Energy Vault Q3 2023 Earnings Call Transcript

Quartr
Provided by Quartr
November 7, 2023

There are 8 speakers on the call.

Operator

Good day, and welcome to the Energy Volt Third Quarter 2023 Earnings Call. All participants will be in a listen only mode. After today's presentation, there will be an opportunity to ask questions. Please note this event is being recorded. Would now like to turn the conference over to Mr.

Operator

Laurence Alexander. Please go ahead, sir.

Speaker 1

Thank you. Hello, and welcome to EnergyVault's 3rd Quarter 2023 Earnings Conference Call. As a reminder, Energy Vault's 3rd quarter earnings press release is available now on our investor website. A replay of this call will be available later today on the Investor Relations website. This call is now being recorded.

Speaker 1

If you object in any way, please disconnect now. Please note that EnergyVolt's earnings release and this call contain forward looking statements that are subject to risks and uncertainties. These forward looking statements are only estimates and may differ materially from the actual future events or results to be a variety of factors. We caution Everyone to be guided in their own analysis of EnergyVault by referring to our 10 Q. This filing is for a list of factors that cause our results to differ from those anticipated in any forward looking statement.

Speaker 1

We undertake no obligation to publicly update or revise any forward looking statements, except as required by law. In addition, please note that we will be presenting and discussing certain non GAAP information. Please refer to the Safe Harbor disclaimer and the non GAAP financial measures presented in our earnings release for more details, including a reconciliation to comparable GAAP measures. As previously announced, I'm delighted to introduce Bernie Colson, Our new VP of Investor Relations, who is on this call and will be hosting these calls in the future. Joining me on the call today is Robert Piccony, our Chairman and Chief Executive Officer and Jan Kees van Gardelund, our Chief Financial Officer.

Speaker 1

At this time, I'd like to hand this call over to Robert Piccone.

Speaker 2

Thank you, Lawrence, And welcome to everybody to our Q3 earnings call. I'm really happy to share these results as you hopefully got a chance The reporting record revenue in our Young Life here as a company in excess of 172,000,000 as a direct result of our project execution performance that I'll talk about later. But I think a significant number Just looking at revenue for a second in terms of meeting our expectations here in our second half ramp. And just to remind you, our largest quarter before this, so it was actually $100,000,000 in our Q4 of last on our 1st year revenue. So really happy with the results in executing for customers.

Speaker 2

Obviously, this revenue recognition is a result of that and of the teams on the ground across the various sites where we are executing a very large steep ramp here to meet customer needs and expectations. The other thing, as I'll mention, we announced this morning, you would have seen our first Turnover of our hybrid battery system in Southern California, it's one of the largest ones in Southern California, 2 75 Megawatt Hour, Again, another milestone for the company here in this year, which is about execution across a lot of the deals we continue to announce as we did last year in multi gigawatt hours and continue to announce this year. But want to share with you where I'm calling in from, which is China And speaking to you live from Shanghai, where I have a keynote speech. Later on today, I'll be participating on a panel as well. So it's quite early in the morning here.

Speaker 2

And the conference here is focused on carbon neutrality and a green investment conference hosted by some of the local government organizations and also various energy related partners. But even more exciting since I've been here Are my visits to our first site in Rudong this week. I'm accompanied by one of our Board members, Larry Paulson, who's here with me. Larry is no Stranger to a lot of international assignments given his background at Qualcomm and Nokia and serving on our Board here as our lead independent. But it's really just hard to put into words the broad excitement here locally and that's not only at the site and within all of our meetings we've had thus far, but even in coming into the conference last night where they had a kickoff and the Tremendous focus here on this first system, the impact and some of the other announcements that we made on Monday morning yesterday with some of the new projects announced here.

Speaker 2

It's really exciting to be a part of some of the largest renewable build outs in the world with our efficient and reliable and very economical storage system here in our PBX. China Tianying is our local partner and a leader in China Environmental Services and Waste Management has been doing incredible work and collaborating with our technical team in these final commissioning phases. I just can't say enough about their expertise in engineering and construction and optimizing how we're implementing the technology specific for the local market. They had to fight through 2, 3 months COVID shutdowns, 1 right away as they got started in the 1st part of 2022, but also at the end of 2022. So it's been a little bit of a wild 18 months for them, but They managed to catch up for the most part for some of the expectations we had set as when we're going to be up and running here.

Speaker 2

And just their focus and execution has been impressive. It's not really surprising to me, given my experience the last 30 years across a few different Industries coming to China, but really tremendous to see their leadership in particular in this space of green energy towards the goals that have been set here and on a path to try to accelerate those and really sort of ignoring the noise From a geopolitical perspective and just focusing on our partnership and delivering together. This technology of gravity, as you might imagine, is pretty well understood here given the massive Solved base of gravity based pumped hydro systems very much fit for purpose, given our system like in most large countries can be made with 100% local content. And as is the case here, it will be the case in other large countries as well. I spent some time with our local Energy Vault team here as well that's working with China Tianying or they're referred to as CNTY and just very excited to be here on the ground and including some of the folks that have come from the U.

Speaker 2

S. To support this and what would be another first of a kind for Energy Vault here and only our 2nd year of revenue. Regarding the grid interconnection and as we announced, I'm happy to share that we started that process in September, at the end of last quarter, as we announced yesterday morning, while also and very importantly, completing the installation of a 4 kilometer, 2.5 mile, 35 kilovolt overhead electric line that connects the system to the grid. So all of that work is completed. I saw that a little bit later yesterday here local time.

Speaker 2

And I hope that in the future, many of you will be able to see this Just amazing engineering achievement in person if your travels get to Shanghai, it's located about 2 hours outside and would be happy to hopefully versus other forms of long duration and long technical life storage, EVX It's playing out to be more economical, scalable and also a sustainable alternative to the existing pumped hydroelectric plants They represent, as we all know, more than 90% of our energy storage capacity still globally. We will Continue to update you as we get closer and closer to full homologation within the state grid interconnection process. It is underway with the provincial authorities and also we'll start to share some of the initial performance metrics as they become available. In China for renewable power plant projects to include energy storage. So it's mandated here that at 20% of the power Half of the generation plan of the wind or solar, 20% must be storage and typically that's running at 4 hours.

Speaker 2

It's 2, but up to 4. And we're seeing this firsthand now how this central mandated policy is positively influencing The growth opportunities as demonstrated by the large multi gigawatt hour project expansion announced locally here by CNTY even before the first system here in Rudong is fully operational. So that should give you a sense of, not only I think the anticipation and the confidence people have, but also the market demand and the need that's there and how this fit for purpose Technology can fit very well for China. CNTY announced these signings for an additional 5 deployments that total About 1.2 gigawatt hour, this brings the total of the announced deployments that are underway in China here to 7, which totals A little more than 3.2 gigawatt hours. So those are some pretty large numbers, and here in just the 1st 18 months of our partnership.

Speaker 2

And you can imagine if those are announced, there's a lot of other things underway here. I've had a lot of very good meetings with China, Tianying to understand those developments. And of course, for Energy Vault and in particular for investors, all of these projects will be driving recurring high margin royalties The Energy Vault for the lifetime of these systems at 5%. This model is an ideal one for China and I'd say like China with strong construction and infrastructure growth and experience ability to source essentially All of these materials locally, which they can in China, and then a strong and unmet, I'd say, market demand for storage coincide with commitments to net carbon neutrality, which China has for the first time in the last 2 years been quite vocal about, and thus these large renewable deployments. So getting to final completion of the Rudong system, I think it's a testament here to the strategic fit of our technology to China and one that would deliver on high margin royalties time in what is and will remain the largest energy storage market in the world at least as far as we can look forward.

Speaker 2

In closing out on that, encouraging to see our strategy playing out here locally with just a great partner, a unique model and a differentiated solution now that's starting to scale. Our gravity solutions are proprietary here and this licensing model It's very well and lets us achieve in China what I think is very difficult for others, given either their single technology focus or and ability to have a scalable or licensable technology and business model. So this versatility of our Gravity technology as we've announced other licensing and technology deals also outside of China It's showing quite strong and noting also that these first deployments are 4 hours in duration for our long duration system technology. So our long technical life of our gravity system as well as the circular economic Environmental benefit, our lower operating expense over time, that plays very well and shows the flexibility of this technology to still be not only viable, but commercially viable even at 4 hours. So this business model is allowing us to participate meaningfully in this opportunity here in this very large market and with future attractive margins for the royalty streams and we look forward to assisting our partners here in realizing more EVX initiatives here in China that I'm sure will be announced here to come.

Speaker 2

Sticking with gravity and before jumping into some of the other project updates, We are seeing more near term demand now and activity more intensely in both emerging storage markets like South Africa and India, but also right here in the U. S. Market with large utilities that have unique needs that actually can be uniquely met by various applications of our leading position in gravity energy storage systems. I look forward to sharing more with all of you in the coming months as we work with our customers and to giving you more visibility into these opportunities. I know many of you, many of you Investors that might be listening in here have written me about understanding the development of gravity and generally I think of long duration which I think no Secret that that market is developing in a little bit slower way as far as long duration goes.

Speaker 2

I think very encouraging for us that it's being deployed in this case in China for 4 hour systems. But generally, we have a lot of other applications of our technology that we're working with customers on given our expertise and innovation. And I would say from a global perspective, I think we have some of the best expertise relative to Civil and structural engineering because of the way we've had to develop the technology and specifically focused on economics and reducing that cost. Moving on quickly here to some other projects. I know we've repeated this at every call this year, but this priority It's about customer execution and executing on the large funnel of opportunities and those that have actually been converted to bookings that are underway now and very excited about that as we have been all year.

Speaker 2

You recall last year, we announced about 1 point 7 gigawatt hour of projects across short, long and ultra long with the green hydrogen deal with Pacific Gas and Electric and all of those are scheduled to be implemented in anywhere from 9 to 18 months The contract signing, so all under very aggressive time line. I know all of you have been watching EnergyVault to see, hey, They clearly have closed deals and large deals with some of the largest either IPPs like Jupiter and L Green Power or the largest Utilities like Pacific Gas and Electric, Nevada Energy, but could we execute? It was never in doubt from my side, The team that we've assembled, however, it's now starting to manifest itself, especially given the revenue that we reported this year. As I briefly mentioned earlier, our 1st hybrid battery and peaker plant energy storage project in With wellhead is now fully in service and at its maximum capacity, this is a very large 2 75 Megawatt Hour project that has already been California ISO qualified and delivered in an exceptionally short period of time as compared to other projects within 5 months of site mobilization, which is pretty amazing, especially given the footprint we had.

Speaker 2

We were under some pretty extreme energy density Requirements for this project and in the middle of a with a very residential neighborhood there. So I think a good example of our ability to execute in this case, fast And it's really what we believe is a key differentiation factor that we're very focused on. So not only about having very innovative solutions from a technology perspective, obviously having a team that can go execute those scalable, repeatable, but very focused about being known for our ability to execute and execute well, which just has tremendous value. There's no shortage Demand in our market as we know in energy storage, but what can be a variable in some cases are things like managing complex supply chains and when problems come up and they always do when you're managing different suppliers, how you deal with that problem, How you come up with solutions, work with partners, involve the customer, be transparent and really attack it operationally with a daily management approach. That is something that is just as I think an important differentiating factor as having the best technology or a very economical solution.

Speaker 2

So we're looking forward to the formal on-site ribbon cutting on December 6th and hope some of you on this call that are listening will be able to attend. And I guess just to finish, since it is our first project returning over here in the U. S, From the press release, I really can't say it any better than to have the words of our customer that was quoted the CEO, Well had, Hel Dittmer, who's just a tremendous operator, tremendous gentleman, very experienced 40 to 50 years in the California market. I think one of the people in the market, in particular in California. And just to quote what he said, And I quote here, only a few days after mechanical completion, the system delivered full power to the grid, validating the quality of the design and execution.

Speaker 2

Energy Vault did an excellent job of providing a solution that met both the challenging energy density requirements and the equipment delivery time frame to enable the project to go forward. We are a satisfied customer and we appreciate Energy Vault's expertise, creative thinking and collaborative partnership in bringing its project to fruition. And I'll unquote that, but I really couldn't imagine a better outcome for our first project turnover. Not surprised, given the deep industry And technology development experience of our team, we do not limit our thinking and what we're capable to do. And I think in posting the number we did this quarter and only our 2nd year hopefully reflects that.

Speaker 2

Special thanks to the leadership provided here, Akshay Laudois, Marco Teditsen and the teams across the board and all the support All of you have done the math on our guidance and looking at what we have to achieve. I think posting what we did shows we're on our way to doing that, but we have some very tight compressed schedules to deliver. While in some cases, some of our customers have delayed site access and mobilization, They have not changed their expectations on delivery time and we worked with them very well to come up with plans and commercial ways to deal with that, so We can meet those timelines. Our system with Jupiter, we have 2 that are underway, are approaching mechanical completion. Nevada Energy has actually one of the largest systems they have ever delivered underway, 4 40 Megawatt Hour, that We're going to be doing in record time frame here and we'll talk more about that there after we do it.

Speaker 2

In addition, we have our 1st green hydrogen project underway with Pacific Gas and Electric. Recall that's one of the largest ones is the largest one announced in the U. S, which provides 48 hour, can provide up to 72 hour there that we have capabilities to using green hydrogen. We've integrated A little bit of lithium ion there to support grid forming and some ancillary services there, but really excited about that. That also has a very Tight turnaround scheduled to be live in June of next year 2024.

Speaker 2

Just to mention about the DOE here and shifting gears, They're placing a heavy emphasis as we're talking about green hydrogen on the whole supply and value chain, recently announcing awards of $7,000,000,000 to build these green hydrogen hubs. Some of the people named in those include some of our partners in the green hydrogen ecosystem. And our PG and E project is an example of where the DOE is playing their next focus, which is on the demand side and deriving that demand side. There's already $1,000,000,000 announced for some demand side initiative that's going to be underway, and we will be looking at how we can take advantage of those things as they develop. So just closing in here on PG and E, it's Sort of a tip of the spear for us as we look at these opportunities for building out economical micro grids to support backup power, not only backing Packing up utilities that are have commitments to supply our homes, but also looking at mission critical Needs for energy, whether that be in the data centers, the new hyperscalers that are taking off here with Bitcoin mining and things and just other larger commercial and industrial energy users that cannot risk even short eruptions in power.

Speaker 2

Very difficult to do economically given existing tech. However, as we have always done in some of these opportunities, we're using our technology and integrating other things very creatively to put in place things that can be economical to essentially put something together to drive and meet this what today is an unmet need given some of the economics. Moving to some of the commercial side, I've mentioned some of the additional gravity energy storage systems that were announced that was our announcement yesterday, Specifically in the China market and overall our near term opportunities continue to grow at a good pace this year. Our awards Expanded by over 153 percent, that's a little over 9 gigawatt hours or about roughly 3,300,000,000 in year to date bookings and signed contracts 800 Megawatt hour, bringing that total to just over $840,000,000 So a big book of business there to execute on and in To highlight that awards category, that means that's our project. It's a matter of getting that converted into formal contracts and NTPs.

Speaker 2

So a lot there to mine and convert, would like to be converting that here as quickly as we can and the team's focused on that. Going forward a bit as we progress through the Q4 and entering 2024, we are focused on turning that growing commercial funnel into contracts and will help build our revenue and our backlog. We continue with a focus on stringent financial and pricing discipline to generate value for the company, for our shareholders, and really over a long term. So we take a very long term Lens on that, while as a new company, we are susceptible to some lumpiness, let's call it, as we know, especially when we're doing projects with where we're performing the EPC role. So there's fluctuations both in revenue based on revenue recognition rules under POC accounting.

Speaker 2

There's also fluctuations in working capital based on those cash flows. But one thing that's not changing is the demand in the energy storage industry And the domestic demand here, there, I should say there in the U. S. And that was accelerated post the IRA, It gives us a lot of flexibility in the projects, contracts in which we signed to drive both revenue and gross margin growth, As many of our previously announced investments and partnerships, both commercially and for example, for domestic U. S.

Speaker 2

Battery content, reinforce this approach. We remain committed to this. Obviously, it's super critical as we go forward. It is a very competitive market. It puts a lot of onus on us to continue to innovate, to be differentiated, to differentiate also by our execution and delivering for customers.

Speaker 2

Always great to have projects under our belt, so we can have Any prospective customers talk to some of the customers that have worked with us, Hal Dittmer and Wellhead We'll be one of those, of course, going forward, and we look forward to continuing on that focus on high growth, high margin commercial opportunities. Before getting in finally to the financials here, very proud to report that after filing and going through a first third party process in 2022 and our 1st year of revenue of an S and P process looking at our sustainability score. In 2023, we just received the results and our score increased from a rating of 17 up to 51 in 2023. That is not necessarily a percentage rating, But to let you know where that stands, that ranks us number 2 in our market in clean energy transition companies, and we finished 33rd out of a total of 551 companies overall. That puts us roughly in about the 94th percentile.

Speaker 2

We aren't spiking any footballs here on this. We're happy with our progress. We have more work to do as we develop and evolve. And just like we seek to do in everything we do in terms of technology development, how we develop our people in the company, Also in our sustainability, we seek to be a leader here in how we're thinking about our carbon footprint across all of our solutions. So we're going to be continuing to update this annually on our progress, but suffice to say happy with our improvement here year over year and we're continuing to put a lot of focus there given the expectations, both that I think others have of us, but that we have of ourselves most importantly.

Speaker 2

So I want to thank the entire Energy Vault team for this significant accomplishment and our continued work to improve here in the broader global goals toward net carbon neutrality. Okay. With that, why don't I turn it over to Jan Kees, who will now go over some of the details that we just announced in our financials. Jan Kees?

Speaker 3

Yes. Thank you, Rob, and good afternoon, everybody. Our financial results are highlighted by our record 3rd quarter revenue of more than 172,000,000 more than 3 times sequential quarter to quarter growth after more than the prior 4 times sequential between Q1 and Q2. This revenue reflects continued construction progress and execution across our battery projects in the United States under And transfer model. As you can see from the earnings release, we maintain our full year revenue guidance of $325,000,000 to $425,000,000 and remain confident in achieving it.

Speaker 3

Our gross margin was 4.2% in the 3rd quarter, impacted by some temporary unfavorable timing in two regards. First, we delivered a lot of hardware in Q3 that we will be realizing the value add margin from in Q4 under POC accounting. And second, some high margin licensing transactions shifted out from the Q3 to the Q4. However, as you can see from the earnings release, we maintain our full year gross margin guidance of 10% to 15% and remain confident we can achieve it. Our adjusted EBITDA is trending well as it has improved 43% sequentially to a negative $10,300,000 The key non cash items that we added back with $10,700,000 of stock based compensation and $1,900,000 in net interest income.

Speaker 3

We continue to anticipate adjusted EBITDA and operating expenses to stay within our guidance range as we remain acutely focused on managing costs. We are driven to optimize our cost structure to realize profitability as soon as possible as the business continues to scale up and we remain very optimistic regarding our progress towards positive adjusted EBITDA. Operating loss was $22,700,000 an improvement over the Q2 of 2023 of $5,700,000 driven by continued focus on operating expenses and business costs. As of September 30, 2023, We had $132,200,000 in cash, cash equivalents and restricted cash, leaving us well positioned to continue our growth strategy and execute on our projects. The primary uses of cash are cash operating expenses and working capital needs associated with equipment purchases for our energy storage projects.

Speaker 3

As these projects achieve milestones and ultimately begin to generate revenue and gross margin, Some of that cash will return to our balance sheet. Considering these factors, for the year end 2023, We expect our cash to remain at similar levels that we exited in Q3 or $132,000,000 given the expected project turnovers. In addition to this strong cash position, we expect to reduce the restricted cash portion significantly before the end of the 4th quarter. Please keep in mind that we maintain a bonding capacity in excess of $1,000,000,000 to facilitate Additional growth projects as we desire. And with that, I'll hand the call back to Rob.

Speaker 2

Thanks, John Keith. Just in closing here and before we get to some questions and just reflecting As you do, I think every quarter and look back and we're getting here to the end of our year. Really just Encouraging to see our strategy and how it's playing out, I think successfully across the world, especially in light of some of the other newer energy storage companies and some of the things that are coming out here just recently. But a few key points I want to highlight here for investors and for those that will be listening in. I guess the first one and to remind everyone, we are the only and remain the only George Company that's executing and implementing a portfolio of short, long and ultra long duration technologies across some of the largest utilities and IPPs in the world.

Speaker 2

And I think that point of our customer sets and who we're focused on and the people choosing us It's fundamental and important. This is a manifestation of our strategy in the real world and expanding our ability to address the largest scope of this energy storage market opportunity, obviously participating in various segments because of our multi technology, multi duration focus, given the strong capabilities we and some of the new applications that still need to have economical solutions that we're very focused on and very mission critical. 2nd, we're being chosen not only for our technology differentiation economics, but for the deep industry experience of our people and our team. And really as we saw even in this last quarter moving heaven and earth to deliver for our customers, hence, the large We had in the quarter and taking delivery, as young Kate mentioned, a lot of the hardware that's going to front up All the execution we're in the middle of now for this quarter, which is significant. We're also thirdly, uniquely monetizing Our technology, in particular, innovative gravity technology in ways no other energy storage company is doing in the market for long duration, which as I mentioned earlier is still developing with a few alternatives, I would say very few alternatives that are technology ready in the market.

Speaker 2

We continue to need, I think, as an industry a lot of focus here in development, and I'm the biggest fan of all of our energy storage Colleagues here that are working on new technologies to help with our clean energy transition around the world. 4th, we are uniquely also playing broadly on a global stage. No coincidence that I'm calling in here from China given everything we have going on and what's Recently announced, and in this case, participating in the largest market in the world, with a long term royalty here that we established over a year ago and a first mover advantage is a government approved technology to complement Pompeydro here and Lithium Ion and with the earlier investor base from the likes of Saudi Aramco, obviously from the Middle East, BHP For Australia and Korea, Zinc as well, Atlas Renewable, who partnered with us here, and also for the China market, I'm very excited by the upcoming regional development that we're seeing and involved in and supported by these same investors. I'd also say From a fit perspective, our energy solutions approach to solving customer problems is playing out as we did in providing the only sustainable solution for the multi day Application that Pacific Gas and Electric was trying to solve for the 48 hour backup system in the micro grid That was required.

Speaker 2

They did not want to continue to use diesel gen, not only for the GHGs, but for the noise and just the disruption it caused and are in process now of bringing them a unique green hydrogen hybrid solution enabled through our hardware and our software expertise in our Energy Management System. And then finally, and as I do hear on these calls, our most important factor in differentiation that We now see manifesting itself as we turn over our first energy systems to customers on time and meeting or exceeding expectations is our people. Innovation, creativity, customer focus, that passion really to deliver for our customers, they can continue to come through. I continue to be impressed, but also with critical core values around our culture, which number 1 on our list is humility as we work as a team, work with our customers, understanding that there's a lot we can still learn, understanding a lot that we can bring in that maybe doesn't exist here and reflect as we improve and continuously improve ourselves. That is a core value of the company, as I mentioned, and one that we continue to Leverage here as we get with the stretch here as we're getting into the final of our Q4.

Speaker 2

In the end, these results with our customers will tell our story, which will reward our investors for larger and more Cash flows, I know we're all interested in those as we continue our growth and development as a global leader in energy storage. With that operator, we are now ready for questions.

Operator

Thank you. We will now begin the question and answer session. And the first question will come from Steven Jagaro with Stifel. Please go ahead.

Speaker 4

Good evening or good morning maybe, Rob. I'm not sure. But thanks for taking the questions. So I think first, what would be interesting from my perspective is When you think about the projects that you've announced and kind of what's in your backlog, I know some of these recent projects Our royaltylicensing arrangements, right. But when we think about that, is there a way to sort of think about how the current Backlog unfolds as far as the type of revenue you could see next year.

Speaker 2

Yes. By the way, it is the question as you look at our backlog, in particular, Stephen, that awards category. So I think our speed to convert those will shed more light if we've got the 800 megawatt hour there, but we have A lot of other awards in there that are in process, various phases of contracting, and some of those with CODs next year, some of them with CODs into 2025 that we'll have revenue recognition. So I think the first thing I would look at there is just the size That bucket of awards, I think is an important one. We also saw, I think a good conversion from our shortlistings bucket into awards that we've added to that and as well as converting additional projects for Texas into a booking as well.

Speaker 2

So I think that is the space to focus on in terms of awards and then the timing of that conversion, We're in the process of putting that together for our 2024 budgeting process, which is internal and then will be external. We'll be sharing and Setting those expectations at our Q4 earnings, which will be in February.

Speaker 4

Thank you. You mentioned on the call progress toward reaching EBITDA positive. Is that a full year 2024 goal or is it going to happen in a quarter?

Speaker 2

Well, We're absolutely expecting some quarterly hits of adjusted EBITDA positive. And what we're working on is Based on revenue recognition, so it's really just a POC accounting of rev rec and then timing of those projects to see if the full year 2024 can actually also be adjusted EBITDA positive. We are working on that. And If you look at our OpEx even, so I'd ask you to take a look at that, we're not sort of sitting idly here Waiting for growth to happen and that we're going to somehow grow our way to profitability that was never sort of our plan in a sense and we are always looking at as we're executing this royalty this license and royalty model for Gravity, for example, and as we're looking at our learnings from our first, I'd say 18 months of operation and delivering our first projects. As you see there in the OpEx, we are optimizing and driving efficiency, and that's part of our clear driver to get to cash flow positive here even a little bit earlier than we may have been thinking about at the beginning of the year.

Speaker 2

And that's just a reflective, our focus on delivering for investors, but also on getting Accretive with cash flow, we feel very good about our cash position, no debt. We're getting rid of all the final restrictions, most of which should be done by the end of the year that are Reflection of the first projects where we restricted a little bit of that cash, but we have a great model in place. Now as young Kate referenced, we have over $1,000,000,000 in non collateralized project bonding or Performance bonding capability now that we've built up. So that just enables us to execute our projects without having to tie up the cash at least associated with any letters of credit or other mechanisms. Hopefully,

Speaker 5

that's helpful.

Speaker 4

That's helpful. And just one more for me, if you don't mind. As the first EVX system goes close to kind of full completion operation in China, Do you have any kind of conversations with potential customers in other parts of the world or in China that there's a little bit is there any kind of wait and see like I want to see one of these up and operating and functioning. Is there any of that when you talk to customers or is it more just You've obviously had success already with new awards, but is there any of that in conversations with potential customers for the technology?

Speaker 2

Absolutely. Absolutely. And I would say despite even these announcements, which are massive, right, over 3 gigawatt hour in China alone, You can imagine there's a set of customers that want to see Rudong up and operating and get some of the first performance metrics. And that's not just in China. I would say that's globally.

Speaker 2

So it's a great question and it is, I think, in a lot of cases, There's customers doing their planning right now for some of their longer duration needs. As you're aware, there's the long duration Market generally is still developing. It's at a much different type of pace where the short duration, where is a lot of the economics are right But generally, we have customers that are absolutely looking at some of the initial performance metrics that are going to come out. However, we do have others that are progressing and I mentioned in my comments, South Africa, India and even in the U. S.

Speaker 2

Where we're progressing things along and we are seeing, I'd say, in particular in the Having the discussions and getting to proposals now and costing out systems, that I expect to be announcing here in the near term. So that's very, Very encouraging on the gravity side, but absolutely there is a segment of customers that we're in discussions with that Want us to share the metrics, the performance metrics as they come up there.

Speaker 4

Excellent. Thank you for the color.

Operator

Yes. Thank you. The next question will come from Chris Ellinghaus with Cyber William and Schenck. Please go ahead.

Speaker 6

Hey, everybody. How are you?

Speaker 7

Hi, Chris and Chris.

Speaker 6

The revenues were surprisingly good, but Jan was talking about the margins. Can you give us any more color on the shifting and What does this tell us anything about the wellhead margin for instance?

Speaker 2

Sure. Yes, let me comment on that. And I think Jan Kees mentioned this, but in any quarter we're going to be taking deliveries and in particular, if you Do the math on the second half ramp for us and the fact that we're reaffirming our guidance. We took deliveries of a lot of material in Q3 And under POC accounting and GAAP accounting, until we add value to some of that material, some of the profit on it Does not get recognized. So hence, there's some delay as we're going to be now in the middle of adding value as we're integrating equipment, for example, and doing more of the services on-site, which as you saw in The earlier quarters drove some of the higher double digit margins.

Speaker 2

So it is a little bit lumpy, Chris, and as you can expect, in an EPC type of business for the shorter duration type of solutions we're providing. But I also want to make sure you're aware that none of That quarter's gross margin has anything to do with anything on wellhead. So wellhead was A successful project that we implemented, we did it on time. There were no LDs impacting gross margin. And so that's not a reflection on the wellhead piece.

Speaker 2

It's more a reflection of We have a 4 40 Megawatt Hour project, of which there's a very large substantial component of that project, almost 70% of it related to the battery portion alone, which that is going through the overall project because We're integrating the entire thing. So it's more I'd look at this more of timing of where we are in our in the second half ramp. And I think we can

Speaker 6

I think the press release sort of suggests there are Additional projects in Nevada? Can you give us any color on what you've added to the pipeline there?

Speaker 2

We have I don't know how specific on Nevada we were in the release, but we've added more projects in the U. S. For sure as part of our bookings growth. And in addition, I had mentioned this before, we're seeing very interesting up Taken in our gravity appliance, some of our gravity technology to some very specific customer needs and specifically in the utility space in the West. So we're going to be saying more about those things as we progress those through definitive agreements with customers.

Speaker 2

But just suffice I'd say, I'm very encouraged by what I'm seeing in terms of market book development, adoption and discussions around applying our various technologies and that includes, by the way, the backup systems and approach that we started with in the first project with

Speaker 6

Okay. Just looking at the income statement, SG and A and R and D lines specifically, are either of those 2 sort of starting to hit their Normalize run rates for the near term?

Speaker 2

Yes. By the way, great question and observation. I would say that We're generally there, meaning we've if you take our Q4 times 4 last year, you'll see that we're We're quite a bit below that. Obviously, the Q4 has some one time items, but even if you normalize it, We're actually running flattish to slightly even down from the Q4 times for last year. Now we had initially had A growth investment plan even on OpEx this year and we've adjusted that just by nature of where the markets are obviously given what Seen on both the macro and I think given investor requirements here in a higher inflation environment.

Speaker 2

So we got in front of that The first half of the year, we're seeing some of those results now and we're continuing to look at that as we look at next year because we're very focused on not only any one quarter of cash flow or adjusted EBITDA, I guess, positive, but doing that for the full year and we'll be able to update that as we give guidance at the next quarterly earnings.

Speaker 5

Okay, great.

Speaker 7

I appreciate

Speaker 5

the color.

Speaker 4

Thanks, Rob.

Speaker 2

Thank you, Chris.

Operator

The next question will come from Thomas Boyes with TD

Speaker 7

I was hoping maybe you could provide some insight on the company's Vault bidder solution that was Introduce that RE Plus. What has customer feedback been like there? And then maybe what's kind of the timeframe to have that solution deployed with customers.

Speaker 2

Great. And good to hear you, Thomas. Yes, look, this is really exciting and a part of The development of our software platform and investments we've been making really the last 24 months, but this is Giving additional capabilities to customers to look at optimizing their economic both charging and discharging of electricity in some unique ways. Just to remind everyone, we have a team made up of, while Energy Vault is a newer company. Our team is made up of people that were at some of the leading companies in the software and the integrator space through essentially the periods from 2012 and beyond.

Speaker 2

And so we've essentially taken a lot of that and looked at how we can help customers optimize, how they're going to get more out of, their systems, in particular, in the shorter duration side where they're charging and discharging and leveraging time of day and variations or volatility in time of day pricing. So that is a product that we've begun to implement with some customers, so we can get some good history with it sort of from a looking backwards and looking what and how we could have helped them versus the results they've achieved. And then going forward, it's essentially a module as So part of our broader energy management system that includes other asset management and other optimization Capability, so in terms of the second part of your question, I would say that I would characterize this as something that Is in live testing phase at some customers now and it will be something that I think can help you a differentiator for people that want Turn on certain capabilities over time as we complement our innovation on the hardware side with software.

Speaker 7

Appreciate the color there. And then just maybe one on some of the other partners that you have announced for kind of that licensing And royalty agreement in Europe and Cyprus. So just any kind of timing there? What do you think is Maybe holding back some momentum in those markets.

Speaker 2

Yes. Well, we just announced those Just within, I guess, about 9 months ago. So typically, just like with China that we announced right away As we went public, they're just now announcing development in projects and then there'll be royalty streams that would start to come as they get built out. So you can on those things, you can assume that from announcement That you would be looking at a minimum of 18 to 24 months type of timeframe of when both first projects would be get announced and some royalties would begin. And as I said, if you look at those announcements that were made, they're Essentially about 9 months to a year behind the China timeline.

Speaker 2

So I would say we'd be looking at impact of some of these things toward the second half of twenty twenty four, but more, I think, in better volume in 2025. And we're going to try to give you some good guidance on that as we I'm working toward providing to investors in our Investor Day sort of a 3 year plan on the various parts of our Because we, I think, uniquely, I imagine, create a challenge for some of you given the different streams of business we have in terms of the EPC side of the business, the Licensing side of the business and even some of the other unique solutions that we're doing and how we're monetizing gravity, for example, and other services. So we're going to provide, I think, some updated more segment type of guidance over a 3 year period here as we get closer in the coming months also in providing guidance for our 2024 at our next earnings.

Speaker 7

Perfect. Thanks again. I'll jump back in queue.

Speaker 5

Thank you.

Operator

The next question will from Stephen Gengaro with Stifel. Please go ahead.

Speaker 4

Thanks. Thanks for taking a few more questions. So I guess a couple of things. One is that maybe it's easier to ask it this way. When we think about Your quarterly revenue, I know it's going to be lumpy and there's a lot of moving pieces.

Speaker 4

Is there any way to think about a Baseline number, I mean, you obviously went from 11 to 40 to 170, right? So trying to model it is really hard. I mean, is there any kind of baseline number from revenue recognition we could think about? I mean, even your 4th quarter Yes, it's rather than theoretically $100,000,000 window there based on the full year guide. Is there anything you can add there either Specifically in the Q4 or just in general?

Speaker 2

I would say generally on the shorter duration projects, so whether they're the hybrids, Hybrids and battery, Stephen, we're executing those. And if you look at Wellhead, which we announced, I think, signed at the end of August last year, September, and had it and then you are mechanically turned over in June. So I'd say on the shorter duration in terms of rev rec, it's Anywhere from 9 to 15 months, it depends in some cases on some customer controlled timing. And yes, I know it's difficult because these things are lumpy from a formal accounting rev rec perspective. As you look at the project and look at our rev rec This year, for example, we're rev wrecking a lot of the some of the initial services and value add that The payment milestones to customers differ a little bit than the POC accounting.

Speaker 2

And then as we get closer to the CODs, That final 6 months is where most of that a big chunk of the revenue will come because it's tied to larger deliveries at the site and things where we begin to add value to equipment. So I would say that, what's important to pay attention to is the COD, The customer COD that we would share and typically we do share those unexpected timing of when we'll be turning over. And if you do the math On the rev rec and turning coming back between 9 to 15 months from that project, we typically like we've done For PG and E, we've given guidance because it's public information, PG and E on their hydrogen project where it's publicly should be delivered in June of next year. So I think that's a way to do it. But one action I'll take That we'll take with you is we'll get offline, and maybe into next week.

Speaker 2

I'll be happy to participate, when I'm back in the U. S. And coming back on Friday. And let's get a call next week and we can provide a little better guidance to make it a potential little easier for you on that in terms of assumptions.

Speaker 4

That's helpful. That's helpful. And then just one more quick one. If just to triangulate, your gross margin guidance for the year Suggest something for the Q4, which could get you pretty close to EBITDA breakeven if things Go well. Am I thinking about that right?

Speaker 2

You

Speaker 5

are. Okay. Okay, good. Okay.

Speaker 4

Thanks for the color on all

Speaker 2

of that. No problem, Tim.

Operator

The next question will come from Noel Parks with Tuohy Brothers. Please go ahead.

Speaker 2

Hi, good afternoon. Hello.

Speaker 5

I just had a couple. I have a couple about China in particular. And I was wondering, With the most recent announcement that specified the 5 new plants in various regions in China, With that level of detail now disclosed, I'm curious. Was that with China, Shenyang Planning these different projects, is that pretty much a centralized negotiation, all of these sort of coming together or sort of being planned out, contracted simultaneously or Sort of were they all on independent streams and just sort of got bunched together at the time of announcement? Yes.

Speaker 2

By the way, it's a great question given the nature of the regulatory structure and even the government structure here. But it's not what you would think, meaning there's these aren't things driven necessarily by a central plan That then CNTY is sort of just bolting into. CNTY is doing its own development and leading development in different of China with this technology because it is new. As I mentioned in my comments, and these are things that hopefully aren't lost on people, It's not easy to do, but we've been approved in China as a technology already, which if you looked at the installed base here, you've got pumped hydro, The team I on and as far as energy storage goes, with the 20% mandate, there's really nothing else to deploy. And hence these you're seeing these announcements of project signings with CNTY at multi gigawatt hours and we're not even up and operating Yes, at full capacity here in Rudong.

Speaker 2

So, but to specifically answer your question, This isn't being sort of driven out of a single office in Beijing and we're just sort of bidding into some central. We're going province by province because the decision making, while the overall goal is obviously on the country are out of Beijing, the provinces to decide. So CNTY is doing the development work and very impressively doing the development work, sharing how they've optimized it specifically for China needs and driving that development that you're seeing. Does that make sense?

Speaker 5

Totally. Great. Thanks. I was just wondering. And as you look into the royalty revenue stream, I guess not taking anything for granted With revenue recognition, is that pretty straightforward from an accounting perspective, like you're Just going to be booking a receivable that over time is going to get sort of smoothly move over into cash?

Speaker 2

Yes. Let me explain how that works. We and under GAAP accounting and also Specific SEC guidelines here on royalties, we don't really create a receivable for them just because until They actually start building projects. We don't have that exact visibility when it's coming in. Now Once there's a project that's defined under if they're going to own it and operate it, which will mean a certain timing of the rev rec or If they're going to be building them and handing them over, that would be under a more accelerated type of recognition.

Speaker 2

So I think once Those things are contracted in a way where we get timing visibility. We might create a receivable for that. Generally, we're rev wrecking these as they come, so as the royalties will be paid, and they will become more predictable, and we can sort of build them in and share with you what we're seeing as As you've seen, there's these you've got about 3.2 gigawatt hours of projects announced here. And those are going to be built out now over time and depending on the business model, we'll be receiving royalties on those projects and we can build those in to the timing, so that will get more predictable. But this is, I'd say, something from a modeling perspective, it will come into On the royalty side, typically come into the other income line item or the royalty revenue just depending on the type of income it's going to hit and if it's recognized over time or in a lump sum.

Speaker 2

So We'll be able to provide some more guidance now as these projects are being built out. I know it's a little frustrating as people look at it understanding, hey, what's the timing, The margin impact, obviously, these are essentially 95%, basically pure profit that comes in because we recognize the cost through the R and D or through the license already. So, there are great streams to have, and giving some guidance on the timing of those, We will be doing with investors as we get into our Q4 results. I will say that I think the good news as you look at us and as people look at us is We're going to have these streams coming for people that are hopefully long term investors looking at Energy Vault. The fact that we're monetizing this That will result in as these projects that were just announced, large and profitable streams of royalties that will become a larger percentage of our revenue.

Speaker 2

I think That is all a good thing. It's just a matter of timing. As we build these things out, we'll be able to shed more light on how that timing is going to work into the second half of twenty twenty four and into 2025.

Speaker 5

Terrific. Thanks a lot.

Speaker 2

Yes. Thanks, Noel.

Operator

This concludes our question and answer session. I would like to turn the conference back over to Mr. Robert Piccone for any closing remarks. Please go ahead.

Speaker 2

Just to thank everyone for your time. We have a very intense quarter. We're in Middle of here given multiple customer sites and supporting customers here. So a lot of focus continues there. As I mentioned, I think that is Absolutely job 1, as is our ability here on continuing to convert from our large awards And the bookings and as we go into 2024.

Speaker 2

So I appreciate everybody's time and support through this and your feedback. And we'll be back to you here and be looking forward to more interactions here in the coming months. Thank you very much.

Operator

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.

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Key Takeaways

  • Energy Vault reported a record Q3 revenue of $172 million, more than tripling sequentially and reaffirmed its full-year 2023 guidance of $325–$425 million.
  • The company achieved its first hybrid battery system turnover in Southern California (275 MWh) in just five months and completed grid-connection work for its inaugural China site in Rudong.
  • In China, partner CNTY has signed seven projects totaling over 3.2 GWh of gravity-based storage, including five new deployments of 1.2 GWh, which will generate recurring 5% lifetime royalties.
  • Awards grew by 153% year-to-date to more than 9 GWh (~$3.3 billion), with $840 million in signed contracts, and the commercial funnel is expanding across the U.S., South Africa and India.
  • Energy Vault’s S&P sustainability score jumped from 17 to 51, placing it in the 94th percentile of clean energy transition companies and second in its sector.
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Earnings Conference Call
Energy Vault Q3 2023
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