Invinity Energy Systems plc (IESVF) Q4 2022 Earnings Call Transcript

Invinity Energy Systems plc (OTCQX:IESVF) Q4 2022 Earnings Call Transcript July 3, 2023 11:00 AM ET

Company Participants

Larry Zulch – Chief Executive Officer

Jonathan Marren – Chief Development Officer and Interim CFO

Matt Harper – Chief Commercial Officer

Joe Worthington – Director of Communications

Conference Call Participants

Operator

[Starts Abruptly] PLC Investor Presentation. Throughout this recorded presentation, investors will be in listen-only mode. [Operator Instructions] The company may not be in a position to answer every question it received in the meeting itself. However, the company will review all questions submitted today and publish responses where it’s appropriate to do so. Before we begin, I’d like to submit the following poll.

And I’d now like to hand you over to Larry Zulch, CEO. Good afternoon, sir.

Larry Zulch

Hello, everyone, and thank you for attending today. We’re excited to tell you about what our –what’s been going on and where we’re headed. So we’ll start with just who we are. I think most of you know, but we are a listed company based in multiple locations. I’m in San Francisco. Matt Harper is joining us, our Chief Commercial Officer, he is in Vancouver, British Columbia. Jonathan Marren, right outside London, and we have facilities in Bathgate outside Edinburgh. We were formed by the merger of Avalon Battery, a company based in Vancouver, and redT Energy Systems based in the UK in 2020. And since then, that gave us what we needed, the critical mass and with the support of investors to become the leader in vanadium flow batteries. I just arrived back over the weekend from the International Flow Battery Forum where everyone who’s in flow batteries comes together. And it was very, very clear that we have taken a leadership role in vanadium flow batteries and then it gives us a lot of opportunity with the greatest number of flow batteries ever, a means of deploying batteries by building specific ones in a factory, and we’ll talk more about that, big sales pipeline that Matt will cover and some of the largest flow batteries ever in four countries and soon others.

So, let’s start with our thesis. Our thesis is very simple. If you’re putting in renewable energy, you have to put in energy storage. This is true. It’s even more true when the amount of renewable energy gets to be significant. And we’re all talking about putting in significant amounts of renewable energy in every country around the world. And that requires energy storage for the kind of stability that we expect from our energy system.

Now, of course, [indiscernible] great energy storage. How are we going to do that? There’s certainly hydropower, water and gravity, there’s many different technologies. But the one that right now is the furthest along commercially is lithium batteries. But they don’t solve the entire problem. They started out very short duration. They’re getting longer. There’s no question about it that they have been meeting some important needs, but there’s also no question that they’re not the right technology for all purposes for grid storage. They do have a tendency to catch fire, which is unfortunate. They do wear out prematurely compared to other assets on that grid. And they’re being used for mobility. If the countries around the world, they’re going to be using lithium batteries to meet their car, truck, other vehicle requirements, there won’t be any leftover for stationary energy storage. So it’s a huge number of people looking to make alternatives to that. We are making the most proven alternative to lithium. That’s not only our thesis, but we’re demonstrating that now.

But let’s go to financial results, and then we’ll tell you more about current business. So I’m going to turn it over to our Interim Chief Financial Officer and Chief Development Officer, Jonathan Marren.

Jonathan Marren

Great. Thank you. Thank you, Larry. So maybe if I start with the header to this slide, which is that, we’re making progress on our pathway to profitability. And I think it’s probably worth framing our results along those lines. These are a set of results where the indicators are all pointing in the right direction. But we’re not going to hide away that reporting total income of GBP3.6 million is that it’s a stepping stone. And I think if you look through these, I’ll pull off a few highlights here, but this certainly shows we are heading in the right direction. But it is incumbent on all of us as an executive team to make sure that we continue growing the business such that we start to deliver some really meaningful results. So I think I like to sort of frame it in there. We’re excited by these results, but quite measured as well for that reason.

So total income, and we’re including sales revenue and project related grants income that I’ll talk about in a moment. That’s GBP3.6 million, that’s a rise on last year. A reduction in the operating loss of 12% to [indiscernible] GBP2.3 million. Again, trending in the right direction, but certainly we want to see that start with a P rather than a L. Profits rather than losses are very much where we want to head to. From a commercial perspective, we closed significantly more sales last year than in previously — previous year at 39.2 megawatt hours, and some of that or most of that has been announced, and you’ve seen that come through.

From a revenue backlog perspective, and when we look at the 2023 order book, the revenue backlog there is GBP23.7 million. Again, that’s a significant rise and as we reported last year, and so we’re looking forward to an exciting amount of top line growth in 2023, and we’ll look for some clarity, hopefully, in the next few weeks as we approach the AGM or shortly afterwards in terms of some clarity on where that revenue number will be for the first half.

From an inventory perspective, we were busy in the year. We’ve manufactured 13.2 megawatt hours. Obviously, some of that has shipped. What that’s meant at the year end? We’ve got an inventory and prepaid inventory balance of GBP14.9 million. Again, that’s a 50% rise on last year. And we’ve given a cash balance at the end of May of GBP15.3 million, that’s [following] (ph) an equity raise at the end of Q1, 2023 and also the strategic investment from Everbrite. And again, I’ll briefly talk about that in a moment as well.

So looking at the details here, we split revenue and grant income against direct costs, and that may be a presentation that you haven’t necessarily seen before. One of the reasons to do that is that, when we look towards the LODES contract, which we’ll start to see mostly coming through the numbers in 2024. The grant income element of that will come through as grant income against direct costs from our perspective, and it comes as a sale of batteries, so it is very much revenue, but the presentation will go there. So, certainly, for the next couple of years, it’s worth looking at that from a sort of a total revenue perspective. But for last year, GBP2.9 million of that as revenue and that was principally from the three sales we’ve mentioned there, EMEC, Soboba and Miramar, and the first Phase 1 of the grounds income coming through from LODES there.

I mean, interestingly enough, you will see a gross profit reported here. And I’m always pleased as a CFO to see a gross profit, but the direct cost line is impacted by the fact that we have reversed the provision, which has gone through there. Now, what’s interesting in itself is that, that provision is reversed because the costs we had anticipated in delivering some of the projects that are coming through now, and those costings are coming in as a lower amount. So it is — the gross margin in general is trending in the right direction. You see, there’s some accounting movements that go through that, but if pleasing to see, firstly, the gross margin. But, actually what’s really behind that is costing us less to build out these projects. And that clearly is most important even over and above reporting that gross margin.

When we look further down from there, admin expenses are up on the year. A few points to note there, and I’ve pulled out a couple of items there. There’s a probably professional fees are up by about GBP1 million, of which, I’d say the majority there are one off items as is a one off increase due to the cost of moving manufacturing from our previous partner BCI to Baojia. So I’d regard those as nonrecurring. So admin expenses are still up. Why is that? Well, we are growing as a business. We’ve invested in staff headcounts, so staff headcount numbers are going up. Clearly, that’s across the sales side, across manufacturing, and crucially across research and development. And it is worth if you’ve got time comparing our OpEx line against, I think, some of our listed peers, particularly in the US, and maybe have a look at ESS and EOS and we are spending considerably less on OpEx than those two.

As a CFO, my job is to try and keep costs down, but it’s also to make sure we’ve got the resource to invest where needed, and there is a balance that we had there. And I think at the moment, we strike as good a balance as we can do. The provision for owners’ contract line there, we said we’d had booked one contract last year that was loss making, that’s the provision that goes through there. That was for strategic reasons. But again, you can see a significant reduction on last year.

So looking towards the balance sheet, there you’ll see that GBP14.9 million inventory, line that’s made up of both inventory, so completed inventory and then partly built inventory. That’s GBP14.9 million versus GBO10 million at the end of last year. And what I’ve done here is, try to pull together a net position because there are a number of captions on the balance sheet, which I’ve sort of called loosely net value of contract activity, and that’s to give you a sense as to the sort of the — almost the sort of the balance sheet cash position that’s going through. It’s the inventory and prepaid inventory that directly turned into revenue at the year-end but, obviously, sort of the net position is what works its way through to cash. And what’s impacted there is the deferred revenue line. So that’s money’s received already.

One thing which I would point you towards is, there’s a line there called derivative financial instruments, which I won’t give out the test to ask everyone to fully explain that. That is actually the convertible loan balance, which we had outstanding at the year end and under IFRS, because there was an equity component to that. And you may have seen that actually we’ve recognized some of that as equity in the balance sheet, and the balance that goes here is that amount. That was a $2.5 million facility, of which, all of that was outstanding at the year end. So, yes, that is the sort of the technical cash and net debt position, but I wouldn’t want anyone to think that that wasn’t and you also need to take account of the other element of that that goes within there. So a function of IFRS, and that will obviously flow through to clear out at the interim stage as we’ve repaid that, of course.

And then finally, the bullet point here, cash of GBP15.3 million at the end of May. Broadly, after the cost of the fundraising and repaying the Riverfort facility, that brought in a net GBP20 million to the business. And that was brought in March, which is effective when you think about the way the payroll costs work through about three months of activity. So broadly on that line with GBP15.3 million, that takes you well past — well past March next year. And when we went and did the fundraising in March this year, we talked about having enough cash to get us through to June, and that is exactly where we see that position.

Now, again, if you look through the reporting account, it says that there’s many statements made on where we are with our cash position. And particularly I draw your attention to the comments made about strategic investors’ — investments. So I’m not going to say anything now that’s different from anything that’s worded there. But just to reiterate, that is our intention. We have — we are engaged in multiple conversations with different types of strategic investors. These are all who would look to be interested in [indiscernible] a minority position in the business. They are those who want to take advantage and give us some assistance along the way and get into a position where they can help strategically. So these are different people within the value chain that might assist on the manufacturing side, more on the vanadium side, elsewhere.

And we took a small strategic investment from Everbrite GBP2.5 million over the last fundraising. I think that’s sort of a toe in the water and gives you an idea that there is and demand from such strategic investors to be involved. And from my perspective, I came back in as an executive just about a year ago now and part of my role is to talk to those strategic investors. And the nature of the dialogue has changed quite considerably. When I first joined a year ago, there was many, many outbound calls taking place. I mean, those outbound calls still go on, but there’s a lot of incoming interest. So it is a much easier conversation we’re having. So we have good confidence levels there, but I’m not going to make any predictions, because that would be wrong with me at this stage. But we have a good degree of confidence there.

Matt Harper

Great. Thanks, Jonathan. So moving on to current trading then. What we’ve seen over the last few months is tremendous progress in all aspects of how we build and up and deliver our products. We’ve got tremendous commercial momentum in terms of the amount of sales that we’ve seen over the first part of the year. We are enormously encouraged by the number of very credible partnerships that we are starting to build, notably with companies like the Dawsongroup in the UK who see the potential to deploy our product in volume and thus have entered into commercial partnerships with us.

The fact that we won the $11 million worth — GBP11 million worth of grant funding through DESNZ is for their longer duration energy storage project, it was enormously compelling. And then the fact that we’re now delivering against what was even at the end of the year and growing since then, a fairly significant commercial backlog has been very good news from our perspective. In response to that commercial traction, we’ve been scaling the business. We’ve just completed a pretty significant expansion of our manufacturing facility here in Vancouver. That is now capable of delivering against current and near term future order book. And we’ve seen first deliveries of our — from our new manufacturing [indiscernible], not only two — our factories in Bathgate and Vancouver, but also directly to our customer sites.

Finally, in terms of our — in terms of the longer run view of the business. We are making good progress towards launching our next generation product code-named Mistral with our first prototype project announced recently, and that — Mistral being a very active portion of our future sales pipeline.

Speaking of that pipeline, we’ve been very, very excited about the movement across all segments of that pipeline over the past six months. Those of you who have been following the company for a while know that we break that pipeline, the part into three different categories. We talk about deals that are qualified, which are ones that where they’ve met a threshold in terms of proving funding is available, proving the business case is solid, and proving that there is an appetite in our customers part and move forward in the product within a reasonable time frame. We — as of the last six months have been differentiating between qualified deals that are qualified for short term business, so in the next 24 months and qualified for long term business, which where the threshold or the time scale for delivery is beyond that 24 month window.

That long term qualified pipeline is primarily Mistral projects. And over the last period, we’ve seen significant growth in the amount of deals sitting in that portion of our pipeline. Even within the near term group, though, that qualified — that qualified number has grown significantly. We have seen a number of those projects flow from qualified through to advanced. You recall that advanced projects are the ones where, in most cases, we’ve been selected as the successful battery provider. The site engineering is in process. And the final configuration around getting the design of the battery done is well underway.

Finally, the most closest to contracting portion of our pipeline is what we call base. We call it our base, because it is what we are basing that business on. We are reserving working capital. We are reserving production slots, and we have a very, very high degree of confidence that these deals are going to come to fruition in the near term. That number is up very significantly over the last time that we reported, primarily because the — primarily because of the amount of interest and credibility that we’re having coming into the company based on the deliveries we’ve made over the last year.

I would say broadly, the sort of the three trends that we see that are driving all this traction are the fundamentals of the storage business case remains very sound, but lithium’s limitations are becoming more clear. We’re seeing great domestic and policy support where our governments and regulators in our core markets are pushing to have companies like ours, take a big part of the future storage business. And alongside that policy support, we’re seeing regulation merging that is going to promote longer duration storage as distinct from the rest of the storage space, which is becoming ever more helpful, especially at the longer end of our commercial pipeline.

Now to talk about some of those projects that we have delivered over the last six months, Chappice Lake Solar Storage in — Chappice Lake, which is in Alberta, in Canada. This is delivered alongside our partners at Elemental Energy, this is a 8.4 megawatt hour battery that is supporting 21 megawatts of solar PV project. What’s interesting about this project is that, it will be the largest merchant traded battery project that we have ever executed. So, in terms of constantly trading PV generated energy onto the electric grid on an hour by hour basis, this is going to be a very interesting test case to see whether that or rather the degree to which that business model is one that is replicated and very, very profitable for current and future customers.

Our project that we deliver to Spencer Energy in Australia. This was — this is — the parent company is called Yadlamalka Energy. This is where we are using 8 megawatt hours within our batteries to absorb 6 megawatt hour, 6 megawatts worth of PV Energy, and to deploy that back on the grid on demand. South Australia’s electrical grid is highly constrained, especially in the middle of the day when PV is generating at its peak. Because of that, this project was not going to be able to go ahead without a significant amount of battery capability able to absorb that solar energy and then deploy it back onto the grid when it’s most needed. This is a use case that we see growing all over the world, especially in jurisdictions like Australia, like the US, Southwest where the grid is hitting the limit in terms of how much PV it can absorb and our batteries are able to take that energy and deploy it when it actually is more useful on the electric grid.

Finally, the project that we announced late last fall with Indian Energy in the United States. This is a 10 megawatt hour battery going to a remote micro grid just outside of San Diego. This is combined with about 15 megawatts of PV. And the use case here is taking this battery and using it so that not only the [indiscernible] and casino can manage its own self generation on an hour by hour basis, but also so that the entire facility can be taken essentially offline in times when either the electricity usage in the general region is very, very high, and therefore, prices are very, very high or in the case of power shutoffs, so that that facility can continue operating 24/7 on its own power. We’re very pleased that we’ve now completed delivery to the majority of these products into that project and we’re going to be looking forward to bringing that project online and commissioning it and talking a lot more about the results in due course.

With that why don’t I pass it over to you, Larry, to talk about some of our — some of the work under the covers or under the hood that we’ve been doing to continue to build this project.

Larry Zulch

Thanks, Matt. Absolutely. By the way, the image that Matt just showed for Indian Energy is our Vancouver facility where we complete final assembly. We build stacks in Vancouver, the part where the energy gets interchanged with the liquid electrolyte, that’s a high intellectual property. We build those in Scotland and in in Vancouver. We put them into the batteries. We do final assembly, and then we ship them down to the US. And that’s — another picture of that is here as well. And that’s important for us because North America is proving to be exactly what you would expect, a strong market. The shift toward renewables is driving a real interest in energy storage, and the US government and the California governments are both throwing quite a bit of money at energy storage, because they see that grid instability will occur if they don’t put in enough energy storage.

So, our focus has been on building to the sales that we’ve made and delivering on those. So that’s not only in Vancouver, but as Matt mentioned before, switched from our previous partner in China for the big boxes and tanks and the things that really benefit from the Chinese supply chain and low cost manufacturing. [indiscernible] makes a lot of equipment for renewable energy in a variety of ways. They’re very large. They did a very good job of taking our design and starting to build modules for that and we’re already shipping those. So we’re very pleased. And another thing I might note is, [indiscernible] does have a facility in Malaysia which allows imports directly into the United States for — to avoid tariffs from Chinese manufactured goods going into the US.

Our future. The pictures Matt showed you were photographs of projects of one kind or another. This is a rendering. This is not real. But it is an image that illustrates what we are trying to accomplish with our next generation project, with [indiscernible] product, which I can say, is clearly going to be the most advanced flow battery ever deployed to the market when we come out with it first customer ship next year. It was about a little over two years ago when we and Gamesa Electric, a wholly owned subsidiary, Siemens Gamesa, which is now part Siemens Gamesa Energy. Gamesa Electric makes the non-wind turbine parts of what Siemens Gamesa does. We agreed to jointly develop this next generation product, and we’ve been working well together on it since we’re making great progress.

The entire purpose is to scale up at lower cost. How do we do that? How do we get these benefits simplified? You know, each of our current VS3 products is the same size as a Mistral module, but it has instead of — in the current one, it has six different flow battery modules, in Mistral just one. So that means that it’s much simpler, just two tanks, two pumps, et cetera. We can really lower the cost, increase their performance and the ability to scale. So the number of modules and the capacity that they have is a lot more efficient. And what it turns into is a lower levelized cost of storage. Very simply, if you take the total amount of energy that you are storing and discharging again over the lifetime of the product. And you say, what are the total amount of energy? What’s the total cost? The result, the product of that is a cost per megawatt hour in that. That — the beauty of that is, you can look at all kinds of different technologies from lithium to vanadium flow to other alternate technologies and chemistries, et cetera, et cetera, and all of them can be unified by levelized cost of storage.

We believe that we will have the lowest levelized cost of storage of any storage product, bar none any storage battery project. Let me just be clear, bar none on the market when this comes out. That’s just a tremendous advantage for us and puts us into an enviable position with this product. So we’re excited to show this first rendering of it. What it illustrates is, all of the service goes from one end. What that allows us to do is to put the container systems, the modules close together, stack them on top of each other. Remember, there’s no risk of fire so you don’t have to keep them spread apart like ammunition bunkers, the way lithium ion batteries are required to do. And that allows us to have a lot of energy storage per acre or per hectare. And that’s another area that we’re start — we’re setting the bar and raising the bar in terms of vanadium flow battery. So very, very excited to have Mistral. It’s an enormous focus and a huge amount of effort.

So this now can be summarized with our 2023 strategy, deliver on the backlog. That means building the product, getting it on-site, getting it working, and we’ve been doing that. So we’ve scaled up all these capabilities. We’ve closed new deals. We’ve promised revenue for next year. The analysts are looking at numbers above this year, which is reasonable. And so, we’re looking at signing new deals for that. And last year, it sort of all came surging in at the end, and I have no reason to think it will be different this year.

Deliver me strong. Get that product advanced and then out on the market. And that’s — it’s going very, very well, and I’m very, very excited to be able to say publicly more about it. And then the last thing is, we’re a business that has to run efficiently and well. We can’t afford to run poorly as a company. We need higher margins. We’re on that pathway to profitability that Jonathan was talking about. All of these are critical components of us running well as a business. So if I were to summarize that pathway to profitability, I’d say, we’re accessing a large market. It’s a very, very large market. We have the most advanced product coming out with Mistral. And we have supportive partnerships. We’re not big enough to accomplish everything we want to accomplish our own. We have the relationship with Gamesa Electric, Siemens Gamesa and Siemens Energy, now that they’re all one large entity. We have the relationships with our Asian partners, not only for manufacturing with [indiscernible], but companies like Hyosung and Everbrite in Korea and Taiwan, respectively. And then we have partnerships in the UK, Dawsongroup, and emerging in the United States as well. So in all of these cases, we are putting together what we see is a very, very strong offering and something that will be — that will be quite compelling in meeting the energy storage requirements.

So with that, we’ve finished the presentation and are happy to open it up to questions. So I’ll turn it over to others for that.

Question-and-Answer Session

Operator

Larry, Matt, Jonathan. Thank you very much for your presentation. [Operator Instructions] But just while the company take a few minutes for you those questions submitted today, I’d like to remind you that recording of this presentation along with a copy of the slides and the published Q&A can be accessed via your investor dashboard. As you can see, we received a number of questions throughout today’s presentation.

And, Joe, if I could just hand over to you just to read out those questions and direct them to team where it’s appropriate to do so, I’ll pick up from you at the end.

Joe Worthington

Great. Thanks very much. Yes. We’ve got a lot of questions, so we’ll try and get through as many as we can in the time we’ve got. I’m going to start. There’s a number of questions around Mistral. So, if you can, Larry, can you talk a little bit about our expectations around pilot projects? We’ve always said in the market that we go announce a number of pilot projects for Mistral. And then also give a sense of what sort of size projects we’re looking for the Mistral product to deliver?

Larry Zulch

Sure. I’m going to start with the second one first, and then we can talk about pilot projects. I was on stage at the International Flow Battery Forum and it was asked, what is the killer app for vanadium flow batteries, for your vanadium flow batteries in particular? And I said wind. It’s not saying that we don’t work effectively with solar, but wind. Wind projects are generally of such size and scale, and they have such intermittency as the wind, as we all know, comes and goes that lithium batteries are not very successful in storing energy for that. Siemens Gamesa is a leader in wind turbines, but we’re not exclusively looking to them as the wind systems that we’ll connect with. So scale wise have to get up in with different scale than we’ve seen before instead of eight megawatt hours as we’ve been talking about or 10 megawatt hours. We’re talking about 80 or 100 or 200 or 300. These are just enormous scale. And that’s what we’re focused toward.

But getting started, our pilot projects will be smaller than, large enough to be large, bigger than the things that we’ve developed before. That’s one range. I’ll tell you larger than we’ve talked about before, but not even close to these 100 or 200 megawatt hour system. And the reason is, so that we can demonstrate how they work. Our system is modular. Our system is modular at multiple levels. Each module, each size of a shipping container, that’s one module. But then they’re assembled together into a group of them that all interact or interoperate correctly. And then multiple of those are put together into an array we’re going to be looking at first delivering those arrays that are, let’s say, in the neighborhood of 15 to 30 megawatt hours.

Joe Worthington

Thanks, Larry. And then just related to that point, there’s a number of questions here around competition and also around levelized cost targets for Mistral. Could you just give a minute or two on that levelized cost target, how we see that is positioning us within the market? And also talk a little bit about our competition and especially where that levelized cost target sort of relates to, things like the DOE targets coming up?

Larry Zulch

We seldom see all other energies — battery energy storage technologies in any of the commercial opportunities that we’re pursuing other than lithium. We really don’t see other flow batteries or other technologies unless they are some special purpose project. So in terms of competition, really the market is so large and no other technology is proven as vanadium flow batteries. That’s an alternative to lithium. So we’re not concerned about competition in that sense. That’s not out of hubris, that’s just out of realism. We have to hit targets set by lithium projects. That’s both in cost or initial capital cost and levelized cost of storage. Well, they have a disadvantage because they don’t last that long. So even if it’s working well, after five, six, seven years, you have to replace it. And that’s — and that means that the cost go — tend to go up when you’re looking over a project lifetime.

Now if you’re thinking, well, who cares? I’ll tell you who cares. People who have bigger and bigger projects, if you’re putting in a large project, you do not want to have thousands and thousands of tons of lithium waste that you have to deal with in five to seven years, especially because it’s hard to recycle. You don’t want to have to — the cap cost of replacing it, all of those things are causing a lot of interest in what we’re doing. Our specific focus is getting below the US Department of Energy moonshot goal for levelized cost of storage. They said by 2030, we have to get down to $50 a megawatt hour. That’s going to drive the kind of energy storage that the United States needs. And, really, it’s true worldwide. We’re going to beat that. We’re going to not only beat that by 2030, we’re going to beat the years early. So getting the $50, that would be under half of even the most optimistic levelized cost of stored projections for lithium.

Joe Worthington

Thanks, Larry. There’s a number of questions sort of related to the Mistral program around the ongoing relationship with Siemens Energy and Gamesa, could you just sort of give a top line around that?

Larry Zulch

Our relationship with them is going very well. Now they’re like every big company. They don’t like to talk about products before they’re out on the market. We don’t blame them. We being small, and knowing that we have shareholders and investors who are eager to hear about progress are always conflicted and not able to talk as much we’d like to about the new projects. In fact, if you notice, we didn’t even mention Siemens Gamesa or Gamesa Electric on the slide in this presentation. That was on purpose. That’s not because the relationship is not good — is not good, it’s great. It’s a great relationship with them. It’s just that we don’t talk, they don’t talk about things ahead of time and it’s a good discipline. And so, I would say, we are each working toward supplying the portion of the project that where we can contribute a lot. They have a lot of ability on manufacturing large projects at scale/ I know they’ve had some challenges recently in the wind turbine side, Gamesa Electric, which makes inverters or PCS, the system that converts the DC power of a battery into AC power on the grid, they’ve been doing fantastic and are profitable and they’re our closest partner within that whole group. So they’re providing some components for that. We’re supplying the electrochemical side and maintaining all of the intellectual property on that. By the way, that’s the cell stack. So that’s what I’d say. Matt, anything I missed, what would you add to what I said?

Matt Harper

No. Look. I think you nailed it. Yes. Yes. I think you nailed it.

Joe Worthington

Brilliant. So, Matt, I’m going to come to you for this next sort of group of questions. To sort of — they relate mainly to the pipeline, but I’m going to start with one of the more general ones about where we see our key competitive advantages in those core markets. I mean, I’ll come to you with some specific questions around the pipeline. So if you could start with the sort of core competitive advantages we see, and then we’ll go a bit more specific.

Matt Harper

I mean, the play where we compete more strongly is where people are looking to do very, very high throughput with their batteries. Right? So not trying to solve very irregular [intermittency] (ph) problems or dispatch, batteries occasionally into the grid, but rather where people are looking to have a battery that is going to be dispatching into the grid, multiple cycles per day, every day of the year for decades. So that’s — anytime we see that coming through in our sales pipeline, those are the kind of opportunities that we immediately jump on and make sure push through the qualifying steps as quickly as possible.

Joe Worthington

Brilliant. And then there’s a specific question here around the [indiscernible] asking about the growth in the advanced part of the pipelines, it might be helpful to skip back a little bit so we can bring it up on screen. But they’ve asked, why is the growth in the advanced part of the pipeline only 10% versus higher growth rates in other areas? And could you just talk through some of those key movements in that slide?

Matt Harper

Yeah. I mean, look, the individual — the individual segments are a little bit lumpy compared with one or other. The movement in particular from advanced into base over the last little while has been impacted in particular by moving the LODES project from one into the other. I mean, as we have been awarded the funding for project. It has moved into that base category, and that has moved a significant chunk of business out of –from advanced into base.

I mean, we — most of — there are a number of projects in all of these portions of the pipeline that are on the order of 10 to 30 megawatt hours. And especially when you get into those advanced base categories, that means there can be significant change on a from one period to the next in terms of the volume of business in each one of those. Whether — I would not read too much into the movements from one period to the next in terms of those particular categories. What is most compelling is, when we look at what’s in base, because that really is the view that we see in terms of the business that’s most likely to contract in the near term. And then the projects that are in the qualified group because that really represents the sheer volume of inbound interest in what we are doing as a company.

Joe Worthington

Thanks. And then on that, there is a question here around sort of understanding what the difference being qualified, a long term qualified, and sort of where some of those Mistral pilots may sit. Is there — can you make a comment on that just to clarify?

Matt Harper

Yes. I mean, the difference is when we — when we expect that the project will be delivered. If it is within the 24 month window, that’s where we keep it in the qualified group. If it is beyond that qualified window, it becomes part of that long term qualified category. I will say that the vast majority of projects in that long term qualified group are for Mistral. Whereas the — within the qualified group, it’s a combination of VS3 and Mistral together.

If I — because I’m talking about it, I’ll nail off one of the other questions I see here, which is, do we see VS3 sales continuing alongside Mistral into future? We do, because there are specific instances where Mistral is not the right fit. It’s a product that is intended to be installed in projects no smaller than about 15 megawatt hour and there is a very profitable book of business at – below that scale. So we do believe in the near term that those two products will continue alongside one another. And, therefore, there is a mix of those two products within both the qualified and the long term qualified group.

Joe Worthington

Thank you. And the sort of final question of the of this group. There’s a question here about the Inflation Reduction Act, how that looks from a commercial perspective for Invinity? And so perhaps you want to start, I’m sure Larry can talk about it too.

Matt Harper

Sure. Well, look, I mean, I’ll say from a commercial perspective the Inflation Reduction Act has added tremendous impetus to the commercial value of projects coming through in the US in general. That 30% tax credit is tremendously valuable for a lot of our customers and especially where they’re — people are looking to add storage to renewable generation projects, especially solar. There’s been a tremendous uptick in the amount of those projects that have storage being planned alongside them.

Of course, the other element of the IRA is, the domestic content requirements. And while we do not currently have manufacturing capacity in the US, we have had manufacturing capacity in the US in the past. And one of the benefits that we have over some of the other technology classes in our space is that, we don’t need to build a gigafactory to be able to do the kind of final assembly and subcomponent level assembly that is needed to meet the requirements of the IRA for domestic content. Now the final rule making on what exactly will constitute domestic content is still in progress, but we are very confident that when those final rules are published that we will be able to find a way to qualify for them and therefore meet those domestic content requirements.

Larry Zulch

I know that we are actively in pursuit of a manufacturing in the United States. So this is something we’re not ready to announce yet, but it’s not without great deal of effort and interest on our part.

Joe Worthington

Thanks, both. Jonathan, I’m going to come to you now. There’s a number of questions here asking around which essentially concerns of analyst projections that are out there in the market. And would you mind sort of talking around that? I mean, they mainly refer to sort of EBITDA and various other sort of that route to profitability that you talked about in the presentation.

Jonathan Marren

Yep. Happy to. I think one of those key questions was around when analysts are forecasting us to be EBITDA positive and therefore effective cash flow positive. And I can certainly sort of talk towards this analyst forecast. I’ll be cautious give any company forecast as a public company. That’s not something we should do. Analysts are seeing the positive comments we are making about the Mistral developments and where those are with orders to say that there will be material revenue delivered from Mistral in 2025. We have talked about that being at industry standard margins. So as a result of that, that is — in their view, that’s generating enough gross margin to be able to cover our cost base and sets us on the road to being EBITDA positive — being EBITDA positive and therefore, cash flow positive at that stage.

Joe Worthington

Thanks, Jonathan. Larry, I’m going to come to you next as I’m going to conflate two specific questions, but I think they go very well together. The first is asking, can you clarify exactly what you mean about being a leader in the space? You’re saying we want to be a leader in vanadium flow batteries or flow batteries in general? And then sort of related to that, where do you see Invinity in one, three and five years’ time?

Larry Zulch

So there are other flow battery chemistries other than vanadium, they’re not as far advanced. We’re waiting to see them be successfully deployed in a commercial installation. In fact, I sort of have my own personal rule that until there is a project that is connected into the grid or into the electric system that someone else paid for that’s operating for a time being, they’re still experimental. And so, only vanadium flow batteries are the only chemistry at this point, alternative to lithium, it’s a battery chemistry that we think is particularly serious. There are hot salt or sodium sulfur, those are real. They have real challenges. Not particularly concerned about them, but we’ll see. The enormous market, huge opportunity, we’ll only take our portion. Our portion is [indiscernible] high throughput side. We’re really trying to stabilize the daily interaction of renewable energy with the electric grid. That’s our primary purpose.

As soon as you talk about weeks or months, there will be a need for energy storage over that. That won’t be where we’re particularly competitive. And the first part of your question, Joe, remind me?

Joe Worthington

Just around whether we see ourselves as being leaders specifically in vanadium chemistry or all sort…

Larry Zulch

Yes. So in general, we see ourselves being leaders in non-lithium battery storage. That’s the leadership. Now in terms of where we’re going to be in one, three and five years, a year from now we will be in the midst of or somewhere in the range of announcing the most important announcement of 2024 in energy storage, which will be Mistral. That will be the most important announcement of 2024. I don’t think anyone — I can’t imagine what else it would be. Who knows? We’ll see. But that’s our view.

Three years from now, we will have demonstrated that we can deliver Mistral that we can connect Mistral to major sources of renewable energy and deploy great amounts of stabilizing energy onto the market. That should put us in a fantastic position, in a position where we are cash flow positive would be my goal for that time. And then five years from now, a track record of real growth and significant growth for every year. So we’re — that’s — therefore a great deal of enterprise value. And enterprise value will turn into value for our shareholders and reward some of the investors who’ve been very, very patient with us as we’ve gone through a long development process. We have been making a transition from being a development company, developing an alternative to lithium into one that is a commercial company. And that’s where we have made that shift and are now executing against that shift. So we move from being development stage to commercial stage. But that doesn’t mean we’re concluded commercial stage. What it means is, we’re now clearly on that path and that pathway to profitability that Jonathan talked about.

Joe Worthington

Thanks, Larry. And we’re rapidly running out of time. So I think just two more questions. And perhaps a question for Matt. Matt, are there any indications that buyers are deciding to sit on the fence until Mistral is launched? Could you comment on that?

Matt Harper

Not that we’ve seen. And it’s worth noting that Mistral is intended to be a product that is deployed at sizes that is far larger than most of the projects we’ve built to date. So the projects that we will be fulfilling with Mistral are starting in sort of 2025 and beyond will be ones that are that are a significant step up from where we are today.

Yes. So the — I think that they’re not really in competition with one another in a sense because, one is very much a stepping stone to the other. I will also say that almost with that exception, every one of the projects that we’ve built, there’s been a significant learning curve in terms of getting our customers to understand how they can best make use of this technology. There’s a significant difference between the battery like ours where you can run it 24 hours a day to maximize the amount of value you get out of that storage asset versus lithium ion battery where you’re going to deploy it into the applications or the sort of the hours per day of dispatch where it is most valuable and nothing more because you don’t want to be wearing it out. And that optimization step is something that has been a significant learning for some of our customers, and it is one of the reasons why we almost suggest that if people have a very large and growing storage portfolio that they start with VS3, they install that today, they understand how it operates, they understand how they can dispatch and make the most money off of it, thereby paving the way to a fully optimized Mistral deployment as and when the product becomes available.

Joe Worthington

Thanks, Matt. And last question, I’m afraid we’ll wrap around that time. There’s questions here on them on various partnerships. Larry, could you sort of give an overview really on the importance we’re placing on partnerships and some of the key highlights and things to look out for?

Larry Zulch

I mean, I certainly mentioned — before that, partnerships is part of our fundamental strategy. And that does start with our partnership with Gamesa Electric, Siemens Gamesa, and Siemens Energy. I know there’s been a lot of press about some challenges that Siemens Gamesa has had. But Siemens Energy is very strong, Gamesa Electric is very strong, and we anticipate our very, very good relationship with them with all three of those entities as appropriate continuing well. What they will do for us is, enhance our manufacturing capabilities ultimately, our access to market. But don’t forget also that when we’re talking about very, very large projects, the confidence in that project has to be very high on the part of the customer. They’re thinking I’m going to be putting in not a few millions, but potentially hundreds of millions into a project. When they look at Siemens Energy behind it and say, that’s a company that will be around for the entire lifetime of this project and they are providing the service for it. That is a tremendous advantage. So that’s one aspect of the relationships that are key.

But then another example is, for example, Hyosung in Korea. Sort of the Siemens of Korea, very, very strong, the biggest supplier in the KEPCO, the Korean energy utility. Hyosung has deployed multiple gigawatt hours of lithium batteries. They’ve also had some fires as there have been many in Korea. And they have looked to our battery system and our partnership is providing what their customers require. That — they are able to not only purchase our product from us and deploy it, but to sell the product into the opportunities to do all the engineering work that’s required, the deployment, the services support, everything. They act in some ways like Invinity would if we were in Korea and put a major expense there. So we are able to get great advantage by having that kind of partnership. And then there’s the supplier partnership. When we’re moving into the United States with domestic production, obviously, we are going to need some domestic production of the vanadium component, the electrolyte. And for that, our relation with US Vanadium and with other current and potential suppliers of US made components is very, very useful. So supply chain we have partnerships, product side we have our partnership with Siemens Gamesa, and then commercialization and access outside of our core markets of the UK, Australia, North America, we have partnerships for that.

Operator

Larry, Matt, Jonathan, Joe. Thank you very much for that. I think you’ve addressed those questions you can from investors. And, of course, the company will review all the questions submitted today, and we’ll publish those responses on the Invinity company platform. But just before redirecting investors, provide you with their feedback, which they’re particularly important to the company. Larry, could I just ask you for a few closing comments?

Larry Zulch

Thank you all for your time and attention today. We’re grateful for the support, not just now, but of our shareholders and investors. What I would say is, we are firmly and on track on our pathway to profitability. We are making progress in deploying the right product into a very large market with supporting economics, and that is the combination that we’re particularly pleased about. So thank you all for today, and we look forward to further interactions with you as we continue on our pathway to profitability.

Operator

Thanks once again for updating investors today and answering so many of those questions that have come through. Could I please ask investors not to close this session as you now be automatically redirected to provide your feedback in order that the management team can better understand your views and expectations. This will only take a few moments to complete, but I’m sure it’ll be greatly valued by the company. On behalf of the management team of Invinity Energy Systems PLC, we’d like to thank you for attending today’s presentation, and good afternoon to you all.