Fusion Fuel Green - Q1 2023

Transcript

Ben Schwarz (Head of Investor Relations)

Hello, everyone, welcome to Fusion Fuel Green's 1st quarter 2023 investor update. My name is Ben Schwarz, and I'm Head of Investor Relations at Fusion Fuel. I would first like to remind everyone that this call may contain forward-looking statements, including, but not limited to, the company's expectations or predictions of financial and business performance, which are based on numerous assumptions about sales, margins, competitive factors, industry performance, and other factors which can't be predicted. Forward-looking statements are inherently subject to risks, uncertainties, and assumptions. They are not guarantees of performance. I encourage you all to read the disclaimer slide in the investor presentation for a discussion of the risks that may affect our business or may cause our assumptions to prove incorrect.

The company is under no obligation and expressly disclaims any obligation to update, alter, or otherwise revise any forward-looking statements, whether as a result of new information, future events, or otherwise, except as required by law. I want to thank you all for joining us today. I'll quickly run through our agenda for the next hour. We will begin the call with some remarks from Fusion Fuel's Chairman, Jeffrey Schwarz, followed by an overview of Fusion Fuel at a glance. Our management team will then present first quarter highlights, financial results, project and commercial updates, and the latest on our HEVO Chain technology before wrapping up with a discussion of our priorities and milestones for 2023. We'll then open up the floor for half hour or so of facilitated Q&A.

as always, our previous quarterly calls, questions can be answered in the chat box in the webcast platform at any point. Alternatively, you could also submit your questions to me at the Investor Relations mailbox at [email protected]. Without further ado, I'll pass it over to Jeffrey Schwarz, Chairman of Fusion Fuel, for some opening remarks.

Jeffrey Schwarz (Chairman)

Thanks, Ben. Hello. As Ben said, I'm Jeffrey Schwarz, Chairman of Fusion Fuel Green plc. I'm happy to be able to add my welcome to today's investor update. These have been exciting times at Fusion. In recent months, we've begun the commissioning of our inaugural third-party project for Exolum in Madrid, firmly planted our flag in another country with a recent awarding of a grant for a mobility project in Italy, a project that will employ the newest addition to the Fusion product line, our HEVO-Chain. We've signed a contract with CSIC for the installation of a HEVO-Solar solution. We will be using the newest generation, HEVO 2023, for this project, which we expect to complete by year-end.

We signed a collaboration agreement with Toyota Material Handling España, providing for a holistic customer solution, combining Toyota's market-leading hydrogen fuel cell forklifts and our HEVO green hydrogen production technology. Just last week, if you had been in Benavente, Portugal, you would have seen the first of those new newest generation Hyvos coming off the production line. You will hear detail about all these and more in the hour ahead. I'm proud of these accomplishments. The real reason I've joined the call today is to be able to introduce Frederico Figueira de Chaves. Those of you who have followed Fusion Fuel already know Frederico, It is my pleasure and honor to introduce him today as Fusion Fuel's first Chief Executive Officer.

The organizational changes announced this morning, and in particular, Frederico's elevation to CEO, is the culmination of a process initiated by the board of directors 15 months ago, with a goal of putting in place the team and the organizational structure that we believed would best position the company to grow to achieve our shared vision of making Fusion Fuel a leading player in the fast-growing, renewable hydrogen ecosystem. Since assuming the role of company co-head, Frederico has worked tirelessly to build a culture that values teamwork and accountability. He has earned the trust and respect of everyone in the organization, from the factory floor, at the executive committee, and in the board room. That is why the board unanimously chose to appoint him Chief Executive Officer.

With that, I turn the call back over to Ben, Gavin, and Frederico to take you through the first quarter update.

Ben Schwarz (Head of Investor Relations)

Great. Thanks very much. I'll kick things off with an overview of our value proposition and positioning in the green hydrogen sector. Fusion Fuel's mission is to make the energy transition more accessible through the development and delivery of cost-effective, clean hydrogen solutions. Our patented miniaturized PEM electrolyzer, the HEVO, is at the heart of everything we do. Its simplified modular architecture unlocks a number of advantages, including high throughput, industrialized production, a scalable building block approach that positions us to create customized fit-for-purpose hydrogen solutions, and cost-competitive, distributed, or decentralized production of hydrogen, mitigating the need for a distribution infrastructure, which is a costly and critical bottleneck in the market today.

We built a strong pipeline of actionable near-term projects in our core markets of Southern Europe and the United States, with significant grant funding tied to many of those foundational projects, strengthening the economics and de-risking the investment case. Our unique and complementary business model positions us across the value chain. In addition to selling our proprietary electrolyzer solutions to third-party customers, we also originate and develop green hydrogen projects with diverse avenues for monetizing value creation. Finally, we are poised and positioned for significant growth ramp-... as the market matures, with an extensive long-term project pipeline and a world-class production facility located in Portugal, where we're targeting 500 MW electrolysis capacity per annum by the end of 2025. With that, I'll now introduce Gavin Jones, newly appointed interim CFO of Fusion Fuel.

Gavin's been with the company since 2021, in the role of Chief Accounting Officer. Prior to that, he spent over well over a decade at KPMG in Ireland. It's my great pleasure to welcome Gavin into his new role and to invite him to share some highlights from the first quarter of 2023.

Gavin Jones (Interim CFO)

Thank you, Ben. Good afternoon or good morning to all of you who have joined our Q1 investor update call. I'm really pleased that my first act as interim CFO is to present our financial highlights for the 3-month period ended March 31st. Some of the key to the highlights include entering hydrogen purchase agreements with Duragaz and Hydrogen Ventures, issuing invoices to three external clients. Also, as Jeffrey mentioned, we commenced the commissioning phase at Exolum. We signed a technology sales agreement with CSIC, and awarded grant funding towards a mobility project in Italy. Also, in the spirit of sustainability and corporate governance, today also marks the launch of our first ESG report, outlining targets and ambitions for ourselves in the ESG space. We want to move to the next slide, please.

We reached an important milestone during this quarter as we recognized our first third-party revenues. This revenue resulted from a technology sale for the supply and installation of 62 HEVO-Solar units that we previously announced. Our cost base reduced when compared to Q4 2022, with notable reductions relating to owner's contract provisions, inventory scrappage costs, professional service, and consulting fees. These reductions were somewhat offset by a $1.4 million charge relating to a production line that was scheduled to be installed at our Benavente production facility during 2023. As this production line will no longer be installed as planned, it did not meet the capitalization requirements and was expensed. In line with previous quarters, we continued to recognize non-cash expenses for the awards under our equity incentive plan and fair value gains for our warrants that are mark-to-market instruments.

These items culminated in a net loss of EUR 2.6 million. Can we move to... Perfect. During the quarter, we continued to invest in our core assets, notably our Benavente production facility, internally generated hydrogen production plants, our Hevo technology development assets, and our inventory. Any increases in these assets were offset by depreciation and amortization charges. As a consequence of recognizing our first revenues, we also recognized trade receivables, and the amount shown on this slide was received. As I previously noted, we've also issued further invoices to other clients during quarter two. Our VAT receivable balance increased by EUR 0.6 million during the quarter. In quarter two to date, we've received EUR 3.2 million of the amounts outstanding at March 31st.

To continue the trends of firsts, we entered into our first debt facility during the quarter and drew down EUR 2 million. This facility, which is with a Portuguese financial institution, is short-term in nature, and its purpose is to free up some of the significant receivables we have with the Portuguese government. This EUR 2 million has already been repaid during the second quarter as VAT amounts were received. The deferred income balance increased by EUR 3.1 million as we received further installments from our CFI grant award and amends from customers that did not yet meet the requirements for revenue recognition. Next slide, please. We sold ordinary shares through our ATM facility, which raised net proceeds of EUR 2.4 million.

Our share-based compensation reserve also increased as we granted RSUs to our employees and options to our non-executive directors. We have been really successful at both securing direct grant awards and supporting partners in their submissions that will use our technology. This is an activity that we intend to continue, and we are already working on numerous proposals, both in Spain and Portugal, for the next wave of grants. Now, I will pass you to Federico, who will provide an update on the business.

Frederico Figueira de Chaves (CEO)

Great. Thank you very much, Gavin, and thank you for taking on the role of CFO from me as well. Also thank you, Jeffrey, for the kind words at the beginning. I will cover both technology and commercial activities in my update, starting with an update on our projects and pipeline. We currently have just over 25 projects in our short to mid-term pipeline, the majority coming from Spain, where we are currently commissioning in the commissioning process of our Exolum project, our first project to go live in Spain. We're already actively marketing our HEVO-Chain offering for delivery as early as this year already. Most notably, we've already received a grant award for a project in Italy using this technology only a few months after launching it.

The United States continues to be a market with significant strategic importance for us. Zach and Jason launched our activities in this market last year with the Bakersfield project, and have more recently brought two other opportunities in North America to the portfolio. We aim to continue to develop opportunities in this market with them in the future, and to enter into technology partnerships with them. Our focus is to mature our pipeline into projects in execution and contracted, something we have finally been able to make some progress, given the licensing and regulatory hurdles. As Gavin noted, we post our first revenues in Q1. In Q2, we've invoiced two other clients, and we're now picking up momentum on the more traditional activities from our business development front. We expect that to continue as these 25-27 or so projects mature.

I also want to take this opportunity to introduce an exciting concept we've been working on together with our Fusion Fuel Spain partners. Fusion Fuel Spain, together with two leading European energy companies, along with Toyota Material Handling, have created a holistic solution for hydrogen mobility for logistic centers. The partnership provides best-in-class hydrogen vehicles, our hydrogen, and therefore levelized cost of hydrogen, renewable energy sourcing, and fleet financing options. It's a true holistic solution for logistic centers. We can offer competitive green hydrogen and/or mobility-as-a-service options to logistic companies in the region. The Zaragoza hub is expected to be deployed in various stages, matching demand growth and hydrogen fleet deployment. In fact, the SESH2 project, which we're now executing, our second project in Spain, which we're already executing on now, serves as the first concrete step in the execution of this particular hub.

We find this a truly a highly interesting concept and partnership, we aim to replicate it for other logistic areas across Iberia. Although this is just a concept example, this is one of several, logistic hubs we want to be targeting. We see logistic as a core market for the green hydrogen world, and a market where you traditionally can have captive fleets and fast, deployment. On the technology front, I want to also note with some pride, that we have actually last week started the production of our Gen four Hyvos, which I have here in front of me. This is a substantial progress in our HEVO evolution. It is eight times more powerful than this one that I have in front of me. That was the first one used in our Évora project.

We have significant reduction in complexity, and therefore also unit cost, and it showcases the speed of the innovation that's taking place at Fusion Fuel. The HEVO continues to benefit from cheaper power equipment in the overall balance of system, lower operational and maintenance costs, and simpler maintenance processes than other sort of large stack solutions. Reduced system losses, lower production costs, it's designed for modular and scalable deployment. We're already integrating this generation to our ongoing projects, starting with the SESIIG project. That is a HEVO Solar project, but it will already be taking this latest generation of HEVO. The HEVO Chain will also be built around this core new HEVO. Speaking on HEVO Chain, I want to introduce the overall concept of this product line.

Once again, the new HEVO lies at the heart of the HEVO-Chain offering. Our centralized electrolyzer offering has two product types: the previously announced containerized solution, which ranges from 1-2.5 megawatt option, depending on the size of the container, which will enter commercial production in 2024. This is what we announced in December, and you see that on the right-hand side, but also our non-containerized solution. Still operating with a HEVO at its core, together in a string and together in a tailored system that can be deployed for any project size. We plan commercial production and deployment of this series already in 2023. I want to highlight some of our 2023 strategic priorities. A little bit different than the general business milestone that we had going on.

Now with the HEVO Chain offering, the Northern European market becomes a potential addressable market for us. The electrolyzer market in Northern Europe has been moving quickly, and although Southern Europe benefits from very cheap and readily available renewable power, the Northern European market has been moving faster in terms of actually deploying electrolyzers. With our HEVO Chain offering, we now will have a highly competitive solution where we can enter this market, and we plan to do so already this year. We want to strengthen our balance sheet and our capital position. Our strong tech offering and robust pipeline enable us to target being cash flow self-sufficient at some point in the second half of 2024.

We continue to explore all options to ensure we have a balance sheet that allows us to execute on our strategy. On point three, as previously mentioned, we'll continue to evolve the HEVO-Chain offering to be able to be deployed on the large-scale projects that we're engaged in. In particular, the non-containerized, containerized version, sorry, that I mentioned previously. As we're a young company in a fast-growing industry, it's critical to ensure we maintain a strong corporate culture around operating as a team, executing quickly, and ensuring robust processes. This is a core element of our governance focus in our first ESG report that we also published today. We've been successful by being nimble and quick, and now we need to safeguard these elements as we grow and mature as a company.

Lastly, I will note the focus that we're undergoing on ensuring we can pursue strategic partnerships. Across the industry, we see exciting opportunities, be they in the development, funding, technology, or even production space. We'll continue to explore these to strategically add value to our proposition where we can. Already, our Fusion Fuel Spain, our Toshiba, our Toyota on the handling side, partnerships. Lastly, I want to, as we always do, just finish up on tackling our key milestones for 2023 and our progress against them. With the new, more powerful HEVO, we are well on the way to have an expanded production capacity at minimal additional cost. As I mentioned before, this HEVO now in front of me is eight times more powerful than the one before. yet it doesn't take eight times the time to make it.

We are able to produce a lot more electrolyzer capacity now with this offering, which is helping, of course, our production capacity. The HEVO-Chain non-containerized unit will be ready for deployment in the coming weeks, as that will already go through finalizing trials and ready for deployment. We continue to execute on our contracts. Obviously, the recognizing revenues, being able to issue invoices and receive payments from clients has been a major milestone in that front. We have two large projects that we are currently in contract negotiation for deployment later this year. We also continue to see a wave of interest and projects coming to our commercial team for deployment as early as this year.

Now, on the project development side, licenses and regulatory frameworks continue to be a major bottleneck in some for some situations, but we do see some progress in Spain in particular. Portugal has progressed slower than we had hoped, but we have started several of these projects several years ago, so we are now hoping that they are reaching a level of maturity where we can start deploying some of those larger projects that you've heard from us for a while now. We're on the cusp of hydrogen deployment in a very large scale in Europe. The urgency and appetite for projects has never been greater. We're finally seeing governments not only making promises or announcing ambitions, but finally actually taking action. Examples of these are both the Portuguese and the European Hydrogen Banks, hydrogen auctions going live later this year.

This marks a starved change and step up in the industry overall. I'm thrilled to have the opportunity to work with my Fusion colleagues to play a leading and impactful role in this hydrogen market. I thank you all for your time, and I'll pass back to Ben, so you can go through the Q&A.

Ben Schwarz (Head of Investor Relations)

Thank you, Federico. Just as a reminder, for those of you who have questions, you can submit them in the chat box, in the webcast platform, or direct them to the IR mailbox at [email protected]. We'll open things up with a handful of questions that I received via email from Chris Souther at Weber Research. His first question is around Bakersfield here in the U.S. and the JV with Electus, commenting on the latest information that provided in the 20-F filing. Just an update there and perhaps also commentary on how the JV is structured and the respective roles of Fusion Fuel on Electus Energy.

Frederico Figueira de Chaves (CEO)

Thanks, Ben. I'll take that one. We continue to work with Electus Energy. The details of the partnership and so on, we can't disclose at this time. It's still too early for that stage. As noted, we did engage with Black & Veatch to start a feasibility study of the project, and now the development work on that continues. Given its location in California, it does require a sort of lengthy licensing time process, which has started, but we, and we will expect to continue to make progress, although it will be likely still some, a fair amount of time before we're able to give meaningful updates on that side. I will note that that is a very large project, as we announced, it was about 75 MW.

In terms of electrolyzer size, we do, and as I mentioned before, Zach and Jason created two new opportunities in North America for earlier deployment, and in a slightly smaller scale, which we could tackle faster. We hope to be able to be announcing further details of those projects soon. It's important for us to note that the U.S. market continues to be a priority for Fusion Fuel.

Ben Schwarz (Head of Investor Relations)

Thanks, Federico. second question was, how are we tracking against our full year 2023 guidance?

Gavin Jones (Interim CFO)

I'll take this one, Ben. I think at, during the Q4 investor update, Federico presented our full guidance for 2023 and 2022, we are currently tracking positively towards those projections, especially when it comes to revenue and costs. I think even previous to Q4, Federico would have provided guidance of between maybe EUR 4 million-EUR 4.5 million for operating costs per quarter. Excluding that one-off charge, which I mentioned during my slides, we were within that bucket. With cost reduction plans that we put in place, and cost efficiencies, we expect this to reduce further as we continue on in the year. To answer your question, Ben, yes, we were still within the parameters of the guidance we provided previously.

Ben Schwarz (Head of Investor Relations)

Thanks, Gavin. Sticking with you, as a question on capital planning and strategy, can you walk us through how we plan to fund our CapEx requirements through this year and beyond?

Gavin Jones (Interim CFO)

No problem. I think as Frederico mentioned most recently, we're currently looking into and investigating various capital areas where we can strengthen our balance sheet. Multiple discussions with financial institutions based here in Europe and wider. As I mentioned as well at the outset, we've invoiced three external clients so far in 2023. We want to continue that momentum as we push into the latter stages of Q2 and into Q3. Again, as I mentioned, we entered into our hydrogen purchase agreements as well with Duragaz and Hydrogen Ventures. We will look to use any inflows from those contracts to continue our CapEx, but it will be through a capital raising means as those discussions, you know, reach conclusion.

Ben Schwarz (Head of Investor Relations)

Thanks, Gavin. Last one here. Oh, sorry, go ahead, Frederico.

Frederico Figueira de Chaves (CEO)

Go ahead. I also want to add, around the just clarity around the CapEx needs that might be associated with projects. We do, as anyone who's been following us for a while, we do the development of a number of projects ourselves. However, the total investment value of those projects is significant, in the triple digit millions, say. We've noted this before, but just to clarify again, we intend to have financial partners for those projects. Those projects and the SPVs are to be owned by a financial investor, which takes on that CapEx responsibility. We create the opportunity, and we intend to deploy our technology to it. Funding those projects through to completion is not in our short-term capital plan.

Gavin Jones (Interim CFO)

Just one piece, if I may, as well, that I forgot to mention, was the grant inflows, which we've now started recognizing or receiving, over the last four or five months alone. Some of the awards that we've received over the last 18 months have actually been provided and paid out. Again, we hope that's a positive trend and will continue during 2023 and 2024.

Ben Schwarz (Head of Investor Relations)

Thanks, Gavin. Just sticking with, going out of order a little bit, sticking with that point around grants. A question here around, should we expect continued delays in grants being paid out, and do we expect this to lead to any liquidity challenges or project delays down the road?

Frederico Figueira de Chaves (CEO)

I would take that. I think what we have noted is that grants, payments can be unpredictable. It's not necessarily always delays. We have seen them, sometimes taking nearly a year to get paid, and other times being as quick as one week. What we are looking to do is obviously, partner with some commercial banks and so on, to take the uncertainty of that timing of the payment away from us, so that we can proceed and operate in a more sort of normalized function. Of course, if that's not possible, that could delay projects, could delay activities. We'll note once again that we are not looking to take on the investment risk of the projects ourselves, but to sell them on to a third party.

Depending on the capital position of that third party, they will have to decide how they want to take that, timing risk themselves.

Ben Schwarz (Head of Investor Relations)

Great. This question here from Amit Dayal at H.C. Wainwright & Co. There's a question around maintaining our outlook for 2023 and 2024. We already covered, I think, 2023, and said, yes, we are, we're confident with that guidance. Preliminary 2024 outlook, has that changed since our 4Q 2022 call?

Frederico Figueira de Chaves (CEO)

No, we maintain the same guidance. Again, some of these projects can be chunky, as noted. Obviously, the timing of when those start and the deployment can impact those targets. With the information we have available, those continue to be our ambitions and targets.

Ben Schwarz (Head of Investor Relations)

Great. Sticking with analysts here, a question from Erwan Kerouredan at Royal Bank of Canada. In light of the leadership changes announced this morning, how should we be thinking about the Americas? Should we expect the appointment of a head of Americas reporting into Federico anytime soon?

Frederico Figueira de Chaves (CEO)

This is still to be determined. As noted, the Americas continues to be a strategic priority for us. We do still expect and plan to be working with Zach and Jason on developing some projects in the United States and North America in the future. As also noted on strategic partnerships, naturally, strategic partnerships to cover the American market is obviously a question that's going through our mind. It is still early days. It's still something that we are working on, but the likely scenario is that there will be multiple solutions for such a large and principal market for us.

Ben Schwarz (Head of Investor Relations)

Thanks, Federico. I'll pass it over to Gavin for this next question. Do we expect the current rate of dilution, both through sales of securities through the ATM and the award of options to continue to be steady at these levels for the foreseeable future? What would it take for this pace to increase or decrease?

Gavin Jones (Interim CFO)

Thanks, Ben. I think if not steady, definitely reduced. If we think about the options in RSUs, these were predominantly or are predominantly issued to retain key employees and also attract new hires. As those who have followed us in the past, we've grown our headcount from, you know, very small amounts to 100 and 150, 160 people. We don't expect to be granting too many more options or RSUs in the near future. On the ATM, we have not sold any amounts under the ATM facility in Q2 to date. Again, without repeating myself again, we're looking at various ways of strengthening our capital position.

Obviously, if we're successful in one of those, that will obviously reduce the dilution from any future ATM sales as well.

Ben Schwarz (Head of Investor Relations)

Thanks, Gavin. I think this one is about a more strategic question, perhaps for Frederico. Question around why the development and evolution of the green hydrogen economy is taking so long. What do you see as the primary challenges and obstacles, and what change is needed in order to address that and build some momentum in the green hydrogen space?

Frederico Figueira de Chaves (CEO)

Thanks, Ben. Naturally, the first point to note is that how hydrogen has been used historically has been in very, how should I say, chemical processes that are truly commoditized. These are activities with low margin, and they're very sensitive to increases in cost. Green hydrogen, blue hydrogen, or clean hydrogen, let's call it, still operates at a premium to gray, and therefore, it takes time to be able to replace the gray used for traditional activities. What we've seen is, obviously, the support from governments to come to support the green premium in these early stages of the market. We're seeing, of course, new uses for hydrogen, such as mobility, which can justify a higher cost of hydrogen.

The regulatory environment, licensing environment, but as well as demand, have all been slowly working together, to start framing a world where green hydrogen is truly sort of economically viable, in sort of large scale use. I think with the IRA, now with the latest European activities, that starts to truly be the case, and that's why we're seeing such a rapid ramp up in interest, and green hydrogen activity, in both markets. I think the world was sort of waiting for something to move. The U.S. was the catalyst to get everyone else moving, and now we're seeing a sort of dynamic in the market that we hadn't seen before.

Ben Schwarz (Head of Investor Relations)

Thanks, Federico. I would also mention, if I can get up on my soapbox for just a moment, and I think that there is a and I talked about this before, a dislocation between what's being announced and what's drawing a lot of attention in the market, which are really large, you know, multi-billion dollar mega projects, and what's actually being developed in the field, which are predominantly kind of projects in the small to mid-scale space that have a much more modest capital requirement.

It, you know, we feel like we are pretty well positioned given our unique competitive advantage by virtue of our technology in that small to mid-scale space, while the rest of the industry, and more importantly, while the rest of the value chain, particularly on the infrastructure side, scales up to support more widespread adoption of green hydrogen. Question here around the HEVO-Chain, and a request to clarify the benefits and I guess importantly, the differences between the two solutions. Can you speak to the benefits of each and where they would be most applicable?

Frederico Figueira de Chaves (CEO)

The HEVO-Chain, again, we'll start with the advantages of using our sort of smaller modular solution. Any product using the HEVO will benefit from these advantages. Namely, the fact that it's modular allows for relatively easy operating maintenance. As opposed to having to send the full stack back if there's an issue or having to shut down an entire plant if there's an issue or something needs to be repaired, we can simply take out the offending draw, cube, or unit, and the rest of the plant can operate, it can continue operating as normal.

We also each membrane, each unit operates independently, even though they are on a string, which means that any mismatched losses in the system are actually only at the individual HEVO level and not on the full system level, so we have much lower losses from the system. These are the some of the large-scale advantages of the HEVO itself. The HEVO-Chain, similarly, just takes advantage of those, is able to then have a much cheaper power system because the HEVOs require a lot less power or amps, I would say, current to go through them. This reduces the overall cost of the HEVO-Chain. Both HEVO-Chain units, the containerized and the non-containerized version, can be scaled.

For example, we do not need to fill the container all in one go, they can be scaled, and they can be ramped up in phases as client needs. We do have projects where they have a phase one and phase two. For example, one in a containerized solution, which is 0.5 megawatts, and then a second 0.5 megawatts to be complemented as the, in this case, for mobility, as the fleet is deployed. The HEVO-Chain containerized has its full system included, has the water system, power electronic system included. If you have a large system, you would be then replicating these power and water systems, whereas in the non-containerized version, you're able to tailor it to the size, and that's the advantage of the non-containerized versus the containerized.

They're for different use cases, and both, I would say, very competitive in their markets.

Ben Schwarz (Head of Investor Relations)

Yeah. Thanks. Thanks, Federico. A comment here around technology sales and what that process, what that sales cycle looks like, and how those contracts tend to be structured. Is payment done upfront? Is it after delivery? Is it, in piecemeal fashion?

Frederico Figueira de Chaves (CEO)

Yeah. The let's call it each negotiation is its own world, but in general, the approach that we're taking is that there is a certain amount of upfront payment. This allows us to invest in the working capital to buy raw materials, to buy items needed for the production of that item. Then at certain milestones, there'll be certain amounts delivered, at a certain stage in the production phase or so on, there are subsequent payments. There is a remainder withheld until the end, which is only paid after successful commissioning and acceptance of the unit. The payment is phased, and it is designed in a way to ease the working capital required for that production.

Ben Schwarz (Head of Investor Relations)

Thanks, Frederico. question here around the efficiency of the HEVO 2023, and how many kilowatt-hours is required to produce a kilogram of hydrogen. I'll say that that has not been unchanged relative to prior versions, and that... but it's important to note the distinction between the efficiency at the stack level versus the system level, but Frederico, I'll let you chime in on that.

Frederico Figueira de Chaves (CEO)

Yeah, that's right. Efficiency at stack level continues to be the same and extremely attractive. The exact decimal I can't remember, but it's in the 47.something that's now escaping me on the stack level, and then the full system level, it's at around 52 KW hours per kilo. These are highly competitive numbers for an electrolyzer system. Again, we've been able to maintain those numbers as we're advancing the HEVO and making it more powerful. By more powerful, we mean more electrical, electrochemical cell real estate or space, and therefore, sort of higher hydrogen production with a sort of same unit and same overall near space.

Ben Schwarz (Head of Investor Relations)

Great. Thanks, Federico. I think we've reached the end of the Q&A session with plenty of time to spare. Unless there are any further questions, or unless Federico or Gavin, you have some final thoughts you want to share. If not, then we can kind of wrap it up here. A big thank you to everyone who's joined. If any questions come up or you felt your question was not answered sufficiently, please do reach out to me and the IR team at [email protected], and we will look forward to seeing you all again at our next update.

Frederico Figueira de Chaves (CEO)

Great. Thank you.

Gavin Jones (Interim CFO)

Thank you.