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 the star 1 on your push-pone. I would now like to turn the conference over to Eric Violin. Please go ahead, sir.

Thank you, Matt. Welcome to ESS's fourth quarter and fiscal year 2024 financial results conference call. Joining me on the call today from ESS are Kelly Goodman, interim 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 fourth quarter and 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, capital raising, and strategy for 2025 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, challenges with raising capital, 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 date you're up, and we disclaim any obligation to update any forward-looking statements except as required by law. During the call, we'll also present certain financial information on non-GAAP basis. Management believes that non-GAAP financial measures, when 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. Reconciliation between U.S. GAAP and non-GAAP results are presented within our earnings release. And with that, I'll turn the call over to Kelly.

Thank you, Eric, and thank you, everyone, for joining the call. I am pleased to be here today as interim CEO of ESS to report our 2024 results as well as discuss what we see in the future for the company. Having already been involved in numerous aspects of the company and with 20 years in clean energy across commercial roles at a number of different companies, particularly in project development, I am excited to have the opportunity to lead this company and the team we have here in the near term to bring out the full potential of ESS and our differentiated technology. Tony and Ben Heng, the EVP of engineering, joining the Office of the Interim CEO to guide ESS's next phase. In addition, the Board intends to commence a comprehensive search considering internal and external candidates for the next CEO of ESS. Moving on to our fourth quarter performance, our results did not meet expectations. We came in at $6.3 million of revenue for the year, below our guidance range of $9 to $11 million. This shortfall is primarily due to the inability of one of our partners to fully secure funds to enable payments on their orders. This has been a persistent challenge with our current tech scale and any delays to achieving revenue have an outside impact on our ability to meet our forecast. In addition, in 2024, as we scale our technology from the energy warehouse to the energy center, which has more than two and a half times the capacity at a much better price per megawatt hour, we continue to see the demand for larger installations. During the same time, we saw considerable decreases in the price of lithium ion batteries, making them more attractive at greater scale and duration. That said, for lithium ion to scale, it just adds more of the same battery packs that have the same costs and safety concerns. We have taken a hard look at these trends and intend to accelerate our strategic shift for the business in 2025. I would like to lay out the details of that shift here today. First, in the short term, we focused on our Energy Center product deployment. We delivered six EC systems to a Florida utility customer in December 2024. The final two Energy Center systems were delivered this quarter to complete the initial order. The eight energy center systems translate to a one-megawatt project, and site construction is ongoing with commissioning expected later this year. This was not only a significant contribution to our revenue for 2024, but a step forward in our understanding project-level implementation of our battery. ESS, rather than the utility, has responsibility for the EPC project scope and work at the customer site. which helps us to better understand full solution implementation and how our battery fits in with the site and grid connection. This foundation was instrumental in optimizing the design of the next generation of our technology, the energy-based product, which I will talk about in a little bit. This quarter, the first two energy centers that we manufactured in 2024 completed connection to the grid and passed final commissioning for Portland General Electric just two weeks ago in a real world utility application. Prior to the handover to PGE, we completed comprehensive on G19 testing of both units, cycling the unit to transact more than 350 megawatt hours. Our initial product deployments have and continue to yield invaluable real world field operating and use case data. The addition of the PGE Energy Center project, located right here in Wilsonville, gives us improved visibility into full grid implementation of our batteries, as well as on-site visibility to operability. Between our energy warehouses and energy centers, and total ESS batteries have now transacted almost two and a half gigawatt hours of energy across our global fleet. A great deal of this is not lab or subscale testing, but commercial system operation, including ongoing cycling at the solar tack and the planes facilities of our partner SoftBank Energy and Honeywell, respectively. We also have tested our batteries against industry standard metrics, including the ONG19 testing regime mentioned previously and PNNL testing. Second, We aggressively executed our cost young program for the Energy Center. We were able to achieve break even on our latest Energy Center design at the end of the fourth quarter of 2024, hitting our target almost a year faster than expected. We achieved this milestone by innovating within the core components of the battery design to improve performance, capacity, cost, manufacturability, and reliability. Put simply, we reduced our battery pack costs by nearly 50%. Tony will speak to this more in his segment. This cost reduction work translates directly to the improved cost profile of all future generations of our technology. Both of these efforts directly supported our longer-term vision to develop and productize a non-containerized optimal version of our product, which we are calling the energy base. We executed the soft launch of this product recently at InterSolar, on our website, and in recent FIT activity. Our first product-type solutions, the Energy Warehouse and the Energy Center, fit well for certain use cases, but they are inherently limited in scale because they are in a container. That said, the Energy Center utilizes the same scaled-up version of our power module technology that the Energy Base will use. And in adding the energy base to our technology portfolio, we can leverage the benefits of real-world learnings from supporting operating systems in the field. The non-containerized energy base is comprised of two distinct systems. The first system is an integrated SCID unit with our core technology with nominal discharge power of 400 kilowatts per core building block. The other system integrates the commoditized balance of system components, think tanks, pumps, and actuators. In the addition of the energy base, we redesigned the product with these two systems decoupled, which is transformational for our operations and approach to the market. First, it gives us more flexibility in our business and manufacturing strategy. ESS can focus its resources on the parts of the battery system where we have the most expertise and create the most incremental value. This facilitates ESS shipping its core intellectual property in the most concentrated manner and is expected to improve ESS's margin profile while giving us the option to secure a design process partner or procure contract manufacturing as a balance of system. We're actively exploring this model with Honeywell, leveraging their expertise in process design and procurement for core elements like tanks, pumps, and control systems. Second, the design accommodates the level of scale that truly solves for grid-level demands. The modular format of the energy base will vastly simplify manufacturing and shipment, especially for very large projects, and accommodate plug-and-play on-site deployment. In getting to this point, we have again worked deeply with our partner Honeywell to help drive improved industrialized design, particularly across balance of systems, to redeploy our core technology in a product form that is modular and scalable at the levels required to meet increasing energy demand. The most exciting thing about the new design is the significant impact to the technology form factor. We now have the ability to truly separate power delivery and total capacity, unlocking our ability to achieve durations beyond 8 to 10 hours by simply building larger tanks with more electrolyte. Our current roadmap targets 12-plus hour duration for our 2027 projects, and we have line of sight to 22 hours. These are projects that we are already implementing, and we plan to execute during 2025 and 2026. The extended duration expands our ability to meet the needs of our customers, including energy shifting, clean from capacity, and UPS deployment. This extended duration is in stark contrast to lithium ion deployments. Lithium ion is a two to four hour storage technology that provides incremental but not baseload storage capacity. For example, a typical daily solar power curve allows for 10 to 12 hours of solar to grid generation from approximately 6 a.m. to 6 p.m., of course varying by location and season, while recognizing that even the best regions in the world realize peak solar generation for roughly five to six hours in the middle of the day. During summer and winter peaking hours, when temperature control is required for homes and businesses, the need for energy extends beyond the maximum solar generation period. Four hour duration is not sufficient to meet the residual daily need. And we are already seeing lithium ion deployment in the eight hour space to address this issue. The need is even more pronounced for a rapidly growing corner of the energy ecosystem. Hyperscale AI data centers that effectively need baseload level energy storage to power normal operations with intermittent generation resources in order to serve as critical backup power supply, which currently tends to be served by diesel power generators. Additionally, the extended duration feature of the energy base dramatically reduces our total and sold costs on a capacity basis, be that megawatt hour or gigawatt hour, with the potential to not only compete but beat lithium on a dollar per megawatt hour basis. We have modeled costs against a variety of project sizes, including 5, 10, 50, and 100 megawatts. We will continue to execute on our existing opportunities in the 8 to 10-hour space, We are extremely excited to extend our duration to support future customer demands that most current technologies cannot. The energy base represents a natural, long-term configuration of the core ESS technology. In this model, we can customize capacity, power, and duration, optimize the customer needs. The timing of unlocking this potential seems to be synergistic. Demand for electricity has undergone its first major uptick in decades, as the power required by data centers has increased the trajectory of electricity usage across the globe. Between 2024 and 2040, electricity demand in the U.S. is expected to grow by 35 to 50 percent, driven by a combination of underlying economic growth, large industrial loads like data centers and manufacturing, and the electrification of transport and heating. This is bringing new mandates for green renewable power supplemented by safe, scalable energy storage to provide reliable, safe 24-7 coverage. ESS is vigorously pursuing this market. We are currently bidding on projects with the energy base and have already been shortlisted this quarter on one project representing a key market opportunity for us. We also have the opportunity to optimize our existing relationship with another ESS partner, South Bank Energy, who develops and operates American-made solar projects to help power data centers. South Bank Energy is just one example of a company that is prioritizing American-made components in its projects, and we are proud that making our batteries here in America is not new for ESS. as already recognized by the US Export-Import Bank under its Make More in America program. All of our manufacturing is conducted in our Wilsonville facility. We are not importing cells for US assembly. We have an extremely high degree of American-made inputs from our supply chain. Over 98% of the components in our bill of material are sourced domestically And we have already positioned ourselves with redundant suppliers domestically to maintain highly predictable supply while mitigating tariff risks. In addition, we believe there are positive legislative tailwinds for domestic long-duration energy storage manufacturers and recognition of the importance of continuing and strengthening several of the IRO tax credits that have helped scale domestic manufacturing of energy technology and reduce dependence on Chinese technology for energy projects. In short, we believe ESS is well positioned to support the administration's mission to reestablish American energy dominance at home and abroad. We believe we have a transformational opportunity ahead of us. To bolster our balance sheet, we are seeking to raise capital and have engaged financial advisors to manage that process. We are also pursuing financing for specific projects and are working with Honeywell to explore joint project delivery opportunities that will help ensure the success of projects for which we are selected in the near term. Our current process timeline is targeting transaction closing during the second quarter. The conclusion of this process is expected to give us the foundation to sell, manufacture, and deliver our future state tech. We also have learned hard-gained experience of areas where we can continue to build our team, including around the expansion of and support for our sales team in light of the broader range of project opportunities with the availability of extended duration, grid connectivity, software development, and product documentation, and we look forward to filling out these and other positional needs. Full implementation of our strategy will take some time to execute and we do expect the need for ramping in 2025. Our primary focus is on the back half of the year. We are actively bidding on projects and working our 2025 orders and we believe that the inherent scale of our newer product designs will allow us to better position ourselves to compete in RFPs and scale our operations. I also want to address the filing last Friday regarding our listing status with the NYSE. We received notice last week that we fell below the NYSE market cap requirement of $50 million over a 30-day period. We are taking action to remedy this situation, which includes submitting a plan of the NYSE and working to execute that plan within an 18-month cure period. Please refer to our recent 8 for more details. With that, I will pass it on to Tony to review the financials and our outlook.