RedFlow Limited (RFX) Earnings Call Transcript & Summary

This meeting is being recorded.

This first group, CEO -- RedFlow, Mark Higgins, CEO (sic) [ Timothy Harris, CEO ] of RedFlow U.S. Just a bit of housekeeping. We will have a short presentation or a presentation from Tim and Mark on where RedFlow is at in terms of its technology and market development and the growth that it's seeing in the U.S. And post the presentation, we will be open for Q&A. [Operator Instructions] We are fixed on time. We have 45 minutes allocated today. So we hope we'll get through all the questions afterwards, but I do apologize upfront if time means that we just can't cover off all the questions that you'd like. Tim, I might hand over to you to take us through the slide deck. Thank you very much.

Great. Thank you, and good morning, everyone, and thanks for joining today, and hope we can ripple session this morning. As Ron mentioned, the purpose of today's session is to really provide an update on our commercial strategy since we last updated the market on the basis of our half year results back in February. There's been a lot that's happened since then and including the appointment of Mark Higgins to lead, I think, into the U.S. and I'll allow Mark to address his views on the market later in the presentation. Ron, if we can just go through to a couple of slides, if we can, please. Just firstly setting the scene for everyone, I take it that a lot of people in the audience here are very familiar with the role of energy storage and how critical it is for us to enable a net zero future sustainable-based world. But what we can see from more and more reports coming out is the accelerating drive around energy storage growing at about 40% year-on-year. So we're in a great market to be in. But the second point I want to reinforce to everyone on the call here is that the nature of the energy storage mix is also changing significantly. As we get more and more renewable energy starting to hit the grid, the need for energy storage is starting to move from stabilization to optimization. And therefore, we see our role as a flow that we focused on that 4- to 12-plus hour range that the market has been steadily and increasingly becoming very, very attractive to us, and that's reflected in some of the market opportunities that we're seeing in front of us. If we just go to the next slide, please, Ron. As many people on the call will know who have been long and loyal shareholders of RedFlow, we have been on a journey for RedFlow since we established and enlisted on the ASX back in 2010. But we believe a lot of that effort and time and money that we have spent on our technology and our company actually has a strong value proposition compared to where we see other participants in energy storage outside of lithium standing to form. As we can see here, since 2018, we've really started to accelerate some of the core capabilities we think that it's going to unlock this amazing technology that has been many years in the development. And the highlights of that, we think, is around Gen3 that we're still on target to be launching by the end of this financial year. But critically also our journey into larger systems and our reference site in California with Anaergia at 2-megawatt hours, that is allowing us to play in the large C&I market and potentially start to lean into the utility market as well as part of our strategy. We were delighted to launch the U.S. team earlier this year after working with Mark for the best part of the year. And when we look at our operation front on history, we've got some great numbers there in terms of showing how our technology can work in the field generating over 2-gigawatt hours of energy and having 10 million hours of field operations since 2018. Next slide, please, Ron. And as part of this, really what we are seeing as a result of the market dynamics that I talked about before and the increasing recognition that we are incredible at large scale, we are seeing a surge in opportunities for us, particularly in the U.S. and Australian markets. What we have here on the slide is a selection of sales opportunities that we're spending lots of our discretionary time into. And you can see there's a wide depth and breadth of opportunities that we're focusing in on in Australia, but also some amazing and exciting opportunities that we're starting to see in the U.S. Just a couple of examples of those. In the middle there, you'll see that we've been working with the U.S. Fortune 500 U.S. financial company that we were included in an RFI that we announced in market back in July 2021. We were named as the preferred energy storage for their bank branches. Our discussions have been ongoing and deepening around that. And we're now in scope to be also included in terms of the operation centers on which they have multiple ones of those in the U.S. and also overseas markets. So once it's a longer sales cycle, the size of the opportunity that we are seeing with some of these companies, we think is very exciting. And maybe a segue example that I can refer to is what we've announced to the market back in March which is the LOI that we signed with Anaergia for an extension for a new Phase 2 project with them for a 6-megawatt hour project in Victor Valley in California. This builds on our successful 2-megawatt hour project, which is our reference project in California that we were delighted to launch in January of this year. The EPC has been down-selected for that and we remain the preferred energy storage provider. So our largest customer coming back for repeat business for a larger-scale project, which is 3x the original size, we think is a strong indication paving the market opportunity for us that lead a support that we're getting to customers around our core solution. Mark, would you like to highlight any other opportunities that you see in this slide?

Thanks, Tim. I appreciate it. So over the past year, as Tim mentioned, we've been spending a lot of time building a robust partner ecosystem in the U.S. and elsewhere in the world. That's beginning to pay dividends in the form of a really strong commercial pipeline, and you see select examples of this year. Just to kind of highlight a few. We've developed some very solid relationships with independent power producers in the United States that are now starting to yield project opportunities. We've seen a number of utility scale opportunities in the 2023 to 2026 time frame. One of them is highlighted on here, it's a 600-megawatt hour project that we are participating in the process for them to identify a flow battery solution for. That is an exciting opportunity and is representative of a number of opportunities that we're seeing in the U.S. around the utility scale front that we're very excited about. We also have been working quite a bit with a number of engineering firms and commercial and industrial project developers around similar types of projects to what we're seeing with Anaergia opportunity. We've been seeing -- we're working on a corporate campus opportunity in Arizona. We're working on the U.S. federal government installment in California. These are all very large projects by the standards of what we've historically installed, but very much in line with kind of credibility that we've built up in the market as a result of the successful deployment in Anaergia and the increasing profile that we have in the market here. And then back in Australia, I'd say we're also very focused on these much larger customer classes, large mining companies are a good example of that. We're seeing a number of multi-hundred megawatt opportunities with mining companies in Australia as well as for other opportunities around the world. As we move into these larger projects that we're talking with customers about, we're naturally seeing longer sales cycles, but that's really starting to pay off. We've been seeing we're in the very advanced stages of discussions around a number of projects globally that are kind of order of magnitude larger than what the company has historically been deploying.

Great. Thanks, Mark. We'll just go on to the next slide, please, Ron. So bringing all those things together, we believe that a lot of the time and effort that we've spent over the last 2 or 3 years in successfully navigating the challenges around COVID are putting us in a great position to leverage the opportunities. And the credibility, I think, that we've now had with over 200-plus active deployments plus also the Anaergia projects that's serving a very strong reference point for large-scale opportunities. I think we've had about 3 or 4 tours by EPC companies and end customers of that site. So it's really kind of paying dividends in terms of our visibility and credibility. But we can take a snapshot of us as a business, and we were placed at the moment. We're very excited about the future in here. As I mentioned before, Gen3 is on track to be launched into our production environment by the end of this financial year. And the modular scalable solutions that we have, we think, is bringing us at a strong competitive advantage compared to other energy storage solutions in the market. We're still investing in our IT and our intellectual property moat that we think is going to pay the dividends over the longer term. And with our Thailand facility, we think we are very well set up to be able to go and secure with what we hope is conversion of some of the sales opportunities that we noted in the previous slide. When we take a strategic view of our company and our focus on zinc-bromine as a core chemistry in our flow battery, we're very excited about the core cost advantages that focusing on this type of chemistry will bring us at scale. And that's a particular interest to a lot of the customers that we're talking about, which is at what point can you drive annual cost at value. And we're very confident about our ability to do so to have an extremely competitive product both from a CapEx perspective and from a level as cost of storage perspective in the market based on some of the characteristics, such as the 100% discharge, operating in high temperature and lack of film runways. So overall, we think we're very excited about the future and assets and the firm foundations for where we are today. Next slide, please, Ron. Just to reiterate, Mark is the latest addition in terms of a strong team as President and Chief Commercial Officer of the whole company, the President of North America. And I'd just like to note, we have a strong Board that's supporting the management team, including Brett as General Counsel of Qantas, but also John Lindsay, the current Director of Uniti; and David Knox, who's the Chair of Snowy 2.0 and ex-CEO of Santos, who brings extremely strong depth and breadth of experience that we can take to this company as we start to look at the next inflection point of growth. Next slide, please. I'd just like to take a minute to introduce Mark. I'm personally delighted that Mark has come on to work for us full time after working for us as an adviser since early 2021. After we had announced Anaergia and we're starting to look at that how we can be successful in the U.S. Mark has a huge depth and experience around energy storage and renewable energy in the U.S. He's currently Chair of the U.S. Department of Commerce’s Renewable Energy & Energy Efficiency Advisory Committee and has held a number of previous executive roles at Strategen, PG&E, SunEdison, et cetera. And underneath Mark, we're also starting to bolster a U.S. team with a number of selected individuals that have some very deep experience, not only in the renewable energy space but also particularly around flow batteries that we think that we can leverage as we start to steer into this growing interest of nonliquid solutions in California, the U.S. and also the rest of the market. So I'd like to hand over to Mark to give his perspective on RedFlow, maybe where we are in his perspective on the market opportunities that we're seeing in front of us. Over to you.

Thanks, Tim. Well, first of all, I appreciate the kind words. I am delighted to be at RedFlow, and I'm really excited about the market opportunity that we have, particularly in the U.S. market. I think the timing is now. The time is right for RedFlow solution here in the U.S. market. And I've been very excited to work with RedFlow on the market opportunities over here. The thing that's changing in the U.S. is that the market is increasingly looking beyond lithium. This is a global phenomenon, but I think a lot of this has really started in the U.S. and particularly in California, as we're seeing an increasing level of renewables on the grid. There is an increasing interest in longer duration technologies that, frankly, lithium is just not that well suited to address. So we're starting to see large-scale procurements from utilities for long duration and particularly non-lithium solutions in the market. Technology diversity is valued as well in our market from a resilience standpoint. There have been increasing and ongoing supply chain challenges with lithium delivery. We're seeing oftentimes, developers are finding projects are getting delayed, pricing is getting reset and prices have been increasing for projects that are being making use of lithium-ion batteries. And also, there have been a number of safety incidents with lithium batteries that have been cause for some pause in terms of people being willing to just go with lithium without looking at alternatives. And that's caused an increase in customers, both at the utility scale as well as commercial customers who are really looking for more fire-safe solutions like what RedFlow can provide. There's also quite a bit of funding available in the U.S. market, particularly in California through the California Energy Commission, but the Department of Energy as well has a good deal of funding available for building out supply chains for non-lithium technologies and for energy storage, broadly speaking, that we are very well positioned to be able to access. That's -- there's other funding sources globally. ARENA has funding within Australia. But within the U.S., there is a particularly robust source of nondilutive funding for the company as well as project level funding for some of the opportunities that we're looking at. Next slide, please. I think as I mentioned in the previous slide, we are definitely seeing structural challenges around lithium. What is good for the electric vehicle market in terms of increasing deployment of EVs around the world is perhaps bad for grid-connected energy storage in the lithium space. We're seeing a continued supply-demand imbalance within the space. It's caused prices to go up quite a bit for lithium batteries. You're also seeing core minerals pricing going up substantially within lithium chemistry space, in particular, with lithium and cobalt going up quite a bit over the past 2 years. We're not seeing nearly the same supply chain constraints that the lithium space has seen. Zinc has gone up a bit. Bromine, one of our core minerals, has actually dropped in price over the last couple of years. Next slide, please. Medium duration storage is really the next generation of storage that's going into the grid. The first generation was shorter-duration applications that were really to help provide grid stability when prices for lithium-ion batteries were high, short duration was really all that customers were willing to pay for. However, the price of batteries have come down a lot, including the price of non-lithium solutions. The need has gone up for bulk energy shifting, which is if you think about it, solar generates during the middle of the day. Oftentimes, the greatest need for energy is in the late afternoon and in the evening as people are running their air conditioners. Flow batteries are really well placed to take large amounts of energy over many hours, and moving it from that mid-day solar peak into the evenings when customers are needing the energy the most. And that is really where we see the greatest demand for batteries over the next 10 years. In the longer term, you'll see a need for even longer duration solutions, but we see that as a market that's probably 10-plus years off. Tim, anything else you want to add on this slide?

No, I think the only thing I would add is we'd see energy storage as a zero-sum game. I was with a customer yesterday that was talking about using lithium to manage the troughs and the peaks of energy that use flow batteries as base load. So looking forward, we clearly benchmark ourselves against lithium from a pricing and just knowledge and technology basis. But as we move forward, I think a different category is emerging is going to sit alongside lithium that is going to be increasingly in demand. Back to you, Mark.

Thank you. Next slide, please. So one of the things that I'm most excited about RedFlow is how we are competitively positioned within the non-lithium space. I think there's been a lot of hype about energy storage in the market and particularly around new technologies coming into the marketplace. The fact of the matter is that RedFlow has actually been quietly deploying for well over a decade. We have more than 400% more active commercial deployments in the market than our closest peer. And that gives us a wealth of knowledge operating -- in vastly different operating conditions, 9 different countries around the world. We have well over 200 installed energy storage systems in -- that have just given us a wealth of operating data. And the form factor that we have as well allows us to iterate on our product very quickly make improvements that enhance the operational performance of our batteries and allow us to get products that are in the market, meeting our customers' needs, are reliable or low cost and providing what our customers want much more quickly than any of our peers can do. Our chemistry is unique also in that it has both one of the lowest materials cost profiles as well as one of the highest energy densities across any non-lithium technology. We have up to 3x higher energy than the nearest competitor in the space. That allows us a very compact and flexible form factor. Our battery is a compact modular system that provides a great deal of flexibility from small commercial and industrial scale deployments all the way to utility scale. We also have an advantage in that because of our modular compact form factor, we can build systems that are essentially ready to be deployed for our customers. We can ship them in a containerized solution that they can just drop in place and get up and operating without a lot of on-site construction work that other technologies in the non-lithium space tend to need to have. We also have some pretty unique features. Our hibernation mode is very well suited for some of the resilience applications we're seeing come up in places like California. It provides a really competitive feature when it comes to building longer duration systems that can meet longer and longer energy storage needs from our customers because we can stagger battery deployments and how batteries are operated. So we've got a really unique feature set paired with a very competitive cost profile of our batteries, a very high energy density, the best operational experience in the industry. One other thing I didn't mention, too, is the safety profile of our batteries. Our batteries, they do not have the same risks that lithium-ion batteries have in terms of catching on fire. And that has been a big selling point as we seek to -- as we start to have more and more conversations with both U.S. utilities as well as with very large energy buyers here in the U.S. as they seek to put batteries in to provide resilience. They don't want to bring any unnecessary risks with that. And so that's a real selling point for us in the market. Next slide, please. I mentioned some of the selling points and our move towards larger and larger deployments. That's really reflected in our commercial strategy today. As Tim mentioned earlier in the discussion, we've been building partnerships and relationships to be able to drive larger system sales, both in the commercial and industrial space, which is one of our core industries that we've been in for some time now. In the telco space, also been one of our core sectors that we've been working in historically. We're just doing larger systems now than we historically have. We're moving into doing more remote and community microgrid systems in megawatt plus hour scale solutions to meet resilience needs, both for local communities, for end-use customers who have a critical load that they don't want to be subject to, frankly, power systems that in many parts of the world are becoming less reliable. And then we are also very much active in the utility scale space, where we're looking at large grid scale deployments that are front-of-meter deployments to provide non-wire solutions and central generation solutions for many customers who are looking at energy storage as a substitute for fossil generation. Tim, anything else to add to this?

No. I think we can [ catch it on the way ]. I mean, I think as we said before, some of those building blocks that we've established around energy front that we're launching into the market, the reference project that we have now at Anaergia and our ability to immediately sell to meet demand is allowing us to play in these larger deployment opportunities. We probably didn't have 18 to 24 months ago to be credible in those kind of spaces. So we're very excited about the increasing interest in flow batteries and non-lithium solutions. And based on some of those factors, I think we're well placed to be able to capitalize on the opportunities in these markets. Back to you, Mark.

Thanks. So I think the last thing to say about this slide is we're really focused where the true markets for energy storage are today. Right now in the United States, [Audio Gap] those markets that represent the largest volume sales in energy storage today. And we're also very well placed to be able to take advantage of some of the grant subsidy programs, nondilutive funding opportunities as we scale up to meet the need for the markets that have the greatest demand within the energy storage space today. Next slide, please. So we've hit on a lot of these already. Just to kind of hit on it again, customers are choosing RedFlow because of the safety, the operational track record that we have, some of the unique features that we have, very modular, compact, flexible approach do we have to deployment, a very competitive profile we have from a cost standpoint and also our sustainability track record. We've got a very sustainable product that doesn't have a lot of the challenges in recycling that lithium-ion battery has. Next slide, please. So just to kind of reiterate what our strategy is. As the market for energy storage scales up, we're scaling up as well. We are focused on deploying larger and larger projects. We're focused on the markets that have the highest opportunity for growth and that's primarily the U.S. and Australia over the next few years. We are selectively looking at opportunities outside of those markets in Europe, Latin America, Southern Africa, Asia. But we're doing a lot of active outbound business development activities in the U.S. and Australia primarily. We're very focused on developing relationships with deployment partners within those markets. We're very focused on getting more and more megawatt hour scale projects deployed in those markets. And as a result, we're also focused on how do we optimize our own supply chain and manufacturing capacity to be able to provide the lowest delivered cost solution within those markets where we're selling products today. And we've got a goal of significant manufacturing ramp-up to support those markets. We believe we are well placed to be able to provide 500-plus megawatt hours of manufacturing capacity per year within the 2025 time frame. Having manufacturing capacity in that scale will make us very, very cost competitive with all the other solutions that are in the market today. We've got some goals around sales to help support that, but we definitely see some fairly significant multimegawatt hour projects coming within the next 12 to 24 months. And then in 2025 and beyond markets or the time frame, we see ourselves being very competitive, not just in the C&I space, but also within the front-of-meter utility space, and we see ourselves being capable of multi-hundred megawatt hour deployments in the U.S., Australia, Europe, rest of world. Anything else to add, Tim?

Look, I think just adding to that, I'm sure some of the eagle eye people on the call would have sort of titled the selected pipeline that we showed a couple of different slides ago. And clearly, we want all of those to convert, but some will and some won't. But when you look at the magnitude and the opportunities that we're looking at there, it's a step change, I think, from where we were 12, 18, 24 months ago. And we do want a blend of short-term opportunities that is going to help to drive kind of short-term revenue. But we also want those wins to be catalysts for further success in the market. So that's really important for us to make sure that the deals that we are focused on and putting discretionary effort into are going to lead us to further success in terms of execution of our strategy. And I think we've got a great mix there of large-scale, high-profile, blue-chip customers and also some short-term sales opportunities that's going to drive revenue over the shorter term as well.

Thanks. Next slide, please. So one of the areas that we wanted to highlight is the work that we've been doing over the past year to develop relationships with large engineering, procurement and construction firms. We have managed to cultivate some relationships with some of the top EPC companies in the world. This is going to allow us to be able to deliver large-scale turnkey products. Our customers, our end-use customers, they don't want batteries, they want an energy solution. And by partnering with EPCs, we're able to work with people who can bring together all of the construction experience, the ability to integrate in renewables and other technologies into a solution set that they can provide to a customer on a turnkey basis. So we've been working with a number of EPCs to be able to deliver these kind of solutions. We've entered into and we're negotiating massive services agreements with them to be able to support those deployments at portfolios of projects. We are working on becoming fully qualified vendors for them where they view us as their go-to solution in the non-lithium space, that's really helping us accelerate sales opportunities. We're getting inbound needs now directly from customers, but we're also getting a lot of inbound needs now from our partners as a result of this work that we've been doing in the space. And then they're also able to then build us into the design phase of new projects. We can jointly develop turnkey solutions that really help kind of solidify our position within projects that are being scoped out and differentiate us from competitors and become something that goes kind of beyond the commodity product that can be swapped out with other vendors.

And I'd just add to that is the key thing that we're seeing here is the potential for these EPC companies to be a strong channel of the market and also develop us as core to their overall renewable energy solution. So that's going to reduce the friction of sales on [ Rialto ]. And we've got some very strong companies that we're very excited that we're engaged with at the moment. And Mark and I are spending 2 weeks from next week onwards in the U.S. to strengthen and build those EPC relationships across the country. Next slide, please, Ron. So just to summarize from where we sit today, I mean, it's pretty clear that energy storage, the importance of energy storage and the shape of energy storage is moving and accelerating and it's moving towards us. And increasingly, we're seeing those inquiries of people starting to look beyond lithium as Mark spoke about before. As reflected in our pipeline, we see some great opportunities there with some great blue chip names that we think will have a really strong catalyst effect once the Anaergia project did prefer the success in the market. And we want to start to build some of those high visibility deployments that we think will lead to more success in our target markets. Gen3 is important to us as we've said many times, that's been slowly delayed by COVID, but we're on track for deployment by the end of this financial year. And we'll continue to extend that technical and operational and commercial leadership to make sure our product can be as best as it can be. And as Mark said before, we want to be ready to scale to meet the opportunities. We now have our Thailand utility that can do between 48- and 60-megawatt hours to scale up to that. But increasingly, we're looking beyond Thailand as we start to lean into some of these multi-megawatt opportunities that while they have a longer sales cycle, want to know and show that we have the scale of capabilities to meet that level of demand. So we're very excited about where we are. I'm delighted, Mark has joined the team and is leading our efforts in the U.S. as our Chief Commercial Officer. And I think we're very well placed to capitalize on the macro opportunity and some of the sales opportunities that we showed to you in a slide deck today. Ron, what I'd like to do now is just open it up for any questions that participants might have.

Thanks, Mark. And thanks, Tim. Maybe we've got a bunch of questions that are already lined up. But maybe we can start with Mark. What attracted you to RedFlow?

That's a great question. So I know the energy storage market really well, and I have played a role kind of at the market creation phase of things for some time now. I was a senior leader of the California Energy Storage Alliance for years. I worked on energy storage strategy for large IPPs for utilities all around the country. And what really attracted me to RedFlow was I saw this hidden gem of a company in the market that has been quietly executing, quietly delivering top-notch projects for customers all around the world in a space that has so much potential and is the largest source of growth within the energy storage space over the next decade made me very excited about the opportunity to come help shape the company's future and access some of the largest markets in the world here in the U.S. for energy storage. I can't speak highly enough of the leadership team that RedFlow has been able to put together through -- throughout the years as well. And I came on board with high confidence about the technology that it was really well placed with the market opportunity here in the U.S. and globally and that the leadership team is extremely well suited for the growth phase that we have ahead of us. So those are all reasons why I came on board and I just have to reiterate, I cannot be more excited about the path that we have in front of us and that we're ready to take on this challenge.

Thanks, Mark. Tim, maybe a question for you. We've got a few people ask about this. We're currently in the Australian federal election cycle. Without predicting the outcome of the election coming up in a couple of weeks' time, what does the current government saying versus a new government coming in mean for the company in terms of opportunities? So for example, the Labor Party has talked about its community battery project. So how is RedFlow looking at the opportunities that may or may not arise off the back of the election?