ESS Tech, Inc.

Ladies and gentlemen, thank you for standing by. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. At that time, if you have a question, you will need to press star 1 on your push-button phone. I would now like to turn the conference over to Eric Byland. Please go ahead, sir.

Welcome to ESS's 2022 Second Quarter Financial Results Conference Call. Joining me on the call from ESS are Eric Dresselhaus, CEO, and Amir Mostakar, CFO. Following management's prepared remarks, we will hold a Q&A session. Earlier today, ESS released financial results for the second 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 forward-looking statements, including, without limitation, statements about our growth prospects and strategy for 2022 and beyond. The forward-looking statements that will be made on 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 maturely from those projected or implied on this call. In particular, those described in our risk factors set forth in more detail in our most recent periodic reports filed with the SEC, as well as current uncertainty and unpredictability in our business, 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 the 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 internally to 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 will turn the call over to ESS's CEO, Derek Jesselhaus.

Thank you for joining us. Today, I will discuss our progress with installations, customer wins, and production initiatives, and then hand it over to Amir to cover the financials. Q2 was another quarter of strong execution by the team and continued progress for ESS. Notably, we cleared the final milestones with our two initial energy warehouse customers and recognized revenue on these units. We worked collaboratively with these customers through the process and learned a great deal about installation and deployment that will carry into future projects. We are confident that the steps we navigated to achieve final sign-off were necessary for our growth as a company. We have built critical institutional knowledge and will contribute to our ongoing success. We also built and shipped additional units in the second quarter, including those for SDG&E and our partner, Terrasol. With all six of the EWs they've ordered now on-site, we are working with SDG&E to complete commissioning and to couple our batteries with on-site solar array to power the Cameron Corners microgrid to mitigate the effects of public safety power shutoffs, or PSPS, a tool of last resort to reduce wildfire risk during extreme fire weather conditions. We continue to see microgrids as being an integral part of the solution to California's climate and wildfire challenges because they can operate independently of the grid at large and provide continuous power during PSPS and other emergencies. Our delivery to our partner Terrasol is deployed next to Sycamore International, a technology recycling firm in Pennsylvania, where it will complement a solar installation to provide business continuity and energy cost savings. In fact, Curacao has contracted for a second unit so that Sycamore can participate in the local frequency regulation market. And we certainly have some promising news from Washington recently. We are delighted that over the weekend, the Senate found a path forward with the passage of the inflation reduction act or IRA, a groundbreaking piece of legislation that can provide meaningful incentives across a range of technologies and applications to accelerate decarbonization in the U.S. energy system. For energy storage in ESS, there are a number of important provisions, including an extension of the renewable energy ITC, which includes storage when coupled with wind and solar, the creation of an ITC for standalone energy storage projects, an advanced manufacturing credit for domestically manufactured energy storage technology, And finally, a number of really smart provisions like direct pay and tax credit transferability, which will ensure more money goes to doing the job and will allow everyone to move faster. In most cases, the incentives available increase meaningfully when the manufacturer meets certain domestic content and workforce requirements, all of which are currently met by ESS. This would leave us extremely well positioned to be a vendor of choice for those implementing energy storage. We remain optimistic that this important legislation will proceed through the House and be enacted quickly. While our business plan does not rely on these provisions, we believe there is an opportunity for it to provide meaningful financial tailwinds to our plans. We continue to monitor the bill's progress and hope to share more on its potential benefit to ESS should it pass. And just two days ago, we were delighted to host the Secretary of Energy, Jennifer Granholm, along with Oregon Senators Ron Wyden and Jeff Merkley, and Oregon Governor Kate Brown for a tour of our advanced manufacturing facilities. As a tireless advocate of the energy transition, Secretary Granholm has been a staunch supporter of the drive to a carbon neutral economy by 2050 while creating American jobs. Given the passage of the Inflation Reduction Act in the Senate, we were particularly excited to be the first stop for the Secretary, the Governor, and the Senators. But we think that makes sense. ESS embodies everything that the IRA is intended to support, domestic manufacturing of the key technologies required to address climate change. On the customer front, we are excited to share details of two new important relationships. We are proud to announce a landmark partnership with Energy Storage Industries Asia Pacific, or ESI, where we will initially sell ESI energy warehouses and, in the next two years, put in place the infrastructure to sell, assemble, and service EWs and ECs. As currently planned, this agreement would result in ESS delivering over a gigawatt hour of energy storage to ESI in the next five years. ESI has already placed multiple orders for more than 70 energy warehouses, and we began shipping them EWs last month. In the coming quarters, ESI will ramp facilities in Queensland, Australia that will take key components that ESS will ship from our Oregon factory, like energy modules and proton pumps, and assemble them with the balance of plant. ESI conducted an exhaustive evaluation of technologies to address the need for long-duration energy storage in Australia, and we are thrilled to be working with them as partners. This agreement provides further validation of ESS's technology and the global market opportunity in front of us, and we believe this relationship will be foundational to driving scale in our U.S. manufacturing facility, as well as creating a sales and support foothold in an extremely important market. I'm also thrilled to announce that we've signed a contract to deliver an energy center to the Tampa Electric Company, or TECO. This installation will support TECO's Big Bend solar project, which powers 3,300 homes. Expected to ship early next year, the energy center will deliver 10 hours of energy storage and will be used for solar peak shifting and fossil fuel displacement. We're thrilled to be working with this forward-thinking utility in an important market, and we see this as great progress towards our goal of supporting a decarbonized grid. On the operational front, we continue to implement our design for manufacturability initiatives and are confident that the numerous improvements queued up for the remainder of this year will continue to drive reductions in unit economics. However, as we work to improve our supply base, we continue to battle various supply issues with components that make up our EWs. As we have ramped new vendors, we have seen their delivery times push out due to their own supply challenges. This has already slowed our production schedule, and while we still see a path to our original plan of shipping 40 to 50 energy warehouses this year, we would likely be near the low end of the range and possibly below it, depending on our ability to resolve these supply chain issues. With that said, the expansion of our manufacturing capacity remains on track. And regardless of the number of EWs we ship in 2022, we expect our production exit velocity to remain the same as we cross into 2023. We received our second semi-automated line in the second quarter, and I am pleased to share that we have it up and running. This line doubles our annual production capability to 500 megawatt hours. We have already begun to receive our next fully automated line and expect to have it up and running in the fourth quarter, which will bring our annual capacity to 750 megawatt hours, triple where we started the year. The development of our customer success team has progressed well. As mentioned last quarter, we brought on a leader for this team, and I am thrilled with the energy and focus he has brought to the effort. This team will bring a wide gamut of disciplines to maximizing our success with customers, from early engagement and site preparation to onsite installation and grid connection, final testing, commissioning, and support. Importantly, as ESS broadens its customer base, this team will drive the expand activities in our land and expand strategy. The team is not only working with existing customers who have received their units, but also customers we've contracted to ship EWs to, and even customers we're exploring agreements with. In working on our initial energy center installation with Portland General Electric later this year, the team will build the blueprint to ensure future Energy Center deployments go smoothly. At the highest level, this team will create the recipe for success and repeatability across our products that will be critical to ensuring customers realize the value of our solutions quickly and seamlessly. And I'm thrilled with the progress they've made in a short time. We're pleased to see market dynamics continue to move in our favor, and the team at ESS is working hard to execute on our operational objectives. While supply externalities may impact our progress near term, we're confident in the trajectory of our business and how we are perfectly suited to solve the grid-scale energy storage challenges in front of us. And with that, I'll pass it on to Amir to discuss the financials.