Energy Vault Holdings, Inc.

Good day and welcome to the Energy Vault third quarter 2023 earnings call. All participants will be in a listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on your touchtone phone. And to withdraw your question, please press star then two. Please note this event is being recorded. I would now like to turn the conference over to Mr. Lawrence Alexander. Please go ahead, sir.

Thank you. Hello and welcome to Energy Vault's third quarter 2023 earnings conference call. As a reminder, Energy Vault's third quarter earnings press release is available now on our investor website. A replay of this call will be available later today on the investor relations 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 to be a variety of factors. We caution everyone to be guided in their own analysis of Energy Vault by referring to our 10Q. This filing is for a list of 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 harbour disclaimer and the non-GAAP financial measures presented in our earnings release for more details, including a reconciliation to comparable gap measures. As previously announced, I'm delighted to introduce Bernie Coulson, our new VP of Investor Relations, who is on this call and will be hosting these calls in the future. Joining me on the call today is Robert Bocconi, our Chairman and Chief Executive Officer, and Jan Kees van Garland, our Chief Financial Officer. At this time, I'd like to hand this call over to Robert Piconi.

Thank you, Lawrence, and welcome to everybody to our third quarter earnings call. I'm really happy to share these results as you hopefully got a chance to see reporting record revenue in our young life here as a company in excess of $172 million as a direct result of our project execution performance that I'll talk about later. But I think a significant number in just looking at revenue for a second in terms of meeting our expectations here in our second half ramp. And just to remind you, our largest quarter before this was actually $100 million in our fourth quarter of last year in our first year of revenue. So really happy with the results in executing for customers. Obviously, this revenue recognition is a result of that. and of the teams on the ground across the various sites where we are executing a very large, steep ramp here to meet customer needs and expectations. The other thing, as I'll mention, we announced this morning, you would have seen our first turnover of our hybrid battery system in Southern California. It's one of the largest ones in Southern California, 275 megawatt hour. Again, another milestone for the company here in this year, which is about execution across a lot of the deals we continue to announce, as we did last year in multi-gigawatt hours and continue to announce this year. But I want to share with you where I'm calling in from, which is China, and speaking to you live from Shanghai, where I have a keynote speech later on today. I'll be participating on a panel as well, so it's quite early in the morning here. And the conference here is focused on carbon neutrality and a green investment conference hosted by some of the local government organizations and also various energy-related partners. But even more exciting, since I've been here, are my visits to our first site in Rudong this week. I'm accompanied by one of our board members, Larry Paulson, who's here with me. Larry's no stranger to a lot of international assignments, given his background at Qualcomm and Nokia and serving on our board here as our lead independent. But it's really just hard to put into words the broad excitement here locally. And that's not only at the site and within all of our meetings we've had thus far, but even in coming into the conference last night where they had a kickoff. And a tremendous focus here on this first system, the impact, and some of the other announcements that we made on Monday morning yesterday with some of the new projects announced here. It's really exciting to be a part of some of the largest renewable build-outs in the world with our efficient and reliable and very economical storage system here in our EVX. China Tainying is our local partner and a leader in China in environmental services and waste management, has been doing incredible work and collaborating with our technical team in these final commissioning phases. And I just can't say enough about their expertise in engineering and construction and optimizing how we're implementing the technology specific for the local market. They had to fight through two three-month COVID shutdowns, one right away as they got started in the first part of 2022, but also at the end of 2022. So it's been a little bit of a wild 18 months for them, but they managed to catch up for the most part for some of the expectations we had set as when we're going to be up and running here. Patrick T. O' And just their focus and execution has been impressive. It's not really surprising to me, given my experience the last 30 years across a few different industries coming to China. Patrick T. O' But really tremendous to see their leadership in particular in this space of green energy toward the goals that have been set here and on a path to try to accelerate those and and really sort of ignoring the noise. from a geopolitical perspective and just focusing on our partnership and delivering together. This technology of gravity, as you might imagine, is pretty well understood here, given the massive installed base of gravity-based pumped hydro systems. Very much fit for purpose, given our system, like in most large countries, can be made with 100% local content. And as is the case here, will be the case in other large countries as well. I spent some time with our local Energy Vault team here as well that's working with China Tai and Ying or they're referred to as CNTY and just very excited to be here on the ground and including some of the folks that have come from the U.S. to support this and what would be another first of a kind for Energy Vault here in only our second year of revenue. Regarding the grid interconnection and as we announced, I'm happy to share that we started that process in September. at the end of last quarter, as we announced yesterday morning, while also, and very importantly, completing the installation of a four kilometer, two and a half mile, 35 kilovolt overhead electric line that connects the system to the grid. So all of that work completed. I saw that a little bit later yesterday here local time. And I hope that in the future, many of you will be able to see this just amazing engineering achievement In person, if your travels get to Shanghai, it's located about two hours outside and would be happy to hopefully coincide some visits with some of our other partners here. Versus other forms of long duration and long technical life storage, EVX is playing out to be more economical, scalable, and also a sustainable alternative to the existing pumped hydroelectric plants that represent, as we all know, more than 90% of all energy storage capacity still globally. We will, of course, continue to update you as we get closer and closer to full homologation within the state grid interconnection process. It is underway with the provincial authorities, and also we'll start to share some of the initial performance metrics as they become available. As we articulated a bit in our announcement yesterday, the five new EVX gravity systems announced that this is all part of a mandatory government policy in China for renewable power plant projects to include energy storage so it's mandated here that at 20 percent of the power capacity of the generation plan of the wind or solar 20 percent must be storage and typically that's running at four hours it's a two but after four uh and we're seeing this firsthand now how this central mandated policy is positively influencing the growth opportunities as demonstrated by the large multi-gigawatt hour project expansions announced locally here by cty even before the first system here in Rudong is fully operational. So that should give you a sense of not only, I think, the anticipation and the confidence people have, but also the market demand and the need that's there and how this fit-for-purpose technology can fit very well for China. CNTY announced these signings for an additional five deployments that total About 1.2 gigawatt hour, this brings the total of the announced deployments that are underway in China here to seven, which totals a little more than 3.2 gigawatt hours. So those are some pretty large numbers. And here in just the first 18 months of our partnership, and you can imagine if those are announced, there's a lot of other things underway here. I've had a lot of very good meetings with China, Tai and Ying, to understand those developments. And of course, for Energy Vault and in particular for investors, all of these projects will be driving recurring high margin royalties to Energy Vault for the lifetimes of these systems at 5%. This model is an ideal one for China and countries I'd say like China with strong construction and infrastructure growth and experience, ability to source essentially all of these materials locally, which they can in China, And then a strong and unmet, I'd say, market demand for storage coincide with commitments to net carbon neutrality, which China, as for the first time in the last few years, has been quite vocal about, and thus these large renewable deployments. So getting to final completion of the Rudong system, I think it's a testament here to the strategic fit of our technology to China, and one that would deliver on high margin royalties over time. in what is and will remain the largest energy storage market in the world, at least as far as we can look forward. In closing out on that, encouraging to see our strategy playing out here locally with just a great partner, a unique model, and a differentiated solution now that's starting to scale. Our gravity solutions are proprietary here, and this licensing model fits very well and lets us achieve in China what I think is very difficult for others, given either their single technology focus or ability to have a scalable or licensable technology and business model so this versatility of our gravity technology as we've announced other license licensing and technology deals also outside of china is showing quite strong and um you know noting also that these first deployments are four hours in duration uh for our quote unquote long duration system technology so Our long technical life of our gravity system as well as this circular economic environmental benefit, our lower operating expense over time, that plays very well and shows the flexibility of this technology to still be not only viable but commercially viable even at four hours. So this business model is allowing us to participate meaningfully in this opportunity here in this very large market and with future attractive margins to the royalty streams. Look forward to assisting our partners here in realizing more EVX initiatives here in China that I'm sure will be announced here to come. Sticking with gravity and before jumping into some of the other project updates, we are seeing more near-term demand now and activity more intensely in both emerging storage markets like South Africa and India, but also right here in the U.S. market with large utilities that have unique needs that actually can be uniquely met by various applications of our leading position in gravity energy storage systems. I look forward to sharing more with all of you in the coming months as we work with our customers and to giving you more visibility into these opportunities. I know many of you, many of you investors that might be listening in here have written me about understanding the development of gravity and generally I think of long duration, which I think no secret that that market is developing in a little bit slower way as far as long duration goes. I think very encouraging for us that it's being deployed, in this case in China, for four-hour systems. But generally, we have a lot of other applications of our technology that we're working with customers on, given our expertise and innovation. And I would say, from a global perspective, I think we have some of the best expertise relative to civil and structural engineering technology because of the way we've had to develop the technology and specifically focused on economics and reducing that cost. Moving on quickly here to some other projects. I know we've repeated this at every call this year, but this priority is about customer execution and executing on the large funnel of opportunities and those that have actually been converted to bookings that are underway now. And very excited about that as we have been all year. you recall last year we announced about 1.7 gigawatt hour of projects across you know short long and ultra long with the green hydrogen deal with um pacific gas and electric and all of those are scheduled to be implemented in anywhere from 9 to 18 months from the contract signing so all under very aggressive timelines i know all of you have been watching energy vault to see hey you know they clearly have closed deals and large deals with some of the largest either IPPs like Jupiter and Elgreen Power or the largest utilities like Pacific Gas and Electric, Nevada Energy. But could we execute? It was never in doubt from my side, especially the team that we've assembled. However, it's now starting to manifest itself, especially given the revenue that we reported this year. As I briefly mentioned earlier, our first hybrid battery and peaker plant energy storage project in Stanton, California with Wellhead is now fully in service and at its maximum capacity. This is a very large 275 megawatt hour project that has already been California ISO qualified and delivered in an exceptionally short period of time as compared to other projects within five months of site mobilization, which is pretty amazing, especially given the footprint we had. We were under some pretty extreme energy density requirements for this project and in the middle of what's a very residential neighborhood there. So I think a good example of our ability to execute, in this case, fast turnaround, complex projects, and challenging timelines. And it's really what we believe is a key differentiation factor that we're very focused on. So not only about having very innovative solutions from a technology perspective, obviously having a team that can go execute those scalable, repeatable, but very focused about being known for our ability to execute and execute well, which just has tremendous value. There's no shortage of demand in our market, as we know, in energy storage. But what can be a variable in some cases are things like managing complex supply chains. And when problems come up, and they always do, when you're managing different suppliers, how you deal with that problem how you come up with solutions, work with partners, involve the customer, be transparent, and really attack it operationally with a daily management approach. That is something that is just as, I think, an important differentiating factor as having the best technology or a very economical solution. So we're looking forward to the formal onsite ribbon cutting on December 6th and hope some of you on this call that are listening will be able to attend. And I guess just to finish, since it is our first project we're turning over here in the U.S., from the press release, I really can't say it any better than to have the words of our customer that was quoted. The CEO at WellHat, Hal Dittmer, who's just a tremendous operator, tremendous gentleman, very experienced, 40 to 50 years in the California market, I think one of the most respected people in the market, in particular in California. Yeah. And just to quote what he said, and I quote here, only a few days after mechanical completion, the system delivered full power to the grid, validating the quality of the design and execution. Energy Vault did an excellent job of providing a solution that met both the challenging energy density requirements and the equipment delivery timeframe to enable the project to go forward. We are a satisfied customer, and we appreciate Energy Vault's expertise, creative thinking, and collaborative partnership in bringing this project to fruition. And I'll unquote that, but I really couldn't imagine a better outcome for our first project turnover. Not surprised, given the deep industry execution and technology development experience of our team, we do not limit our thinking and what we're capable to do. And I think in posting the number we did this quarter and only our second year hopefully reflects that. Special thanks to the leadership provided here, Akshay Ludwa, Marco Tedeson, and the teams across the board and all the support teams here that helped us through the way in supply chain as well. We continue to execute on our other projects that are underway. And I know all of you have done the math on our guidance and looking at we have to achieve. I think posting what we did shows we're on our way to doing that. But we have some very tight, compressed schedules to deliver. While in some cases, some of our customers have delayed site access and mobilization, they have not changed their expectations on delivery time. And we've worked with them very well to come up with plans and commercial ways to deal with that so we can meet those timelines. Our system with Jupiter, we have two that are underway, are approaching mechanical completion. Nevada Energy has actually one of the largest systems they have ever delivered underway, 440 megawatt hour, that we're going to be doing in record timeframe here, and we'll talk more about that there after we do it. In addition, we have our first green hydrogen project underway with Pacific Gas and Electric. Recall, that's one of the largest ones, is the largest one announced in the U.S., which provides 48-hour, can provide up to 72-hour there that we have capabilities to using green hydrogen. We've integrated a little bit of lithium ion there to support grid forming and some ancillary services there. But really excited about that. That also has a very tight turnaround scheduled to be live in June of next year, 2024. Just to mention about the DOE here in shifting gears, they're placing a heavy emphasis, as we're talking about green hydrogen, on the whole supply and value chain, recently announcing awards of $7 billion to build these green hydrogen hubs. Some of the people named in those include some of our partners in the green hydrogen ecosystem. And our PG&E project is an example of where the DOE is playing their next focus, which is on the demand side and deriving that demand side. There's already a billion announced for some demand side initiatives that's going to be underway, and we will be looking at how we can take advantage of those things as they develop. So, just closing in here on PG&E, it's sort of a tip of the spear for us as we look at these opportunities. We're building out economical microgrids to support backup power, not only backing up utilities that have commitments to supply our homes, but also looking at mission-critical needs for energy, whether that be in the data centers and new hyperscalers that are taking off here with Bitcoin mining and things, and just other larger commercial and industrial energy users that cannot risk even short eruptions in power. very difficult to do economically given existing tech. However, as we have always done in some of these opportunities, we're using our technology and integrating other things very creatively to put in place things that can be economical to essentially put something together to drive and meet this, what today is an unmet need given some of the economics. Moving to some of the commercial side, I've mentioned some of the additional gravity energy storage systems that were announced. That was our announcement yesterday, specifically in the China market. And overall, our near-term opportunities continue to grow at a good pace this year. Our awards have expanded by over 153%. That's a little over 9 gigawatt hours, or about roughly 3.3 billion in year-to-date bookings and signed contracts of 800 megawatt hour, bringing that total to just over 840 million. So a big book of business there to execute on, and in particular to highlight that awards category. That means that's our project. It's a matter of getting that converted into formal contracts and NTPs. So a lot there to mine and convert. We'd like to be converting that here as quickly as we can, and the team's focused on that. Going forward a bit as we progress through the fourth quarter and entering 2024, we are focused on turning that growing commercial funnel into contracts. and will help build our revenue and our backlog. We continue with a focus on stringent financial and pricing discipline to generate value for the company, for our shareholders, and really over a long term. So we take a very long term lens on that. While as a new company, we are susceptible to some lumpiness, let's call it, as we know, especially when we're doing projects where we're performing the EPC role. So there's fluctuations both in revenue based on revenue recognition rules under POC accounting. There's also fluctuations in working capital based on those cash flows. But one thing that's not changing is the demand in the energy storage industry and the domestic demand here, there, I should say there, in the U.S. that was accelerated post the IRA gives us a lot of flexibility in the projects and the contracts in which we sign to drive both revenue and gross margin growth. As many of our previously announced investments and partnerships, both commercially and, for example, for domestic U.S. battery content, reinforce this approach. We remain committed to this. Obviously, it's super critical as we go forward. It is a very competitive market. It puts a lot of onus on us to continue to innovate, to be differentiated, to differentiate also by our execution and delivering for customers. Always great to have projects under our belt so we can have any prospective customers customers, talk to some of the customers that have worked with us. Hal Dittmer and Wellhead will be one of those, of course, going forward, and we look forward to continuing on that focus on high growth, high margin commercial opportunities. Before getting finally into the financials here, I'm very proud to report that after filing and going through a first third-party process in 2022 and our first year of revenue of an S&P process looking at our sustainability score, In 2023, we just received the results, and our score increased from a rating of 17 up to 51 in 2023. That is not necessarily a percentage rating, but to let you know where that stands, that ranks us number two in our market in clean energy transition companies, and we finished 33rd out of a total of 551 companies overall. It puts us roughly in about the 94th percentile. You know, we aren't spiking any footballs here on this. We're happy with our progress. We have more work to do as we develop and evolve. And just like we seek to do in everything we do in terms of technology development, how we develop our people in the company, also in our sustainability, we seek to be a leader here in how we're thinking about our carbon footprint across all of our solutions. So we're going to be continuing to update this annually on our progress, but Patrick T. O' Suffice to say, happy with our improvement here year over year and we're continuing to put a lot of focus there. Patrick T. O' Given expectations, both that I think others have of us, but that we have of ourselves, most importantly, so I want to thank the entire Energy Vault team Patrick T. O' for this significant accomplishment and our continued work to improve here in the broader global goals toward net carbon neutrality. Okay, with that, why don't I turn over to Jan-Case, who will now go over some of the details that we just announced in our financials. Jan-Case?