Energy Vault Holdings, Inc.

Greetings and welcome to Energy Vault third quarter 2022 earnings conference call. At this time, our 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, sir. You may begin.

Thank you and good afternoon and welcome to Energy Vault's third quarter 2022 earnings conference call. As a reminder, Energy Vault's earnings release and an updated third quarter earnings presentation is available now on our investor website, and we will be referring to the presentation during this call. A 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 estimates 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 those factors that cause our 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 will be presenting and discussing certain non-GAAP information. Please refer to the Safe Harbor disclaimer and non-GAAP financial measures presented in our earnings release for more details, including a reconciliation to comparable GAAP measures. Joining me today on the call is Robert Piconi, our Chairman and Chief Executive Officer, David Hitchcock, our Interim Financial Officer, and Jan Kees van Gaaland, our newly appointed Chief Financial Officer. At this time, I'd like to turn over the call to Robert Piconi.

Thank you, Lauren. And I'd like to welcome everyone to our third quarter 2022 financial results conference call. We've a lot to share today. I'm real excited about around our commercial and operational progress, as well as a myriad of new customer project awards. But I want to start my remarks by first welcoming our new Chief Financial Officer, Jan Kees van Galen. Many of you might be familiar with Young Case if you're in this industry, as he comes to us with extensive financial leadership experience directly in the energy industry in a career spanning 35 years across 20-plus countries around the globe. The Energy Vault team and I are looking forward to work with Young Case and the contributions he will make as we expand our global infrastructure, fortify our financial and cash discipline within our rapid growth envelope, and continue to build the institutional investor relationships as we meet our commitments and execute our plans. I'd also like to thank David Hitchcock, who's sitting here with me, for all the support the last six months on an interim basis post our successful IPO earlier this year. It's never easy to have an accomplished CFO like David come out of retirement to work in a public company role again, but I've really appreciated David's contributions at this stage of the company's growth to ensure we continue our focus on sound financial management practices while pursuing profitable growth in both our commercial and operational ramp up this year. So thank you, David, for that.

Welcome.

Given both the size and technology diversity of the new project awards that we are announcing today, I thought I would start with a refresher on our strategy within a framework of the last 12 months of execution and the public announcements and why it's differentiated to our customers. I would then like to discuss our recent project contract signings and awards that you may have seen announced in our press release. As you can see on slide five of our earnings presentation, which for the first time we're giving some segmentation to our bookings, short listings, and final project awards, we converted nearly 500 megawatt hours of prior project awards announced last quarter to signed booked orders. In addition, the commercial team executed on over two gigawatt hours of new project awards in the quarter, including our first long-duration hybrid system, a 300 megawatt-hour battery and green hydrogen project utility scale, supporting a 48-hour storage duration with a large Western public utility. That brings our total signed contracts and customer project awards now to a total of 4.8 gigawatt hours, representing approximately $2 billion of potential revenue as we convert the awards to contracts as we did last quarter. To put that number into perspective, Bloomberg New Energy Finance expects 35 gigawatt hours of energy storage systems to be deployed in 2022. This is where our focus on project size and scale really begins to shine. We expect to continue the rapid pace of new project awards and subsequent contract conversion given the global customer demand. And as you'll see reflected on page five of the investor presentation, showing a total of 15 and a half gigawatt hours of submitted proposals and shortlisted status alone. The numbers really tell the story here. When you factor in the rate of growth we are delivering in new project awards, the large size and scale of each individual project, and the technology diversification across energy storage mediums, you can get a quick sense of the market adoption and readiness that reflects our product differentiation and software capabilities. Hence, a strong validation of our solutions-based approach. Let's spend a little bit of time now talking about long versus short duration. We always get a lot of questions here, especially with the development evolution of our strategy. Fundamentally, our strategy and its success revolve around solving customer problems. It's really all about that. and the immense transition they are going through. Uniquely, our customers include not only public utilities and independent power providers, but also some of the largest industrial energy users and enterprises in their respective industry sectors that are transitioning away from fossil fuel-based energy to renewables. Many of these customers, like Korea Zinc, Arc Energy, BHP, and Saudi Aramco, are also investors in Energy Vault, and we leverage their strategic insights into our technology roadmap through our strategic advisory board, which convenes quarterly. One thing has been clear through all of our customer interactions since we started this company, and we listen to our customers. There is no silver bullet in energy storage, and most customers will be deploying multiple forms of short and long duration storage supporting different applications, hence the important role that software will play in the overall management and distribution of energy. Now, to be clear, that doesn't mean that we have to be everything to everyone, hence the role of software. Over one year ago, we announced the creation of our EV Solutions Group, concurrent with the hiring of some of the most experienced talent in the industry in not only energy management software development, but also, and very critically, energy storage system integration, with an impeccable record of safety on over 100 projects deployed in 12 countries. We have executed and the team has executed very well ahead of plan on our energy management software platform, which is not only supporting adoption of our gravity storage solutions for direct and licensing opportunities that were previously announced, but has also provided a platform to address the immediate market need in shorter duration storage. The energy management system also enables our ability to introduce new hybrid system solutions, combining, for example, short-duration with ultra-long-duration green hydrogen, as referenced earlier, with a large Western public utility. I'll emphasize here that no energy storage company is providing customers this type of flexibility today except Energy Vault, and we will continue to advance our penetration and differentiation with these solutions to more economically and reliably address customer challenges. Our technology-agnostic software solution provides customers with that flexibility, that flexibility needed to remain agile as their energy storage needs evolve over time. I frequently get asked about market development, and specifically this topic of short versus long duration, and where we see the market in the coming five to 10 years. Long duration storage and really unique ways to economically store energy over greater timeframes as we do with our gravity energy storage system are absolutely critical to ensure grid stability and resiliency and will become more critical in the intermediate to long term as renewables become a greater percentage of power generation. Today, however, let's be clear, over 90% of new grid scale energy storage deployments are in the two to four hour duration range. with traditional lithium ion-based batteries being the industry standard to meet those needs. The recent IRA legislation has further strengthened the near-term demand for all forms of energy storage and include premiums for non-lithium and localized U.S. content for storage. Energy Vault will take advantage of this with our customers across the entire portfolio. We anticipate this market to continue growing over 20% annually for the next decade. And as highlighted by our rapid and extensive commercial progress, Energy Vault has proven we can and expect to be a significant leader in this area, growing above that rate. As renewable energy penetration continues to increase, the reliance and need for long-duration energy storage will grow. Energy Vault is well positioned to meet our customer needs with our proprietary EVX gravity-based energy storage solution that is technically and commercially optimized for four to 12 plus hours duration. As demonstrated by early industrial energy and emerging sustainable aviation fuel adopters of the technology, as well as our list of strategic investors, which I mentioned above, BHP, Korea Zinc, Saudi Aramco, and Atlas Renewable, interest in deploying Graviton Energy Storage remains strong. We are keenly focused on deploying EBX for our customers, and our team dedicated to this effort, technically led by Andrea Pedretti, continues to make significant progress on both cost and carbon footprint reduction and eventually carbon absorption. Using new technology to disrupt existing markets is definitely not new to this team and has been and will continue to be a key part of our culture. As such, with our energy management software platform at its core, very happy to introduce for the first time green hydrogen as a third pillar of our storage technology portfolio to complement our existing battery and gravity technology offerings. The introduction of hydrogen into our portfolio was driven by a combination of market need for integrated short and ultra long duration solutions and our internal capabilities to meet this demand with our flexible software architecture. This first hybrid utility scale battery plus green hydrogen project award from a large public Western utility further validates our solutions based approach and the power power of our new software architecture. I want to emphasize that customers and investors of all sorts, that this is a first announcement of its kind at this scale in our industry. While many players in the industry are taking a single technology siloed approach, what we provide is a technology diversification which can solve a wider range of use cases across both short and long duration needs and expand our total addressable market. We listen to our customers and prioritize investments to their needs. Customer validation of our strategy is reflected in our strong and steady commercial progress as we execute on our 2022 regional priorities for deployment in the US, Australia, and China. And today we're thrilled to announce further geographic expansion with our first inroads into the European market. We expect this commercial momentum to continue throughout the remainder of the year and into 2023, as we in the industry continue to benefit from macro tailwinds. Now let's turn to some of the specific deal highlights. We announced the official contract signing of a 275 megawatt hour project with Wellhead Electric and a 220 megawatt hour project with Jupiter Power. Engineering, procurement, and construction of these first two projects has begun, and we remain on track for deployment and delivery during the second half of 2023. As previously stated, we recognize revenues on a percentage of completion basis and expect to realize the bulk of the revenue associated with these projects beginning this quarter in Q4 2022 and into 2023. We also continue to build out our pipeline with two additional recent awards in our battery-based solution business, one for a 250 megawatt, 500 megawatt hour project with Meadow Creek in Australia, and a 410 megawatt, 820 megawatt hour project in Europe with a large renewable energy developer. This is one of the largest projects announced to date. These projects extend our geographic reach and diversification, making our first deployment in Europe and our first shorter duration project to complement our long duration gravity project in Australia, two areas that are seeing significant growth in demand for energy storage. Australia's power markets are ideal for energy storage deployment as an increased power market dislocations over the past year have supported increased revenue opportunities for utility scale energy storage, an opportunity that our software and solutions-based approach is well positioned to benefit from. In Europe, energy reliability, security, and affordability are top of mind given recent events, and coupled with an effort to decarbonize the energy industry, has accelerated demand in the region for energy storage technology. We are also in the final stages of converting our previously announced 440 megawatt hour project award with a large Western utility into a signed contract for delivery in 2023. As I referenced earlier a few times, the award of an energy storage project for 300 megawatt hour utilizing a hybrid battery and green hydrogen system is truly transformational and uniquely addresses a utility market need to critically ensure grid resiliency in the event of unforeseen power failures, some of which have resulted in loss of life in the past. The system will provide carbon-free energy over 48 hours. This hybrid architecture also allows for concurrent grid forming and black start capabilities, and Energy Vault's energy management system provides full system control and optimal dispatching among the batteries. hydrogen tanks, and fuel cells. As I mentioned earlier, the project is one of the first and largest utility scale green hydrogen projects globally. I hope you've all been able to open the investor deck, and specifically slide 6 to 10, where you will see some of the first pictures we are sharing publicly of our 100 megawatt hour system and gravity in Rudong, China. Progress continues to be made coming out of the ground now on this first global commercial deployment of our gravity-based EVX system by our partners Atlas Renewable and locally through China, Tai and Ying. 25 megawatt, 100 megawatt hour project is tracking to mechanical completion and commissioning as planned in the first half of 2023. Foundation activities were completed in August and construction shifted to the fixed frame structural erection and power electronic staging. Energy Vault will continue to support the project in Q4 and into next year with the power electronic startup, overall system mechanical completion, and the commissioning of the final system and software to full operation. The work being done in Rudong by our partners is truly remarkable, as you can really understand the size and scope of the project through the pictures published in the investor presentation. We are really excited by our work with Atlas Renewable and China Tianying as the China energy storage market continues to grow to meet the renewable energy storage targets established by the local and central government. During the quarter, we announced that in partnership with Atlas Renewable EIPC, which is a policy-oriented support organization of the Investment Association of China, in conjunction with China Tianying and selected provincial and local governments, will develop five national zero carbon industrial parks. The parks will all utilize Energy Vault's gravity energy storage technology and its energy management software platform to support China's mandated climate change and environmental policy. The first announced site has been confirmed for a two gigawatt hour system located in the Inner Mongolia region. Just to remind all investors as well, We are monetizing this as a royalty stream going forward in China. Momentum in China continues to progress in real time. Just a few days ago, it was announced that China, Tianying, and Atlas, together with multiple partners, including China's Three Gorges Construction, which is the largest private power provider in China and the largest hydroelectric power company in the world, will jointly build an integrated energy base supported by our EVX gravity energy storage technology in BG City and in China's Guizhou Province. Establishing this foothold and deploying our EVX in China is key, as Bloomberg New Energy Finance, for example, estimates that the Chinese market will be the second largest energy storage market in the world next to the U.S., but growing at a pace faster than any other region in the world. and local provinces in the region are all establishing aggressive energy storage deployment targets. China's latest energy storage development execution plan emphasizes testing of alternative energy storage technologies, including gravity energy storage systems, with the most viable long-duration energy storage technology receiving more market share in the 2026 to 2030 five-year plan. Given our footprint, and early mover advantage with a financially attractive and low-risk licensed royalty model, we anticipate that EVX will play a large role in the Chinese market over the next decade toward enabling the net carbon neutrality by 2060. I can't share with you how excited I am about the early partnership we developed in China. And having worked in China and three other industries before, it never ceases to amaze me the speed and the innovation that China and its people can demonstrate and execute. And we're very excited to work with Chairman Yan from Chinatown Ying and Eric Fong, the CEO of Atlas Renewable. Back here right in the USA, we're also thrilled to announce groundbreaking and commencement of initial foundation work and test piling activity for the 18 megawatt, 36 megawatt hour EVX system in Snyder, Texas with NL Green Power. I think this really demonstrates the flexibility of our EVX system to produce on a two-hour basis, let alone the longer durations of 8 to 12-plus hours. We are happy to partner with the largest global IPP, Enel Green Power, to develop and deploy the first EVX system in the Western Hemisphere, and this validation of the technology should drive many more future deployments for Enel and generally as a proof point in the U.S. market. Shifting to Australia, we continue to make constructive progress on our announced strategic partnership with Korea's Inc. and its portfolio of companies located in Australia. Last quarter, we announced the commitments of site and feasibility planning with Arc Energy, the Australian wholly-owned subsidiary of Korea's Inc., for multi-gigawatt hours of both long and short-duration storage projects, supporting the sister company, Sun Metals Corporation, in North Queensland's Australia, and we continue to make progress toward deployment here. As a reminder, Korea Zinc is the largest provider of zinc, silver, lead, and a rare metal called indium that's all mined on the continent of Australia. Sustainable aviation fuel provider DG Fuels continues to exhibit positive progress as well and has been in the news recently. And while they await finalization of their DOE loan grant, they have announced significant offtake agreements in just the last 60 to 90 days with Delta Airlines for 55 million gallons of sustainable aviation fuel annually for seven years and Air France KLM for another 21 million gallons annually, beginning with the first expected delivery in 2026. Additional public announcements have been made in the last week by DG Fuels with an additional offtake agreement and naming a new lease site in the state of Maine for another facility. We are encouraged by the progress that Mike Darcy and his team are making as validated by the recent offtake agreements with some of the largest airlines in the world. We stand ready to deploy our EVX systems in Louisiana and their other announced locations to support the facilities when they come online given the critical need to reduce GHGs within the transportation sector and flight travel specifically. All of these new awards announced today combined with our existing award pipeline and signed contracts, will add 495 megawatt hours to our backlog and nearly 5 gigawatt hours of gravity, battery, and hybrid energy storage awards for Energy Vault. This is a reflection of the differentiated value propositions we provide our customers that come from a world-class team at Energy Vault. We will continue making significant commercial progress driving top-line growth while also striving for operational and execution excellence to deliver results for our customers and investors. In that spirit, I want to highlight several key actions we have taken. First, we have recently announced key hires focused exclusively on the scaling and continuous improvement of our existing project management, construction, and deployment teams and coverage. Second, we are also partnering with strong engineering, procurement, and construction companies with support from our partners in geographies of growth development. Third, our strategy to have an innovative and flexible software architecture empowers us to mitigate supply chain risk with our technology and a vendor-agnostic platform that allows us to source all components from multiple vendors, bolstering our ability to deliver on time and on budget for our customers. We're highly confident in our ability to execute as our focus has always been on a smaller number of projects, but with larger scale and greater associated megawatt hours as you have seen on our award announcements today. This enables greater operating leverage and economies of scale as we utilize our resources and allocate capital in the most efficient manner. Looking over the next several quarters and into the next year, our mandate and focus is absolutely clear. This is about execution. As we noted above, the several key hires recently made to help support our execution efforts, and I also want to take this opportunity to welcome a few of them, of our new colleagues here on this call. In addition to Yankes Vengalan as CFO, we've brought in Dr. Craig Horn as Vice President of Advanced Energy Storage Development, responsible for the expansion of Energy Vault's portfolio of storage solutions, and also E.B. Jensen, as our Senior Vice President of Project Execution and Delivery of all of our portfolio of projects and solutions. Our global infrastructure and commercial build-out continues to progress, with legal entity establishment underway in Australia and China to complement our U.S. and European presence. Additionally, we have grown headcount 18% sequentially, quarter over quarter, bringing our year-to-date 2022 headcount growth to over 104% versus our year-end 2021. Our focus on hiring and retaining top talent in the industry lays the foundation for everything we do. And as we continue to scale and invest in the organization, I want to highlight the exceptional work that our employees have done on a day-to-day basis to put us on the growth trajectory that we are today. It really all starts there, and putting our people first allows our customers to get the very best from us. Lastly, I want to emphasize our commitment as a company and as a leadership team to meeting or exceeding investor expectations. And quite simply, doing what we say we're going to do, which can be difficult in this macroeconomic environment for sure. As David will be sharing in more detail in a minute, I'm happy to reaffirm both our 2022 full-year revenue and adjusted EBITDA projections of $75 to $100 million on the revenue side and minus 10 million to plus 3 million, respectively, on the adjusted EBITDA side. In addition, we're also reaffirming our two-year aggregate view of revenue of 680 million through 2023. All of this is a reflection of our strong market adoption and commercial progress, and thus visibility we have today into the timing and the magnitude of our project contracts, awards, and thus final deployments. I will now turn the call over to Jan Kees, our incoming Chief Financial Officer, to provide a few introductory words, who will then turn it over to David Hitchcock, Energy Vault's Interim Chief Financial Officer, to cover our Q3 financial results in more detail. Jan Kees?

Thanks, Rob. Good afternoon, everybody. I'm delighted to have joined Energy Vault at this time. I look forward to working with all of you over the coming years. And with that, I would like to turn it over to David. for the index goal.

Thanks, John Case. Really wish you the best of luck at Energy Vault and look forward to working with you during the transition.

Thank you.

Let's turn to our financial results for the third quarter of 2022. Revenue in the quarter was $1.7 million, primarily reflecting revenue earned from our battery storage projects with Jupiter, which generated $1.2 million in revenue. We also recognized $0.5 million in revenue relating providing construction support services to alice renewable wellhead construction has begun and we expect to begin recognizing revenue for that project in the fourth quarter third quarter 2022 gross profit was 71 000 driven by the mix of construction support services revenue for atlas and the initial project revenue we recorded in the quarter through nine months We have reported revenue of $45.6 million, driven by the Atlas licensing agreement booked in Q1, and gross profit of $43.4 million. Total operating expenses in the quarter were $36.3 million, up $13.9 million versus the $22.4 we reported in Q2 of this year. Stock-based compensation was $10.9 million in Q3, up $4.2 million versus Q2 2022, and depreciation expense was $5.2 million, up $4 million versus Q2 of this year. We also recognized an asset impairment charge of $2.8 million in Q3. The increase in depreciation and the impairment charge are both related to the decommissioning of the CDU, the EV1 tower in Switzerland, and associated brick machines in the quarter. Excluding these non-cash expenses, operating expenses were up 2.9 million versus the prior quarter. Sales and marketing costs for the third quarter of 2022 were 3.8 million compared to 1.9 million in Q2 of this year. Excluding stock-based compensation, sales and marketing expenses were up $63,000 sequentially. Research and development costs for the third quarter of 2022 were $16.7 million compared to $9.8 million in Q2 of this year. Excluding stock-based compensation and the depreciation, which I just covered, R&D expenses were up $1.8 million versus Q2, driven by an increase in EVX testbed and other design-based activities. G&A for the third quarter increased to $13 million compared to $10.7 million in Q2 of this year. Excluding stock-based compensation, G&A was up $1 million versus Q2, driven primarily by incremental headcount, legal, and other professional fees. In line with our business plan, we expect that our operating expenses will continue to increase on a sequential basis as we further expand globally and invest in the overall growth of the business. Operating loss for the third quarter of 2022 was $36.2 million, compared to an operating loss of $22 million in Q2 of this year, driven by increased stock-based compensation, increased depreciation expense, and the impairment charge. Through nine months, our loss from operations is $37.3 million. Third quarter 2022 adjusted EBITDA was a negative $17.2 million, compared to a negative $14.2 million in the second quarter. Our earnings release in 10Q, which we filed this afternoon, include a bridge from net income to adjusted EBITDA. The key non-cash or non-recurring items that we added back were $10.9 million of stock-based compensation, $5.2 million of depreciation expense, and the $2.8 million asset impairment. The key non-cash or non-recurring items that we deducted were $6.7 million in gains from the change in fair value of our warrant liability relating to our public and private warrants, and roughly $1 million in interest income. On a year-to-date basis, adjusted EBITDA is a negative 184,000. As of September 30, 2022, we had approximately $274.7 million in cash, cash equivalents, and restricted cash, leaving us well-positioned to continue to progress towards our growth objectives in 2022 and beyond. Restricted cash as of September 30 was $25.1 million, driven primarily by the surety requirements on the projects we are starting to deploy. In Q3, we used $20.9 million of cash from operations. I'm pleased to report that as of August 2, 2022, we do not have any public warrants outstanding, and beginning in Q4, there will no longer be a P&L impact from public warrants. As of September 30, 2022, we still have $5.1 million outstanding private warrants, which are required to be remeasured to fair value each period. Finally, just as Rob said, I would like to reiterate our 2022 revenue guidance in the range of $75 to $100 million and adjusted EBITDA in the range of a loss of $10 million to a profit of $3 million. We remain confident in our ability to achieve our guidance driven by visibility on project progress and continued commercial momentum. We expect to end the year with a cash position, of $260 to $280 million. I will now turn the call back over to Rob.

Great. Thank you, David. Look, I am really pleased with where the company has gotten to at this point in just our first two quarters here as a public company, especially in this environment. And that's really a tribute to every employee in the company and the leadership team here that's leading us day to day. While clearly speed and demonstrating our speed to market has been quite phenomenal this year, the rate of our commercial progress, we understand the task in front of us is to execute and deploy on our projects. And we remain steadfast in our commitment to our customers and shareholders to drive sustained success. With that, operator, we are now ready for questions.

Thank you. We will now conduct a question and answer session. If you would like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two 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 keys. That's star one at this time. One moment while we poll for our first question. Our first question comes from Joseph Osher with Guggenheim. Please proceed.

Good evening. This is actually Hillary for Joe. And I just wanted to start with slide five. First off, thank you. I really appreciate the additional detail you guys are providing on the pipeline. And just kind of wanted to dig in on that two gigawatt hours of the shortlisted projects and any characteristics, details you can provide on what those projects look like. as well as what a reasonable assumption might be for converting that into awarded business.

Great. Thank you, Lurie. It's good to speak to you again. We're early days here as we're making proposals and getting conversions through. I think we've had quite a good rate thus far as we get shortlisted on projects. Thus far, we've been able to take most of those over to our awarded category and convert them into bookings. So generally, we feel very strong about our ability to convert those. I think we'll have more history here as we go forward in the next few quarters. And I think we'll have something to point to in terms of our success rate. Thus far, I'll emphasize that we've been very focused on less projects but large projects. So what that means is we can focus, Hilary, our resources to ensure we're providing a lot of the technical differentiation around the design or layout or any energy density considerations on a project that first allows us to get shortlisted and then allows us to proceed to something that actually is awarded. And I think the Wellhead contract, you might remember in the win that we had there, was all about our technical team and Akshay Lodwa and his team here locally in Maryland and Virginia supporting that customer on an optimized design to really achieve the maximum output. So I think that's been fundamental and that's how we're using our resource. The other thing to note is that some of the same customers that we've announced awards with already, you can assume are included in both the shortlisting and even the submissions made. So if you think about that, if they've had good experience with us and if we execute well, and we're continuing to bid within their pipeline, we become the devil they know very quickly, and therefore it's a lot easier for us to move through that process. So very happy with our hit rate and our conversion rate thus far. We're batting very well, and I expect this is something that we'll be able to provide after the initial four quarters of progress, something that we can point to to look at something that can be measured over time. Hopefully that's helpful to you.

Very helpful. Thank you. And then just second question for me, as we look to next year with the various moving pieces on the revenue side, any color you can provide on what the margin profile for the business looks like next year would be helpful. And that's it for me. Thank you.

Sure. Well, look, I'll just to give you a high level flavor and then David will jump in as well. we have very good visibility into the project deployments, these initial deployments themselves, where we're going to be recognizing revenue on a POC basis, and that has given us a visibility to reaffirm that large revenue uptick next year. So, number one, the margins on those initial projects, we have pretty good visibility to on a CapEx basis that are going to be in the mid to high single digit basis on initial deployments. Now, what that won't include are various other streams of both revenue and margin related to software, related after those projects are deployed to the long-term service agreements, which have significant margins on those, and also any additional services that we're going to be deploying on those customers, as well as any other cost benefits from volume. I'd expect we're going to be in that range as we also finalize the product mix, including, for example, by the end of the year, most likely into Q4, we expect to start seeing some of the benefits of the license agreements into royalties. But still, a lot of work we're doing in modeling those activities with our customers and, for example, in China, looking at various tariff structures that are going to be a result of those multi-gigawatt hours of projects that Atlas Renewable announced.

Does that help to start?

Thank you so much. Thank you.

Our next question comes from Thomas Boyes with Carwin. Please proceed.

Great. Thanks for taking the questions. A lot of great information and definitely appreciate the more holistic approach in both the long-duration and short-duration part of the battery storage offerings. Could you actually just talk a bit about the battery supply chain, your strategy there? You have a lot of announcements, obviously. How much have you contracted? And maybe over what timeframe do you see that coming in on?

Sure. It's a great question. Look, as we get to a closure and a signing, both from an award perspective, so even before we get to the contract booking, as a part of that process from moving from shortlisting to award, and then award to contract booking, you can assume that we're securing and lining up that battery supply. Now, in some cases, that involves our customers that may have already secured it, so through their relationships, and have asked us to play an integrator role. So we'll be clear on that a little more going forward on a project by project basis. In other cases, through our direct involvement and relationships in the battery supply chain, we will get commitments on that supply, including all the schedule commitments that we have to make to our customers to deploy before we actually sign and book that order. So to emphasize, we line all that up in advance. We are not in the business of taking risk in that sense, both from a schedule and any specific individual raw materials as a part of that process. So generally, we have pretty good visibility and line of sight with our partners. And then it just becomes a matter of execution. And as we've mentioned on this call, we've continued to hire and put in place a very experienced team to manage the execution side of that. So we feel good about that. I'll also note that the high volume and the size of the projects we mentioned, so less projects but very large, That's given us the ability to carry a lot of weight and volume as we talk to suppliers. So for us, it's very important as we look at any project, we aren't in the game here of just buying market share. We look at profitable growth. We don't chase multiple projects. We're focused on large projects, projects with customers that have strong capability to pay and a strong credit rating. And a lot of those come from prior relationships of our very experienced and domain-rich team. So that's how I characterize a bit around the battery supply chain.

Perfect. And maybe one thing that I always thought was interesting, of course, for Enel is just now that that project is moving forward, the limited notice to proceed. Are you still using, or is the plan to still use the retired wind blades in the brick construction? And any insight you could have around the progress there, testing being done, that would, by nature, be helpful as well.

Yes. Yeah, that's an important part. It was an important part of the beginning of the relationship that we formalized with Enel almost a year and a half ago when we made the first announcements about the wind blade collaboration. And Enel does have wind blade – decommissioned capacity there in the United States and there in Texas. As a part of our recipe for the BRICS, utilization of that wind blade is important. This will be one of the first deployments of our gravity solution with the recycled wind blade as a part of our recipe.

I'll hop back into Q. Thank you. Thank you.

Our next question comes from Brian Lee with Goldman Sachs. Please proceed.

Hi, Rob and Laurence, and nice to meet you, Yanke. Thanks for taking the questions. This is Grace on for Brian. I appreciate all the color in the prepared remark. I just first questions on your two gigawatt deal with Atlas. I'm just curious how these systems should be accounted for within Energy Vault, i.e., how are you going to get pay on projects developed by Atlas? I know you talked about monetizing it as a royalty framework going forward, but just can you give us a bit more color, for example, like how much do you get paid per megawatt deployed? Thanks.

Sure. Well, let me remind you of exactly what we announced with Atlas, and then David will cover exactly how we monetize it, as I mentioned. What we announced with them is both a license deal and a royalty deal. You'll recall that they made a $50 million investment into our IPO, first of all. Secondarily, as a part of our relationship, we announced a license and royalty agreement that began with a $50 million payment of a license. And I'll note that all $50 million of that is now in our bank accounts for this year. There was also a royalty portion of that agreement as well. And David, do you want to cover that to what's been announced on the two gigawatt hour that Atlas Renewable announced with their partners in China and how we monetize that?

Sure. Per the license agreement that we signed and announced in the first quarter, the royalty stream on this business is going to be 5%. As Rob mentioned back during his prepared remarks, What you've got to remember here is we're just at the initial startup phase of this, and it's a new market. So we are working with our partners in China to understand the timing, and more importantly, the tariff structure for the business that we'll take the 5% royalty off of to have a much clearer understanding of what the revenue stream will be from a dollar perspective. I would expect as we move into 2023, we'll be able to... Talk more in detail about that.

And Grace, just to add, the other thing around that 5% and what does it apply to? So to be clear, that is a 5% applied to the total project. So think about that as the total project revenue. That 5% is off of that total project value, so not at a lower item down the income statement.

That's very helpful. I guess second question is on your question 2023 revenue outlook, how should we think about the cadence here? Is it going to be more back half-weighted? And also, can you talk about what you embed in your 2023 outlook regarding project delays and potential battery constraints? And also, how many projects are connected to solar? If so, are you seeing supply risk on the solar side that may have risk on project timing? Thanks.

Sure. Let me address the last two, the latter two, and David will go back to the first item. So relative to any potential delays in what we're expecting or what we're building in, right now with our current contracts on the batteries and the delivery mechanisms, all the indications are very strong of our suppliers meeting what we've agreed to. And we're seeing that, in fact, here in this very first quarter. You know, with the type of project size, Grace, that we have, we will get priority potentially over others because of the nature of the volume that we have. So if something moves with another customer, we might get some priority if there is any excess capacity. And very candidly, that's what we're seeing with the relationships and the interactions we're having with our partners. So we build in contingency. So into our plans, we take very seriously our schedule commitments because they do come with liquidated damages, just like our customers, the independent power providers. They have their own liquidated damages that they have to sign up to with public utilities. So we build in the appropriate amount of, I would say, both contingency as well as incentives. And we have examples with our customers where they work with us on actually financially structuring in incentives, meaning financial incentives, for us to meet or exceed those schedule milestones. So we use a few different mechanisms in that space. I'll reference that we do that with a very seasoned and experienced team. that's done this before. If you look across our leadership team, and not only with the addition of E.B. Jensen, who's 35 years plus, 100% in energy management project management himself, but all of us across the leadership team have had significant experience in the EPC world and executing on large projects. So we get the risks that are inherent with what we've taken on. We build in appropriate contingencies. We have to manage that execution risk. The third item you mentioned was around solar and what are we seeing around the complement of solar to storage, and do we have any concerns in that space? You know, we have a very interesting portfolio of projects. We have some of the first ones announced. One of them is actually a hybrid project, combined cycle natural gas, a peaker plant with a battery storage program that's out in California with Wellhead. We have other pure play solar and storage that we see. Again, we are not responsible for that solar development portion, but in the early cases, those solar plants actually are already operating, and we're looking to capture that excess solar in general. In everything we're seeing right now, and even some of the projects that have been awarded, we're actually looking to store capacity that already exists and is not tied to any future solar development project. David, do you want to hit the first question, sort of the ramp through the year?

Sure. Obviously, we're still in the middle of and not complete with our 2023 planning process, so more to come there. That said, we do expect revenue to step up through the year, with Q1 being the lowest quarter for the year, based on what we're looking at right now. Remember what we've said about the first two projects that we've booked in Q3 with Jupiter Power and Wellhead Electric, which are roughly $200 million. Rob said earlier in his prepared remarks that those get delivered in the second half of the year. So we would expect those to get off to a good start in the first half of the year. And then obviously as we go Q2 through the rest of the year, we'll overlay the bookings we expect in Q4 and Q1.

I appreciate all the color. Once again, thanks so much, Rob and David.

Thanks, Grace.

Our next question comes from Brian Dotson with Chardon Capital. Please proceed.

Yeah, thanks very much for taking my question. So exciting news on green hydrogen. I suppose as you're looking out over the next couple of years, how do you expect that technology in that business to evolve? And what other energy storage technologies are you currently considering?

Thanks. Look, we're really excited about that, as you probably heard from the prepared remarks. I think we referenced that about three different times, because it is exciting, and not only exciting for the first of a kind of this type of architecture in the energy storage space, but the size of it, you know, 300 megawatt hour into, you know, you're complementing a short-duration need with a 48-hour storage need. And, you know, these are the types of things that hydrogen and green hydrogen, of course, These type of new hybrid architectures are going to enable things that I don't think even our customers understood were going to be possible. And in fact, in this case, with this specific utility, we had proactively brought this to the table based on the problem that they were trying to solve. And I really want to highlight and thank our commercial team in working with our technical teams in this case. Not just taking what we have in our portfolio and trying to shove something down our customer's throat, but really looking at the problem that they're trying to solve, looking at different technologies that are out there to solve it, and bringing those to the table through our software architecture. That is something we are doing in the industry that no one else is doing. No one else is providing hybrid architectures long and short duration. And until now, you've pointed out the green hydrogen architecture. Specifically to your question, for certain applications where you need a, you can call it sort of an insurance policy on some unforeseen event, it could be weather-related, it could be related to some other shortage or shortfall in power that may have long-term implications. I won't go over the examples we know in the last few years. But to have a capability with green hydrogen and a combination of a fuel cell to provide longer duration need to ensure that that people can keep the lights on and most importantly I guess heat and in some cases in the heat air conditioning I think you're going to see an application of this type that can apply in many different architectures so I would say specific to this type of application we see other uses for it I honestly believe a lot of customers weren't in utilities aren't aware that this type of combination could be brought to bear and And then the second part of your question was, how do we see hydrogen evolving? Look, we don't have any crystal ball. Just suffice to say that we think a little differently about how we serve customers. It doesn't start with our product portfolio. It starts with the problem that we're trying to solve. And that means with our software, we can bring new technology disruptions to bear. And I think this is an example. And I do believe hydrogen is going to play an important role, especially given You know, what we've seen in the geopolitical space where, you know, full lines of power can be disrupted here given what's happening country to country. As a result, we need alternatives, and I think hydrogen is going to play an important role. I would say most probably don't think of hydrogen relative to specific storage applications. in general, but we do see applications, as you've heard today, and we'll continue to see, I think, hydrogen play an important role in future storage needs. You asked a final question about other technologies. We are and continue to evaluate new technologies that come. We have an R&D program that does look a little bit further out, so more of the R. Andrea Pedretti leads that. We don't limit that to our own thinking. So we do look at partners in the space, and we try to stay pretty close to what's happening and where new investments are going and earlier stage investments are going to make sure that we're considering all alternatives for our customers, and we'll continue to do that. But I have nothing specific more to say here publicly on those at this time.

Excellent. That's very helpful. Thanks very much. Thank you.

Our next question comes from Noel Parks with 2E Brothers. Please proceed.

Hi, good afternoon. Hey, Noel. How are you doing? I'm well. Good, good. Just a couple of things. I also wanted to touch on the green hydrogen announcement. Just trying to sort of wrap my head around. So a year ago when the EVF group is being formed, I'm just trying to get a sense at what point At that point, were you already thinking about the application of the platform to integration with a hydrogen project? I'm just curious. I assume the architecture or the design could more than support it, but just trying to get a sense of at what point you had that functionality on the roadmap as another element to be handled within the storage integration.

Sure, it's a great question. And this answer may surprise you, but you really need to go back to the founding of this company to understand, and from our division we had, the important software was going to play, the role software would play in how we thought about energy and utility grids evolving. And the first application came very clearly to a way where we had to automate the operation of our first gravity solution and do that with both machine vision computerized control and do that also with AI as we looked at more dynamically managing the charging and the dispatching. I'll remind you also that Bill Gross is a co-founder here, and for those of you that know Idealab and Bill Gross, most everything he's ever done has a lot to do with software, and particularly the last 15 years, a lot of the innovations that he's developed to optimizing, for example, the solar panels and the concentrated solar power, and as it looked at the concentration of that power as the sun moved using the software to move those panels with the sun, it's a lot of that application, as I said, started with gravity, but our vision was that software, in a very similar way to telecommunication networks and how software moves data, around to our devices around the world, moved it to the cloud for storage, the role that data centers now are playing. In a very similar way, we always believed and had the vision that software was going to play that role in moving electrons around. And we also understood very early on, Noel, that the customer needs were going to be very, very different and the applications very different. And individual customers would have even multiple needs. You know, even some of our industrial customers that you would think are just in it for long duration, they invested in our company, they also have short duration needs, for example. And we'll talk more about that in future quarters. But in general, I'd say it's a software. And what we saw, the announcement we made a year ago with the team that joined and that we announced with EVF Solutions as a result of us executing on the vision and then that team accelerating and executing very well for us to meet these more near-term needs on the shorter duration side in hybrid systems?

Great. Well, the question that sort of naturally follows from that is, and I don't know if you can quantify this, but that would imply, since this perspective, this vision goes so far back, a pretty substantial lead compared to other competitors. I have no doubt there's a long list of people who are a long ways back. Can you sort of characterize maybe out there what sort of competitor in the industry might be sort of on the same track? Just wondering what's the soonest that somebody might begin to approach a platform like yours?

Yeah. Well, look, we stay pretty focused on what we're doing and heads down in executing our strategy. And as you heard today, it's really served us well. reflected in one thing. It's customer wins and customer rewards. That's really how we measure ourselves. I will say we don't really see anyone else that's really doing what we're doing out in the market, but our focus is on executing our plan and strategy. We are very cognizant of what's happening in the market. We stay tuned. Part of our core value starts with humility. That allows us to never sort of drink our own Kool-Aid and get too stuck around what we're doing. And as a result of that, we are cognizant of things that are happening around us. But in general, we're going to continue to build and accelerate and invest heavily in the software development side of our solutions and anywhere we see innovation where we can bring some to the table on the hardware side, as we've done with Gravity and and other things that we're working on, we'll go ahead and do that where we think it makes sense. Great.

And just wanted to clarify one thing that came up before. If you're looking at your confidence about the fourth quarter and the full year revenue guidance, is it then revenue from modeling and royalties that are the most visible element of what you're going to be booking for the quarter?

Well, yeah, what we're doing for this quarter is a result of some of the deals you heard announced in execution to some of those initial deals with Jupiter and Wellhead, for example. It also, as we've said in our earnings announcements, we do have expansions of some of the gravity project and the territorial expansions of that on a licensing basis there in the quarter. So I think that the project execution on those things The final result of what we announced earlier this year and some new territorial expansions in the quarter for gravity is what's making up that revenue range that we shared. Great. Thanks a lot. All right. Thank you.

Thank you. At this time, I would like to turn the call back over to management for closing comments.

Great. Well, look, I want to thank everybody for tuning in here on the call. I also want to, again, thank our employees. that are out there every day. Tremendous execution. Starts with our customers. We focus their commercial teams. Done an amazing job also in the teamwork and partnership with our technical teams and all the support areas, the functional support, legal, finance, all that it takes to make these things happen and get deals across the table. People listening in on this understand that. and what that takes, and tremendous compliments to the team there at Energy Vault for pulling that off. We thank everybody for tuning in. On the investor side, we look forward to continued updates here next quarter formally, and in between then, what we're going to be sharing with our progress. So thank you very much.

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