Ladies and gentlemen, thank you for standing by. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. [Operator Instructions] I would now like to turn the conference over to Erik Bylin. Please go ahead, sir.

Thank you, Matt. Welcome to ESS's Fourth Quarter and Fiscal Year 2024 Financial Results Conference Call. Joining me on the call today from ESS are Kelly Goodman, Interim CEO, and Tony Rabb, CFO. Following management's prepared remarks, we will hold a Q&A session. Earlier today, ESS released financial results for the fourth quarter and fiscal year 2024. The earnings release is available in the investor relations section of the company's website. As a reminder, the information presented today will include forward-looking statements, including, without limitation, statements about our growth prospects, partnerships, financial performance, capital raising, and strategy for 2025 and beyond. The forward-looking statements are also subject to known and unknown risks and uncertainties that could cause actual results to differ materially from those projected or implied during this call. In particular, those described in our risk practice set forth in more detail in our most recent periodic filing filed with the Securities and Exchange Commission, as well as the current uncertainty and unpredictability in our business, challenges with raising capital, issues with our partnerships, the market, the economy, and the current geopolitical situation. You should not rely on our forward-looking statements as predictions of future events. All forward-looking statements that we make on this call today are based on assumptions and beliefs as of the date they're up, and we disclaim any obligation to update any forward-looking statements except as required by law. During the call, we will also present certain financial information on a non-GAAP basis. Management believes that non-GAAP financial measures, when taken in conjunction with U.S. GAAP financial measures, provide useful information for both management and investors by excluding certain items that are not indicative of our core operating results. Management uses non-GAAP measures internally to understand, manage, and evaluate our business and make operating decisions. Reconciliation between U.S. GAAP and non-GAAP results are presented within our earnings release. And with that, I'll turn the call over to Kelly.

Thank you, Eric, and thank you everyone for joining the call. I am pleased to be here today as interim CEO of ESS to report our 2024 results, as well as discuss what we see in the future for the company. Having already been involved in numerous aspects of the company, and with 20 years in clean energy across commercial roles at a number of different companies, particularly in project development, I am excited to have the opportunity to lead this company and the team we have here in the near term to bring out the full potential of ESS and our differentiated technology. Tony and Ben Heng, the EVP of engineering, joined me in the office of the interim CEO to guide ESS's next phase. In addition, the board intends to commence a comprehensive search considering internal and external candidates for the next CEO of ESS. Moving on to our fourth quarter performance, our results did not meet expectations. We came in at $6.3 million of revenue for the year, below our guidance range of $9 million to $11 million. This shortfall is primarily due to the inability of one of our partners to fully secure funds to enable payments on their orders. This has been a persistent challenge with our current tech scale, and any delays to achieving revenue have an outsized impact on our ability to meet our forecast. In addition, in 2024, as we scale our technology from the energy warehouse to the energy center, which has more than two and a half times the capacity at a much better price per megawatt hour, we continue to see the demand for larger installations. During the same time, we saw considerable decreases in the price of lithium-ion batteries, making them more attractive at greater scale and duration.…

Thanks, Kelly. Unless otherwise noted, all numbers we discussed today will be on a non-GAAP basis. You will find the reconciliation of GAAP to the non-GAAP financial measures in our earnings release, which is posted on our investor relations website. We reported revenue of $2.9 million in the fourth quarter with the associated cost of revenue at $16 million. This included our first six commercial energy center shipments to a Florida utility, and we are extremely pleased with our supply chain manufacturing and engineering team's ability to produce and deliver the first six of eight ECs to this customer. Our cost of revenue associated with the ECs does not reflect many of the savings initiatives we have realized for both the energy warehouse design as well as for this current version of the EC design. As Kelly mentioned, one of the most significant milestones for us this quarter from a cost reduction perspective was achieved on both the EW and the EC, where we are now at a design and build materials as of the end of Q4, where both products have crossed over the breakeven threshold on a non-GAAP gross margin basis. Non-GAAP gross margin breakeven is defined as sales price less direct materials, direct labor, all direct consumables, scrap and warranty costs, plus the benefit of the production tax credit, but excludes all indirect overhead costs. I'll touch more on our cost savings initiatives and progress later. For the full year 2024, revenue was $6.3 million below the low end of our guidance with the associated cost of revenue of $51.7 million. As Kelly mentioned, while we were optimistic in Q4 about the ability of our Australian partner to pay for and take shipment of product that they had orders for, they ultimately have been unable to date…

[Operator Instructions] Your first question comes from Justin Clair with ROTH Capital Partners. Your line is now open.

Hi, good afternoon. Thanks for taking our questions.

Good afternoon.

So, good afternoon. So, first thing I wanted to start with here was just, given the ramp in the deliveries that we've seen for the EC in Q4, and then the deliveries you mentioned in Q1. Wondering how should we think about the trajectory of your revenue growth over the next few quarters? And then, could you talk about how you anticipate 2025 revenue, compared to what we saw in 2024?

Yeah. Thanks, Justin, for the question. This is Tony. So, at this stage, we're not going to be providing guidance for 2025, but we do anticipate that our revenue for the first half will be fairly moderate in terms of the ramp and scale up of our revenue for the full year. We will see revenue in the first quarter tied to those two ECs that we delivered to our utility customer, and then somewhat moderate throughout the rest of the first half of the year. And then, the back half of the year is where we'll see a bit of a scale-up in revenue, primarily tied to ECs that we would expect to produce and sell.

Okay. Got it. And then, I wanted to just dig into the margins here a little bit more. So, you talked about reaching break-even profitability for the EC, but I know this excludes the direct overhead costs. So, wondering how we should think about the trend in GAAP gross margins in 2025. It sounds like volume might ramp in the back half of the year a little bit more so than the first half. But wondering, are there certain volume or revenue milestones that might need to be achieved before we really see an inflection point in the gap gross margin profile?

Yeah, that's correct. It's still quite a bit of indirect overhead that we would need to cover with the direct margins on sale of ECs and EVs and even EWs. And so, we wouldn't anticipate being a U.S. gap gross margin positive this year, but we anticipate realizing that post-2025.

Okay. Got you. And then, just on the balance sheet, any sense for how much capital you might look to raise, what might be needed in order for you to fund the CapEx plans and your investment needs in 2025? And then, just on the export-import bank, are there certain requirements that need to be met in order to access that financing? And then, just wondering how you're thinking about it. Is it likely that you access the funding or we're still thinking through it at this point?

Yeah. Just a couple points there on your question. So, we are looking to raise enough capital to get us well into 2026, first of all. And if you look at what our cash burn was in the fourth quarter, it was higher than what we're anticipating our cash burn is going to be on a quarterly basis this year. And even our first quarter cash burn was below the fourth quarter. So, we anticipate that cash burn decreasing as we move out in the further quarters this year. So, that's sort of the first point. And then, in terms of the amount of capital that we're looking to raise, we'd like to raise at least enough capital that allows us to ensure we have access to the full amount of the export-import bank loan. And so, we need to raise at least $50 million to be able to access that, and we do anticipate potentially drawing on the export-import bank loan in the second quarter, assuming certain other criteria are resolved and also supplemented with other facilities like the ATM that they were launching.

Okay. Got it. That's helpful. That's it for me. Thank you.

Thanks, Dan.

Thank you. Your next question comes from the line of George Gianarikas with Canaccord Genuity. Your line is now open.

Hi. Good afternoon, and thank you for taking my questions. I'd like to ask about the product you have in the field so far. Any sort of anecdotes, any performance metrics you can share as to how they're working out so far?

Yeah, George, this is Kelly. Thanks for that question. And I think the short answer is that, with any new tech deployment, you definitely see issues. And that's something that we've been working through. A lot of that is in operability. When we're working systems here before they go out in the field, you don't see all the different use cases or the things that may come up as customers are working to operate independently. So I think there's two major areas that we've been working to improve. One is with software. That's an area where we've been improving the team and really helping the battery sort of, if you will, operate, quote, unquote, without user error, be able to respond to commands and know what's optimal for the battery, very much along the lines of how you might see your cell phone learn to adapt to your charging activities so that you don't degrade that battery. We don't have degradation issues, but our battery, like anything, certainly could adapt to how users are operating it. I think the other area, frankly, is in documentation. We have a lot of expertise here within ESS, but I think we certainly could be better in how we articulate how that's used with customers with operators, and with those in the field. So with those two areas, we're really excited about the progress that we've made. I mentioned SoftBank and Honeywell in my remarks. Both of those energy warehouse systems have now been operating at their facilities for some time. They have folks coming through that are interested in doing projects. And we're really pleased with the operations at those facilities with folks that have been really collaborative with us in helping better understand the optimal use of the battery and how to really ensure that our customers can use it, frankly without us other than from a maintenance perspective.

Thank you. And maybe to focus on the OpEx just for a second. Is this level, I just see the non-GAAP number $44 million for last year, if I'm not mistaken. Is that the right level to think about going forward, or is there additional room for cost cuts?

Well, I think, this is Tony. Thanks for the question. We've been evaluating where we think we need to be allocating the appropriate investment in our resources. And so we've taken a number of steps to ensure that we have that appropriately structured in terms of our operating expenses. And so, from one perspective, our go-forward operating expenses from a run rate standpoint are slightly lower than what they were last year. But at the same time, we're also selectively investing in needed resources that Kelly alluded to that will allow us to ensure we can get to those key initiatives that we have around the energy-based product. So, I wouldn't see a substantial area to reduce in terms of operating expenses, but I think we are focused on reallocating our investment in resources to the appropriate areas of the company.

Thank you. And maybe a final one for me. You mentioned, I think I heard that the energy-based product you plan on bringing in production partners and sort of becoming more of an IP company. Is that -- did I hear that correctly, and how is that evaluation of manufacturing partners going so far? Thank you.

Yeah, thanks, George, and thanks for that, because I should add a clarification. So, the one thing that's really different about the energy-based, the EW and the EC both come in an integrated solution, right? It's container-based. The way the energy base is configured, there's two discrete systems that are then integrated. So, what we're thinking is not to be an IP licensing model per se, but rather we would continue to manufacture what we call the power block unit, and it consists of our core components, our stacks, our electrolyte health management system, and then the electrolyte. And having it decoupled gives us the ability to either manufacture the balance of the system ourselves, or frankly, leverage folks that have expertise in that field. It's really industrial components, things like pumps, tanks, and actuators. And as mentioned, that's something that we're actively exploring with Honeywell. That kind of chemical processing is exactly what they do. And we've looked at our business model as we are manufacturing core components alone, and there's definitely a case to look at there as far as us bringing incremental value in the area where we have the most expertise.

Thank you very much.

Thank you for your question. There are no further questions at this time. Ms. Goodman, I turn the call back over to you.

Thanks, Matt. Thanks, everyone for joining our fiscal year ‘24 year-end call. Appreciate the time and your support of the company.

Thanks very much, everybody.

This concludes today's conference call. You may now disconnect your lines.