RedFlow Limited (RFX) Earnings Call Transcript & Summary

Thank you for standing by, and welcome to the RedFlow Limited FY '21 Results Briefing. [Operator Instructions] I'd now like to hand the call over to Tim Harris, CEO. Please go ahead.

Thank you, Ari, and good morning, everyone, on the call today for joining our FY '21 results call. My name is Tim Harris. I'm the CEO and Managing Director of RedFlow, and I'm joined today, as usual, by Trudy Walsh, our CFO and Company Secretary. Earlier today, we released our results and presentation for you, and you can find that on the ASX announcement platform. So we intend today to give you our perspective on the results and outlook on our future and where we intend to focus as a company and provide an opportunity for Q&A. And we'll use that presentation as a crutch for the discussion today. If you look at Slide 3 for the presentation, I really think that sets us up for where we want to be as a company and where we believe that we can be. If there are any doubts about our market opportunity but the challenge we face as a people, you need to look no further than the IPC... [Technical Difficulty]

Stay on line. We -- the main speakers have disconnected. We will reconnect them. Please stay on the line. We will recommence this call shortly. Thank you. Please hold. This call will restart shortly. Thank you. The call will restart shortly. Thank you. Mr. Harris, you're back live on the call?

Thank you, Ari. And apologies to everyone. We're not sure. We had a few technical issues there. So just jumping straight back into the presentation. As we were saying, in Slide 3, we think that the drivers and the imperative to move to a greener energy future is now more urgent than ever. Energy storage sits right at the heart of a renewable energy future. And with RedFlow and the progress I think we've made over the last couple of years, we stand very well positioned to capitalize on that trend. As we pass over to Slide 4, some of the key highlights that we think that we've achieved, we think is significant in the journey of RedFlow and our outlook going forward. And all of this, we believe, has been enabled in a backdrop of a particularly challenging situation with regards to COVID and the ongoing uncertainty and logistical challenges that it has created. Financial highlights include delivery of over $2 million revenue, which represents a 14% increase in... [Technical Difficulty]

To be technical issues coming from the venue. We will reconnect the callers right away. Please stay on the line. Apologies for any convenience. We will reconnect the callers. Thank you. Please stay connected. We will be rejoining the main speakers shortly. Thank you. Please hold. We'll restart this call shortly. Thank you. We'll start this call, right away. Mr. Harris, I think you...

Ari, thank you.

Apologies. I'm not sure what's happening on that side.

Yes.

Please continue.

Thank you, Ari. And apologies to everyone. We just switched to a different platform. So hopefully, we won't have any further issues. Just recapping what I was saying on Slide 4 of the presentation. 14% increase in revenue that we were delighted with, that we were able to achieve despite the challenges of COVID. But in particular, I think sort of the profile of the orders we managed to achieve, including Anaergia, Semini Grains, Optus, I think, are very accretive to our future and provide a very strong platform for us to build on. And where we are today is we have a very strong pipeline of growing interest, particularly in the larger scale systems, both in Australia and the U.S. An announcement we made earlier on this morning about being named a tender for a megawatt hour system in Western Australia, I think, reflects that growing interest in our solution. So what we have now, I think, is that we have built a strong set of reference deployments. And with over 140 systems now operational, we think that's one of the largest deployments of any flow battery in the world. And we think that's very important because it proves to our end customers, our partners and to investors that we understand how to operate the battery at very -- at depths and breadths. Depth is that we built out a lot of history in terms of how to operate and optimize the battery, but also a breadth of how we can make the battery optimize around -- according to a different number of applications and customer environments. If I go on to the next slide, still in the context of COVID, we have been able to materially progress some of the key innovations that are important to our future. We've been progressing the Gen3, including customer trials, iteration of our stack design, finalization of our tank and our electronics. And our target launch for that is by the end of FY 2022. New innovations that we've been focused on include our industrial battery housing; the capability to use our batteries alongside lead acid batteries, which has been developed for the Optus; the development of our Energy Pod Z, which is very important to larger and megawatt hour type systems; the validation of the reuse and recycling capabilities of our battery using Ecocycle, a leading Brisbane-based recycling company; and we've continued to progress in terms of the core chemistry research and key elements around the operation of our battery, including pH optimization. We see -- we continue to see tremendous opportunities to drive further performance and cost down out of the battery, and we think that's a long-term accretive value activity that we'll continue to invest in. At the same time, we've continued to focus on tight cost control. We've secured available government COVID-19 support measures in 2020, where they were available, and during that time, tightly managed our costs appropriately given the uncertainty of the future ahead while still focusing on some of those R&D initiatives and Gen3 progression. Critically, as we've moved forward, we've been able to raise further capital this year, including the $5 million placement with new technology capital and an additional $10.8 million raised post period from the entitlement offer, of which $0.5 million is subject to shareholder approval from our partnership with FUND4SE. And I'd like to thank all shareholders who participated in that raise, which puts us in an extremely strong position to capitalize on the significant opportunities we see for us. If I just go on to the next slide, Slide 6, I think it's just worth recapping to the audience here about what we think sets us apart and why we're different and why we think that we have a very strong future ahead of us. We're one of the world's leading flow battery companies with a deep technical competence in zinc-bromine, which we think has got a competitive advantage against other flow batteries. We have a growing list of blue chip clients that are completely committed to renewable energy and have addressable spend. As I mentioned before, we had one of the largest flow battery deployments. And that means that we have very large also set of cycles that we've got behind us and our technology. The market for our products is large and growing, and the urgency to address energy storage needs is also growing. And we have a manufacturing capability that is set for purpose today and is capable of being scaled up. And lastly, we have our Gen3 product, which is capable of scaling and it's going to be the key platform for further cost down. As I look at Slide 7, I think it's worth just highlighting some of those components around our proven field experience. And as we're talking to more and more end customers in places such as Australia and the U.S., the product points that we have built up, especially over the last 2 to 3 years, are extremely important to that. So now we have over 140 active deployments. We've delivered over 1.3 gigawatt hours of energy to those end customers. And we can -- have demonstrated how the modular 10-kilowatt-hour approach that we have can be scaled from smaller telco-based systems all the way up to large kilowatt hour systems for commercial, industrial and... [Technical Difficulty]

Please stay holding. We seem to have an issue with our sound from the venue. Please continue to hold. Please hold. Start again shortly. We're not sure what the technical issues. We're investigating. And we will join the callers back. Thank you. Please continue to hold. The call will restart shortly. Thank you.

Hello?

So we have reconnected you again. Please go ahead.

Thank you, Ari. I apologize. It looks like we've still got some continuing problems, but we'll carry forward as best as we can. I'm not too sure about where that was cut off, but if I can just recap on Slide #8. What the key message that we have there is according to the innovation and the program that we have and our partnership with Optus, we now have a very strong proven evidence case due to a serious storm in Victoria, Australia that proves the hibernation mode and our ability to work seamlessly with lead acid batteries. And due to that storm, the ZBMs on that site help to charge and carry the load of that site for nearly 12 hours. So that's a very strong proof point for us, and we are now engaged with a number of U.S. telcos who are very interested in our solution around that as they continue to battle with the challenge of increasing wildfire, especially in California. Just then going on to Slide 9 with the Anaergia project. I think as hopefully the audience here recalls, we believe that the Anaergia project is incredibly important for us for a number of reasons. It's important because it takes us into a large megawatt-hour size and space. It was our largest ever order. But critically, it also provided a very important footprint for us in California and the U.S. market. That project is proceeding well. All of the energy pods, which are critical, these are 16 battery pods, which formed part of our larger megawatt-hour type systems, are now shipped and on route to California. We've successfully tested that Energy Pod Z and the Dynapower inverters that are going to be used on that site. And we've secured local project delivery resources in California to support the necessary local coordination. We have targeted our team from Australia to travel to the U.S. to support that installation, but also continue on some of the exciting discussions we're also seeing in California and the U.S. So the summary from where we sit today is that project is on track to installation and commissioning in early October 2021, other logistics allowing. So we believe that's a very important milestone for us and is a project which is tracking well. I wanted to provide everyone an update about the situation with COVID in Thailand. Look, after successfully navigating, we think, some of the worst instances of COVID around the world in 2020 and early 2021, unfortunately, Thailand has been heavily impacted by deteriorating COVID situation there in recent months. I believe, and back in earlier in August, Thailand had a daily record of more than 20,000 COVID cases per day. And it's additionally challenged because as we understand it, there's no national vaccine program yet in place. So where we are in terms of our manufacturing facility, which is in the Chon Buri area, has been materially affected. We have had a small number of our staff who had contracted the virus over the past few weeks. All those affected staff are now fully recovered and back to work. And some of that overall conditions in Thailand have led to some delays in local materials supply and also some of the servicing of our key equipment. We continue to have appropriate isolation, quarantine and things such as deep facility cleaning measures in place, including regular testing of our staff. And by doing so, the view that we have today is that facility has been able to remain open. We have had some short-term impacts in terms of productions. But as we see the environment hopefully stabilizing, we can get back on track. The broader COVID situation has led to some increased freight costs and some shipping delays of critical materials. But despite this, we've been able to successfully deliver on the Anaergia project for the materials that we've been developing in Thailand. Further restrictions that the Australian government have put in place around overseas travel has added an additional element of complexity to managing the situation. We're hopeful of navigating that further over the coming months. But the net impact is that the introduction of the Gen3 battery into the production environment, because of some of those restrictions about getting some of that key team up into Thailand, we believe, is going to be impacted. And the guidance that we're now having is that with the introduction of that Gen3, we'll move towards the end of the financial year 2022 versus early in calendar year 2022. So the outlook we have there is that we still remain confident that Thailand presents the optimal manufacturing location for our current needs and our immediate growth plan. We continue to monitor the situation very carefully, first for the health and well-being of our staff, and then secondly, that we can assure the facility remains open. But in addition, we're looking to make some additional investments here in Australia around our line capability and specific techniques that we need for our Gen3 to enable that Gen3 launch in Thailand to be at low risk and can be in an optimized state. So I think we've been able to successfully navigate the COVID situation very well in Thailand. I think the team there has done an outstanding job in a particularly kind of challenging situation. We still remain confident that we can continue to produce batteries in this environment and grow our production rate. And we look forward to introducing Gen3 into the production environment by the end of this financial year. I'll now pass on to Trudy for a summary of our financials.

Thank you, Tim. FY 2021 results showed some very pleasing elements with $2.2 million of revenue for the year, up 14% on FY 2020. The COVID-19 pandemic did impact the revenue for the first half of the year. Other income was up slightly on last year. Whilst the R&D rebate was slightly lower with JobKeeper payment proceeds with $868,000 compared to $342,000 in FY 2020. These payments were passed on in full for our employees and enable RedFlow to keep employees and pursue its growth strategy. On raw materials and consumables are not only our cost of goods sold but also includes the immediate expensing of a portion of the [indiscernible] factory costs. This was due to the moderation of production throughout most of 2020 due to the impact of the COVID-19 pandemic impacting customer sales. The maintaining of the facility with the ability to build their batteries as scale is required is essential to our growth strategy. The total anticipated gross margin loss for the Anaergia project has also been recognized in full in FY 2021. This project has been [indiscernible] growing interest in our energy storage solutions and our entrance into the U.S. market. This project was the first utilizing our Energy Pod Z solution. Also includes materials used in our R&D program and all freight costs currently immediately expensed to the P&L. Other expenses are slightly higher at $9.3 million compared to $8.9 million for FY 2020. This is mainly due to 2 noncash impacting expenses. The immediate expensing of expenses associated with the share placement with New Technology Capital Group and the share-based payment expense to RedFlow's LTI program to all executives and to senior management. I reiterate, this is not cash out. Whilst the expense is recognized each year, there are still performance criteria to be achieved over the next 2 years before [ the share is back ]. Moving on to our balance sheet. RedFlow's financial year was $9.8 million in cash at bank. And this has been boosted by $10.3 million of funds received in July and August from the entitlement offer. There's a further $500,000 that will be received after shareholder approval in relation to FUND4SE investments. Inventories are lower than last year, particularly finished goods. This is due to the increase and sale of batteries in the second half of this year and the lower level of production during the year, particularly during the first half of the year with the uncertainty created by the COVID-19 pandemic. Trade and other payables includes the liability to the advance of funds in relation to the share placement agreement with New Technology Capital Group. This will reduce as shares are issued as per the terms of the agreement. Provisions have increased as a result of an increase in employee provisions, mainly long service lease provisions and the provision for the remainder of the anticipated loss on the Anaergia contract. As mentioned earlier, this contract has been a door-opening opportunity for RedFlow in California and U.S. energy storage market and was a project where the development of the Energy Pod Z solution was expedited. Moving on to cash flow. Net cash outflows from operations was down 30% from the prior corresponding period, with payments to suppliers and employees down 17% as a result of prudent cost management throughout the year and the moderation of production. Outflows did increase in the last quarter of FY 2022. This coincides with increasing production and demand. The proceeds from the capital raising includes the funds from the July entitlement offer and subsequent shortfall and $5 million received from New Technology Capital Group. Again, subsequent to 30 June, RedFlow has received $10.3 million from the recent entitlement offer and shortfall placement with the additional $500,000 become subject to shareholder approval. I'll now hand back to Tim.