ESS Tech, Inc.

Ladies and gentlemen, thank you for standing by. At this time, all participants are in a listening only mode. Later, we will conduct a question and answer session. At that time, if you have a question, you will need to press the star one on your push button phone. I would now like to turn the conference over to Eric Violin. Please go ahead, sir.

Thank you, and welcome to ESS's 2022 first quarter financial results conference call. Joining me on the call today from ESS are Eric Dresselhaus, CEO, and Amir Moftakar, CFO. Following management's prepared remarks, we will hold a Q&A session. Earlier today, ESS released financial results for the first quarter of 2022. This earnings release is available on the investor relations section of the company's website. As a reminder, the information presented today will include four looking statements, including, without limitation, statements about our growth prospects and strategy for 2022 and beyond. The four looking statements that will be made in this call are based on information currently available to us as of today's date. These statements are subject to known and unknown risks and uncertainties that could cause actual results to differ materially from those projected or implied during this call. In particular, those described in our risk factors set forth in more detail in our most recent periodic filings filed with the Securities and Exchange Commission, as well as the current uncertainty and unpredictability in our business, the markets, the economy, and the current geopolitical situation. You should not rely on our forward-looking statements as predictions of future events. All forward-looking statements that we make on this call are based on assumptions and beliefs as of the date hereof. and we disclaim any obligation to update any forward-looking statements except as required by law. During this call, we will also present certain financial information on a non-GAAP basis. Management believes that non-GAAP financial measures taken in conjunction with U.S. GAAP financial measures provide useful information for both management and investors by excluding certain items that are not indicative of our core operating results. Management uses non-GAAP measures to internally understand, manage, and evaluate our business and make operating decisions. Reconciliations between U.S. GAAP and non-GAAP results are presented within our earnings release. With that, I'll turn the call over to ESS's CEO, Eric Dresselhaus.

Thank you for joining us. Today, I will touch on our progress with installations and production and then share some color on the market. Our team made strong progress ramping our manufacturing operations in the quarter. We continue to build and ship energy warehouses while increasing capacity and lowering unit costs. In the first quarter, we shipped two energy warehouses to San Diego Gas and Electric and expect to complete our deliveries in the next week for the Cameron Corners microgrid project. In this deployment, six of our EWs will be used for energy shifting as well as supporting critical services during power safety shutoffs, including a health center, a library, a fire station, a school, two gas stations, and a small retail strip. This is a truly exciting utility-grade project that we're honored to help bring to fruition. While we began 2022 slowed by the supply chain challenge that faced the globe, we have navigated the industry-wide challenges and have strong confidence in our trajectory. We remain on track to ship 40 to 50 energy warehouses this year, and our internal operation plans are generally proceeding well. Our efforts to diversify our partnerships with our suppliers are paying dividends, and we are up and running with our new injection molding vendor. In addition, while our supply chain electronics was less than optimal starting the year, We now feel we have a strong handle on securing the necessary components and expect to deliver on our production schedule. I am pleased to share that our second semi-automated line was delivered this quarter and our team is already working on bringing that online. We expect to see a 100% increase from Q2 to Q3 and then a 50% increase from Q3 to Q4. We continue to expect our fully automated manufacturing line to be up and running in Q4. Additionally, our design for manufacturing cost reduction is progressing well. Combined, the automated line and the DFM efforts should lower labor input by more than 80% for each unit shipped, while dramatically improving production throughput. A strong capacity ramp coupled with significant cost reductions will be instrumental in our efforts to accelerate our path to profitability. Despite the advances we made in supply chain and production improvements, As you saw in our earnings release, we did not recognize revenue in the first quarter. Although we had a number of units shipped, installed, and working at the sites of our first customers in Q1, we ran into several unanticipated challenges that delayed our ability to recognize revenue on these units. While we continue to make considerable progress across the operations of our company, further developing our delivery and customer success team is a high priority. Our plan is for this team to engage with each customer early in the contracting phase to understand the deployment requirements and then work with them to manage onsite testing and commissioning. We believe this team will be critical to ensuring our customers quickly realize the value of our solutions and in the process to accelerating our revenue recognition. We are excited to share that we have recently hired the head of this team and have a number of new hires and existing employees slated to join the team. As you have probably seen, despite considerable macro uncertainty, the market dynamics for long duration storage continue to shift in our favor in a way we simply could not have imagined just a year ago. Our inbound inquiries only grow more robust each month, and we continue to see customers appreciate the unique attributes that make our technology so capable of solving their grid storage needs. The most recent market news comes from Europe. With the growing desire for energy independence, we are seeing countries pull in the timing of their carbon reduction goals. Long duration energy storage installations are integral to the success of a renewable energy centric electricity grid and accelerated investment is following suit. As an example, in April, the German government approved plans to have renewable energy comprise at least 80% of its energy generation by 2030 with a shift to nearly 100% by 2035. This pulls in their previous goal by 15 years. Germany also took the significant step of committing to making storage a core part of the plan for the decarbonization of the grid. As a testament to the importance of grid storage to their plan, the German government came together to eliminate key administrative hurdles for its deployment. They broke out storage on its own, and it now joins generation, transmission, and consumption as the four activities conducted on the electrical grid. This has the effect of dramatically improving the economics of energy storage on the German grid. Additionally, Ireland's government pulled in its grid decarbonization goal to produce 80% of its energy with renewable sources by 2030. RWE, a German multinational energy company, has committed to invest up to 1.5 billion euro in Ireland through current projects being developed. We expect to see more EU countries come forward with similar announcements. So, as you see, the importance of energy storage is growing rapidly. Elon Musk himself also recently posited that for the entire world to transition transportation, electricity, and heating and cooling to clean energy, we will need 300 terawatt hours of storage. We think he's right. Importantly, the headlines about how the earth will need hundreds of terawatt hours of storage are filtering through to our conversations with customers, current and perspective, not only about their immediate needs, but also what they expect to deploy in just the next few years. We are hearing from blue chip tier one customers talk about their fears that they will not be able to secure the energy storage capacity they need. because global supply will not be great enough to meet the demand. This is particularly acute for legacy solutions that rely on increasingly scarce rare earth minerals. In fact, incumbent storage technologies are facing a much more uncertain price curve than they did even six months ago, making our solution, one that stores and releases energy with iron, salt, and water, all the more attractive and stable an option. 2022 will undoubtedly be a transformative year for ESS. While we have faced some challenges on our ramp, we believe we are on track to be the most viable lithium alternative grid energy storage system available. To do this, we will need to continue to hone and scale our manufacturing operations while reducing unit costs. We expect to have shipped dozens of energy warehouses and have them up and running at multiple customers by the end of the year. We also expect our delivery team to have refined processes for best-in-class site prep and commissioning for our solutions at customer sites. Through all of this, we currently are and intend to remain well-capitalized. And with that, I'll hand it over to Amir to cover the financials.