Good day, and welcome to Energy Vault's Second Quarter 2024 Earnings Conference Call. All participants will be in listen-only mode. [Operator Instructions] After today's presentation, there will be an opportunity to ask questions. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Michael Beer, Chief Financial Officer for Energy Vault. Please go ahead.

Thank you. Hello, and welcome to Energy Vault's second quarter 2024 financial results conference call. As a reminder, Energy Vault's second quarter earnings press release and presentation are 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 due to a variety of factors. Please refer to our 10-Q filing for a list of factors that cause our results to differ from those anticipated in any forward-looking statements. We undertake no obligation to publicly update or revise 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. At this time, I'd like to hand the call over to Robert Piconi.

Great. Thank you, Mike. And I also want to officially welcome Michael Beer for the first quarterly earnings that he's taking over for our prior CFO. He joined us in April, as we announced on our last earnings call. So welcome, Michael. Great to have you here. We're also taking this call from Lugano, Switzerland from our International Headquarters here, where we conducted our Board meeting last week and our management meetings here this week. During our inaugural Investor and Analyst Day last quarter in May at the New York Stock Exchange, where we updated investors on our vision, strategy and two year financial guidance, we outlined a bold plan with the following three strategic tenets. First, to address the largest and most attractive growth regions for energy storage, very critically addressing them in the business model that is most cash accretive, most profitable and the lowest risk for investors. Just to emphasize on this first point, as an example, how we address the storage market, for example, in China versus Australia versus the U.S., three of the largest markets in the world might be different considering the three factors I just mentioned, and allows us to choose from a licensed royalty model, a build and transfer model or a build own and operate model. Secondly, we outlined a plan to deliver more predictable and recurring revenue streams. Obviously, especially important as a public company, as pure-play integrators, we'll continue to be subject to the EPC build schedules of customers that can move in three to six months increments pending permitting and other external factors that can expose us to lumpy quarters as we are experiencing here this year after the first two years of very strong growth. Our unique multi-technology and multi-business model approach to the market allows us…

Thanks, Rob. During the second quarter, the company reported revenue of $3.8 million, reflecting the successful completion of battery projects in the U.S., along with contribution from software and long-term service agreements. Consistent with our full year guidance, revenue was down versus prior year due to the timing of project and percentage of completion accounting. The company did announce a new battery storage project in Australia with ACEN during the period, but we expect most of that revenue to be recognized later this year and next, as part of our $264 million revenue backlog. Including our new gravity license in Southern Africa with GESSOL, we expect to recognize later this year, along with one to two new battery storage projects expected to commence construction before year-end. We are reaffirming our full-year revenue guidance of $50 million to $100 million. Our gross margin was 27.8% for the second quarter, up from 9.8% a year ago, reflecting favorable revenue mix as projects were completed. Through the first-half, the gross margin is tracking at 27%, above the guided range of 15% to 25% for the full-year of 2024. From an adjusted EBITDA perspective, during the second quarter, our adjusted EBITDA was negative $15.8 million, which improved 12%, or $2.3 million year-over-year. Adjusted operating expenses declined to 23% in the quarter on a year-over-year basis, to $16.9 million. GAAP results included a $1.7 million restructuring charge associated with reorganizational and realignment, as well as other cost-side measures discussed earlier this year and during the company's Investor and Analyst Day on May 9. Along with the $600 million [Technical Difficulty] impairment associated with the company's move to a corporate office in Westlake Village, California. As a result, the company expects adjusted OpEx to be reduced by $3 million to $4 million in the second half,…

Great. Thank you, Michael. Just in closing here, as I normally do, I want to start by thanking all of our employees in the company for their dedication to the mission and working through what remains a volatile, dynamic environment, both for energy storage, geopolitically, and with all the many distractions we have, their focus on our customers in the end and delivering for our customers. Also, official welcome, again, to Michael Beer and joining our leadership team, as well as Wes Fuller, most recently in his global sales role. With that, operator, we will turn it back to you and be ready to answer some questions.

We will now begin the question-and-answer session. [Operator Instructions] The first question comes from Thomas Boyes with TD Cowen. Please go ahead.

Appreciate you taking the questions. First one from me, just given the focus on owning and operating specific projects following the Investor Day, are there specific applications of your technology where you're more likely to own and operate? When looking at kind of the gravity portfolio, you have an EVx system up and running in China. You just had announced the EVx system where you'll also be an owner and operator. You should be -- you kind of expect more attention for those systems and maybe an EVy than, say, additional EVx projects. How do you think about that split?

Great, thank you Thomas, good to hear you. Yes, there is no specific technology that's a focus relative to own and operate. And I think if you look at the first two that we're already developing on our balance sheet, the Calistoga project, which is a combination green hydrogen, so ultra-long duration with lithium-ion there, and then the second one is a pure battery energy storage in Texas. So we're going to look at that based on the economics of the project, the fit for us. Also, project financing becomes important. That's one of the verticals in the financial markets that's remained quite robust and attractive. So we look at that and really not as specific to the technology, but more to the attractiveness of the project. So to be clear, you can expect that you may see combinations of gravity and lithium-ion, like we just announced for Sardinia, for example. And we announced that we're planning to own and operate that site. We've already announced the green hydrogen lithium-ion and the pure play lithium-ion. So the main focus there is going to be across our portfolios. We evolve it in looking at some of the pure build and transfer models and looking at some of what we call EEQ projects, where we're just delivering equipment and not having the exposure on the EPC side, where we take risk on construction and some of the other supplier sides. So we're going to balance that and I think have a portfolio that can, we believe, optimize both our cash, cash returns as well as the longer-term profitability and fundamental unit economics of the business.

Appreciate it. That's very helpful. And then for the follow-up, I'm just hoping we get a bit more, maybe a performance update for Rudong and how that EDx is performing, anything you could share as far as just round trip efficiency or maybe other kind of performance metrics to let us know how that system's operating.

Sure. Yes, we're just awaiting the final approval to operate fully to the grid. As we announced before, we're already charging and discharging to the grid, and there's been announcements locally in China that our partner did. The last ones we saw were June 19. They hosted a media day where they demonstrated the project to a host of both local media and media from other provinces. So we are still just awaiting the final approval there locally on full charge and discharge for the asset. We actually have a team there even on the ground. One of our technical teams and support teams are there with CNTY here as we speak, actually this week. So we're awaiting that and part of their visit there is to also take the initial performance measurements on a multi-site basis there. So we're expecting something shortly, Thomas, and we'll be announcing those performance metrics as we get that from the site.

Excellent. Thanks so much. I'll hop back into the queue.

Thank you.

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

Good evening, I guess there. So a couple of things, I think first for me, when we think about your sort of two-year revenue guidance, and I sort of -- I see some of the project announcements you've made in your backlog, but when we -- as we sort of try to evaluate that and we think about what awards you need, can you just maybe talk a little bit about sort of the pipeline of opportunities and what we should be looking for to kind of increase the confidence in the revenue guidance for the next sort of the aggregate two-year period?

Sure. I think some of the milestones you should look for over the, let's say, the rest of the year since we're into about four, 4.5 months left are specific conversions of projects from that developed pipeline category into actual bookings. So I think that's going to be important. We, at the Investor Day, Stephen, you'll recall, we actually highlighted some very large projects there and did not name it. In some cases, we didn't yet have the approval yet to name the customer. So I think you should look for conversion of some of those to awards and bookings that then would fill in what we've announced over the next -- our two-year revenue that we announced essentially, which was the $500 million to the $700 million. So obviously, from where we sit today and given the nature of some of the larger projects in our portfolio, you would need to see some of those convert here in the coming in the second half of the year, let's say. The other thing I reference, as I mentioned in my upfront portion, is that a lot of those deals in that developed pipeline are also with strategic investors or, in some cases, partner companies in the sense that they're -- people that are known to us. They aren't new customers. They may be even customers, as I mentioned earlier, that we've already done projects with or completed projects with. So that obviously gives us and gave us a high level of confidence to be able to project that two-year revenue. So I would say those markers are going to be important. I think some of the things we announced, and I'll give a little bit more color on that regionally. So I think Australia is going to continue to play a large role as we've announced the first project that's underway with ACEN. ACEN is quite a large player in Southeast Asia, and having the storage portion in part owner of one of the largest solar sites, 720 megawatts in Australia. I think as you're aware, and as I mentioned in my remarks, we have strategic investors in Australia and Korea Zinc and BHP, and they're obviously investing in some of their own green energy transition and things that they've made public. So I would say some of those, I would look for those milestones over the coming three to four months, and you really need to see those, right, because for us to convert and get to the revenue levels, we projected, you're going to need to see some larger project announcements.

Got it, okay, now that's very helpful. And then the other one, just quickly, when you think about build and transfer, own, operate, et cetera, are you -- is that completely customer-driven for some of this stuff that you truly want to own and operate because of the long-term returns and recurring revenue? How do you balance that?

By the way, it is a balance, but it's more the latter on how we think about portfolio. And as we look at the profit pools in our energy storage ecosystem, and that's from sort of the supply and equipment side all the way up through the integrator side of the house into services and software, but also into an independent power and the power ownership and provision back to utilities or to end users. So when you look at that ecosystem, we've done a lot of work in looking at where those profit pools are. But as well, and as you well know, as a public company, if we were to just play, for example, which we don't today, we're a little more diversified than that, but if we were just to play in the integrator space, you're subject to the lumpiness that we see. And even in our large growth, the first two years, our first year, $148 million, our second year, $345 plus million, we had quarters that were very lumpy, and being no stranger to public companies, as you know, Stephen, it's tough to maintain that type of quarterly cadence. And thus both for profitability, for cash. And as we look at attractiveness and diversity in our portfolio, we believe this is a strong strategic move for us to make for investors and from just a pure cash and return perspective, what we think over the mid to long-term, there's really not a public corollary to a portfolio like we've developed and including a strong portfolio as a storage IPP, where you've got long-term contracts, you have EBITDA streams of 75% profit plus. And again, with assumptions in and around the type of project financing, we believe we can get. And when you have a player…

Great. That's a great color. Thank you.

Thank you, Stephen.

[Operator Instructions] The next question is from Noel Parks with Tuohy Brothers. Please go ahead.

Hello. I had a couple of questions. I was wondering if you could give some perspective. Now with the announcement about the project in Italy, the former mine site, just as far as implementation timeframe for an EVx system moving from China, where things stood at the point that that project got kicked off, to Schneider, and now to this project in Italy. I just wondered what's maybe likely to go faster with the subsequent project and whether there's anything that might go slower, just, I don't know, supply chain or other issues?

Yes. It's a great question, especially as you refer to the project in Sardinia, where, as I mentioned, we're actually going to have the full-scale EV0, which are essentially these special vessels that are made out of fabric. And we -- for a lot of competitive reasons and confidentiality, we haven't shared a lot with the market about it. I think sharing the fact that we're actually delivering full-scale fabric vessels that I'm referring to here on the call, since you asked for the first time, we are moving very quickly because in this case. If you look at this, what we're referring to as a modular pumped hydro system, we have IT around an ultra-low-cost way to hold liquid, in this case water, and all the other components in our modular pumped hydro system for Sardinia, where we're going deep into mine shafts, are from existing infrastructure that's utilized in pumped hydro. So, penstocks, a turbine, so, these are things that have been used with pumped hydroelectric for 100 years. So, as a result, to your question on speed, and since we've done testing on this solution for the last 18 months, so this has all been done under the radar, we've been testing this new modular pumped hydro system and circulating it. That's actually now been under accelerated life testing over 10-years of time. This is a system that's going to move very quickly, and we'll have applications not only going below ground. So, that is something new. That's a new segment that I think we haven't referred to really yet of the market. There's other sort of fledgling and early seed stage type of gravity companies that started to target that market. We're doing it at scale now, and in addition, this same modular pumped hydro system…

Okay, great. And then -- I was thinking back to, actually, the introduction of EVx Energy Vault Solutions, and the vision set forth then about integration of sort of full energy management system level functions, and now with these different variations, even on deployment of gravity storage, it sort of seems that that software layer is going to become even more critical, and I guess I'm just wondering, at this point, is the development of the software, is it at a point that it's sort of productized, where it's sort of standalone value can be assessed or looked at, or does it need to be viewed more as just kind of the customization of a particular project, every project somewhat bespoke in how it's going to be implemented?

Sure. By the way, great question. So, first of all, it's absolutely productized. We've delivered and we are operating over a gigawatt hour. The project that we've ramped up since over a year ago, starting with Wellhead in June, was the first battery project there that we ramped up the software with, and it's been operating there for over a year there. We ramped up Nevada Energy and then Jupiter, so we got quickly to the gigawatt hour and about to make that 1.3 gigawatt hour as Calistoga will be orchestrated and operated across the green hydrogen solution with lithium-ion together, so that's a hybrid system. By the way, just to share, the fuel cells just arrived today on the site in Calistoga, and I'm so excited about that. We have the large tank is arriving Friday, and so we're getting that project here all sewn up. But in any event, to the first part of your question, it's not only productized today, but it's been the last year, and that's been the basis of what's been operating these systems. And I'll also share before I get to the second part of your question that, if you were to ask any of our customers where we've deployed that first gigawatt hour about what they thought were some of the strengths about our performance and our execution, I think uniformly they would all reference the performance of that software and the commissioning speed that we were able to bring that up, and that's a reflection of the people that built that system, the experience set that we built, the talent of the team we built to bring that up, Akshay Ladwa and his team, Shaheen, who leads some of the software development, Brad Israel. And I could go on with other…

And just to clarify, if you had a customer who did elect to install the platform more or less standalone, would a customer like that be sort of pretty willing to be announced as opposed to some of your large industrial customers that want to wait?

Yes, every customer's a little bit different in the timing of when they want to announce something. Some are comfortable with earlier announcements. Others want to wait until something's operating, and some of them just will not announce really anything except acknowledge that a system is operating, so it really just depends, but I think as we get into standalone software sales, you'll be hearing more about that, and I think those customers, depending on if it's a utility or IPP or -- in this case, there's a lot of industrial customers that are managing their own electrification or clean energy transition where they don't have the competence or the prior experience as managing electrons. I guess I'll say, because where they're buying infrastructure in renewable and then need to couple storage, they really need that across their asset base. So, I expect you'll see announcements about that, and we'll try to share as much as we can as we develop those solutions.

This concludes the question-and-answer session. I would like to turn the conference back over to Robert Piconi for any closing remarks.

Thank you, operator. Again, I just want to thank everybody who joined the call here and all of our investors that support the company, and we'll look forward to be sharing further updates in the future. Thank you very much.

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