ESS Tech, Inc.

Ladies and gentlemen, thank you for standing by. At this time, all participants are in listen-only mode. Later, we will conduct a question and answer session. At that time, if you have any questions, 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 second quarter financial results conference call. Joining me on the call today from ESS are Eric Dresselhaus, CEO, and Tony Robb, CFO. Following management's prepared remarks, we will hold a Q&A session. Earlier today, ESS released financial results for the second quarter of 2023. Their earnings release is available in 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, partnerships, financial performance, and strategy for the remainder of 2023 and beyond. The forward-looking 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 reports filed with the Securities and Exchange Commission, as well as the current uncertainty and unpredictability in our business, issues with our partnerships, inflation, the markets, the economy, and the current geopolitical situation. You should not rely on 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 US 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 US GAAP and non-GAAP results are presented within our earnings release. With that, I will turn the call over to ESS's CEO, Eric Desselhaus.

Thank you, Eric, and thank you all for joining us for our second quarter earnings call. Today, I'll review our financial results, operational progress, recent customer successes, and the impact of the Inflation Reduction Act. I'm joined by Tony Robb, our CFO. Our results for Q2 demonstrate the ongoing and rapid progress ESS is making across many fronts of the business. During last quarter's earnings, we shared quite a bit of behind the scenes detail to help those who follow ESS understand what's involved in bringing our revolutionary technology to market. We've assembled a highly skilled and dedicated team and they are working tirelessly to optimize the product design improve the speed of manufacturing throughput and deliver a great product for our customers. We feel this quarter is another positive step on this journey. We delivered nine energy warehouses to four different customers in the second quarter. Importantly, we began shipments for the first phase of our relationship with Sacramento Municipal Utility District for what we expect to be a long and mutually beneficial relationship. We recognized a record $2.8 million in revenue as we continue to make progress on deliveries and improve our revenue recognition process. Importantly, we maintained fiscal prudence and tightly managed our balance sheet and in the quarter with just under $100 million in cash and equivalents. We have continued to drive great progress optimizing our internal operations, most importantly sourcing components for our product, and streamlining assembly and test processes. Our automated and semi-automated lines are performing well, and the effort we put into optimizing the injection molding vendor and assembly technique has resulted in improved efficiency and consistency. As mentioned last quarter, we are implementing lean manufacturing techniques to continue to perfect the processes for assembly of our balance of system, and this is yielding strong results. While our capabilities to serve the long duration energy storage market have the potential to make us a market leader, We have an engineering roadmap to further optimize the numerous components of our systems across the electrolyte, power modules, proton pumps, and balance of system to improve energy density and field performance. We are innovating within the core components and IP, proton pumps and power modules to improve the capacity while we design further enhancements to the balance of system to simplify and speed assembly and maximize durability for transport and longevity. As a sign of our progress on these fronts, in the second quarter alone, we were granted 10 new patents and filed an additional 13. We now have a total of 238 patents granted, pending, or in application. We feel confident that the moat around our IP portfolio will safeguard our iron flow technology approach for years to come. As we perfect our processes around our Gen 2, Rev 2 design, we lowered our build time by 29% and reduced direct costs by 30% in the second quarter alone. These are impressive accomplishments in a short time, and I am proud of the great work our team has performed to drive these improvements. We intend to continue to push on innovation as we lower costs and improve performance. We began 2023 with the intent to carefully manage our manufacturing output so that we could focus on optimizing design and assembly, and I am pleased with our results. Our team is aligned to maximize the assembly efficiency and quality of our product while continually improving our processes to lower unit cost on our drive to profitability. While these are clearly steps to scaling a profitable company, they also allow us to deliver to customer needs in a more timely and predictable manner. Our customer-facing team is hitting its stride as well. To scale our ability to support deployments across the globe, the customer success team is building out its infrastructure with a CRM platform to expand our field service capabilities through knowledge sharing and enable deeper customer engagement through the customer portal. The team has reduced the time required to commission individual EWs by 70% compared to a year ago and is striving to take it down by another 30% to two weeks by the end of the year. On the new business front, we were thrilled to announce another transformative deal in the second quarter. Subject to finalizing the contract, which we expect this quarter, LIAG, a major German energy provider, and ESS plan to build a 500 megawatt hour iron flow battery system at LIAG's Boxburg power plant site, with design work beginning this year and plans to commission by 2027. This installation is expected to create a repeatable building block for LIAG to replicate across their energy infrastructure as they work to transform their power plants to clean renewable energy. LIAG operates many large-scale lignite mining and coal-fired generation sites in eastern Germany and is implementing a vision to transform the coal-dependent region into Germany's green powerhouse. The company plans to develop 7 to 14 gigawatts of renewable generation, paired with 2 to 3 gigawatts of energy storage. and 2 gigawatts of green hydrogen production. Combined, these technologies will create a net zero carbon baseload energy system. With the Sacramento Municipal Utility District, Energy Storage Industries Asia Pacific, and now LEAG, ESS has three transformational customer relationships with well-respected energy transition pioneers, each of which could generate significant revenue in the coming years. We congratulate ESI for the recent Queensland government announcement regarding the project with Energy Queensland. We are grateful that these forward-thinking customers put their trust in ESS as they embark on a path to a clean, sustainable energy future and believe their work will serve as a model for many others around the world. Although we are pleased with the improved pace of our deployments and gratified for the trust these leading operators are placing in ESS, we are keenly aware that launching new technologies in this industry is often a bumpy road. Last quarter, we mentioned the delay of an overseas project, and although there has been good progress, we remain delayed with hope of resolution soon. Other legacy projects, some signed years ago, have struggled with delays or project requirements have shifted. We try to keep everybody appropriately informed of our activities, but remain committed to abiding by our customers' requirements on disclosure. We've learned a lot over the last year and continue to improve our predictability and execution as we establish iron flow storage as the long duration energy storage leader. As our recent LEAG announcement shows, our opportunities worldwide are expanding rapidly. Here in the U.S., we continue to actively engage in the implementation of the Inflation Reduction Act, the bipartisan infrastructure bill, and various state-level initiatives to accelerate the deployment of energy storage. These are large initiatives and the pace of activity isn't as fast as I'd like. That said, we're very encouraged by some of the recent IRS guidance on domestic content, which strongly favors companies like ESS, which actually build battery modules here in the U.S., as well as the DOE's recent announcement on the Energy Storage Grand Challenge, which we hope will accelerate implementation of the many initiatives in the infrastructure bill and the IRA. On top of those national efforts, many states are taking action. As an example, California has just included over $170 million in additional incentives for energy storage in its budget, and we hope to see similar efforts across the country. And with that, I'll turn it over to Tony to cover our results.