Robert Piconi: Yes, for black start. Yes. Well, black start is a portion required as this is a microgrid backup system. So, to be clear, the use case here is something that’s not going to be discharged frequently, probably four to five times a year. PG&E can probably speak better to that, but it’s designed so that in the fire season, you’ll know, Joe, because I think you’re up in that area. You’ll remember that Calistoga was hit pretty hard and they had to shut down the grid. And so this microgrid can work standalone. It actually is also interconnected. But the design of this is to be discharged during events of what they call PSPS, any power shutdown or safety shutdown event, this thing will kick in. They don’t need diesel generation anymore and the lithium-ion helps them with some specific services and even ancillary power, by the way, that they can use daily. Does that make sense?
Joseph Osha: Okay. Thank you. I understand that much better now. I appreciate it. Thank you.
Robert Piconi: Yes, no problem.
Bernie Colson: And we have about 15 minutes left, and we still have a list of people to get through. So, if you can limit your questions, please to one and a follow-up, that would be great.
Operator: And the next question will come from the line of Thomas Boyes with TD Cowen. Please proceed.
Thomas Boyes: Appreciate you taking the questions. Maybe the first is, is the royalty structure for the gravity deal in South Africa similar to the one in China, where it’s like 5% royalty on the projects and then about 90% gross margin? Just trying to get a sense of how that is situated.
Robert Piconi: Yes, it is.
Thomas Boyes: Thank you. And then the other question was just obviously, great to see the progress in China. I know in the EVS system in Texas is going to or slated to use wind blades and the block construction, which I assume, is still on the table. I was just wondering if you’re seeing that type of demand for solutions in China? Are they also looking to use waste materials and block construction, something on the–?
Robert Piconi: Yes. Correct. In fact, just to — yes, just to share with you on what CNTY or China Tianying plans are, they are a waste remediation and environmental service company. So, meaning they do a lot of the standard waste management and have an incinerator and they are using that incinerated ash as part of their brick production. As a part of our license with gravity, we are collaborating around other forms of waste materials like coal ash, for example, and even the wind blade — their shredded fiberglass, wind blade that they can use there as well. As you know, there’s massive wind deployments in China, and about every 10 years, those blades suffer what’s called fatigue and the blades have to be replaced. So, that is a large opportunity for them.
There are in China as well, the similar types of, let’s say, reuse subsidies there and China Tianying is a player, let’s say, in that market. So, they are required, in some cases, through their core business to utilize it, but specifically for the energy, that was one of the synergies that we have and that they have with our technology in working with them.
Thomas Boyes: Excellent. Appreciate. I’ll jump back in queue.
Robert Piconi: Okay. Thank you.
Operator: Our next question comes from the line of Chris Ellinghaus with Siebert Williams Shank. Please proceed.
Chris Ellinghaus: Hey everybody. How are you?
Robert Piconi: Hey Chris, how are you doing?
Chris Ellinghaus: Rob or whoever wants to talk about this, but the efforts that you undertook in the fourth quarter to sort of conserve your cash run rate, what sort of line items did you address in terms of reducing costs?
Robert Piconi: Great question Chris. We focus in two areas, basically the controllable OpEx. So, that’s everything from our internal IT costs, internal infrastructure, things like — also our travel, all the things that are really controllable in that sense, but also things that are related to our infrastructure. I mean, as an example, we’re consolidating some things in Snyder, Texas as a facility since we actually own that site now and consolidating some infrastructure. For example, as we’re winding down the R&D facility that had our EVx and still has our EVx system there where we’re finalizing some testing. With the buildup now of Snyder, we’re going to be doing things there. We had some other things that were somewhat discretionary.
We had other projects. Some of them were IT-related. There were some R&D things also that we made some choices based on priorities that we saw in the market, which, as you know, in this market, in terms of looking at different storage duration and different technology mediums, we’re — given our expertise across multiple domains, we invest and invest — and I’d say a strong way in R&D and future energy storage technology. So, there was some optimization, I’d say, around that. So, anything that was sort of controllable we addressed. And we also addressed a bit on our — given the business model and gravity where we’re essentially continuing to license the technology that means — what does that mean? We don’t have to open up offices in places like what we announced for the SADC, the 16-member countries in Southern Africa, or in China, in places because we don’t have to spend that and we don’t have to staff up or keep a certain level of engineering team to go build things directly.
They’re built by other local EPC companies with our technical support and guidance, but they’re basically executing our partners in the regions. Because of that, we did adapt a bit, both our functional and engineering model to that model. And I’ll translate that because they weren’t easy decisions, but we did optimize and make decisions around some headcount level that were related to the expansion of our business model. We proactively did that just looking at, as you do, as things evolve in the market and looking at where our direct management is required on projects. In particular, these complex projects where we’re integrating our own equipment, potentially other’s equipment, and doing some new things that does require a little more hands on areas.
