Q2 2022 Energy Vault Holdings Inc Earnings Call

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I to with.

Ladies and Chairman, good morning and welcome to the energy world Q2 of fight twenty 2: earning Constance call.

At this time all participants are in a lesson only mode.

A 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.

I will now turn the call over to Mr. Lawrence Alexander, Chief Marketing Officer.

Please go ahead.

Thank you and good morning and welcome to Energy Bolt's second quarter 2022 earnings conference call. As a reminder, Energy Bolt's earnings release and 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 any divults earnings release and this call contain forward looking statements that are subject to risk and uncertainties. These forward looking statements are only predictions and made different 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 list of factors that could 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'll be presenting and discussing certain non-GAAP information.

Please refer to the Safe Harbour Disclaimer and non- GAAP financial measures presented in our early release for more details, including a reconciliation to comparable GAAP measures .

Joining me today on the call is Robert Picoli, our chairman and chief executive of the officer and David Hitchcock, our interim chief financial officer. At this time I'd like to turn the call over to Robert Picoli.

Great, thank you, Lawrence. And welcome everyone to our second quarter 2022 Financial Results Conference call.

I want to start my remarks today with an overview of the key highlights from the quarter, including the recently announced project awards that you may have seen come across this morning in our release representing approximately 1 GWh of new projects.

David H. Cock, Iron-O-M Chief Financial Officer, will then walk you through the financial results in more detail before we open the line for questions. The financial results will be in more detail before we open the line for questions.

We made strong progress with what we achieved through the second quarter as we continue to execute on our 2022 regional priority for deployment as we originally planned in the U.S., Australia, and China that provide us tremendous momentum going into the second half of 2022 while setting ourselves up well for 2023.

Let me start in Australia. We're building on our announced strategic partnership with Korea's In-Group.

We announced the commencement 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 its sister company Sun Metals Corporation in North Queensland, Australia, given their stated commitments of being powered 80% by renewable energy by 2030.

In November 2020, Sun Metals joined the RE200 and plans to become one of the first refineries in the world to produce greens ink.

More recently in May 2022, ARC Energy announced the friendly acquisition of the Peron Holdings in Australia, and now has a portfolio of approximately nine gigawatts of future wind and solar projects to support its strategy to become one of the largest producers of green hydrogen in Australia. The Takestreet Institute on the Pacific Heavy Force resided June 13th in 2011, taking one of the largest producers of Green you

Over to China, we previously announced the groundbreaking of Atlas Renewables 25 megawatt, 100 megawatt-hour gravity-based storage solution and construction continues to proceed as planned.

All permitting side activities and initial civil works have progressed well through the summer. After some initial delays coming out of the COVID related shutdown in Shanghai, with all 1200 foundation pilings completing this month. With all 1200 foundation pilings completing this month.

The focus now shifts to the foundation, the fixed frame buildup, and the power electronics, which are all underway, in parallel with the composite brick production locally.

We expect mechanical completion and the beginning of system commissioning in the fourth quarter this year. In the fourth quarter this year. In the fourth quarter this year.

Energy Vault will directly support on site the 100 megawatt hour project in Q4. And in the next year with the Power Electronic Startup, overall system mechanical completion and final system and software commissioning the full operation. The full operation.

I want to provide a bit more color on the local development activities in China as well. I want to provide a bit more color on the local development activities in China as well.

Atlas Jungzoo in collaboration with the Energy Investment Professional Committee of Investment Association in China or referred to as EIPC has also engaged with China's top five state-owned enterprise power utilities and energy companies.

in discussions to support their decarbonization processes by providing energy vault resiliency centers based upon our EVX platform.

Additionally, multiple 100 megawatt hour projects are under development across China, as well as larger gigawatt hour gravity storage projects and other provinces under the Zero Carbon Park Initiative, also sponsored by EIPC.

In collaboration with the EIPC and with additional support from the National Center for Sustainable Development and the Bush Global Advisors Group, Atlas Renewable will partner with EIPC's five regional zero carbon park programs across China.

A key objective of this will focus on the value of the EVX technology storage solution to support local grid and regional industrial renewable power needs.

Atlas Renewable is supporting the efforts by EIPC to demonstrate energy-volved gravity energy storage technology for inclusion in the new China Energy Green Standard.alions

To better ensure direct local support and more financial flexibility, energy vaults is establishing a wholly owned foreign subsidiary in China, which is expected to be operational in October 22, to support Atlas, China, Tienying, and the China market more broadly.

Shifting to the U.S. market, we received a limited notice to proceed with N.L. Green Power in May 2022, which continues to be on track with the upcoming deployment of the first U.S.-based gravity system in Snyder, Texas.

which is expected to break around in the next 60 days.

In May, we also announced with DG fuels the doubling of size and increased scope of our previously announced project and providing a production of green hydrogen to support the biomass waste to energy process in the manufacturing of sustainable aviation fuel.

Under the terms of the original agreement, Energy Vault Degree to provide 500 megawatt hour for the first three projects starting in Louisiana. This specific project was increased in capacity and now developed to support up to 73 megawatts for 16 hours, reflecting a total of 1.168 gigawatt hours and storage capacity for this first project.?? of entry attention

GG Fuel Plants to follow the Louisiana Project with additional projects in British Columbia, Ohio, with an opportunity for total storage capacity of 2.234 gigawatt hours overall, and up approximately 735 million in project revenue over time as previously announced in the quarter. In April , we announced the signing of a Memorandum of Understanding or MOU for Gravity-Based Energy Storage Technology.

which is underway now.

This is a tremendous landmark day for Energy Vault and the execution of our software and Energy Vault solution strategy announced just nine months ago with the addition of John Jung and Akshay Lagwa to the Energy Vault team in November 2021.

Today, we are making multiple project award announcements totaling nearly one gigawatt hour progressing our first energy bulb solutions project integrating battery energy storage systems.

Our technology agnostic energy management software platform extends our offering to enable both short and long-term duration storage solutions with diverse underlying storage technologies. I am beianpedron for Account Later priority establishment in our direct entity.

EBS now enables our customers to utilize the same software platform across their energy generation and storage platforms while future-proofing their evolution to longer duration storage as renewable energy continues to grow as a percentage of the power generation mix.

We are announcing three project awards today.

A 275 megawatt hour project with Wellhead Electric and WPower in Southern California.

A 220 megawatt-hour project to provide energy and and silvery services to the IRCOT market in Texas and resource adequacy to the Kaiso market in California with a leading independent power producer.

And finally, a 440 megawatt hour project with a large western US public utility.

All of these awards will be followed shortly with customer announcements.

The project with Wellhead Electric is a 275 megawatt-hour energy storage project in Orange County, Southern California.

Through our EVF team, we will deploy a 68.8 megawatt battery and restored system at Wellhead Energy Reliability Center in Stanton, California to provide enhanced resources and improved grid reliability to the Southern California Edison territory.

The Stanton energy storage system will be one of the largest energy storage systems in Southern California.

All of these projects were based on our EVS proprietary system design and energy management software for optimal economic dispatching.

These contracts reflect successful execution of our EVF technology agnostic strategy to provide customers with the most flexible and cost-effective energy storage solutions.

I want to call out a special thanks to Akshay Laodwa, our chief engineer at EBS and his team for their innovation and agility and speed in the development of the new platform, coupled with an intense customer focus to support the project awards announced today.

as well as Marco Tiddit-Zeen and his commercial team in winning the trust of the newly announced customers through a relentless focus and a passion to serve their needs while solving complex problems.

With the new market introduction of our EVF platform and services coupled with the ongoing multi-continent deployments of our gravity storage solutions, we are well positioned to take advantage of both remains very healthy and growing market.

From an industry perspective, the man trends remain robust for storage technology across durations, supported by carbon neutral and reduction targets from corporations, and some of the largest countries across the globe.

As you look at the second half of 2022 and full year guidance, we are expecting revenue in the range of 75 to 100 million or collecting gravity project starts, as well as newly awarded EVF project starts in Q4 this year.

We currently expect adjusted EBITDA in the range of minus 10 million to plus 3 million for the year.

As we look at 2023 and the gravity and the EVF projects awarded in underway, as well as the early development activity in China referenced earlier, we are expecting the aggregate revenue for 2022 and 2023 in line with our original investment plan for total of approximately 680 million across those years.

We continue to see many positive regulatory macro trends that will benefit energy-volved business trajectory. We continue to see many positive regulatory macro trends

We are excited about the announcement this past weekend of the approval in the Senate of the Inflation Reduction Act and believe that the inclusion of the standalone storage ITC and support for clean energy initiatives will continue to greatly benefit our growth strategy and that of our customers.

Our gravity and battery storage solutions are seeing heightened demand due to this economic value we are able to create without ITC or tax subsidies. But this legislation will serve to support and accelerate our growth to jet-free.

Additionally, we continue to make good progress in the build-out of our global supply chain and other infrastructure capabilities as we execute on our initial projects and continue working to source and qualify critical materials and establish key supplier relationships globally.

For our EVX gravity solution, over 50% and up to 75% of our solution is sourced locally within the region, eliminating some of the challenges facing many other storage providers in the industry while maximizing the application of the regulatory incentives for local content and job creation. Ouraway from a country-wide

I also want to highlight a key action that the board implemented in extending lockup agreements for 100% of the executive officers who held equity awards invested on an accelerated basis upon the closing of Energy Vault's business combination and IPO in February 2022, impacting equity awards underlying a number of the shares that equal to approximately 5% of the shares outstanding as of June 30, 2022.

This underscores our alignment with our shareholders and the long-term vision and belief we have in our strategy and the team we are building here at Energy Vault. We are all results-driven management team and are all laser focused on creating long-term shareholder value and maintaining a disciplined capital allocation approach to ensure profitable growth. For more information visit cellphone.umich.edu

To wrap up, I'm very pleased with the commercial progress we have made across our Gravity and the new capabilities we unlock for customers with our new EBS platform.

Stay tuned for more exciting announcements to come as we continue to be actively engaged in advanced discussions for multi-gigawatt hours of projects across four continents.

I will now turn the call over to David Hitchcock, Energy Volts Interim Chief Financial Officer to cover our financial results in more detail. Thanks Rob. Thanks Rob.

Relative to our financial results for the second quarter of 2022, revenue in the quarter was $1 million, reflecting construction support services to support the 100 megawatt hour project in Rudong, China.

Second quarter.

Gross profit was $0.4 million driven by the construction support services revenue. Through six months, we've reported revenue of $43.9 million driven by the Atlas license agreement booked in Q1 and gross profit of $43.3 million.

Total operating expenses.

or 22.4 million in Q2, roughly flat with the 22.1 million reported in Q1 of this year.

Stock-based compensation was 6.7 million in Q2, down 2.5 million versus Q1 2022. Excluding stock-based compensation, operating expenses were up 2.8 million versus the first quarter.

Sales and marketing costs for the second quarter of 2022 were 1.9 million compared to 2.6 million in Q1 of this year. Excluding stock-based compensation, sales and marketing expenses were down $600,000 versus Q1, driven by a decrease in marketing costs related to the IPO. Mexico Corporation is meeting delivering vent give-aways on the Yo!

Research and development costs for the second quarter of 2022 were $9.8 million compared to $9.7 million in Q1 of this year. Excluding stock-based compensation, R&D expenses were up $900,000 versus Q1 driven by an increase in EVX test-bed activities.

GNA for the second quarter increased to 10.7 million compared to 9.8 million.

in two one of this year.

Excluding stock-based compensation, GNA was up $2.5 million versus Q1, driven primarily by cash compensation, professional fees, and personnel and recruiting costs.

In total, we ended the quarter with 129 headcount across the company, up 38 heads or 42% versus March 31st, as we continue to build out the team to deliver our customers and execute as a public company. Our campaignrakxiessfr

In line with our business plan, we expect that our operating expenses will continue increase on a sequential basis.

As we further expand globally and invest in the overall growth of the business.

Operating income for the second quarter of 2022 was a negative $22 million compared to a positive $20.8 million in Q1 of this year driven by the lower revenue in margin as we recorded 42.9 million of licensing revenue in Q1.

Through six months, our loss from operations was $1.1 million.

Second quarter, 2022, adjusted EBITDA, was a negative $14.2 million, compared to a positive $31.2 million, Q1 of this year.

Our earnings release in 10Q, which we filed this morning, include a bridge from net income to adjusted EBITDA. The key non-cash or non-recurring items that we add it back are the 6.7 million of stock-based compensation. And the $14.6 million gain, reflecting the change and fair value of our warrant liability relating to our public and private awards.

On a year-to-date basis, adjusted EVITA is a positive $17 million.

As of June 30th, 2022, we add approximately $299 million in cash and cash equivalents on the balance sheet, leaving us well positioned to continue to progress towards our growth objectives in 2022 and beyond.

In Q2, we used 10 million of cash from operations, which was partially offset by the...

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Cash exercise of warrants in the quarter.

Finally, I'm pleased to report that

As of August 2nd, 2022, we redeemed the $8.9 million of outstanding public warrants as of June 30th, 2022. Starting in Q4, we will no longer be marking these instruments. We still have the $5.1 million of private warrants outstanding.

I'll now turn the call back over to Rah.

Great thanks David.

Again, I hope you get a sense from what we discussed earlier in the commercial side.

of how pleased I am with the progress that this team has made to the first half of this year and making substantial gains in advancing our goals and building out a growth platform with the requisite infrastructure and team to deliver with it.

We're very well positioned now through the second half of 2022. You're driven by the factors we've reviewed above.

the most of which are three.

First.

Strong customer and commercial validation from some of the largest customers in the energy sector focused in the highest growth countries and regional markets for renewables and energy storage.

Strategic investors who are coincident as customers and play an active role in helping guide and support the company through our Strategic Advisory Board, which held this first session this past month in July 2022.

I'll also note that this focus on customers and listening to our customers and ambassadors has served as well as we proved out the technology at scale with the first five megawatt system in Switzerland and helped influence.

The evolution of that to our new EVX platform announced batch in 2021. This has been fundamental to help guide our company and keep and maintain our customer focus on the business. And keep and maintain our customer focus on the business.

Second.

A unique and unmatched energy storage portfolio that can serve customer needs across various operations and storage technology medium as evidenced by a recent project award announcement.

No other energy storage companies are making announcements across both long and short duration projects.

Announcing multi-gigawatt hour development of gravity energy storage projects.

in one of the largest energy storage markets in the world of Australia. And our first three EVF project awards from customers totaling another one gigawatt hour is not something that comes without dedication and a relentless focus on execution while ignoring the noise.

And third and finally, the foundation of all we accomplish is the company every day starts with our people, who share our passion for our mission of decarbonization and most importantly serving customers.

Without operator, we're now ready for questions.

Thank you.

Ladies and gentlemen, at this time we will 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 start 2 if you'd like to remove your question from the queue.

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Yeah.

One moment please while we poll for questions.

Thank.

Our first question is from the line of Joseph Oshar.

from the line of Joseph Oshar from

Chief Jeffert

Hey, good morning, guys. You're a good evening or wherever you are. My compliments and all the announcements, I have a couple of questions. First, looking at these energy bolt solution winds that you just announced, are they all hardware integration plus software? And if so, I was just wondering if you could give us maybe some rough senses to what the contract it's software revenue might look like.

service agreements in addition to the initial hardware integration and software that gets implemented.

Secondly, relative to those three contracts, you can expect something in the range of 350 million or so of revenue across those three specific projects that we referenced today.

Okay, and are you able to, you know, obviously some of that, able to talk about contracted software revenue for that? Because that's where the juice is, so to speak, is that something you're able to speak to?

We're going to be giving more updates on that, on the software components that revenue as we get into the specific customer announcements, Joe, we will be able to share more than with you.

Okay, the second question is looking at the remainder of the year in that 75 to 100 million target that you put out there. And then just sort of looking at timing and so forth. Should we think about the remainder of the revenue this year coming from EVS, coming from additional monetization of this first China redone project? Or I see you've got a limit, it sounds like you're breaking ground on a NEL, where should we think about the remainder of the year?

and that will continue to sort of trickle in for the remaining amounts there.

Okay, and then the last question that that target for next year is quite something, although I think your previous reference to the 350 million may have given me some sense there, to what extent are you able to help us understand that that build up to that now it looks like 580 or so million dollars in revenue for next year and how much of it might be that.

CODs into the mid part of next year and so that gives us a lot of confidence relative to the revenue that we put out there. In addition, we have in our in advance discussions on another project that we see fairly near-term closure on in terms of getting the deals done that then would impact as well next year. So that's what essentially led to our revenue range there.

Okay, but just, and this will, then I'll go way after this question. You

to what extent can you help us?

Maybe, you know, because that's extraordinary, right? You're going from, if you look at this year, Atlas plus maybe you got sort of, you know, another 25, 30 million revenue to 580. That's quite something. So I'm just wondering if you can help us maybe at just a very high level understand what the buildup of that number is for next year.

Sure, well, as I said, we have a 350 million plus from just those, some of those additional EF projects. We also have some gravity projects underway. And as you can imagine, we're involved in a lot of customer activity and discussions across our main regions. And I spent some time on the China, talking a little bit about China and the development that's going on there. So there's a lot of...

you know government support their locally to get a removable deploy their targets that of course China has put out by 2030 and 2060 that they're really serious about and so our you know our local partners there are really focused if you if you listen to an bit on on the color I provided we you know we see a lot of strength and an opportunity there in those markets as well so I say that's

You know, we don't take that lightly. It is a very large ramp of revenue, but it is something that we have pretty good line of sight on, just relative to both what we have in awards, as well as the discussions we're having with customers. And as you get a sense of the numbers of the size of these deals, Joe, one thing you imagine you take away there is, you know, we are announcing, you know, 50 or 60 megawatt hour deals.

These are multi-hundred megawatt hours of deals that, again, not something hopefully that's lost on people. So when you look at the size of the projects we focus on, okay, but for gravity, we're focusing on large utility scale, you know, massive projects. A lot of that's focused too on the industrial segment. So I think size and scale matter for our focus.

We're not really focused on a lot of smaller deals and getting things done there. It takes a lot of time to get deals done, right? We saw that this year. I would have loved to have been contracted a quarter earlier on some of these things, but these deals take time to get done and there's a lot of complexity that customers are facing, so you got to get it right. You got to get it right for safety as well and reliability, and customers spend a lot of time with us on that, and our teams, our technical teams.

get at 2023.

Okay, thank you so much for the detailed answers. I will step aside.

So thank you very much. Good to speak again as always.

Thank you. Our next question is from the line of Stephen.

Gendaro from Stifel please go ahead.

Thank you. Good morning, everybody. Good morning, Rob.

All right, Stephen, how are you? Good, thanks. So a couple of things for me, and I'm just gonna ask one more on the 23 Revenue Guide. And that is, if you look at it right now,

Can you tell us how much?

is contracted, how much is in advanced discussions, and how much is expected? Because one of the big questions we get is sort of...

the revenue ramp in general and since you kind of reiterated your sort of two-year cumulative revenue, you've got it to be great to get a sense for the visibility there.

Sure. Well, as I referenced, as we announced some of the new EBS projects, you can think about those in the 350 million plus type of range on those. And what's interesting about them, two of the three have mid-2023 CODs. So that, I think that's important relative to as we think about recognition, meaning these are projects that are urgently needed by the utility, a lot of them in California that have urgent needs. So that's on the one side, obviously the...

on the battery system side those deals tend to turn a little more quickly, obviously, because we're not building gigawatt battery factories. We're buying and integrating our software so those deals tend to turn quickly. And we have, I'd say in the hundreds of millions of gravity energy towards projects that we see, and those obviously come over longer periods of time because it takes a little longer to build out those systems and their larger projects.

their larger projects. So there's a mix of that. You know, that's about all I wanna say at this point. I think, as I mentioned, to Joe's question, as we get into next quarter, Steven, and we'll have better visibility, of course, on the progress through this quarter of bookings and new project awards and be able to shed probably a little more color on your question. I think we felt comfortable saying something about 2023, even though we're only halfway through this year just by the nature.

Okay, thanks. And when we think about these three projects with sort of battery storage involved I think it's lithium-ion is that?

Is that a customer decision? Is that an application? And how does that sort of fold in with the overall strategy of the company and the margin profile? The company and the margin profile.

Yeah, well, yeah, these are all customer decisions. So, you know, that's who we work for and that's what our focus is. And in terms of the applications, they're pretty diverse. We, you know, some of these customers that we've, you know, developed relationships over many years now have shared with us, you know, what they're trying to solve for. And they've got, even they've got both short duration needs, and they've got.

Some longer duration needs that are going to be coming. They're looking at hybrid architectures, for example, between long and short duration, and even looking at things like green hydrogen and hybrid systems with batteries and looking at unique ways to solve some of their storage needs and really ensuring that they're going to have the capacity at the right time. So I would say what's interesting and how core this is to the final part of your question on how is this going to be coming.

How does this impact in our strategy and with what we're announcing around the software side of our business now? It really became clear to us a few years ago if we started to build our first, commercial system at scale on the gravity side as we were getting feedback from customers that led to of course the development and the shift in the form factor to the new EVX platform. They were also sharing with us what they needed to do to manage both generation.

So think about that as a wind solar, as well as in some cases, there existing fossil fuel, that they're managing into multiple different storage solutions that they're managing. So you think about that complexity. It became very clear to us back in 2019 and through 20 that we really need to accelerate the part of our vision around the role software was gonna play in helping our customers evolve and supporting them. And that quit.

led to some of the priority on us getting the right team in here with the announcement back in November of John Jung and Akshay joining the team and my, that moved quickly. That was nine months ago. Here we're announcing a gigawatt hour and project awards alone. I don't know another company that's done that.

So that's what I'd say about your question.

Great, thanks. And one final one, your original, and I know there was sort of co-equity investment in a lot of this, so I, and I think that's changed, but your original guidance had to give or take 200 million of capital spending in 22 and in 23. Any updates on that and what the cash use looks like over the next two years.

Yeah, I think David you want to.

I want to comment. First of all, provide a little bit of clarity on the rest of this year. As said in the prepared remarks, we wrapped up the second quarter with roughly $300 million of cash.

As we looked across the rest of the year and what cash we expect to use as we ramp up these initial projects, we expect to end the year with the cash balance between $260 and $280 million. Secondly, when you looked at that original plan, there were a lot of capex equity base deals that the team was expecting at that point in time.

million dollars a year on CAPEX for that type of build as they expected a year ago. Most of the deals that we are talking now, the customer wants to own the project and wants to own the system. So the CAPEX, our CAPEX, if you, aside from maybe that one project which we can probably shed some light on by next quarter, our CAPEX needs are going to be relatively light across the rest of the year.

And that's one of the views of the business model we have. We're a very capex light in general and to just answer something David said, our customers want to own these. They want to own these projects and that's I think important for us and just allows us to with this 300 million of cash that we have as you saw in the quarter. We had very limited cash burn. I think a net 4 million. I think a net 4 million.

and strong cash into the end of the year and with no debt, of course.

Great, now thank you for all the color, appreciate it.

Thank you, Stephen.

Thank you.

Our next question is from the line of Thomas Bois from Covid. Please go ahead.

Thanks for taking my questions, to that a couple. First, you know. First, you know.

Given the progress in China, I was just wondering if you could talk about what your expectations are around construction and commissioning has changed at all from when they were in the enterprise.

I think it was like 12 months or something to build. So these are still a fair expectation.

Yeah, I think we said, I think for the first time now, that we're expecting in two, four now, mechanical completion of that first 100 megawatt hour system. So, you know, they really are progressing well, even with the shame how it locked down that they had. So they, as we mentioned, have over 1200 piles in the ground hour and are starting the foundations. Now, next month and are gonna be coming up out of the ground. So we're really happy with what we've seen in the progress there, not only on the core project.

But as we mentioned, and I gave some color, quite a bit of color on the development activities that stretch across some of the state-owned entities there on the utility side as well as some of the regulatory. Crypto

that are supporting the technology development and implementation of new storage technologies there. So it's great to be on the ground floor there as the storage markets are developing and as China is putting much more emphasis on the shift to renewables. So anyway, so we see everything moving well there. We are gonna be, as I mentioned, in my opening remarks, more involved as we get into the commissioning activity.

We are opening a wholly owned foreign entity there that just gives us a lot more flexibility I think to support the local markets work with China, tiny, they are an Atlas renewable and more broadly you know support other regional markets where we can leverage China where it makes sense.

You know, I appreciate the appreciate that's coming. Maybe just to kind of build off of that since, you know, construction is going well over there. But it's happening at a time where there is inflationary pressures and cost construction. You know, what learning said you had at that, you know, that build that you think that you could translate as far as controlling costs, you know, in the U.S. or Australia. You know, in the U.S. or Australia.

That's that by the way that is a great question and really this has played so well for us and having our first

you know, full scale EVX system being developed and built there. We're obviously using a local supply chain there, 100% to 100% local supply chain for all the materials, all the power electronics that we're implementing there. And we're learning a few different things. You mentioned there's things on what we're seeing on the offside in the core material cost and power electronics.

that's been very helpful with the local China supply chain. But in addition, one of the things we're doing with this system is we're implementing some of the newest cost reduction and new architectures right away, so right out of the gate. So our roadmap of activity that we look at from a design perspective in things like eliminating some of the infrastructure out of the power electronic side, for example, out of our and into our lifting mechanisms for this system.

of the first EVX system. I think the good news is it's not a small system. I mean, it's a large, it is a large, you know, 25 megawatt, it's a four-hour system, 100 megawatt hours. So all of those learnings, I think, are gonna translate into what we're looking at in a very large and evolving market in Australia, for example, from a local region perspective. But the other learnings are gonna come through all of our global deployments in EVX.

all over the world, including the U.S. I appreciate it. If I could, I'll sneak one more in. I'm going to jump back into Q. Just, you know, could you give some insight into what kind of opportunities that you're seeing over this next, you know, call 18-month period as far as it relates to duration? My assumption is that it's still probably mostly in the 2-4-hour range, but I was just wondering if that's true or maybe if there's longer duration systems that are kind of in the pipeline for what are you have your guidance set up?

Yeah, it's interesting. We probably can uniquely answer that question given we're playing across short and longer duration, right? So this is a really interesting question. The market continues to be in the bulk of the market and you can look at all the market data focused in more of the two to four hour range. Now while saying that, what I'd say about us and our customer base, remember the strategic investors we have in BHP, for example.

The Korea Zinc Group, which includes dark energy and sun metals that has a stated strategy of being one of the largest green hydrogen producers. The Korea Zinc Group, which includes dark energy and sun metals,

out of Australia, you know, groups like Saudi Aramco. So when you look at these types of investors.

that are coincident with customers.

The industrial players are making this transition and a lot of that's gonna require the production of green hydrogen. That's gonna mean longer duration storage of at least eight and typically up to 12. I think we announced with the DG fuels a 16 hour storage. You need that longer duration because you're driving a process of electrolysis with an electrolyzer where you're splitting water and making green hydrogen. So because of that, on the industrial side.

to a first demonstration unit.

You know, we were ahead of the game, I think, in this case with our first five megawatt system in Switzerland that we in 2019 went right to market to prove the technology at scale. And that's what led to all the diligence that we had from some of the largest energy groups in the world that I just mentioned that the diligence on the tech saw working and working as planned, saw the rancher proficiency we were achieving in Switzerland, which was there.

and that led to the progression and getting to their needs for longer duration storage. So a little bit of a mixed bag given our specific customer set that we work with on the industrial side, I'll say, and also with players making, for example, sustainable aviation fuel. So those type of projects, while they're longer term and a little bit further out, I think these are things that are getting developed over multiple years. They're very large in scale. So we're going to see more and more...

on that longer duration, playing a portfolio in the coming years. And it's gonna be a ramp as we get that industrial segment up and going. And the great news for us is we've got with our new software platform, the ability to help our customers develop and implement shorter duration solutions with the same type of software platform. No, perfect. Thank you so much, Joe. Thank you.

on that longer duration play in our portfolio in the coming years. And it's gonna be a ramp as we get that industrial segment up and going. And the great news for us is we've got, with our new software platform, the ability to help our customers develop and implement shorter duration solutions with the same type of software platform. No, perfect, thank you so much. I'll jump back in the queue. All right.

in our portfolio in the coming years. And it's gonna be a ramp as we get that, that industrial segment up and going. And you know, the great news for us is we've got with our new software platform, the ability to help our customers develop and implement shorter duration solutions with the same type of software platform. No, perfect. Thank you so much, Joe. Thank you. All right. Thank you, Jonathan.

Thank you. Our next question comes from the line of Brian Lee from Volman Tax. Please go ahead.

Hey guys, good morning. Thanks for taking the questions. I appreciate all the high level color. Hey guys, appreciate all the high level color and then kind of thoughts around the market. It's really visionary kind of what you guys are doing and then all the momentum you have here. But I have a couple sort of more, I guess, nuts and bolts. Types questions just as I think about the model here and then all the moving pieces. So maybe first off.

on the margins, you know, this battery storage, you know, all these project wins quite, you know, impressive in terms of scale and timing, but it's not your technology, it's not the gravity storage and we see players like Fluence and others, you know, barely maintaining single-digit cost margins on these types of deployments, text the software piece of the business. So I guess the simple question is, what are you gonna make margin-wise on being a battery storage deployment company for that kind of $350 million of revenue opportunity versus?

and the problem for solving for customers are pretty complex where they need, for example, they have limitations on space, for example, so they need more creative solutions than exist in the market for energy density. So that puts some of the players that you might expect sort of out of that equation if they can't support certain architectures. We also in these projects we've announced are putting in place architectures that...

in some cases represent hybrid of, and combination of technology. And we'll be able to share, I think, more details on that. And then, you know, we obviously are doing things with our software and on the service side that being at the beginning here, Brian , obviously, it's a little early for me to give you an expectation on that because we're, you know, we're not a five- or ten-year player in that space. Obviously, we're just...

You know, announcing these new project awards, we're going to be executing on these here into starting Q4 and through into 2023. And we'll be able to give, I think, a little better indication on that as posed our Q3, Q3 quarter.

Okay, fair enough. I mean, maybe a simple question. Just since you are benchmarking the initial financial model, 22 slip-bidges is feeding into a better 23. So the aggregate, 22, 23 revenue is in line with what your prior financial model was targeting. Would you say the same about margins given this makeshift, which seems to be playing out as well?

Sure, well what I say is based on what we're seeing in the ramp up on both the gravity side and even within the battery portfolio, that mix now is going to have an impact I think on what we've, what we had historically in our business plan before because we have a little different mix of things. We have some things on the positive side, Brian as you know because you've I think pointed this out as we've talked before, we have the ability to license the technology in particular, so obviously that means gravity.

for example the EPC companies alone. So I think one of the things I'll give you some color on is we look at early margins. You've got EPC companies that all are very, very busy. Number one, anytime they're gonna build something new and I'm speaking gravity now. So they're building these integrations of lifting systems and power electronics and things that have not been built before. You know what we saw in the mid part of the year on some of the quoting we had done was, you know, a lot of people have EPC companies building.

into the rest of this year and in the next year. Now we provided a little bit of the ebit of the justity, but a guidance, I know we didn't give any guidance yet on the specific unit economics, but I am expecting an impact to that gross margin to believe a slightly lower than what we've had out there relative to this new mix as we looked at 2023, but we're gonna be getting more information on that.

here over this next quarter, and as we actually start executing projects. And that's, I think that's key because we're actually going to be building, recognizing revenue against these projects and we'll be in a better position with every quarter here. And you know that's part of being a new company that's deploying its solutions as planned in our first deployment year, and also some of the longer time frames on the gravity side to have those built out. I mean those projects are 9, 12 plus months.

that's not only going to be batteries. So we're going to be updating that mix and be able to provide, hopefully a little more granular level as we get post Q3.

I just did not appreciate the direction now. I know there's more.

things to kind of get ironed out here before you reveal the specifics. So that's helpful though. Maybe last one just again kind of logistically and I'll get back in the queue. Can you talk about for these large project awards you're announcing today, the three battery storage, who the battery suppliers are. I mean the COD in mid-23 is great because it means you have real line of sight to these projects moving forward. But have you secured the supply, what sort of your situation on the ground in terms of...

you know, lithium ion battery suppliers, pricing those contracts out, getting the delivery schedule. Thank you guys.

Sure. Look, we aren't going to provide specific names of the battery players. Just know that we're working with some of the most well-known players in the world there. We've also done a lot of development work on our own there. I mean, China's a presence for us, which you can imagine from the last two years of what we're announcing the last year, obviously, the result of us spending significant time in the region. So I would say that we are looking there to leverage the market as best we can as well as...

that they aren't potentially finding in the market. And that innovation isn't just there because we want to say we're doing something cool. That is all about unit economics.

That is all about unit economics. If you're going to differentiate and do something that others can't, there's a premium you can extract, I think, for that, or you're doing something more cost effectively at the market price to really focus on that and drive in that economic equation, both for our customers and for us, quite frankly. Thank you.

Thanks so much guys.

Thanks so much guys. Alright, good to chat Brian , thanks.

Thank you. Next question comes from the line of Noel Pops from 2E Brothers. Please go ahead.

Thank you. Next question comes from the line of Noel Pops from Two E. Brothers. Please go ahead. Hi, good morning.

Hey Noel, good morning, how are you?

real good things. So just thinking about some of the comments you were making about implementing technology improvements as you go, for example, the project in China, I just want to, could you maybe just talk a bit about... I just want to, could you maybe just talk a bit about...

what's maybe in motion, technology-wise, either whether you're talking about implementation or construction or even all the way back to...

further progress on the material side. So just to give an idea of what's kind of being upgraded as you or...

Just getting more attention as you go along with implementation and then design for the next RAPTA project.

Yeah, it's a great question. So let me start with gravity. And if you look at our gravity solution and think about the pockets of... and think about the pockets of...

of where our cost is.

It starts with sort of the fixed frame in the foundation. So if you just think about you're building a house, right, that's what we're building is a structure. So that starts with that foundational element where I think I'd mentioned this before, but we're working with some of the leading research players in civil engineering. So for example, from Caltech, we have the chair of their seismic and civil engineering group, Dr. Jose and Dr. Andre to join the company a year ago and is dedicated with us because of the nature.

There's also a lot of different ways you can get at that constructability cost, which I mentioned to one of the earlier questions.

from one of the analysts, this aspect of the time to construct and how you optimize to shrink that time frame, how do you automate, to minimize that labor component, while that labor component is much lower cost in places like China. Other places like the US, it's very, very high, especially in this market, especially in this market. So, if we can innovate and provide a way to automate the building of these fixed frames, for example in...

and components and prefabricated sections and using automated trolleys, for example, that can leverage the infrastructure of the system itself. You know, there's a lot of things that we're looking at there to address that bucket of cost. And of course, with the first system in China, we're gonna be looking at how these things play out and ways to optimize it, because we're gonna be learning, you know, we're gonna be learning on these first builds. There's a second piece around the power electronics and the other.

chunk of costs and that's all the motors and birders variable frequency drive and in our case in the gravity side. We have these listing systems, these vertical lifting systems, so think vertical braid elevators, right? Large ones that are lifting essentially 25 metric ton blocks, which are the sure and positive blocks. So that's another area that we look at innovation in there. That gets down to hardware elimination, meaning coming up with architectures where we eliminate.

gearboxes or the active front end or the variable frequency drives in favor of mechanical systems that work differently, for example, in the process of how we're lifting objects. I think there's a hardware meaning think about that as CapEx for customers. Trying to reduce and get that CapEx equation to take hardware costs coming out. There's obviously a volume component of that. So if we look at...

You know, multi-megawatt motors and, you know, try to look at innovation in that space. You know, that's an area that we'd like to, honestly, see more innovation and therefore lower cost and more efficiency. You know, we're using motors that are gonna be anywhere from 96 to 98% plus in terms of efficiency. They're for a portion of the architecture. So I think we're balancing.

innovation there to take material cost out as well as to improve round trip efficiency. And that's in that improves economics, right? Because what does that mean? That means for every unit that you store we're able to return more of that unit without loss.

back to the grid. So I hire round-for-pufficiency means there's less loss in that process. So that's what I say around the second part, around the power electronics and fixed range. So you don't have to do with these mobile masses.

that get filled. So those are these composite, these, you know, 25 metric ton composite blocks. There are thousands of them per system.

So you can imagine we, as we eliminate this using concrete, so this is part of our focus on sustainability, but as well as cost, you know, we aren't using concrete in the production of those composite blocks, we're using as a default solution soil, so that's available locally. In addition, we can use waste materials and where we can do that, we're going to try to do that, things like coal ash, tailings from the mining process, and as we announced with N-O Green Power.

looking at the integration of wind blade, a decommissioned wind blade in that fiber class that otherwise have to be burned or buried. So right, look, I'm trying to recycle that. So those are the areas around cost that we try to get in gravity. And then what I say about EVF is I mentioned this to the last question also that, I think Brian ad, but also that's even touched on is, we're looking at trying to innovate to do things between...

the battery suppliers and our software in a way in helping customers solve some of their complex problems that can help us take cost out of the overall solution and provide something very value-added to customers. That includes, by the way, looking at different hybrid architectures to uniquely provide, for example, backup systems with multiple technologies. And we'll be sharing more about that in the future here as we execute.

Great. You know, one thing as you talk about. You know, one thing as you talk about.

I'm just trying to picture projects that are in construction all the way out to the various horizons of planning and...

speccing and scaling to find the requirements so as far as lead time where

There must be a point where it's kind of a drop dead with the plan as far as

You know, we're not going to try to add anything innovative, you know, for the six months or whatever before the project starts. So just can you give a sense of how the timing of that happens when you're trying to integrate these advancements into a project? So how do we try not to create advancements into a project?

Yeah, by the way, it's a great question. And it's also a balance. So as we sign contracts, they have deadlines, they have CODs that we have to respect. And our customers have those, obviously, those same constraints relative to hitting numbers. So what does that mean, for example, for our project that we're implementing in places like the US, we have to get started. So that means that we might be a little more conservative with the material.

new cross-production methodologies there, for example, for the trolleys and even for the lifting system. So there is a balance, and we do have to just essentially go with what we have at a certain point and know that we're gonna have a road map to get there, and that's why, well, that's why we capitalized the company the way we did. David mentioned this, and when someone asked about capex in our original plan, we had, I think, over the three-year period over $350 million of plan.

equity investments for projects at that time thinking that we were going to be participating in projects in a much bigger way with our balance sheet. What was happened and as things evolved is we aren't needing to do that. So we're actually have very very minimal. I mean as David mentioned, we only have one project right now where we're looking at building that out on our balance sheet and we'll be sharing more about that over the quarter. So I say that the implementation of where we're going of the cost reduction road map and the decisions at a certain point we do have to make decisions and we.

we go then and execute for customers. And you know, the last thing I'll say on timing. And you know, the last thing I'll say on timing.

is just getting through the contracting process. I mean, as I said, we very just candid and transparent with you. We were hoping to get some of these project awards two to three months earlier this year. And that's just the fact we were hoping to have some of them even before June 30th. And it just some of these contracts have taken a little bit long. We're happy to talk about them now. We're happy to actually talk about project awards so that we couldn't do that last quarter, because we're just...

you know, working through that contracting process. And again, that's not new to any of us around this table. We have a very seasoned management team that's been in this sector and industry. So we get it on what it takes to get customers across the line. I will say that we're solving some pretty complex problems for them that results in a lot of engagement of our technical teams to help do that. But that's why they choose us. And then we get through the contracting process because they see the value of the innovation that we're creatively solving those problems.

Got it. So it's still very much a redynamic process and it's not as if there is an off-the-shelf installation you can outline to somebody and do a contracting you're done. It sounds like that you set a lot of involvement from the technical team just to even get to the contract.

Yeah, by the way, not unexpected again. So just to be clear, we expect that and we always start fairly standard and then we get into specifics. But that's part of the value add as well. For the gravity systems, I'd say that we have a cookie cutter way to just... A modular thing just to go out and build it. So for gravity, it's more of doing geotech and site, a lot of work on the site because we're building a building. So...

So that's where some of the work that gets done up front. So that's a more modular build out. I think as we get into what we're using our EBS software for and solving those problems and we get into different technologies that we're integrating, that's where there's just a little more both creativity and complexity, but that's the value we add. And that's why we're getting chosen and selected here for these larger projects. Great. Thanks a lot.

the work that gets done up front. That's a more modular build out. I think as we get into what we're using our EBS software for and solving those problems and we get into different technologies that we're integrating, that's where there's just a little more both creativity and complexity, but that's the value we add. That's why we're getting chosen and selected here for these larger projects. Great. Thanks a lot. Okay. Thank you, Noah.

Thank you. Ladies and gentlemen, at this time, we have reached the end of the question and answer session. And now I would like to turn the conference over to Mr. Robert Bikoni for closing comments.

Great, well look, I want to thank everybody for joining. Our call today, we're real excited with what we've discussed today across the gravity front and the progress we're making in our focused three regions that we outlined at the beginning of the year. And that's the US, China, and Australia. We have a lot of activity going on globally. We're very measured and focused as a company to ensure that we focus on these first deployments.

of our EVX platform, as well as the new deployments now with our EVS team, that these first ones are very successful. And while I know the numbers are large, as we've discussed, some pretty large ramp here of revenues we looked into 2023, it does reflect a very focused... revenue.

effort on specific regions and specific customers. And if you got a sense of the size of the deals we mentioned, I think that's a real benefit, meaning we aren't doing 30 deals, or even 20 deals, or even 15 deals. We are focused on large projects with large customers that have a lot of credibility and are making choices as you heard today for our technology. So I think that's a...

That's definitely a benefit. It's a strength that it allows us, I think, is both a commercial and an operational team to keep focused on few but important things. I think less is more in that regard, and that's gonna help strike success as we scale and ramp up and learn. By the way, so these are gonna be first appointments. That brings with it some level of execution risk at the same time. If you look at the management team around the table, and I always wanna end on this note with the people.

and the team we've assembled, I really believe we have one of the most experienced, dedicated, I think motivated and passionate teams focused on decarbonization, but really, really focused on listening to our customers. And that's why you get the nature of being able to announce project awards of this size and with these type of customers. And we have a lot in the hopper here and look forward to it.

to share more here as we get back together next quarter. So thank you everyone and enjoy the rest of your day.

Thank you sir. The conference of energy vault has now concluded. Thank you for your participation. You may now disconnect your lines.

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