this, we are working on ways to innovate capture performance through R&D programs in our lab and from our field campaigns. All of this can add value for our clients and further reduce the cost of capture. I now would like to pass it on to Ingar Bergh, our CFO, who will take us through our financial highlights.

Thank you, Wendy. In Q1, we generated revenues of NOK 24.9 million, up 28% compared to Q1 last year. As we move closer to more FIDs and subsequent licensing revenues, the majority of revenue is still from demonstration campaigns and engineering services. We ended the quarter with a pretax loss of NOK 16.1 million. Operating expenses were NOK 38.6 million for the quarter. This is up from the same period last year and reflects that we have invested in development and organization to enable winning more projects and generating more value per project. We are now an organization of the right size and with the right tools to deliver on what's ahead of us. Hence, we expect the cost base over the next 4 quarters to be lower than that of Q1. Moving on to cash flow for the quarter. We started Q1 with a cash balance of NOK 64.4 million and ended the quarter at NOK 58.5 million, implying a cash outflow of NOK 7.2 million for the period. The pretax loss of NOK 16.1 million was partly offset by depreciation of NOK 4.7 million, finance income of NOK 2.5 million and working capital improvements of NOK 9.3 million. It is worth noting that the CapsolGo investment program is now completed, and we expect to see very limited CapEx spending going forward. Importantly, we see a clear revenue ramp-up ahead, driven by increased PDP and FEED work as we approach project FIDs. This positions us within reach of breakeven over the next 12 months. On that note, I give the word to Jacob that will talk about how we are going to leverage the recent milestones achieved. Thank you.

Thank you, Ingar. The world's first large-scale bioenergy with carbon capture and storage project deploying Capsol's capture technology moved forward as Stockholm Exergi made a final investment decision at the end of Q1 2025. This brings substantial validation to our technology, having a clear impact on the standing in the market, both in terms of dialogues we're having with potential customers, as well as potential partnerships. Our pipeline continues to grow, and traction is increasing with multinationals like Holcim and Suez. During the quarter, we made significant commercial progress with CapsolGT and added the first projects from the U.S. to our mature pipeline. On the back of these significant milestones, Capsol has retained Pareto Securities as financial adviser to explore paths to accelerate growth. This includes advancing ongoing discussions with potential strategic partners. Other growth capital options will be reviewed to meet growing demand from higher-value clients with larger project portfolios. Furthermore, opportunities to expand the footprint in emerging markets will be assessed. All initiatives are part of our long-term strategy to scale the business and deliver enhanced value to our shareholders. With that, I'll hand the word back to you, Wendy, for the closing remarks.

In summary, we are confident that Capsol is positioned for profitable growth. Our innovative technology platform enables lower cost and provides a strong alternative for customers looking to improve the economics of their CCS projects. Capsol's pipeline growth is outpacing the industry with over 22 million tonnes of CO2 capture capacity. This pipeline will convert to high-value engineering and license revenues. For the future, services have the potential to add recurring revenue and build on our capital-light business model. In our execution, we have a flexible cost base to support capital discipline. And then finally, on the back of major milestones like the Stockholm Exergi FID and growing work in other sectors, we see promise for even greater growth, and we'll explore value-accretive strategic partnerships. Thank you all for joining us today. And I will pass it back to Jacob for our Q&A.

Thank you, Wendy. [Operator Instructions] So our first question is first directed at you, Wendy. Regarding the statement that the company has engaged Pareto Securities to advance ongoing discussions with potential strategic partners and review growth financing options, could you offer some general insights into the key strategic benefits beyond capital infusion that the company is exploring through these potential partnerships?

Great. Thanks for the question. It's a great question. We have, over the last year, at Capsol, been working with a number of potential partners, both on projects and exploring how we could move forward. So this engagement with Pareto actually gives us an opportunity to explore in a deeper manner how these relationships can proceed. Some of the benefits in working with strategic partners for a license of technology like us could mean technology collaborations to advance the technology to make capture lower cost. It could mean advancing how we go to market. It could mean better presence in certain geographies where we are actually starting to get more and more pull from. So there are a number of advantages of exploring these kinds of relationships. And if you consider the competitive dynamics out there for various technologies, many of them are looking at this in a broad way. So we see an opportunity on the back of these milestones that we have achieved to really go on with a fuller force in taking advantage of this.

Great. The next question is also on the same theme, which has been answered, I think, but it has another element that is best directed at you, Ingar. Do you still consider Capsol to be fully funded?

Yes. Thanks, Jacob. As we said in the presentation, as we now approach FIDs, we see a clear revenue ramp-up from PDP and FEED studies. This positions us to reach breakeven within the next 12 months. With the expected PDP sales and redeployment of our available CapsolGo units, we have the sufficient funding.

And maybe I can add to that. Building on the milestones that we've had, we've seen tremendous momentum, and of course, line of sight to these FIDs that we mentioned in the project portfolio. At the same time, we are engaging Pareto and strategic partners to explore how we take best advantage of that growth. We're also considering risk management. And that's why we do have this flexible cost base, as we mentioned in the presentation, to do this in as responsible a way as possible, managing the momentum and the opportunity that we have.

Great. We have another question direct -- which is best aimed at you, Ingar. Could you please take us through the calculation that brings you to NOK 60 million in risk-adjusted EBITDA in 2026?

Yes. Thank you, Jacob. This is based on that we see 13 projects with the possibility to reach FID in our mature portfolio. These 13 projects represent about 6.8 million tonnes of annual capture capacity. The full value of those projects would be around NOK 900 million. We do have a payment structure where you get the first 1/3 of the payment paid at FID. So that's the payment that would happen in '26. So that's NOK 300 million unrisked revenue potential in '26 from this portfolio. Then we have gone through the portfolio and each single project looked at different risk factors, including 2 main ones. Will the project move forward? Will we be awarded the license? With that risk adjustment, we come down to EBITDA potential in 2026 of around NOK 60 million. And as Wendy mentioned in the presentation, there is a range around this with both upside and downside.

We have another question directed at you, Ingar. In the Q4 presentation, you included an illustration of cash development through 2025. The illustration showed that you had some NOK 20 million of available revenue capacity on the CapsolGo. How much of this has been secured by now?

None of this is still secured. We are in a number of negotiations now to secure that capacity, quite advanced negotiations, where one of them we have also signed an LOI -- or an MOU. And those negotiations also bring us beyond the NOK 20 million extra in '25. It also brings revenue into next year.

And maybe I'll also add, with the CapsolGo, we are entering sort of this new arena of deployment. I did mention at the beginning of the presentation how we've started now with the cement campaigns. And we are learning a lot from these, and it is bringing in some quite new interest in various geographies as well. So we are excited about some of the negotiations that we have going on to secure the final capacity.

Thank you, Wendy. This next question is for you, I think, Wendy. Could you elaborate on the portfolio of demo units? Are new demo contracts signed? And will any of the units become idle soon?

So as mentioned, we have 3 operating demonstration units. Two are now at -- being deployed for cement, both at Holcim and SCHWENK. And the third one is under -- we have an LOI signed to secure the actual start of the next campaign. More will be revealed as soon as we finalize those details, and we will share that with all of you. But I do want to also mention that the mobile demonstration units represent a very easy opportunity for industrial customers of ours to deploy and see the HPC process work in real life. And we are very proud to have now almost 19,000 hours of operating experience, making Capsol the company with the most experience with post-combustion carbon capture with HPC.

We don't have any more questions at the moment. Let's give it a minute. So if you have further questions, please send them away -- send them to us. Okay. No more questions. Well, with that, I think we'll round off. Thank you for good questions and for listening into this presentation, and that's all from us. Thank you.

Thank you.

Great. Thank you all for joining.