Greetings and welcome to Energy Vault First Quarter 2023 Earnings Call. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Laurence Alexander, Chief Marketing Officer for Energy Vault.

Thank you. Good afternoon, and welcome to Energy Vault's First Quarter 2023 Earnings Conference Call. As a reminder, Energy Vault's earnings release and an updated first quarter earnings presentation is available now 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'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 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 purposely 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 non-GAAP financial measures presented in our earnings release for more details, including a reconciliation to comparable GAAP measures. Joining me on the call today is Robert Piconi, our Chairman and Chief Executive Officer; and Jan van Gaalen, our Chief Financial Officer. At this time, I'd like to hand the call over to Robert Piconi.

Thank you, Laurence. And I'd like to welcome everyone to our first quarter 2023 earnings call. We have a lot to share today, including, as you've come to expect some new announcements. But all of them focused on the key market and financial metrics that are driving long-term shareholder value for the company. I'd like to start as we normally do with what we're seeing in the market in what remains a very robust and growing market for energy storage solutions, along with the positive customer dynamics we are seeing. Of course, to discuss the market, this always begins with numbers and what we're seeing reflected in the movement through our near-term sales funnel. We've put forward a pretty strong commercial outlook going forward that's driven by our near-term funnel that grew in the quarter over 40% to about 37 gigawatt hours. This increase includes notably about $1 billion or 2.8 gigawatt hours of new project awards in the quarter. Of this amount, most of it, about $725 million or 2 gigawatt hour is related to our gravity EBX energy storage technology. These near-term funnel dynamics give us very high confidence in our continued growth and future conversion into bookings. Almost all of our future bookings and new announcements this year will be about building the project revenue that will make up our 2024 to 2025 revenue and beyond. So I'm quite pleased to see this level of overall funnel growth and expansion and new project opportunities into the next 3-plus years and highlight that our 2022 conversion rate from those awards already announced into bookings last year was very high, given our very experienced commercial and technical team and diverse set of capabilities that we bring to the table, and we expect to continue that trend in 2023. Moving…

Thanks, Rob. Good afternoon, everybody. For the first quarter of 2023, revenue was $11.4 million, in line with our expectations and primarily reflecting revenue earned from the progress and execution of our battery storage projects. As we noted last quarter, we expect a significant step-up in revenue going into the second half of this year as our revenue cadence tracks the project deployment schedule. We expect to realize about 15% of our annual revenue guidance of the second quarter, growing to nearly 30% in the third quarter and a further 50% in the final quarter of the year. We recognized gross profit of $2.4 million or a gross margin of 21.2%, driven by our ability to earn better-than-expected margins on battery storage projects during the quarter. Operating loss for the first quarter of 2023 was $32.9 million compared to prior quarter operating loss of $25.7 million, driven by a decrease in licensing revenue from Q4. First quarter 2023 adjusted EBITDA was negative $19 million. Our earnings release includes a reconciliation from net loss to adjusted EBITDA. The key noncash item that we added back was $13.7 million of stock-based compensation. The key noncash item that we deducted was $1.9 million in interest income net. As of March 31, 2023, we had $197 million in cash, cash equivalents and restricted cash, leaving us well-positioned to continue to progress towards our growth objectives throughout 2023 and beyond. The main use of cash in the quarter related to equipment purchases for our battery storage projects, which will translate into revenue, positive gross margin and cash in future quarters. Lastly, I want to reiterate our full year 2023 revenue guidance within the $325 million to $425 million range, supported by our contracted backlog. We also reiterate our margin target of 10% to 15%, supported by our offering mix of energy storage projects and IP licensing agreements. We will continue to complement this with various consulting and construction services based on customer needs and demands. We continue to forecast adjusted EBITDA of negative $70 million to negative $50 million as we maintained a disciplined approach to our operating expenses and execute on our additional licensing and royalty agreements. With that, I will now turn the call back over to Rob.

Great. Thanks, Jan Kees. Before getting to questions, I want to thank the employees and the team here at Energy Vault for your continued dedication and customer focus. The results of which we've just talked through, especially in the type of volatile markets that we live in today. I also want to thank our investors and our broader energy ecosystem partners that share and support our mission of decarbonization. I'm happy that we continue to make significant progress on the development of our groundbreaking and innovative energy storage solutions that are solving complex customer problems as they make their own clean energy transition. This is the Energy Vault way and underscores our purpose and existing as a company. With that, operator, we are now ready for questions.

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

This is actually Hilary on for Joe. And I first wanted to touch on the pipeline there. You had a pretty big uptick in both the submitted proposals in short-listed projects. I'm just wondering if you could share any additional color on what the composition of that looks like as well as conversion rates and timelines for when we'll see that become awarded business?

Sure. Thanks, Hilary, and good to hear again. Yes, first of all, what I'd say about across those categories of the funnel, okay? The submitted proposals, the short listings and our new awards, there is no one dominant technology or duration. So what I can tell you is that generally, we continue to see the strength, in particular, in the European and the U.S. markets around the shorter duration opportunities. We continue to see demand, and I'd say, earlier than the rest of the long-duration market for our gravity system. So I do want to highlight that, that we announced 2 gigawatt hour of gravity systems under EBX. And then generally, we continue to see a lot of interest from our customers following on the Pacific Gas and Electric announcement. They're looking to solve unique needs that involve, in some cases, backup system, microgrids, the use of new technologies to help meet those needs in ways where they do not have to rely on diesel generators or natural gas and really working to look at bringing renewable solutions to the table. So I would say, generally, to the first part of your question to characterize it, we're seeing activity across various parts of our portfolio and solutions. The second thing I had addressed in your question, which is timing of flow-through, that depends project to project as we continue to see. So as we looked at last year, we were able to convert on a lot of the larger opportunities that we're now executing this year. We see no reason why we're not going to continue to do that this year. And in terms of time frames, these projects, I would categorize in terms of timing to think about in -- I'll start with our existing customers. So we have…

Great. Second question, just on the gross margin profile of the business. Just wondering if you can provide a little more detail as you look beyond this year, kind of between the cost structure as well as the revenue mix there? And kind of what the different puts and takes are and how we might expect to see that margin ramp?

Sure. Well, since you asked about next year, one of the things we announced today is the investment in KORE Power. So as we're -- as we look at the market over the next 3 to 5 planning horizon, and we do that as informed by our customers. So we do a lot of planning with our customers. But what we -- some of the things we announced today have to do with enhancement of that margin structure. As you know, our range this year is 10% to 15%. And as we reaffirmed, we expect to be within that range. We obviously had a slightly better performance of over 20% on pure battery project execution revenue this quarter, but we still maintain that range of 10% to 15% for this year. Everything we're building and doing as we volume and scale as a company should have an enhancing effect on our margins. So we're going to be demonstrating the first gravity system, of course, this year. As we look at building those out, we're going to be building them out in a way that will increase volumes across the supply chain, and we're going to expect benefits there in our margin structure to evolve on the gravity systems. As well, the actions we're taking and the types of agreements we're signing with our partners now and looking at even the short duration market are all focused on, I would say, not only margin, but in particular, supply chain continuity. It's interesting, as I mentioned, with the Jupiter discussion, a lot of the focus and risk from investors that own independent power providers or even generally in strategic companies that are deploying energy storage, large industrial companies, they're very focused on ensuring that they're actually going to have access to the supply to meet their commitments. And given what we're seeing in the geopolitical arena, you can understand why that's the case and which actually led the U.S. to be, I think, ahead of the pack here with the new IRA legislation, which encourages that local domestic content. So this aspect of energy independence is driving this focus on supply chain annuity and continuity, and we're out in front of that. And net-net, that will be a decision factor for our customers. And hence, given how we're positioning ourselves, I expect that to have a margin-enhancing benefit for us as a company as well in the going forward years that you were asking about. So in the next 3- to 5-year planning window.

Next question comes from Chris Ellinghaus with Siebert Williams Shank.

I'm sorry, Robert, I think I missed this. I think you were making some comments about the Texas project and I didn't hear what you said. Could you just repeat that?

You mean during the prepared remarks or from the last question?

Yes. No, the prepared remarks.

Okay. Yes, I just mentioned our -- the Enel project, which is in Snyder, Texas, and that's the second gravity BX system that's being built. They progressed things through pilings and civils and into the foundations now that they're getting into in this phase. And I think we've shared a few pictures of that as well. So that is a tolling agreement. So we're building that project out, and we're expecting that project to be fully online in the second half of 2024.

kay. Great. Do you have any color that you can provide and why margins might have been a little more than you had expected?

Yes. I'd say two things. One is we executed well in terms of maintaining our schedules and maintaining the relationships on the supplier base and with the local customers to ensure that we don't trigger any issues schedule-wise or any additional problems in the field that would need to be managed that would increase costs. So I'd say one aspect is better execution, I'd say, ahead of plan in terms of how we're managing projects and any associated contingencies with them. And the second piece is you're seeing now for the first time some pure battery revenue that doesn't have any IP licenses, for example, in the gross margin line, we do recognize some of the ongoing IP licenses but down into other income. So we've been pretty clear, Chris, about our positive unit economics. I know there was a lot of questions earlier as we started to announce battery projects given other companies that have had negative gross margins, for example, in that space. We've always highlighted how we've not only contracted the projects, but also the fact that we didn't win these first projects by buying them. We didn't underprice them. We won them because of differentiation we provided that other companies couldn't -- and at the end of the day, that has to be reflected in margins. That's it. So I think the market, and as you'll see quarter-to-quarter, we will remain focused on that execution. Obviously, things can happen in the field. We're very focused on ensuring that we meet the customer expectations in that regard. And while dates might move because of things on their end, meaning permitting or other customer-driven changes, as I mentioned and reiterated, we are on track on all of our projects to the customer expectation. Now whether that date moves a month or two because of things on their end, those things happen and any time you're building things out in an EPC model. But as I stated in our update, we feel good about our current execution and are managing the project so that we can stay within the range as we said. And in this case, in this quarter, we did above our range of 10% to 15%. Does that make sense?

Yes, it makes sense. Can you give us any more color on the KORE power investment? What are they saying their expectations for domestic production look like today?

Well, I think from their own public announcements, they're projecting to be in actually producing their fully integrated cells here in the next 12 to 24 months. So they're going to speak to that and give those updates. But they're already a U.S. company. So to be clear, KORE isn't -- didn't get just newly formed because of the IRA legislation. So they are a U.S. company. They've been here. They make lithium batteries today, and they're going to be expanding that operation in a very, very large way as you could get a sense of from some of the things that we just announced. So -- so we're -- we took that action in looking at the market, Chris, not only just to participate as a customer, meaning like many of our companies in our space. Now that domestic production should become a reality of lithium ion in the U.S. Many companies will be advantaged in terms of having that local content. However, we chose to actually participate in it and therefore, get some advantages around both supply continuity as well as preferred economics by becoming an investor which with one of the early adopters. And so that's what's behind it and why we're excited to make that move. And I think you heard the announcement with Jupiter on the expansion by a factor of 4 -- 3 to 4 on the scope of domestic battery content for one of the largest independent power players in the United States.

The gravity awards are particularly interesting. Can you give us any more flavor for types of customers or timing or locations, any of those sorts of things?

Right now, we are going to be providing -- the only guidance is providing the regional -- some regional pieces of that. So it is a -- they are projects that are outside of the United States. And they are projects that we're going to be expecting to now as we are already working on the contracts to convert those into bookings. So most of the things you're going to hear from us in terms of new bookings announcements, there may be some revenue that gets into this fourth quarter, but most of it will be for the years going forward in terms of revenue recognition that we will be executing in 2025 and even into 2026, given the size of these deals. And that obviously puts us in a very strong position and makes us feel very good that we're not only executing this year on things we've already contracted that gives us very good visibility. But now a lot of the awards and the bookings we're going to be hearing will be about building out that future growth of the business over the coming 2 to 3 years.

Next question comes from Brian Dobson with Chardan.

It's Greg Pendy in for Brian Dobson. Just one quick one and I guess dovetailing on that last question. You mentioned that the 2 gigawatts are outside of the U.S. on the gravity system. Is there anything unique about having a system in Texas that would showcase it more towards domestic clients? Or do you think that it's fair to say that China will still at least showcase the technology when that's completed in 2Q?

Sure. So what I'd say is, for sure, China will be the first system up and operating at that scale. So they were well ahead of the pack, and so they will be the first system, but also to be clear, the United States market is also an important market for our gravity systems. That's why we worked and collaborated with Enel, the largest global IPP on having that system in Texas. So the United States remains very important, the largest market for energy storage in any event. Interestingly, it's primarily short duration today, but we'll be continuing to evolve to longer duration from the, let's say, the 2 to 4 hour, we're going to begin to see 4 to 6, I think, here in the coming 12, 24, 36 months. But that doesn't minimize the opportunities for gravity and we're looking at capturing those, in particular, with the IRA legislation that's focused on domestic content, right? So we have that today in gravity. We don't have to go build giga factories. We have it today, so we can capture that. And I think China will play an important role in demonstrating not only the operating the technology but something very important around our round for efficiency and the efficiency that we can achieve with that system. So -- and I know we're talking about those 2 markets, but Europe, Australia, those will also be good markets for our gravity solution as long duration becomes more of a need in the market in the coming years.

Next question comes from Thomas Boyes with TD Cowen.

And apologies if any of these were covered in the kind of the prepared remarks. But first, I just wanted to dig in a bit more about awards where you're winning with solutions that incorporate green hydrogen with you given the early success there. Are there specific pockets of demand that you see maybe on a geographic basis or certain customers that you think would be disposition to that type of an approach?

Yes. So I would say microgrids in the U.S. generally, which is essentially what we're building in Calistoga, although that will be connected as well, but just we'll have a special microgrid focus on the city Calistoga. So I would say, generally, that use case takes different forms, but the general case of the microgrid is very relevant to the United States, especially regionally in certain areas that are solving for potentials for planned shutdowns and even unplanned shutdowns, okay? That's a primary use case. And in emerging markets, where a grid doesn't exist, for example, where you have to build out microgrids. So I would say it's going to be something that will be targeted at certain applications and in certain locations where there's a need, for example, for multi-day storage. The reality is there's really not any long-duration technology out in the market that's proven at scale today. So our gravity is going to be one of the first ones that's not Pumphydro at a large scale. If you add in what we're doing with this multiday storage, it's unique because it also has a hybrid component of lithium-ion batteries to it to meet Black Start and grid-forming capability. So if you look at that and go to multiday and we're going to have that up scheduled for mid next year, we're going to have some of the first longer-duration solutions in -- out in the market operating at this type of scale as well in the world. And that is a longer duration market heats up, we're going to be, therefore, in a very good position to meet those needs. But I think that these hybrid type of solutions where customers have some unique needs is where we do see the potential use of green hydrogen as a what we call an ultra-long duration or a multiday type of storage medium that today really has no corollary in the market.

And then maybe as my follow-up. Just -- I think you had previously identified 1 gigawatt hour of projects where you're going to be operating as the system integrator with the kind of the battery hardware procurement being taken or undertaken by the customer. How have you been seeing traction with this approach? And do you have maybe an update a gigawatt hour basis just for integrator work relative to where your backlog now is?

Sure. That gigawatt hour represents those first 3 projects that are in deployment and exactly to what you said. Those are under what's called the build commission transfer model. It doesn't stop there. So we are doing additional management post turnover, so including long-term service agreements, maintenance in one of the cases, we'll also be doing some asset management. So those will have longer tail revenue and margin streams for us outside of those. But that model, to your question of what else are we seeing with those, that is pretty much the standard model we do for the shorter duration solutions where you have either public utilities that can have a base rate asset or independent power players that are investing in those solutions and providing them over long-term agreements, for example, 2 utilities themselves. So in both of those cases, they want to own those solutions. And it's not our business model to compete with our customers in any event. We do have some customers we mentioned Enel Green Power gravity system and the hybrid system for Pacific Gas and Electric, where we will be owning those systems and in fact, be signing long-term tolling agreements with those. Now we don't have to own those forever. I would say there's other type of funds, pension funds or other type of groups that like to own these long-term sort of fixed and nice predictable cash streams and cash flows. So that's not necessarily our long-term model. So I wouldn't rule out, for example, us potentially selling those projects pulling in that cash. But in all cases, we'll continue to do the asset management, assuming it fits that buyer's model. And that's another interesting part of our evolving business model that's also margin accretive.

Next question comes from Noel Parks with Tuohy Brothers.

I have a couple of questions. You've talked a bit about sort of geographic reach of the gravity product. You mentioned in particular Europe and Australia will also be good markets for long duration. In the past, I know you've talked about the first installation in China, attracting a lot of domestic attention there. I just wondered if you just had any updated thoughts on nature of that interest when you think it might materialize. Or is this an inflection point ahead.

Sure. There's been some announcements there locally in China that involve our partners with multi-gigawatt hour gravity storage projects using, obviously, our technology there. And so those are announcements we have shared or put out through our socials. We typically don't make follow-on public announcements of that. But there is absolutely a lot of interest there locally. And even from -- by the way, other customers that we have across the world that want to go visit the site and some already have. So what I'd say is what we're -- I was very happy to see is before we're even operating the system, there's been follow-on announcement of between 2 to 4 gigawatt hours and broad initiatives. One of them in particular is called the Zero Carbon Park initiative. And some of those things are being done in partnership with some of the largest players in China like Three Gorges Power, which is the largest pumped hydroelectric asset management and engineering company in the world. So those -- that's all encouraging to see, and that's going to drive royalty. Those were all drive royalty streams which we've been public that that's a 5% off to top project royalty stream for us.

Great. And I was wondering on the just on the software and technology side, with everything that's being coordinated through EVS, are there any particular milestones ahead for system enhancements or other things that help add to the selling proposition or a response to customer feedback you've been having over this past year or two?

Sure. I'd say two primary things. First of all, and let's just talk about what's happening this year for the first time. We're going to be turning over our first battery systems this year and with that new software system. So I'd say one of the first milestones is the fact that we are going to be turning over on time and commissioning these systems. So that's -- those will be the first milestones, and there's 3 of them this year because we have 30 projects we're going to be turning over. Secondly, we were chosen as well for our -- what we call our energy management system, which is the system that in addition to running the core operations and management of the battery store system itself, there's other higher-end capabilities in a software platform, what we call our EMF, our energy management system that is not only managing the storage but can also manage the existence of other generation technologies, so that can be wind, solar and even fossil, but also manage other energy storage technologies. So those functionalities, which we were selected, for example, by a large Western utility for our energy management system over the last 3 to 4 months, those milestones that you're going to see are providing other functions that are a higher level that get into things like the economic dispatching, for example, and charging of the system. So in addition to managing the battery system itself, some of those milestones we're going to see post these first turnovers and will be the result of, therefore, higher value-added systems, which will generate a higher software content and a higher portion of the deals, which will enhance our margin capability. And those milestones are going to be coming later in the year and into 2024.

There are no further questions at this time. I would like to turn the floor back over to CEO, Robert Piconi for closing comments.

Great. Thank you. And I want to thank everyone for the questions. I thank all of you for joining the call. Here are investors, I know our employees join this and partners and others out there. We feel really good about our progress and just close to saying that as you've come to expect from us, we've made some new announcements here and things that are all focused on, number one, our customers and executing well for them; two, putting together and enhancing our portfolio to provide more value-adding solutions to them, in the end, driving the long-term shareholder value of this company. Thank you very much.

This concludes the conference today. You may disconnect your lines at this time. Thank you for your participation, and have a great day.