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 Q&A 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 our host, Eric Weiler. Please go ahead, sir.

Welcome to USAID's second quarter of fiscal year 2024 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 fiscal year 2024. The 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 2024 and beyond. The forward-looking statements are also 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, issues with our partnerships, 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 today are based on assumptions and beliefs as of the day 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'll turn the call over to ESS's CEO, Eric Deslas.

Welcome, and thanks for joining us today. Momentum continues to build for our business and for the larger long-duration energy storage market. In the last quarter, we've seen continued regulatory momentum to grow deployments of eight-plus-hour duration storage and direct funding announcements to projects that will accelerate adoption and continue deployments of our technology, reinforcing our position as a leader in the field. In the second quarter, we had expected to ship more units, but a key partner experienced a delay in final approvals and funding. We have built and had anticipated shipping approximately 12 additional EWs last quarter in support of those projects, but unfortunately, they slipped. Based on the current information provided by the partner and the end customer, We now expect to ship and recognize revenue for those units in the third quarter, so stay tuned for further announcements. These delays are frustrating, and given our early stage, any shift in project timing has a meaningful impact on the results within any given quarter. In any case, we continue to execute on our strategy and expect to ramp revenue in the back half of the year as we lower cost and increase our capacity. I'm thrilled to announce that we are finalizing the details to close a transformative agreement with the Export-Import Bank of the United States, or XM, for up to $50 million in funding to help ESS continue to maintain our strong balance sheet while expanding our operations. Provided by the Make More in America initiative, this funding is long-term, low-interest, non-dilutive capital to finance expanding manufacturing capacity. We can use it immediately to add to our cash position, borrowing about $10 million this year, including on a look-back basis for previously installed capacity and for the addition of Line 2, which is expected to triple our production capacity to over one gigawatt hour of battery capacity annually. Just last week, we were joined by Senator Ron Wyden and XM Vice Chair Judith Pryor and numerous other dignitaries here in Wilsonville to hold a ribbon cutting to celebrate our growing manufacturing capacity. This groundbreaking followed a visit from the Conservative Climate Caucus, a group of congresspeople that works to reduce emissions by educating House Republicans on climate policies and legislation consistent with conservative values, proving that lowering our carbon footprint to American-made long-duration energy storage is a bipartisan imperative, something we can all agree upon. We're honored to have gained their support and humbled to hear their praise for what ESS is doing to build storage in the U.S. This support for scaling is important because we're going to need a lot of long-duration energy storage. As many of you know, electricity demand in the U.S. and around the world is beginning to increase dramatically as we work to electrify everything and support the massive demand from technologies such as generative AI. After decades of essentially no low growth, the Federal Energy Regulatory Commission, or FERC, now shows that U.S. electricity demand is expected to grow by 4.7% annually. That translates to 38 gigawatts of growth by 2028. Large customers are expecting it to be clean, driving the demand for green energy PPAs and clean baseload power. Legislators and regulators are hearing the call, resulting in new mandates for long-duration energy storage in California, Michigan, New York, and other states and across the globe. Ensuring a reliable, cost-effective, decarbonized electricity system is our mission here at ESS, and we were pleased to be included in a recent New York Times discussion on the need to ensure the reliability of the grid. Our customers are leading the industry to the future, and their work demonstrates the progress we're making in the market, helping position our iron flow technology as the most proven long-duration energy storage technology available. These proof points are critical as they demonstrate the value of our solutions across a variety of use cases, unlock future projects with these customers, and serve as a critical catalyst to building on an over $1.5 billion in potential projects with our current customers. Earlier this year, we successfully commissioned our first system at Schiphol Airport in Amsterdam, which is installed on the tarmac to phase out diesel ground power units, or GPUs. that supply electrical power to aircraft while they're parked at the gates. I'm pleased to share that in Q2, we went into operation at the airport and are charging GPUs. This is an extremely meaningful validation of the safety of our technology, given the strict standards in commercial aviation, while also proving out the functionality and versatility of our batteries. And yet another sign of the imperative behind California's drive to decarbonize and increase resiliency of the electricity system, in July, the California Energy Commission, or CEC, awarded a $10 million grant to our long duration battery storage project in partnership with Sacramento Municipal Utility District, or SMUD. As a reminder, SMUD signed a two gigawatt hour framework agreement with ESS, and we have already delivered and commissioned the first phase of this agreement. The CEC funding, along with incremental investments in SMUD, will be used to fund phase two, a 3.6 megawatt, eight-hour iron flow battery implementation. With SMUD transitioning to a carbon-free power portfolio by 2030, a goal which is now a mere five and a half years away, they are clearly taking meaningful steps towards achieving the 13.6 gigawatts of energy storage the California Public Utility Commission believes California will need by 2032. At the end of May, Burbank Water and Power held a ribbon-cutting with local elected officials to commemorate the commissioning of their EFS energy warehouse, their first long-duration energy storage system. EWP is another progressive California utility that recognizes the necessity of pairing Eldez with renewables to achieve their aggressive decarbonization goals. Our energy warehouse is now integrated into BWP's EcoCampus and connected to a 265 kilowatt solar array capable of powering about 300 homes. Their forward-thinking approach to decarbonization will help them increase their use of renewable energy and propel them towards their goal of achieving 100% carbon-free power by 2040. I'm pleased that ESS will play such an integral part in this journey, and it is gratifying to see the Burbank team so eager to publicize their project, including their planned VIP tour in September. We were pleased to announce that Indian Energy, a Native American-owned microgrid developer and integrator, the CEC, and the Department of Defense together selected ESS's iron flow batteries to demonstrate the diverse capabilities of Eldez Technologies for Utility Scale Resilient Microgrids. The program is a valuable step forward in proving that Eldez can deliver energy security to remote communities like tribal nations and military bases. Over the coming months, our project partners expect to demonstrate a variety of use cases for the California energy market, including solar peak shifting and grid ancillary services, after which time it will be placed into commercial operation. And now I'll touch on our progress with the Energy Center project we're developing with Portland General Electric and the transition to production manufacturing. Importantly, as we've shared in the past, we completed production and testing of the inaugural EC and have been cycling it to home the operations while subjecting it to varied operating demands to characterize and validate its operational performance. As part of this, we continue to conduct additional durability cycling against both the PNNL and ONGIE 19 testing regimes. It's great to see the unit performing well, and we have transacted more than 140 megawatt hours of energy through this one unit over the last couple of months. Importantly, we're thrilled to see our iron flow technology transition quickly to a scaled-up form factor through the great work of our engineering and production teams. Building the units is only one part of making a new battery ready for market. In our business, certifications are imperative to our customers. Ensuring our solutions are safe and can withstand the harsh environments in which they operate is critical to enabling adoption. We mentioned last quarter that we were the first non-lithium grid battery that, for both the EWNDC, achieved IEEE 693 certification. a seismic rating that qualifies these systems for deployment as critical infrastructure across the United States. This is an essential certification for LDES deployment in California, and in the near term, we expect to achieve UL 9540 for the EC, a safety standard for energy storage systems and equipment for fire prevention. Achieving both IEEE 693 and the UL 9540 certifications is critical for utilities, given the ongoing lithium storage incidents in California and elsewhere, and an important step in demonstrating the viability of our EC for frictionless deployment across broad use cases and a variety of environments. Given our progress, we incorporated a number of design optimizations from our first EC to enhance manufacturability and begin production of our second unit for PGE in July. We expect this unit to be completed by our next earnings call, with grid interconnection and handover to PGE expected to take place soon after. In conjunction with that, we are nicely positioned to begin building the first ECs for commercial deliveries in August. In preparation for our planned shipments to Tampa Electric, followed by SMUD, we have bolstered our operations and assembly lines to accommodate the EC manufacturing requirements and volume expectations. As we've discussed on previous calls, our plan for 2024 was to moderate our builds and shipments in the first half and scale them in the second half after we make progress on our cost reduction initiatives. That plan remains intact, and we expect to begin increasing our shipments in the coming quarters, driven by a combination of EWs and initial shipments of REC. As you have likely seen from many companies in the energy transition space, project timing can be difficult to predict, and we've certainly had our share of delays. That said, we continue to see ramping 2024 revenue to multiples of what it was in 2023. which sets us up nicely to achieve our broader expansion plans for 2025 and beyond. So we'll continue to work to keep these projects on track. And with that, I'll turn it over to Tony.