Good morning, and welcome to the Energy Vault Second Quarter 2023 Earnings Call. At this time, all participants are in listen-only mode. A brief question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Laurence Alexander. Thank you. Please go ahead, sir.

Thank you. Hello, and welcome to Energy Vault's second quarter 2023 earnings conference call. As a reminder, Energy Vault's second quarter earnings press release and presentation is now 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'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 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 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.

Great. Thank you, Laurence. I'd like to welcome everyone to our second quarter 2023 earnings call. I'll begin today by highlighting the quarter's main operational and commercial and financial milestones as are more detailed in our earnings release that we announced this morning. First, our priority this year has been and remains our execution to customer commitments on our first projects. Following a 2022 year, which saw a sign enclosed multi gigawatt hour of new customer wins with some of the largest utilities and global IPPs. This year is about executing to those contractual commitments and specifically commissioning and turning over into operation the first system on time, at or above technical performance, and profitably with strong unit economics. Our first results are coming in, and we did not disappoint. Second, and sticking to the theme of execution, deploying our gravity storage technology at scale with the new EVx system. As previously announced, earlier this month the first 25 megawatt, 100 megawatt hours in commissioning phases now, powered renewably by an adjacent wind farm, and will serve the state grid and local towns. Third, continued growth in our commercial activities where our near term sales funnel continues to expand another 27% overall on a sequential quarter-over-quarter basis and with more global diversity and customer base in Southeast Asia, for example, South Africa and Australia, as well as a recent conversion of a 400 megawatt hour project with Jupiter Power from the award category to the booking category in the US as we build the backlog going into 2024. As a reminder, this result follows the prior Q4 2022 to Q1 2023 funnel growth of 40% or 11 gigawatt hour for a total of 21 gigawatt hour growth, representing a little over $7 billion in opportunity in the last six months…

Thanks, Rob. Good morning, everybody. For the second quarter of 2023 revenue was $39.7 million. Primarily reflecting revenue earned from the progress and execution of our battery projects. As we progress through the year we will see a significant revenue inflection in the third and fourth quarter as we begin to recognize revenue from the Jupiter Power and NV Energy projects that are still scheduled for on time completion in the third and fourth quarter of the year. We achieved gross profit of $3.9 million, reflecting a gross margin of just under 10% driven by our differentiated approach to the battery energy storage market combined with a strong execution on our battery projects. Operating loss was $28.4 million, an improvement over the first quarter of 2023 of $32.9 million, driven by continued focus on operating expenses and business costs. Adjusted EBITDA for the quarter of negative $18 million was a slight improvement quarter-over-quarter. The key noncash item that we added back was $10.1 million of stock based compensation. And the key noncash items that we deducted was $2.3 million in interest income. We continue to anticipate adjusted EBITDA and operating expenses to stay within our guidance range as we remain acutely focused on managing costs. As of June 30, 2023, we had $165 million in cash, cash equivalents and restricted cash, leaving us well positioned to continue our growth strategy and execute on our projects. As we mentioned before, the primary use of cash will be the cash operating expenses of between $20 million to $25 million per quarter with any other fluctuations, mainly the result of working capital needs for equipment purchases for our battery storage projects, which will translate into revenue, gross margin and cash in future quarters. Lastly, today, we are reiterating our full year 2023 financial guidance. This includes revenue of $325 million to $425 million, gross margins of 10% to 15%, and adjusted EBITDA of negative $70 million to negative $50 million. Our forecast is supported by our strong contracted backlog activity, as well as 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 demand. We will also maintain a disciplined approach to operating expenses. With that, and I now turn the call back to Rob.

Great. Thank you, Jan Kees. Before getting to questions, I want to again thank the entire team here at Energy Vault for their intense focus on delivering and executing for our customers and thus our shareholders. I also want to continue to thank our investors and partners who continue to support our growth and mission of decarbonization. I'm happy of our continued progress on developing and deploying our disruptive energy towards solutions that are solving a multitude of or problem as they embark on their own clean energy journey. With that, operator, we are now ready for questions.

Thank you, sir. Ladies and gentlemen, we will now be conducting a question-and-answer session. [Operator Instructions] The first question we have comes from Joe Osha from Guggenheim Partners. Please go ahead.

Hello. Good morning, everyone.

Hi, Joe. How are you?

Just fine. Thank you. A couple of questions for me. First, I want to drill down a bit on this KORE Power relationship. Is the idea that you're going to buy sales from them and then work with someone else in the contract side to make [packs] (ph), or are you going to make packs? Or is KORE going to make packs for you? I just want to make sure I understand the logistics of this arrangement. Thank you. And then I do have one other question.

Okay. Sure, Joe. Yes, to be very clear, we are not getting into the battery manufacturing business. So we are not doing any type of integration ourselves. We're an early investor in KORE in their first equity raise and then you saw the announcement of their success in getting conditional approval on their DOE loan. And we are, therefore, both an early investor and prioritized customer, so for supply continuity, so they would be providing us -- providing to us the integrated battery modules, without any need for us to do any type of final system integration on our own. We also -- because of the nature of our investor status with them, we also garner other financial benefits as a part of that early relationship.

Okay. Thank you. But it's – All right. That's helpful. Moving to the Gravity side, you're continuing to make progress, commissioning Rudong. So I have two questions. First, given the insights you've gleaned so far, do you have some sense as to what a target might be in terms of cost, say, cost per kilowatt hour as you start to put up additional systems. Is that a number you can share?

We built the first system there completely locally in China, so we sourced everything from their local, Joe. So we have a -- we do have indications on what the first system unit cost is going to be. In addition, they did not implement 100% of all of our cost reduction road map, for example, with the fixed frame solution that we have using fiber reinforced concrete, for example, some of those things are going to be implemented first in the U.S. So we have initial indications from local Chinese manufacturing and local Chinese construction costs there. And then we're going to have the implementation for North America of the EVx system with our latest roadmap innovations. And, I mean, essentially, with the first system and unit we were building that out, somewhere between a $350 to $500 kilowatt hour basis. That's on a four hour system recall, which for first unit, as you know, in this business you typically take a fairly significant drop between 30% to 50% off of the initial first system basis. We're also, Joe, expanding our supply chain team including not only China, but India, and ensuring now in the U.S. that we're going to have, access to 100% local content for construction of the entire system here. So we're expecting to be as we look to move from four to six hour to eight hour longer duration systems. That's always going to, therefore, lower the power component of that cost and some of the energy components of the cost will be lowered through the lower cost of the fixed frame that we're going to be implemented in Texas. So hopefully [Multiple Speakers] little bit.

That's very helpful. Thank you. It is. And then just if we can have some sense in Texas of perhaps when you expect to break ground on that project and when -- just I know it's early days yet, what a sort of initial target might be in terms of when that system begins to operate?

Sure. Yes. We broke ground actually last year. So we broke ground at the -- officially at the end of third quarter in September last year with pilings in the ground and have worked getting the foundation in place into front end of this year. So we expect to have that system in the second half of 2024 to be essentially starting all of our commissioning activities. So I would say in about a year -- 12 to 15 months from now, we expect to be beginning commissioning activity on the system in Texas.

Okay. Thank you very much.

Thanks.

Thank you. The next question we have comes from Thomas Boyes from TD Cowen. Please go ahead.

Thanks. Appreciate you taking the questions. Maybe first, obviously, nice to see the licensing agreement in the U.S., but could you give us a bit more insight maybe to where these additional systems could be located? I know you said multi state, but I was trying to get a sense of -- is it West Coast, Northeast, how should we think about that?

Yes. The first parts of this agreement for the states are will be in the western part of the United States. So -- and that's what I'm, I guess I'll share at this point. So it'll be Western U.S.

Great. And then does that specifically domestically, does that kind of impact the way you think about your go to market strategy? Are you still looking to kind of build and sell projects longer term, or was this one customer because of their kind of novel application of the Gravity storage technology more of a one off.

Yeah. By the way, great question. So first of all, we absolutely will be building these directly ourselves, in particular, in North America for sure. This is a specific application and architecture of the Gravity Energy storage technology that this specific developer has been talking to many customers about developing and implementing. So we did a specific license agreement with them and essentially we'll begin that in those implementations, in the western part of the U.S. So it is not a necessarily a reflection that all Gravity will be licensed. But in some parts of the world, as we've seen, for example, with China, we announced Egypt, Greece, and Cyprus. And for some aspects of the technology the license model fits really well, because we're obviously not in the construction business ourselves. Obviously, we'll manage EPC relationships and manage the build of the projects. And this is essentially a larger construction project with electronics integration, power integration and software, and actually tends to be a very logical frame for doing these types of license agreements and for investors, Tom, they're fantastic, because we not only benefit from, essentially 90 plus gross margin on the license portion alone. But then there's the follow on royalty streams, that as we've publicly announced before, these are done at about 5%. And again, those are streams that will be at 90% plus gross margins as well. And we're not taking execution risk in that case. And I think from a business model perspective, it allows us to monetize our technology and our IP, especially for certain applications or iterations or new architectures in a way that has us garner that profit and even have that -- a lot of that profit, a little more risk free, let's say, as others can focus on getting the technology built out.

Great. Yes. And if -- maybe if I could speak one quick one in there as a follow-up. Just is there any exclusivity in that licensing agreement based on application, but probably not on geography. I just wanted to check.

Yes, we're not commenting on the details of the agreement just yet and nor as you noticed there, we didn't name who the counterparty is, but we'll be giving some updates on that, I'd say, in the coming one to two quarters, as that develops.

Perfect. I'll jump back in queue.

Thank you.

Thank you. [Operator Instructions] The next question we have comes from Brian Dobson from Chardan Capital Markets. Please go ahead.

Hi. Thanks very much. So congratulations on the new licensing and royalty agreement in the United States. I guess, as you're looking out over the next year or two in the U.S. market, how do you see it developing in terms of long duration energy storage? And would you characterize the DOE as a good partner in the development and promotion of that technology in terms of the programs that's devised to that end?

Sure. Let me take the first one on how we see long duration developing. So we're -- as I noted in some of my earnings comments, we are seeing with the IRA and with certain segments of the market, as we mentioned, around sustainable aviation fuel. I think there are going to be factors and accelerators to long duration here in the United States. I think green hydrogen and the production of green hydrogen where essentially you can utilize solar and long duration storage to power electrolyzers and electrolysis to make green hydrogen in a cost effective way relative to the various incentives that are out there. So those types of things, we're seeing more inbound and more customer engagement and developer engagement around the application of long duration. You would have seen that, one of our customers, DG Fuels announced not only their progress on financing in their DOE progress, but as well off take agreement for a segment of the market that is tremendously underserved for sustainable aviation fuel. So I think those types of segments for industrial applications or powering, eight to 12 hours of need. Would that be overnight for 24/7 type of power needs or manufacturing, those things are going to push a long, long duration as well as just more renewables on the grid. So we're already seeing sort of moves in some markets, from two to four hour to four to six hour. So we're just beginning to see that here in the United States. And I think while that -- I think, overall, the long duration developed a little slower than what people have thought. I think we're beginning to seeing some encouraging signs for more projects in development. The second part of your question on the DOE, I definitely think that with the programs and the priorities that [indiscernible] and the administration has about getting capital deployed is definitely a help to the industry. I mean, I use the term, do you see them as a good partner? I mean, I absolutely see that there's a willingness and desire and even motivation to try to get the capital deployed for its intended purpose. And we're participating in various parts of those programs, and all of that is going to be net helpful to us. And we just saw from -- as we mentioned KORE power, they announced their conditional approval with the DOE moving along, and that's for -- that's for $850 million to build their facility in Arizona. So everything we're seeing tells us that there's a strong commitment there but not only commitment, but funds are flowing and companies are progressing through that process.

Yes. Excellent. Thanks very much for that color.

Thank you.

Thank you. The next question we have comes from Noel Parks from Tuohy Brothers. Please go ahead.

Hi. Good morning.

Hi, Noel. How you doing?

Great. Thanks. Just a few things. As you look into the longer term of some of the projects that you have in queue or working on negotiating. I just wonder if you could talk a little bit about the EPC vendor piece of that. I just wonder as you look further out, are there any issues as far as just availability, staffing availability, anything like that that gives you any concern as you as you look out beyond for this the next couple of years in your planning?

Noel, it's a great question. And what I'd say is, initially as we entered and went into the second half of 2022 and the first half of this year, one of the adjustments we had to make is to be a little more directly involved in some of the management of the project from a construction perspective. And by that, I mean, as far as EPC goes, we're handling the E, we're playing a very active role in the P or the procurement side, because there's just a few major pieces of equipment between transformers and inverters. If it's short duration, batteries, if it's longer duration, it’s the large motor. So we aren't talking about a massive amount of things to procure or things in high volume, okay? Because of that, it lends itself for us to be a little bit more actively involved with minimal cost to manage some of those vendor relationships and roadmaps on the procurement side, so we can get priority on what we need. And that engagement we've had in the P side of EPC has helped us execute, deliver well. That's why we -- if you look at our Q4 last year, we did $100 million quarter because we did very well on managing that execution side a little more hands on. So we played a little more active role in there, which I think is where your question is going, then we had intended also on the construction side in the sense of -- the larger EPC companies we're seeing are very busy and they have a lot on their plate and therefore, if you're looking at competitive pricing, we initially saw pricing that was above what we were planning and expecting. And, as a result of that, we chose to play a…

Great. Thanks a lot. And that was touching on really what I was wondering about, because I just heard anecdotally a number of large projects by companies that, sort of that stage of early commerciality administered some anecdotes of sort of the EPC selection out there for them not being as robust as they had expected, plenty of bids from competitors, but when it came down to the detail, and in particular, the staffing, finding that, wow, we're really down to essentially only one candidate that worked. And, so that kind of what’s behind the question.

Yes. I'll make just one comment on that, if I can. You you're right on, we had that experience a year ago as we started thinking about things on a global basis and talking to some larger players and it, between getting priority and pricing, that just wasn't going to work. And anytime you're implementing new technology as a smaller company, the bigger ones don't want to take risk, number one. And it does limit your options as an intercompany. That's one of the reasons we, funded up heavily in our Series B at -- with the commitment we had from SoftBank and then a large Series C. So the reason we did that is to ensure we were going to have the capital to do some of these things ourselves, given it's a tough market when you're a young company and trying to get the attention of some of the larger folks. I think right now, we're in a little different position. I'd say we executed well our first year and our executing this year. And I think, we're actually seeing some players come and work with us that want to learn how we're innovating, for example, in the civil and structural engineering and are willing to do that at their own cost. Yes. So which is a reflection, I think, of what we're doing, in and around, automation, constructability, material science and the very advanced structural engineering that is not being done in the world around in a general way and others really want to learn about that and are willing to work with us in that regard. And that's definitely going to economically help us out.

Terrific. And if I could just, touch on one more thing. You did mention that the future shows Energy Vault solving a multitude of customer problems. And, I was wondering is there a distinction between your utility customers looking, for example, to integrate with renewables at a large scale, and maybe industrial customers or others that are maybe looking at your storage solutions more as, you mentioned data centers earlier in the call, more as like a micro grid type application where it's not so much about the integration. It's about sort of the resiliency for their own operations. Are those essentially very similar discussions to [indiscernible] I mean, no matter what the motivation or are there some meaningful differences?

Yes, it's different based on the customer set and every customer set has their own applications, and I'll just give you a few of them. When we're dealing with utilities, most of them and most of the market in the U.S., they're solving for this two to four hour peak, essentially, that takes place and hence this focus on short duration. However, some of those same utilities have coal plants that they're going to shutting down. They have all that infrastructure sitting there and they want to essentially try to use renewable and put in longer duration storage and leverage that existing --those large interconnects to connect to the coal plants, for example. So that same utility that has that short term need to manage the peak shaving and those their early evening or their early morning, they have other needs as they do their long term planning for shutting down their fossil fuel assets. And then -- I'll give you a third example, again, sticking with utilities, look at Calistoga, you've got utilities in certain parts of the world that have to be able to provide solutions in the event of fires or earthquakes, and in some cases, that means a multi-day storage type of application. And hence, we brought green hydrogen to the table, integrated with tanks, fuel cell and a small amount of lithium ion for grid forming and black start to create a renewable solution that didn't exist. So what I just walked through, if you look at just with the utility segment, I walk through the short duration need, the long duration need that's coming as we're shutting down fossil assets, and the multi-day storage need when they're trying to do backups for events or what's called PSPS, plan safety power shutdowns and outages. So…

Terrific. Thanks a lot.

Thank you.

Thank you. [Operator Instructions]

Sorry, operator. Are there any more further questions or no? We're all done.

There are no further questions registered.

Okay. All right. Operator, thank you very much. And I want to thank everyone for joining this call and listening in here and look forward to continuing the dialogue here in another quarter and updating everyone on our progress. Thank you very much.

Thank you, sir. Ladies and gentlemen, that does conclude today's conference. Thank you for joining us. You may now disconnect your lines.