Ladies, and gentlemen, good morning, and welcome to the Energy Vault Third Quarter 2022 Earnings Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator instructions] As a reminder, this conference is being recorded. It is now pleasure to introduce your host, Laurence Alexander. Thank you, sir. You may begin.

Thank you and good morning, and welcome to Energy Vault's third quarter 2022 earnings conference call. As a reminder, Energy Vault's earnings release and an updated third quarter earnings presentation is available on our investor website. And we will be referring to the presentation during this call. A replay of this call will be available later today on the Investor Relations page of our website. This call is now being recorded. If you object in any way, please disconnect now. Please note that Energy Vault earnings release in this call contains 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 due to a variety of factors. We caution everyone to be guided in the analysis of Energy Vault by referring to our 10-Q filing for a list of factors that could cause our results to differ from those anticipated in any forward-looking statement. We undertake no obligation to publicly update or revise any forward-looking statements, except as required by law. In addition, please note that we'll be presenting and discussing certain non-GAAP information. Please refer to the Safe Harbor disclaimer, and non-GAAP financial measures presented in our earnings release for more details, including a reconciliation to comparable GAAP measures. Joining me today on the call is Robert Piconi, our Chairman and Chief Executive Officer; and David Hitchcock, our Interim Chief Financial Officer. And Jan Kees van Gaalen, our new appointed Chief Financial Officer. At this time, I'd like to turn the call over to Robert Piconi.

Thank you, Laurence. And I'd like to welcome everyone to our third quarter 2022 financial results conference call. We have a lot to share today and real excited about around our commercial and operational progress, as well as a myriad of new customer project awards. But I want to start my remarks by first welcoming our new Chief Financial Officer, Jan Kees van Gaalen. Many of you might be familiar with Jan Kees, if you're in this industry as he comes to us with extensive financial leadership experience directly in the energy industry in a career spanning 35 years across 20 plus countries around the globe, the Energy Vault team and I are looking forward to work with Jan Kees and the contributions he will make as we expand our global infrastructure, fortify our financial and cash discipline within our rapid growth envelope and continue to build the institutional investor relationships as we meet our commitments, and execute our plans. I'd also like to thank David Hitchcock, who's sitting here with me for all support the last six months on an interim basis post our successful IPO earlier this year. It's never easy to have an accomplished CFO like David come out of retirement to work in a public company role again. But I've really appreciated David's contributions at this stage of the company's growth to ensure we continue our focus on sound financial management practices, while pursuing profitable growth in both our commercial and operational ramp up this year. So thank you, David for that.

Welcome.

Given both the size and technology diversity of the new project awards that we are announcing today, I thought it would start with a refresher on our strategy within a framework of the last 12 months of execution and the public announcements and why it's differentiated to our customers. I would then like to discuss our recent project contract signings and awards that you may have seen announced in our press release. As you can see on slide 5 of our earnings presentation, which for the first time, we're giving some segmentation to our bookings, shortlisting and final project awards. We converted nearly 500 megawatt hours of prior project awards announced last quarter to signed booked orders. In addition, the commercial team executed on over two gigawatt hours of new project awards in the quarter, including our first long duration hybrid system, a 300-megawatt hour battery and green hydrogen project utility scale supporting a 48-hour storage duration with a large western public utility. That brings our total signed contracts and customer project awards now to a total of 4.8 gigawatt hours, representing approximately $2 billion of potential revenue as we convert the awards to contract as we did last quarter. To put that number into perspective, Bloomberg, New Energy Finance expects 35 gigawatt hours of energy storage systems to be deployed in 2022. This is where our focus on project size and scale really begins to shine. We expect to continue the rapid pace of new project awards and subsequent contract conversion, given the global customer demand. And as you'll see reflected on page 5 of the investor presentation, showing a total of 15.5 gigawatt hours of submitted proposals, and shortlisted status alone. The numbers really tell the story here. When you factor in the rate of growth we are…

Okay. Thanks, Rob. Good afternoon, everybody. I'm delighted to have joined Energy Vault at this stage time. I look forward to working with all of you over the coming years. And with that, I would like to turn it over to David for the earnings call.

Thanks Jan Kees, really wish you the best of luck at Energy Vault and look forward to working with you during the transition.

Thank you.

Let's turn to our financial results for the third quarter of 2022. Revenue in the quarter was $1.7 million, primarily reflecting revenue earned from our battery storage projects with Jupiter, which generated $1.2 million in revenue. We also recognized $0.5 million in revenue relating to providing construction support services to Atlas Renewable. Wellhead construction has begun and we expect to begin recognizing revenue for that project in the fourth quarter. Third quarter 2022 gross profit was $71,000 driven by the mix of construction support services revenue for Atlas and the initial project revenue we recorded in the quarter. Through nine months, we have reported revenue of $45.6 million driven by the Atlas licensing agreement booked in Q1 and gross profit of $43.4 million. Total operating expenses in the quarter were $36.3 million, up $13.9 million versus the $22.4 million we reported in Q2 of this year. Stock based compensation was $10.9 million in Q3, up $4.2 million versus Q2 2022 and depreciation expense was $5.2 million, up $4 million versus Q2 of this year. We also recognized an asset impairment charge of $2.8 million in Q3. The increase in depreciation and the impairment charge are both related to the decommissioning of the CDU, the EV1 tower in Switzerland and associated brick machines in the quarter, excluding these non-cash expenses, operating expense were up $2.9 million versus the prior quarter. Sales and marketing costs for the third quarter of 2022 were $3.8 million compared to $1.9 million in Q2 of this year. Excluding stock-based compensation sales and marketing expenses were up $63,000 sequentially. Research and development costs for the third quarter of 2022 were $16.7 million, compared to $9.8 million in Q2 of this year, excluding stock-based compensation and the depreciation which I just covered, R&D expenses were up $1.8 million…

Great. Thank you, David. Look, I am really pleased with where the company has gotten to at this point in just our first two quarters here as a public company, especially in this environment. And that's really a tribute to every employee in the company and the leadership team here that leading us day to day, while clearly speed and demonstrating our speed to market has been has been quite phenomenal this year. The rate of our commercial progress, we understand the task in front of us is to execute and deploy on our projects. And we remain steadfast in our commitment to our customers and shareholders to drive sustained success. With that operator, we are now ready for questions.

[Operator Instructions] Our first question comes from Joseph Osha with Guggenheim.

Good evening. This is actually Hillary on for Joe. And I just -- I wanted to start with slide 5. First off, thank you, I really appreciate the additional detail you guys are providing on the pipeline. And just kind of wanted to dig in on that two-gigawatt hours of the shortlisted projects and any characteristics details you can provide on what those projects look like, as well as what a reasonable assumption might be for converted that -- converting that into awarded business.

Great. Thank you, Hillary and it's good to speak to you again. We're early days here is we're making proposals on getting conversions through I think we've had a quite a good rate thus far as we get shortlisted on projects. Thus far, we've been able to take most of those over to our awarded category and convert them into bookings. So generally, we feel very strong about our ability to convert those. I think we'll have more history here as we go forward in the next few quarters. And I think we'll have something to point to in terms of our success rate. Thus far, I'll emphasize that we've been very focused on a less project but large projects. So what that means is we can focus Hillary, our resources to ensure we're providing a lot of the technical differentiation around the design, or layout or any energy density considerations on a project that first allows us to get shortlisted and then allows us to proceed to something that actually is awarded. And I think the Wellhead contract, you might remember in the win that we had there was all about our technical team and Akshay Ladwa and his team here locally in Maryland and Virginia, supporting that customer on an optimized design to really achieve the maximum output. So I think that's been fundamental. And that's how we're using our resource. The other thing to note is that some of the same customers that we've announced awards with already, you can assume are included in both the shortlisting and even the submissions made. So if you think about that, if they've had good experience with us, and if we execute well, and we're continuing to bid within their pipeline, we become the devil they know very quickly, and therefore, it's a lot easier for us to move through that process. So we're very happy with our hit rate and our conversion rate thus far, we're batting very well. And I expect this is something that we'll be able to provide after, the initial four quarters of progress, something that we can point to look at, something that can be measured over time. Hopefully that's helpful to you.

Very helpful. Thank you. And then just second question for me, as we look to next year with the various moving pieces on the revenue side, any color you can provide on what the margin profile for the business looks like next year would be helpful. And that's it for me. Thank you.

Sure. Well, look, I'll just to give you a high-level flavor, and then David will jump in as well. We have very good visibility into the project deployments, these initial deployments themselves, where we're going to be recognizing revenue on a POC basis. And that has given us the visibility to reaffirm that large revenue uptick next year. So number one, the margins on those initial projects, we have pretty good visibility too on a CapEx basis that are going to be in the mid to high single digit basis on initial deployments. Now, what that won't include are various other streams of both revenue and margin related to software related after those projects are deployed to the long-term service agreements, which have significant margins on those. And also any additional services that we're going to be deploying on those customers, as well as any other costs benefits from volume. So I'd expect we're going to be in that range as we also finalize the product mix, including, for example, by the end of the year, most likely into Q4, we expect to start seeing some of the benefits of the license agreement into royalties. But still a lot of work we're doing in modeling those activities with our customers. And for example, in China looking at various tariff structures, that we're going to be a result of those multi gigawatt hours of projects that Atlas Renewable announced. Is that help to start?

Our next question comes from Thomas Boyes with Cowen.

Hi, thanks for taking the questions, a lot of great information and definitely appreciate kind of the more holistic approach in both the long duration and short duration part of the battery storage offerings. Could you actually just talk a bit about the battery supply chain, your strategy there, you have a lot of announcements, obviously, and how much have you contracted? And maybe over what timeframe do you see that coming in?

Sure, all right, it's a great question. Look, as we get to a closure and assigning both from an award perspective, so even before we get to the contract booking as a part of that process from moving from shortlisting to award, and then award to contract booking, you can assume that we're securing in line up that battery supply. Now, in some cases, that involves our customers that may have already secured it. So through their relationships, and have asked us to play an integrator role. So we'll be clear on that a little more going forward on a project-by-project basis. In other cases, through our direct involvement and relationships in the battery supply chain, we will get commitments on that supply, including all the scheduled commitments that we have to make to our customers to deploy before we actually sign and book that order. So to emphasize, we line all that up in advance, we are not in the business of taking risk in that sense both from a schedule and any specific individual rare materials or raw materials as a part of that process. So generally, we have pretty good visibility and line of sight with our partners. And then it just becomes a matter of execution. And as we've mentioned, on this call, we've continued to hire and put in place a very experienced team to manage the execution side of that. So we feel good about that. I'll also note that the high volume and the size of the project we mentioned, so less projects, but very large, that's given us the ability to carry a lot of weight and volume as we talk to suppliers. So for us, it's very important as we look at any project, we aren't in the game here of just buying market share, we look at profitable growth, we don't chase multiple projects, we are focused on large projects, projects with customers that have strong capability to pay and a strong credit rating. And a lot of those come from prior relationships of our very experienced and domain rich team. So that's how I characterize a bit around the battery supply chain.

Perfect. And maybe one thing that I thought was interesting, of course, for analysis, just now that that project is moving forward with the limited notice to proceed. Are you still using or there's the plan to still use the retired wind blades in deeper construction. And then any insight you could have around the progress there testing you done. That should be helpful.

Yes, that's an important part. It was important part of the beginning of the relationship that we formalized with an ENEL, almost a year and a half ago when he made the first announcements about the Wind blade collaboration. And ENEL dose has wind blade decommission capacity there in the United States, and they're in Texas. So as a part of our recipe for the bricks, utilization of that wind blade is important. And this will be one of the actually the first deployments of our gravity solution with the recycled wind blade as a part of our recipe.

Our next question comes from Brian Lee with Goldman Sachs.

Hi, Rob and Laurence, and David, thanks for taking the questions. This is Grace on for Brian. I appreciate all the color in prepare remark. I just first question on your 2-gigawatt deal with Atlas. And just curious how these systems should be accounted for within Energy Vault, i.e. how are you going to get pay on projects developed by Atlas? I know you talked about monetizing it royalty framework going forward. But just can you give us a bit more color, for example, like how much do you get paid per megawatt deployment? Thanks.

Sure. Well, let me remind you of exactly what we announced with Atlas and then David will cover exactly how we monetize it as I mentioned. What we announced with them is both a license deal and a royalty deal. You'll recall that they made a $50 million investment into our IPO first of all, secondarily as a part of our relationship, we announced a license and royalty agreement that began with a $50 million payment of a license. And I'll note that all $50 million of that is now in our bank accounts for this year, there was also a royalty portion of that agreement as well. And, David, you want to cover that to the what's been announced on the two-gigawatt hour that Atlas Renewable announced with their partners in China and how we monetize that?

Sure, for the license agreement that we signed and announced in the first quarter, the royalty stream on this business is going to be 5%. As Rob mentioned back during his prepared remarks, what you've got to remember here is we're just at the initial startup phase of this, and it's a new market. So we're working with our partners in China to understand the timing, and more importantly, the tariff structure for the business that will take the 5% royalty off of to have a much clearer understanding of what their revenue stream will be from a dollar perspective. I would expect as we move into 2023, we'll be able to talk more in detail about that.

And Grace, just add the other thing around that 5%. And what is it applied to. So to be clear, that is a 5% applied to the total project. So think about that it's a total project revenue, that 5% is off of that total project value, so not a lower item down the income statement.

That's very helpful. I guess second questions on your 2023 revenue outlook. How should we think about a cadence here? Is it going to be more back half weighted? And also, can you talk about like what you embed in your 2023 outlook regarding project delays and potential battery constraints? And also how many projects are connected to solar? If so, are you seeing supply risk on the solar side that may have pressed on product timing, thanks.

So let me address the last two, the latter two, and David will go back to the first item. So relative to any potential delays and what we're expecting or what we're building in. Right now, with our current contracts on the batteries, and the delivery mechanisms. All the indications are very strong of our suppliers meeting, what we've agreed to and we're seeing that, in fact, here in this very first quarter, with the type of project size, Grace, that we have, we will get priority potentially over others, because of the nature of the volume that we have. So if something moves with another customer, we might get some priority, if there is any excess capacity and very candidly, that's what we're seeing with the relationships and the interactions we're having with our partners. So we build in contingency. So into our plans, we take very seriously our schedule commitments, because they do come with liquidated damages just like our customers, the independent power providers, they have their own liquidated damages that they have to sign up to with public utilities. So we build in the appropriate amount of, I would say both contingency as well as incentives. And we have examples with our customers where they work with us on actually financially structuring in incentives, meaning financial incentives for us to meet or exceed those schedule milestones. So we've used a few different mechanisms in that space. I'll reference that we do that with a very seasoned and experienced team that's done this before. If you look across our leadership team, and not only with the addition of E.B. Jensen who has 35 years plus 100%, in energy management, project, management himself, but all of us across the leadership team have had significant experience in the EPC world and executing on large projects. So we get the risks that are inherent with what we've taken on, we build inappropriate contingencies, we have to manage that execution risk. The third item you mentioned was around solar and what are we seeing around the complement of solar to storage and do we have any concerns in that space? We have a very interesting portfolio of projects, we have with some of the first ones announced one of them is actually a hybrid project combined cycle natural gas peaker plant with a battery storage program that's out in California with Wellhead, we have other pure play solar and storage that we see again, we are not responsible for that solar development portion. But in the early cases, those solar plants actually are already operating and we're looking to capture that excess solar in general. So we don't -- and everything we're seeing it right now, and even some of the projects have been awarded, we're actually looking to store capacity that already exists, and is not tied to any future solar development projects. David, you want to hit the first question of those sort of the ran through the year?

Sure. Obviously, we're still not -- still in the middle of not complete with our 2023 planning process. So more to come there. That said, we do expect revenue to step up through the year, with Q1 being the lowest quarter for the year based on what we're looking at right now. Remember, what we've said about the first two projects that we've booked in Q3, with Jupiter Power and Wellhead Electric, which are roughly $200 million. Rob said earlier in his prepared remarks that those get delivered in the second half of the year. So we would expect those to get off to a good start in the first half of the year. And then obviously, as we go Q2 through the rest of the year, we'll overlay the bookings we expect in Q4 and Q1.

Our next question comes from Brian Dotson with Chardan. Capital.

Yes, thanks very much for taking my question. So exciting news on green hydrogen, I suppose as you're looking at over the next couple of years, how do you expect that technology in that business to evolve and what other energy storage technologies are you currently considering?

Thanks. Look, we're really excited about that, as you probably heard from the prepared remarks, I think we've referenced that about three different times because it is exciting, and not only exciting for the first of a kind of this type of architecture in the energy storage space, but the size of it, 300-megawatt hour and you're complimenting a short duration need with a 48-hour storage need. And these are the types of things that hydrogen and green hydrogen, of course, these type of new hybrid architectures are going to enable things that I don't think even our customers understood, were going to be possible. And in fact, in this case, with this specific utility, we had proactively brought this to the table based on the problem that they were trying to solve. And I really want to highlight, and thank our commercial team and working with our technical teams, in this case, not just taking what we have in our portfolio and trying to shove something down our customer's throat, but really looking at the problem that they're trying to solve, looking at different technologies that are out there to solve it. And bringing those to the table through our software architecture. That is something we are doing in the industry that no one else is doing. No one else is providing hybrid architectures, long and short duration. And until now, you've pointed out the green hydrogen architecture. So specifically to your question, for certain applications, where you need a, you can call it sort of an insurance policy on some unforeseen event that could be weather related. It could be related to some other shortage or shortfall in power that may have long term implications. We, I won't go over the examples we know the last few years,…

Our next question comes from Noel Parks with Tuohy Brothers.

Hi, good afternoon. How are you doing? Good. Just a couple of things. I also wanted to touch on the green hydrogen announcement. Just trying to sort of wrap my head around. Still a year ago, when the EVS group is being formed. I'm just kind of get a sense at what point, were you already thinking about the application of the platform to integration with a hydrogen project? I'm just curious. I assume the architecture or the design could more than support it. But just trying to get a sense of at what point you had that functionality on the roadmap as another element to be handled within the storage integration?

Sure, it's a great question. And the answer may surprise you. But you really need to go back to the founding of this company to understand and from our division we had the important software was going to play, the role software would play and how we thought about energy and utility grids evolving. And the first application came very clearly to way where we had to automate the operation of our first gravity solution. And do that with both machine vision computerized control and do that. Also with AI, as we looked at more dynamically managing the charging and the dispatching. I'll remind you also that Bill Gross was a Co-Founder here. And for those of you that know Idealab, and Bill Gross, most everything he's ever done, has a lot to do with software in particular, the last 15 years a lot of the innovations that he's developed to optimizing, for example, the solar panels and concentrated solar power. And as it looked at, the concentration of that power as the sun moved, using the software to move those panels with the sun. It's a lot of that application, as I said, started with gravity. But our vision was its software, in a very similar way to telecommunication networks and how software moves data around to our devices around the world moves it to the cloud for storage, the role that data centers now are playing in a very similar way. We always believed in the vision that software was going to play that role in moving electrons around. And we also understood very early on, Noel that the customer needs were going to be very, very different in the applications very different. And individual customers would have even multiple needs. And even some of our industrial customers that you would think are just in it for long duration they invested in our company. They also have short duration needs, for example, and we'll talk more about that in future quarters. But in general, I'd say it's a software and what we saw the announcement we made a year ago with the team that joined and that we announced with EVS Solutions as a result of us executing on the vision and then that team accelerating and executing very well for us to meet these more near term needs on the shorter duration side and hybrid systems.

Great, well for questions on -- models from that are, and I don't know if you can quantify this, but that would imply this perspective, this vision goes so far back a pretty substantial lead compared to other competitors. And I have no doubt there's a long list of people who are a long way back. Can you sort of characterize maybe out there what sort of competitor in the industry might be sort of on the same track, just wondering what's the soonest that somebody might begin to approach a platform like yours?

Yes, look, we stay pretty focused on what we're doing, and heads down and executing our strategy. And as you heard today, it's really served us well reflected in one thing, it's customer wins and customer awards. That's really how we measure ourselves. I will say, we don't really see anyone else that's really doing what we're doing out in the market. But our focus is on executing our plan and strategy. We are very cognizant of what's happening in the market, we stay tuned, we're, part of our core value starts with humility, that allows us to never sort of drink our own Kool Aid, and get too stuck around what we're doing. And as a result of that, we are cognizant of things that are happening around us. But in general, we're going to continue to build and accelerate and invest heavily in the software development side of our solutions. And anywhere we see innovation, where we can bring some to the table on the hardware side, as we've done with gravity and other things that we're working on. We'll go ahead and do that where we think it makes sense.

Great, and just wanted to clarify one thing that came up before, if from -- if you're looking at your confidence about the fourth quarter and the full year revenue guidance, is it then revenue from modeling and royalties that are the most visible element of what you're going to be booking for the quarter?

Well, yes, that's what we're doing for this quarter, as a result of some of the deals you heard announced and execution to some of those initial deals with Jupiter and Wellhead, for example. It also, as we've said, in our earnings announcement, we do have expansions of some of the gravity projects and in a territorial expansion of that on a licensing basis there in the quarter. So I think that the project execution on those things and final things result of what we announced earlier this year and some new territorial expansions in the quarter for gravity is what's making up that revenue range that we shared.

Thank you. At this time, I would like to turn the call back over to management for closing comments.

Great. Well, look, I want to thank everybody for tuning in here on the call. I also want to again, thank our employees that are out there every day, tremendous execution starts with our customers, we focus there, commercial teams done an amazing job also in the teamwork and partnership with our technical teams, and all the support areas, the functional support, legal, finance, all that it takes to make these things happen and get deals across the table. People listening in on this, understand that. And what that takes and tremendous compliments to the team there at Energy Vault for pulling that off. We thank everybody for tuning in on the investor side. We look forward to continued updates here next quarter formally and in between then what we're going to be sharing with our progress. So thank you very much.

Thank you. That concludes today's teleconference. You may disconnect your lines at this time. And thank you for your participation.