Energy Vault Holdings, Inc.

Greetings and welcome to the Energy Vault first quarter 2022 earnings conference call. At this time, all participants are in a listen-only mode. A brief question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Lawrence Alexander. Thank you. You may begin.

Thank you. Good afternoon and welcome to Energy Vault's first quarter 2022 earnings conference call. As a reminder, Energy Vault's earnings release and the replay of this call will be available later today on the investor relations page of our website. This call is now being recorded. If you object in any way, please disconnect now. Please note that Energy Vault's earnings release and this call contain forward-looking statements that are subject to risk and uncertainties. These forward-looking statements are only predictions and may differ materially from the actual future events or results due to a variety of factors. We caution everyone to be guided in their analysis of Energy Vault by referring to our 10Q filing for a list of factors that could cause or results to differ from those anticipated in any forward-looking statement. We undertake no obligation to publicly update or revise any forward-looking statements except as required by law. In addition, please note that we'll be presenting and discussing certain non-GAAP information. Please refer to the Safe Harbour Disclaimer and non-GAAP financial measures presented in our earnings release for more details, including a reconciliation to comparable GAAP measures. Joining me on the call today is Robert Piconi, Chairman and Chief Executive Officer, and David Hitchcock, our Interim Financial Officer. At this time, I'd like to turn the call over to Robert Piconi.

Thank you, Lawrence, and welcome to everyone dialing in today. What a milestone with our first earnings review as a public company, and here we are already midway through the second quarter. It feels a bit like old times for me personally, given my prior roles in public companies. And I'm happy to be back and supporting our customers, investors, and the great people that are the foundation of our company here at Energy Vault. I'll begin the discussion today with a review and update on our progress as a company. From the founding a bit, but with a more near-term focus over the last three to six months in particular, both strategically and operationally. followed by an update of our successful execution relative to the plans that we first introduced to all public investors in September of last year. I will then turn the call over to David Hitchcock, who will cover our latest financial results in more detail. Well, let's go back to where we started as we founded the company. Our mission remains the same today as it was four and a half years ago, focused broadly on decarbonization, which to us means we are focused on solving one of the planet's most pressing issues that poses an existential threat to the world we live in. The need for our global society to develop and store cleaner and more renewable forms of energy, thus decarbonizing and securing the health of the planet for future generations. To accelerate the adoption of renewable energy, you need to be able to store it so it can become dispatchable power, Or we use phrases like clean energy on demand as we did in our early investor presentations. Today, new wind and solar plants are from 50 to 75 percent cheaper than the cheapest forms of fossil fuel. So what's the problem? The problem is that to store those same electrons that are generated is really hard to do in both an economical and sustainable way. In fact, it costs a minimum of five to ten times the cost of renewable generation power to actually store it. And today, there are just very limited solutions that can sustainably solve this problem in a way that makes it competitive with existing fossil fuel plants. As an industry, I would tell you that we are way behind the innovation curve here and that it is not positive for any of us in this position. The fact that pumped hydroelectric dams make up over 90% of all energy storage today really says it all. And unfortunately, we really can't build them anymore. But on the plus side, there are places like Idealab and people like Bill Gross and Andrea Pedretti, my co-founders in this project from the very beginning. Bill also being the founder of Idealab, whose passion has been focused on renewable energy since he was a kid. It has resulted in well over 100 companies being created since he's founded Idealab. It is because of technology innovators like Bill and Andrea, and like the people who work feverishly at Energy Vault to deliver for our customers, that I am optimistic, and also optimistic to see many new storage approaches and technologies coming about. Exciting, and I'm rooting for all the ones that can deliver both short and longer-term energy storage in a sustainable and economic way. Fortunately today, we have an incredibly supportive industry backdrop with tremendous long-term tailwinds of investments that will be needed urgently to secure the clean energy transition that's already underway. In the last 24 months in particular, we've seen a dramatic shift in global policy at both government and private sector levels. Some of the largest investment managers and public companies globally have in fact announced net carbon neutral goals over the next five to 15 years, while many countries have committed to carbon neutrality more broadly over the next 20 to 30 years. More recently, the war in Ukraine has also illustrated the need for many countries around the world, and really for our planet, including the United States, to more quickly develop increasing energy independence away from fossil fuels. And finally, and perhaps most impactful, investors of all sizes, employees of all organizations are voting with their checkbook and their feet. and demanding that the companies in which they invest in and the companies at which they work improve all facets of the sustainability of their businesses, including the choices these businesses are making for their supply chain partners and the carbon footprint of their infrastructure used to deliver their products and solutions. These factors individually are significant, but taken collectively demonstrate incredible support for the shift to renewables, and that will no longer be ignored. And that's the creation of our company, Energy Vault. We develop and are now deploying turnkey sustainable energy storage solutions designed to address the tremendous gap in the market today for utility scale energy storage that is required for decarbonization to maintain grid resiliency as a more intermittent and unpredictable wind and solar power come online to the grid. An essential component in achieving this economically is the use of sophisticated software, which is why we announced in October last year the creation of our Energy Vault Solutions Group and the addition of former Greensmith Energy leaders John Jung and Akshay Ludwa. The EVS team is leading the charge in bringing to market in record time our proprietary energy management system and optimization software suite, which is technology and hardware agnostic, and leverages sophisticated algorithms to orchestrate and optimize both energy generation and storage resources to help utilities, independent power producers, and large industrial energy users to significantly reduce their levelized cost of energy while maintaining power quality and grid reliability. This is similar to how telecommunications networks evolved. And in that similar fashion, our grid infrastructure is going through this same evolution. And as with telecom, software will play the major role in the optimization and distribution of electrons in our future. Our EBX gravity-based energy storage system, which I'll expand on in just a moment, has been designed to utilize eco-friendly materials, including waste materials for beneficial reuse when available for the massive composite bricks. And this touches back to our mission of decarbonization. And for us, that means not only cutting-edge technology and economics, but thinking about ourselves and the products that we produce in a more circular economic way. Thanks to the material science partnership with Cemex Labs and Davide Zampini, who leads Cemex's global R&D and Swiss lab, our default solution is to use the soil from the local excavation to make over 98% of the composite bricks, cheaper and more sustainable than concrete. But we don't stop there, and neither did CEMEX and our team of collaborations and scientists. We can also use coal ash, decommissioned wind blade fiberglass, tailings from the mining process, all things historically destined for landfills at a very high financial and environmental cost. The system also supports the creation of jobs for the local community, as a majority of our EBS systems are designed to be constructed with locally sourced materials and construction partners, which enables us to reduce supply chain risk and complements by our brick composite manufacturing process, which is executed locally at the site as well. Local equals less transportation as well, which equates to less GHGs overall from the transportation sector, and this is good for everyone. We fully recognize and embrace our responsibility as a company to facilitate the shift to a circular economy, while accelerating the clean energy transition for our customers, and believe we have developed a truly unique approach to the product design and to the supply chain management. While we are still far away from where we want to be, we are making great strides in leveraging the material science and innovative structural and civil engineering to help us get there, and I feel good about our progress in that regard. Let's come a little bit more forward. In 2018, we successfully developed a quarter scale prototype to prove the main technology and economic parameters, and then shifted in 2019 to a commercial scale demonstration of our first energy storage system. It was designed to prove out the main fundamentals of the technology with a full five megawatt system that was interconnected to the Swiss electrical grid in mid 2020. All core technology elements were proven and tested at commercial scale with 35 metric ton composite blocks, including the gravity based charging and discharging sequences to and from the grid. We were successful in reaching several key milestones and achieving first time development. This included, first, a third party validated round trip efficiency above 75%, which is a first for any mechanical storage system and well above any thermodynamic process for energy storage that exists in the market today. We proved out the software automation and orchestration with machine vision computerized control. And we also applied the innovative material science from Cemex and their Swiss-based laboratories to minimize the use of concrete and enable the beneficial reuse of locally sourced soil but also many other waste materials, as I mentioned previously. In doing so, we were able to replace concrete with local soil from the foundation excavation to make up more than 95% of the materials for the first-generation composite bricks. Our collaboration with Cemex has enabled the use of other waste materials otherwise destined for landfills for this beneficial reuse. These materials include coal ash, fiberglass from decommissioned wind blades, tailings from the mining processes, and even regular concrete debris that carry a heavy cost environmentally and financially while adding incremental greenhouse gases to the atmosphere from their transportation alone. This innovation established a strong circular economic value proposition for our customers that are making the clean energy transition while solving for large environmental liabilities on their balance sheet for disposal costs. After receiving feedback from customers on their desire to have a more modular system designed to address shorter duration and higher power applications in the two to four hour range as an alternative to lithium ion, while still allowing seamless scalability to longer duration needs with zero storage degradation, we were excited to introduce the new EVX platform in April 2021, coincident with the investment from Saudi Aramco Energy Ventures. EVX, which leverages the key technology elements demonstrated at scale in Switzerland, is packaged in a new form factor that is modular, enclosed, and scalable. Our EVX solution allows for us to deliver a system built for higher power and shorter duration needs, while also addressing longer duration requirements in the 8 to 12 hour plus range. Due to the more streamlined vertical motion of EVX's proprietary lifting systems, Round-trip efficiency improvements are expected to yield performance in the 80% to 85% range, adding significant economic benefits to our customers and the global community overall. As a result of our achievements and value offering, we have been fortunate to attract many of the largest companies as our strategic investors or customers, including Saudi Aramco, BHP, NTPC recently announced in India, NL Green Power, Korea Zinc, Pickering Energy, Cemex, and Atlas Renewable, to name a few of the larger names. We are humbled as an organization and grateful to have their support from these global companies that are market leaders in their respective rights. We would not be here today without their support. Let's move now to our progress in the quarter. Overall, I'm very pleased with what we achieved in the first quarter here. We recognize total revenue of $42.9 million associated with the recognition of revenue from our IP licensing and royalty agreement with Atlas Renewable that we announced in February. We received $20 million of cash from Atlas Renewable during the first quarter in connection with the licensing and royalty agreement, and we received the second scheduled payment of $25 million already in Q2, putting $45 million of the total $50 million 2022 license already in the bank. I cannot say enough about the commitment and partnership we're forming together with Atlas, China Tainying, Chairman Yen, who heads China Tainying, and I'll talk a little bit more about that further on. Given the margin flow through of the licensing and royalty-based revenue, we generated significant positive adjusted EBITDA of 31.2 million for the first quarter. As I know all of you are aware, We also completed our pipe investment and D-SPAC transaction in mid-February, resulting in net proceeds of $191 million to our balance sheet, solidifying the funding to execute on our plan and finishing the quarter with approximately $304 million of cash on hand. As previously announced, it is worth noting that two strategic customers, CreaZinc and Atlas Renewable, each invested $50 million into our pipe concurrent with our go public transaction, positioning us with a very strong balance sheet now and positioned with no long-term debt. I want to take a moment now to expand on some of our key highlights and achievements in the first quarter. We made important progress with our strategic partners, expanded our world-class leadership team, and ushered in a new board members along with a strategic advisory board. To provide a little more color on this, In January, we announced a strategic partnership with Korea Zinc and their subsidiary Sun Metals, which is an Australia-based zinc refinery. Korea Zinc's group is the largest producer of non-ferrous metals in the world and also includes wholly-owned subsidiaries Arc Energy, which resulted and recently announced with the closure of their acquisition of over 9 gigawatts of wind and solar generation projects in Australia. Kathy Danner, the vice chairwoman of Arc Energy, also joined the Energy Vault Strategic Advisory Board, which I will detail further in a minute. This partnership supports Korea's Inc. strategy to decarbonize their refining and smelting operations with expected project deployments to occur in the second half of 2022. I really want to recognize Korea's Inc. for their partnership in such a short period of time since November and December when we were talking about storage. and really setting a pace of leadership in the world of companies that set aggressive targets. They've set aggressive targets of 80% renewable generation to power their operations by 2030, but then putting the capital behind those targets in the recent acquisitions they announced, for example, of the 9 gigawatts of wind and solar. Very excited to be working with them, and we'll look forward to building on this partnership in the coming years. In addition to the IP licensing and royalty agreement I mentioned earlier, we took a significant step forward during the first quarter by breaking ground in China on the previously announced 100-megawatt-hour EVX facility with our partners Atlas Renewable and China-based recycling and environmental service company China Tianying. The 100-megawatt-hour gravity-based EVX system is being built adjacent to a wind farm and national grid site in Rudong, Jiangsu Province. located outside of Shanghai, to augment and balance China's national energy grid through the delivery of renewable energy to the State Grid Corporation of China, the world's largest utility company. I really want to also recognize Chairman Yan from China, Tai Ying, for his leadership in crafting this announcement and this organization that we've built now to deliver on what we're going to be doing with not only the first 100 megawatt hour gravity system, but also with our further on deployments that we're planning after that demonstration. Pausing also, it is very important to reiterate that both Atlas and Korea Zinc invested $50 million each into Energy Vault. This $100 million investment, coupled with cash received from our GO Public transaction, along with our Series C, which closed in September of 2021 for $107 million, increased our already strong balance sheet position to provide additional flexibility, making us well-positioned to execute on our growth strategy. The investments by these two entities really demonstrate the value proposition of our technology, and we're excited to have them as our partners. Also in February, we announced the appointment of two new board members to the Energy Vault board, Mary Beth Mendanis and Thomas Urtel, who bring strategic expertise in the areas of energy solutions and global corporate governance. respectively. Ms. Mendanez currently serves as Chief Executive Officer of Onyx Renewable Partners, a renewable and distributed energy solutions platform serving the commercial, industrial, and municipal sectors in North America. Mr. Rattel currently serves as Chief Accounting Officer at Strat Education Network and possesses more than 30 years of leadership experience advising audit committees and CCE executives on global corporate governance and financial matters. We are pleased to have both of these accomplished executives on our board. We also were successful in adding further talent and experience to our already strong executive bench. This morning we were excited to announce the addition of Josh McMorrow as the new Chief Legal Officer of Energy Vault. Josh joins our executive leadership team that is now at full strength and focused on executing our global expansion plans to deploy our innovative energy storage technologies. We are proud of our ongoing ability to attract world-class talent at our leadership level across the entirety of our operations. Moving to our Energy Vault Solutions businesses, or EVS, we made significant progress executing to our plan on the software development for a new energy management platform. As a reminder, we announced in Q4 2021 the formation of EVS, which is led by energy storage veteran John Johns and Akshay Ladwa. both of whom bring deep experience and expertise in grid scale energy storage technology integration. Looking to the balance of 2022, we are well positioned to begin supporting our customers this year with this proprietary technology. Importantly, our platform will be capable to support both energy generation and storage infrastructure integration across any energy storage technology owing to our hardware agnostic approach and optimize for a host of revenue generating grid services. Additionally, earlier last week, we announced with DG Fuels the doubling of size and increased scope of our previously announced project. Under the terms of the original agreement, we announced that we would provide 1.6 gigawatt hours, or 1,600 megawatt hours, of energy storage to support DG Fuels across three sustainable aviation fuel, or SAF, projects, with the first project originally slated for 500 megawatt hours in Louisiana. In October 2021, we invested alongside Black & Veatch and Hydrogen Pro in financing rounds for DG Fuels to support its continued development of the first SAF project in Louisiana. The upsized agreement, the SAF project is being developed to support up to 73 megawatts for 16 hours, reflecting a total of 1,168 megawatt hours in storage capacity. DG Fuels and their partners are planning to follow the Louisiana project with additional projects in British Columbia and Ohio, as previously announced, with an opportunity for total storage capacity of 2.2 gigawatt hours overall and up to $737 million in potential project revenue over these three projects. We also continue to deepen our relationship with Enel Green Power following our strategic collaboration announcement in June 2021. After the successful completion of phase one, which was the wind blade recycling and feasibility study report for the first gravity energy storage system deployment, we signed an MOU to move to the second phase for construction now of a gravity energy storage system in Snyder, Texas, a two-hour system at 18 megawatts and 36 megawatt hours with expected breaking ground in September of this year. We're really excited to showcase this technology in Texas with such an important partner like NL Green Power. I really want to thank Nicola Rossi, the Chief Innovation Officer at NL Green Power, as well as Salvatore Bernabe, the CEO of NL Green Power, who have known Energy Vault now the last two and a half years and have supported our development and diligence of our technology. Finally, we announced the Strategic Advisory Board in February to support me and my leadership team as we optimize our energy storage solution focus and longer-term strategic evolution. The Advisory Board consists of respected industry leaders from Energy Vault's existing investor and customer base who all bring relevant domain experience, deep knowledge of the evolving technology landscape, and each a proven track record of shareholder value creation. This includes leaders from Cemex, BHP Ventures, Saudi Aramco Energy Ventures, Arc Energy, Pickering Energy, Plus Volta, and NL Green Power. I'm really looking forward to their guidance of these customers and these investors as we continue to prioritize our innovation and our focus on our longer-term strategic roadmap. As we look at the balance of the year, here's an overview of what we expect. First, we will continue to make significant progress on the construction of the Atlas Renewable Project in Rudong, our first EVX facility in China. The speed and efficiency of local construction will enable us to test and deploy new and innovative cost reduction initiatives while leveraging the local Chinese supply chain for the local builds, but also for future optimization of our global deployments outside China for selected power electronic components, for example. Second, outside of China, Our focus this year will be executing with our strategic investors and customers in two very important and high-growth markets in Australia and the United States, with both our gravity-based storage solutions and our new Energy Vault software solutions, or EBS, which provides a seamless software platform to integrate and optimize both energy generation and storage systems to help customers better address the complexity of the network transitions. Third, We will continue to build out our global supply chain and other infrastructure capabilities as we begin to execute on our initial projects, sourcing and qualifying of critical materials, for example, and establishing key supplier relationships globally. We're really mindful to diversify our supply chain base to help eliminate as much potential disruption as is being seen in the current operating landscape across many sectors. And the fact that over 50% to 75% of our solution is done locally within the region is already an advantage in this sector. Finally, we continue to hire the best talent to ensure we can deliver on our mission. Our people represent the foundation of this company, and it is this talent and their passion to deliver and execute for our customers with courage, integrity, and above all, humility that drive our culture and make Energy Vault the place where the best talent in the industry wants to work. Overall, I'm very pleased with what we accomplished over the last quarter and energized as to what the future holds for us at Energy Vault. We'll now turn the call over to David Hitchcock, Energy Vault's Interim Chief Financial Officer, to cover our financial results in more detail.

Thanks, Rob. I'm pleased to be joining you today, and I look forward to meeting many of our investors and analysts in the near future. I will review our results for the quarter, but first, I would like to share my initial observations since joining Energy Vault in mid-April. So, I'm four weeks in and very happy that I was able to work with and see the team in action as the quarter and 10Q came together. It is clear to me that we have a solid base of talent on the finance team and a strong foundation of finance systems infrastructure and internal controls. In the near term, I plan to continue to work with my colleagues across the organization to identify areas where we can further enhance our capabilities as we mature as a public company to provide a best-in-class finance function, focusing on adding required resources to strengthen and solidify the team, and continuing to implement and strengthen key systems and processes to enhance our visibility into the business. Moving on to our financial results for the first quarter of 2022. Revenue in the quarter was $42.9 million, reflecting the license agreement with Atlas Renewable. Licensing revenue is largely recognized upon the transfer of intellectual property to the customer, which we partially completed in the first quarter. There's roughly $7 million for other services that we have deferred until we deliver them in the future. From a cash perspective, we received the first $20 million payment for the IP transfer in Q1, as rob mentioned earlier we have received the second scheduled payment of 25 million this quarter first quarter 2022 gross profit was 42.9 million driven by the atlas licensing revenue i just discussed the cost for developing the ip we transferred is included in our historical r d expense base sales and marketing costs for the first quarter of 2022 were 2.6 million compared to $.1 million in the prior year period, driven by an increase in marketing costs, including the cost for our IPO, along with expanded headcount and an increase in stock-based compensation expenses. Research and development costs for the first quarter of 2022 totaled $9.7 million, compared to $1 million in the prior year period, driven by an increase in personnel-related expenses, including stock-based compensation, depreciation, and engineering and development costs. GNA for the first quarter was $9.8 million compared to $1.9 million in the prior year period. Primary drivers for these increases were due to an increase in personnel, stock-based compensation expenses, legal fees, insurance, consultants, and other expenses. In line with our business plan, we expect that our operating expenses will continue to increase for the foreseeable future as we further expand globally and invest in the overall growth of the business. Operating income for the first quarter of 2022 was $20.9 million, an improvement from a loss of $3 million in the prior year period, again, driven by the recognition of the high margin licensing revenue. I should note that the operating income includes a charge of $9.2 million for non-cash stock-based compensation expense. First quarter 2022 adjusted EBITDA was $31.2 million, compared to a negative $3 million in the prior year period. Our earnings release and 10Q, which we filed this afternoon, includes a bridge from net income to adjusted EBITDA. The key non-cash or non-recurring items that we added back are the $9.2 million of stock-based compensation, $20.2 million of change in fair... fair value of our warrant liability relating to our public and private warrants, and $20.6 million of transaction costs. As of March 31, 2022, we had approximately $304 million in cash and cash equivalents, leaving us well positioned to continue to progress on our growth objectives in 2022 and beyond. The first quarter, which included the closing of the D-SPAC and the pipe, was a very strong start to the year from a financial perspective. That, coupled with the commercial initiatives Rob discussed and those that we have in progress, give us a good line of sight to delivering on our 2022 top-line plan. Looking forward, we are focused on executing for strategic partners and customers and delivering on our business plan. I will now turn the call back over to Rob.

David, thank you. And I just want to compliment also you on four weeks in and getting up to speed on the business here so quickly. David is somebody that I've known from about 20 years ago and in our past that crossed together in the telecommunications industry and was able to convince him to come out of retirement to join us here on our mission. So I want to thank you, David, for doing that. Thanks. I'm pleased with our first quarter of 2022 as we made substantial progress towards achieving our goals. We're very well positioned through the balance now as we enjoy a number of supportive factors. Those factors include a first strong Q1 financial performance, as David just reviewed, across our income statement and cash flow, but perhaps more importantly, strong customer commercial validation across some of the largest customers and the most important markets for renewables and energy storage across the globe. We had a growing number of signed LOIs and executed agreements totaling approximately 2,500 megawatt hours or 2.5 gigawatt hours across our gravity energy storage system portfolio alone. These are the signals that really, to me, give a lot of confidence and a lot of visibility as we look forward now into the business with our deployments this year and in the following years. We also built a strong differentiation in sustainability, from the beneficial reuse of waste materials to leveraging a localized supply chain that minimizes greenhouse gases from the transportation sector and supports local job growth. And I think this aspect of our sustainability is so important for our customers, it's important for our investors, our employees, cite this reason for joining the company, that we're thinking not only about what we produce and how we produce it, and I'll finish with the fact that we're the only energy storage company that has this aspect for the beneficial reuse of waste materials. We've had a great partnership with Cemex along the way in this development, and we continue to build on that partnership across the globe. And finally, we finish with a world-class management and employee base, globally diverse, deep domain expertise, large project development and construction experience with most all of us with strong prior public company experience and a track record of delivering results. But what unites us is the universal passion toward broader clean energy adoption and deployment of energy storage that enables it. Finally, I want to finish the call with a thank you to all of our employees for their hard work and dedication, in particular over the last six to nine months as we went in to the IPO market and to the SPAC market, announced the deal, and had to keep focused on our customers. They never took their eye off delivery for our customers while we navigated both the pre-IPO market to support our transition to a public company and then became public. and began to execute as a public company. With their focus, determination, and passion to the decarbonization of our planet, none of this would be possible. I think about our employees in three groups. The first group, and to give an example of how we built this company, was a group that made it through the very difficult COVID period and uncertain times where all of us had to take up to 50% salary cuts. We did not lose one employee. through that period and it's just a testament to their dedication and passion for our mission and also to keep focused on the prize through a very difficult and uncertain period. There's another group of employees as we tripled the size of the company in terms of employee headcount in the last 12 to 14 months that joined us from other companies that were much larger, much more predictable, that had revenue, that weren't going through an IPO process, and weren't associated with the SPAC market that came under a lot of criticism back in the second half of last year. I really want to thank those employees for their faith in us, for joining us, for staying true to their desire to pursue decarbonization with a company with a global footprint now of customers to go execute against. And then just as an example to point out just the recent hires announced, I already mentioned David Hitchcock, who had a very successful career as both a public company and private company CFO for also a large private equity firm. Kevin Keough, we also announced concurrent with David. I worked with Kevin Keough at Danaher. Most of you are aware Danaher is the most successful public company for about 25 years, averaging between 19 and 20% return on equity. They have a real recipe there for delivering results. I spent time there, Lawrence Alexander, who's next to me here, our chief investor officer. We bring that experience here to this company, and these are people that have chosen to join us with our mission. And then this morning, announcing Josh McMorrow, based out of Germany, and a very seasoned legal officer across various industries, some of them the energy sector, a few IPOs under his belt, and a lot of strategic transactions. And I want to officially Welcome all the new folks. Thank all of our employees in the company and a tribute to all of you for us being here today and beginning our process as a public company with our first quarterly earnings. With that, operator, we're now ready for questions.

Thank you. We will now be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star key. Your first question comes from Steven Gengaro with CECL. Please go ahead.

Hello, gentlemen. Congrats on a good start.

Hey, there. Thank you.

Well, thanks for taking the time to, and thanks for taking my question. So two things I wanted to touch on. One is, I mean, you know, clearly the royalty payments were a big plus in the quarter. When we started thinking about sort of how the year looks, and without asking sort of for specific guidance numbers, but when you start thinking about kind of the revenue, you know, recognition on projects and how we think about 22 and 3 unfolding and Maybe relative to even the management forecast you put out there during the process, I think 150-ish million this year and 530-ish next year. How is the progress there? How should we think about how the year unfolds from here?

Great. Thanks, Stephen. Well, to the first comment on the license revenue, that obviously is more of a one-time item. We're very happy to have not only that recognized, but 45 of the 50 million in the bank. So that cash obviously is going to go to use to support our developments for the rest of the year, which I think is the main focus of your question, which is how does the rest of the year look in terms of, you mentioned revenue rack and execution. So we have projects that we had just talked about above in the commentary here that are going to be in the United States and Australia. in addition to building out the 100 megawatt hour project in China. So I would say from a regional perspective, those regions are going to be our focus. We have a lot of demand in a lot of other places. We announced Steven NTPC in India and working toward now a collaboration with them to really look at their evolution into renewables over 60 gigawatts. Some of these players we're just not going to be able to get to this year, but for the core ones that I mentioned, in these locales, you can expect that we're going to begin with revenue recognition for gravity projects in our third quarter this year and then for the second half, through the second half. As you're aware, we recognize revenue on a percentage of complete accounting mechanisms, so that's under U.S. GAAP. So as we build the systems and build them out toward progress milestones and get payments from customers along the way, we're allowed to recognize that revenue. So we'll be matching up the cost we're spending with our progress and recognizing revenue in line with those projects. You know, we talked about here in the release NL Green Power in Texas, so we fully expect to get started on that in earnest in the second half. We also mentioned Korea Zinc, BHP in Australia. They're both investors and customers, so that's a big focus for us, and we mentioned the 100-megawatt hour in China and Rudong that will continue now to be built out from the breaking ground in March of last quarter.

Great. Now, that's helpful color, Rob. And the other question I just want to touch on was, at this point, when do you think you'll have your first commercial operational facility operating?

So we've always said, as we went through the investor discussions, that we would be building this year and turning over in 2023. I do think as we got started very quickly in China, even that China unit from the February announcement to the mid-March of breaking ground has moved and is moving very quickly, as you've Tad Piper- I think heard a bit on the way the license payments have come through to us with most of it on the balance sheet now. Tad Piper- And the fact that they not only are already breaking ground, but they announced also last week China timing announced the agreement with a local. Tad Piper- grid operator for the integration of the grid into the state grid, so I would say that, if any units going to be first to turn over, I think. in China just outside of Shanghai there would probably be the first unit that we turn over based on how I see them moving, based on the fact that we're already in the ground there, and just the tremendous support that we've had from the local company, from Atlas Renewable, and quite frankly from the local regional and municipal authorities in really expediting a lot of the approvals to have something announced and then breaking ground within six weeks with all permitting and things in place. So I believe pretty strongly that that's probably where we're going to see our first unit that gets turned over.

Great. Thank you for the call.

All right. Thank you, Stephen.

Your next question comes from Thomas Boyce with Cohen & Company. Please go ahead.

Thanks for taking my questions. The first one would be, you know, I'd just love to get a better understanding of maybe what the CapEx expectations are for the year. I would imagine a good portion of it would be earmarked for the construction of maybe the mobile mass machines. So, you know, any insight there would be helpful. Maybe as a follow-up, you know, what are the costs of the mobile mass machine and, you know, how should that trend over time?

Sure. Yeah, the primary use of our capital is going to be associated with our brick machines, as you know. So that's really our main CapEx. We Originally, Thomas had budgeted in our very first five-year plan a lot of capital, I think over $300 million over three years, to use for a lot of on-balance sheet financing and co-equity investments in order to get the projects built. That's really changed significantly from what our expectations were over a year ago, that we have customers that really want to acquire and own these things. So that's not to say that we aren't going to deploy capital strategically with some projects where we feel it's relevant. As we announced with DG Fuels, for example, we did invest a bit in that project. But in general, the bulk of the CapEx is going to be focused on these brick machines and a little bit also in these initial projects focused on building out to a little higher level are overall EPC and construction management. I think as you're aware, it's a difficult environment out there for a lot of the companies that are actually very busy in building and constructing, especially with some of the supply chain challenges. So that's put some stress in the system. And we want to de-stress that a bit with investing a bit in our resources. That includes the software team, by the way, that we announced in October bringing that on. So, I'd say from a CAPEX planning perspective, primarily no surprise around these brick machines. You know, you asked roughly how much are they. So, they're a modular type of brick machine construction. So, they can, you know, for smaller projects, you know, we'll make them from anywhere from the two to four million range. For larger ones, we can build them out or do multiple manufacturing lines and spend more. Even if we spend more on a single project, these things are amortized over many, many projects over many, many years. So, we own them, so they will move around locally in the region. We aren't going to be shipping these things over oceans. They'll be built in regions, they'll be shipped in regions, and we will reutilize those from site to site on a country and a regional level.

Excellent. I appreciate the color. Maybe just switching quickly over to the licensing business, what are the expectations for that outside of China? Are there other places that you think that model makes sense for specific market or geography?

Yeah, we had budgeted some licensing in our plan. Now, we didn't budget as much so early in our five-year plan, so this was a disagreement. And as I think you're aware, we hadn't budgeted volume in China. We always just put together an individual line item in our internal budgets for licensing, but this was a little larger on the earlier front. As far as other locations and regions, there are other regions where this could make sense, and those are things we're exploring. We really like this model, Thomas, because it enables us to work with the right local partners with a design that's existing and proven. for them just to go execute and for us to support what they need on roadmaps and even what they need from a technical support perspective as required, and then they just go execute. For that model to be successful, and I would say what we've done in China, despite being unique in the sense of an introduction of a new U.S. disruptive technology concurrent in China, so a U.S. disruptive technology introduced in China first and in parallel with other continents. I mean, in my 30-year career, I don't recall new U.S. technology starting in China. So that was significant of itself. But the fact that this company has invested over 95 of 100 million in energy vault now. So think about that. They've invested in a way that demonstrates that they're committed, that they're going to protect RIP, and that they want to go build a big business to solve massive problem in China I think is you you're probably aware that China is planning to increase greenhouse gases for the next nine years till 2030 and then they're only going to become net carbon neutral in 2060 and that's something the whole world will suffer so I'd say that in terms of us looking at these opportunities to license I think it's a great model that starts with having the right partner and where you can move very quickly, and it's the right balance, I think, between the partner leveraging their network locally and executing and building, and us just supporting and having a royalty stream that's ongoing relative to that volume deployment. So I think the way we structure China, I think, is a great model, and we will seek to replicate that in the right locations.

Absolutely. I appreciate the insight. I'll hop back in here. Thanks, Donna.

Next question comes from Joseph Osha with Gubenheim Partners. Please go ahead.

Hi, guys, and I'm sorry if this question is duplicative. I got booted off and I had to get back on. You had in the past been willing to share sort of an aggregate megawatt backlog or commitment numbers. Is that something that you're able to to do today, or did you perhaps share that when I was off the call?

Yeah, we actually, through some of the talking points here, we had shared that. So that same number, Joe, that you'll remember from before in our investment reviews back in Q4, we pointed to that number as well, which is about 2.5 gigawatt hours between LOIs, MOUs, and agreements. And that's You know, that's significant in the sense of there are things we sign where we've been selected as the technology and even as the company, and we work forward to get to a notice to proceed that then generates a final announcement and something similar in nature to what we discussed on this call already, for example, pointing to the Enel Green Power project where we actually named the location and the sizing of it. So, yeah, that would be the number, I think, that would be the reference points right now in terms of the things we've executed in different stages of agreements that are the things we're going to be building to now as things progress to notice to proceed and as we go forward here for the rest of the year and into next year.

Okay. Thank you. That's helpful. And I assume assigning... a duration to that is a little difficult, so we should just probably think of it in gigawatt hour terms.

Yeah, I think that's in megawatt hours or gigawatt hour terms for now. When we get to the specific project where the customer allows us, we may be explicit with the power. So, for example, what have we said already? China, it's 25 megawatt, 100 megawatt hours, so that's a four-hour system. we disclosed the NL Green Power, both power and duration, 18 megawatts, 36 megawatt hours. Interesting, Joe, that's a two-hour system for gravity, right, for the largest global IPP in the world. So I think these are significant, and it also demonstrates why our strategy for EBX was the right one. It was market-driven based on what our customers tell us, and that's why we adapted and went to the EBX architecture so we could participate in this higher end of shorter duration and have something that's flexible, modular, customizable, because our customers were asking us for it.

Okay, that makes sense. Thank you. I also wanted to ask, as you talk about turning units over, and I did hear that discussion vis-à-vis China, what sort of tests in terms of performance or customer acceptance do you face? And are there any concerns you have or hurdles we might want to think about once you turn a project over, you know, in terms of being able to recognize revenue?

Yeah. So the first question, what are the things we have to measure in turning something over? So typically there's a number of days that we have to operate the system after commissioning. that it'll be operating that generates our ability to have a final last payment from the customer. And typically our contracts are structured on availability of power. So first of all, we have to have a certain percentage on, let's say, of being able to provide and discharge power. In addition, I'd say probably the main other performance metric is efficiency or round trip efficiency. So that's another important aspect, which is why, to your second question, do I have any concerns? The reason we spent the capital and did a large Series B with SoftBank was to build out a commercial scale system, and not only build it, but interconnect it not to diesel gens or other infrastructure locally, but interconnect it to a live grid. So that investment And all that testing and all of the optimization that we did allowed us to optimize the overall solution. And all those learnings, Joe, went into the development and design of EVX. So in terms of concerns, we've done this before. We've done it at scale. It's gravity. It's not an idea. It's the law, right, for centuries, for lifetimes. So I'd say that for the core piece of the technology, and we're using As you know, motors and power electronics from the likes of GE, NEDEC, Siemens, ABB, all the companies that have been around forever making these things for pumped hydroelectric dams and a lot of other systems. From a technology risk, throw in the software that obviously is pretty sophisticated, but we also proved that out, and we're building a building. We're building a 20-story building as far as that goes. So I don't really see a lot of risk there. That doesn't mean that on first systems will it take a little longer maybe to commission some of them. It might. But that's just a when question, not an if. And as I said, the main confidence we have is the fact that we already have integrated these things together in a new system called our EB1 tower that's still in Switzerland that we're going to actually be taking down here over the next few quarters. But in any event, I think we feel pretty good on both the technical viability, the lack of risk on the technology side, and our ability to, regardless, get these things turned over in a pretty efficient way. All right. Thank you very much. Great. Thanks, Joe.

Next question comes from Brian Lee with Goldman Sachs. Please go ahead.

Hey, guys. Good afternoon. Thanks for taking the questions. I hopped on a little bit late, so hey, how's it going? I might have missed this, but can you actually quantify your sort of top-line guidance for 2022? I know the last time you published a forecast, I think it was for $148 million of revenue in 2022 and then post that. you announced the $50 million licensing agreement with Atlas, which sounds encouraging. You're receiving those funds. So if my math is right, I guess it implies something in the roughly $200 million top-line range for recognized revenue in 2022. You made a comment during the prepared remarks that you feel pretty comfortable about the guidance. Is that the right number to be thinking about in the models here? You're reconfirming the $200 million or so? on top line for 2022?

Yeah, this is David. I don't think we reconfirmed a 200 number. I think, you know, given the good start in the first quarter and the projects that Rob laid out as he went through all of our commercial progress, that we are focused and we've got good line of sight on delivering roughly $148 million for the year.

Okay, inclusive of the licensing. Okay, that's fair. And then maybe two, you know, more specific questions just as we try to calibrate the model. One is you mentioned Enel and, you know, Korea Zinc and Atlas. I know DG Fuels, you also mentioned them, but can you kind of give us an update as to the progress with that large customer and then whether or not you're anticipating to see shipments and revenue recognition from them this year. And then secondly, on Atlas, outside of the $50 million licensing revenue you'll see, can you give us a sense of the range of revenue you'll see on the 100 megawatt hour deployment, given that's the first one? It sounds like that's going to be fully online and, you know, sounds like could be in 2022 when it's all said and done. Thank you.

Yeah, thanks, Brian. It's Rob here. I'll take these. I'd say, first of all, regarding DG Fuels, we just announced, as you would have seen, the upscope of that first contract, which was more than doubling it. And we, as far as the timing of that project, will be up to finally DG Fuels and finalizing, as now we have a larger upscope, a lot of the work to put that together in terms of when we're actually going to get to a notice to proceed. Okay. We haven't assumed any of that revenue necessarily in this year. Okay. And so, as David said, just to reiterate, you know, our public guidance has always been 148 million. If we announce something afterwards, that doesn't mean it's on top of the 148. That means that it's just a part of what we're announcing toward our number for the year, which has not changed. And as David said, you know, we feel good about where we are with this start. the projects underway. I would add, in addition to Korea Zinc, as you mentioned in their wholly owned companies, Arc Energy and Sun Metals, BHP to Australia. So they're, as you know, both an investor and someone we're working with on storage. For the 100 megawatt hour in China, we are and have started building that. And we'll be giving, I think at our next call, some guidance on the rough timing of that. It's obviously gotten started. already, and we're working with them on, you know, supporting a lot of the development now that they're in the ground with the piling activity and things. It was pretty amazing. Brian, they, you know, as I mentioned on the call, I don't know if you caught it because you said you came in a little later, but they, from the timing of the announcement, February, I think it was actually February 1st was when we announced it, the pipe investment of $50 million and then the license and royalty deal, they were in the ground in six weeks. And, you know, China never ceases to amaze me. I've been working across three industries over the last 30 years there, so I will never underestimate, you know, the speed and efficiency that they can move around infrastructure, which is what this is. So, to your question, I think on the, you know, on the ability of what that, where is that going to fit in our plan, it's already in the ground. I expect that will be a part of our plan. And we'll give some updates next time around on what that's going to be relative to the second half of this year.

All right. Thanks a lot. Appreciate it. Yep.

Yep.

Next question comes from Noel Parks with Tui Brothers. Please go ahead.

Hi.

Good afternoon. Hey, Noel. How are you? Real good. Thanks. You know, I wondered if you would talk a little bit about total cost of ownership and, of course, with some of the geopolitical events we've had on top of big upsurge that there's been in lithium pricing. I know originally you talked about the differential between your total cost of ownership versus a lithium storage solution. I wonder, have you done any updated calculations or do you have a feel for what that that delta might look like now at current prices?

Yeah. Well, look, what I can tell you about that, because unfortunately that type of question is always, it depends, and let me be very clear on what I mean by that. There's a power duration, there's a duration of the storage, and then there's the power that you have to deliver that, just as an example, the two projects we mentioned here where we were specific on them, you have an L with 18 megawatt, 36 megawatt hour, a two-hour system that will have a a certain cost profile based on what you have to invest to deliver that power and only over two hours. Then you have a system like the one in China that's 25 megawatt over four hours, so 100 megawatt hours. So that's going to have a different type of a profile. So there'll be a range of costs across the different power that you define and across the duration. Now, that being said, let me get into your question a bit on, you know, the components of that. What you're calling total cost of ownership, we look at it as levelized cost of energy or storage that feeds into the levelized cost of energy. So, you know, typically you have a CapEx component. So, you asked about lithium. So, we share that with lithium. We both have CapEx that you have to invest up front to build the system. That's number one. Now, secondly, lithium has, that we don't, what's called augmentation CapEx. That means As their battery cells degrade, because those cells degrade, as you know, just like your cell phone or laptop or your electric vehicle car, those cells have to be replaced after certain years. And the more you cycle it, they deplete at an accelerated rate. So the second component of levelized cost is what's called augmentation capex, where there's technologies that degrade, and that would be lithium ion, as you asked about. The third component is the operating expense. Okay. So this is a very important component because this drives, you know, what goes to the P&L every year for customers. So they're very sensitive on this point. And, you know, as far as lithium ion goes, those facilities have to be air conditioned, for example. So if they're in hot areas, you know, you're going to get a, you know, a higher type of an opex cost vis-a-vis what we have. We have, you know, we have, you know, power electronics, but we're in essentially a covered building, but we can operate really under any ambient temperature without any specialized cooling or heating. So we have, I think, an advantage relative to the operating expense of these things. And we're just infrastructure. We don't degrade as well, Noel, as you know. So you don't have to replace anything on our system except under normal maintenance of some of the motors and the power electronics. There's a normal maintenance schedule on things like bearings and cables and things like that. So those things you replace, but you aren't replacing whole battery cells. So for us, because of also this fact that we don't degrade, that's another significant benefit, both on augmentation capex, which we don't have, as I said, and even on that operating expense. And then you get into end of life. You know, I think technology will evolve, hopefully, to recycle more and more of what today constitutes a lithium ion battery. We're not there yet. So that's a little bit of a liability. on balance sheets. For us, we're just a building and our infrastructure can be built and last, you know, we say our technical life is 30 plus years. So it's a, you know, it's a building and just like pumped hydro electric dams, they've been going for almost 100 years. A lot of them are 40 to 50 years old and I don't think anybody's going to take them down. So we have a pretty long technical life. Does that help at least frame the comparison?

It does. It's interesting because sort of just beyond the raw materials cost going into lithium storage, especially the operating and augmentation costs are helpful. Yeah, so thanks. Yep. Okay.

Thank you. I would now like to turn the floor over to Rob Picone for closing remarks.

Okay, great. Thank you, operator. And I want to thank everybody that's taken some time to listen in with us today as hopefully you got a sense from us. We're really excited about the start that we have today. But more importantly, we're excited about the market validations and the commercial and customer progress that are things you don't see in the last quarter and you may not see in the next quarter. But these announcements that we've made with the largest companies in their respective countries for power, NTPC, for example, the largest power provider in India, with the likes of large industrial giants like Korea Zinc, like BHP, with groups that are distributing and building out renewables and signing long-term agreements with utilities like NL Green Power, so the largest global IPP in the world. It's very, very significant and gives us a lot of confidence as we continue to build those relationships that are, some of them quite new. So both KoreaZinc and Atlas is a bit new, but just seeing tremendous focus from them. And in particular in China, as you heard, the speed that we're moving there is really unprecedented from anywhere else in the world. So anyway, I want to thank all of you here for listening in. And again, thank our employees for supporting our development and who continue to support our development up to this point. Thank you very much.

Thank you. This concludes today's teleconference. You may disconnect your lines at this time, and thank you for your participation.