Q3 2022 Energy Vault Holdings Inc Earnings Call

At this time all participants are in a listen only mode. A question answer session will follow the formal presentation.

Once you 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 Laurence Alexander. Thank you Sir you may begin.

Thank you and good afternoon.

Welcome to energy <unk> third quarter 2022 earnings Conference call as a reminder, and as you both 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.

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Please note that energy both earnings release and this call contain forward looking statements are subject to risks 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 LNG volt.

Referring to our 10-Q filing for a list of those factors that caused our results to differ from those anticipated in any forward looking statements.

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.

A reconciliation to comparable GAAP measures.

Joining me today on the call is Robert Coney, Our Chairman and Chief Executive Officer, David Hitchcock Interim financial Officer, and yen case, Vanguard and our newly appointed Chief Financial Officer at this time I'd like to turn over the call to Robert the Kony.

Thank you, Laura and I would like to welcome everyone to our third quarter of 2022 financial results Conference call.

We have a lot to share today I'm real excited about around our commercial and operational progress.

Well the myriad of new customer project Awards.

Want to start my remarks by first welcoming our new Chief Financial Officer Young case Vangala.

Many of you might be familiar with young case, if youre in this industry as it comes to US with extensive financial leadership experience directly in the energy industry and a career spanning 35 years across 20 plus countries around the globe.

The energy of our 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 plan.

I'd also like to thank David Hitchcock, who is 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 having accomplished CFO like David come out of retirement to work in a public company roll again.

But I 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 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 Shortlisting 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 eight gigawatt hours, representing approximately $2 billion of potential revenue as we convert the award to contract as we did last quarter.

To put that number into perspective, Bloomberg New energy Finance expect 35 gigawatt hours of energy storage system 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 Youll see reflected on page five of the investor presentation, showing a total of $15 five gigawatt hours.

<unk> submitted a proposal 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.

Large size and scale of each individual project and that technology diversification across energy storage mediums you can get a quick sense of the market adoption and readiness that reflect our product differentiation and software capabilities.

It's 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 of evolution of our strategy fundamentally our strategy and its success revolve around solving customer problems.

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 Volte, and we leveraged their strategic insights into our technology roadmap through our strategic advisory board, which can be any 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.

And 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 deploy 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 and 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 will 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 the 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.

Economically store energy over greater timeframe 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 battery being the industry standard to meet those needs.

The recent IRI 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 Volte, we'll 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 Volte is proven we can and expect to be a significant leader in this area growing at.

Above that rate.

As renewable energy penetration continues to increase the reliance and need for long duration energy storage will grow energy Volte is well positioned to meet our customer needs with our proprietary <unk> 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 Gravitt energy storage remains strong we are keenly focused on deploying <unk>.

For our customers and our team dedicated to this effort technically led by Andrea <unk> 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 of our new software architecture.

Okay.

I want to emphasize that customers and investors of all sorts, but this is our 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 total addressable market, we listened 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 priority for deployment in the U S, Australia, and China and today, we're thrilled to announce further geographic expansion with our first in roads into the European market, we expect that commercial.

Hmm to continue throughout the remainder of the year and into 2023, as we and the industry continue to benefit from macro tailwind.

Now, let's turn to some of the specific deal highlights.

We announced the official contract signing of the 275 megawatt hour project with wellhead Electric and 2200 20 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 revenue 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.

Yes.

We also continue to build out our pipeline with two additional recent awards and our battery based solution business.

One for a 250 megawatt 500 megawatt hour project with Meadow Creek in Australia.

And a 410 megawatts 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 projects to complement our long duration gravity project in Australia to areas that are seeing significant growth and demand for energy storage.

Australia is power markets are ideal for energy storage deployment is an increased power market dislocations over the past year have supported increased revenue opportunities for utility scale energy storage and 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 the utility market need to critically ensure grid resiliency in the event of unforeseen power failures, some of which are <unk>.

<unk> and lots 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 bolts energy management system provides full system control and optimal dispatching among the batteries hydrogen tanks and fuel cells as.

As I mentioned earlier the project is one of the first and largest utility scale green hydrogen projects globally.

Okay.

I hope you've all been able to open the investor deck, and specifically slide six to 10, where you will see some of the first pictures. We are sharing publicly of our 100 megawatt hour system and gravity and route on China.

Progress continues to be made coming out of the ground now in this first global commercial deployment of our gravity based <unk> system by our partners Atlas renewable and locally through China, Taiwan Yang.

25 megawatt 100 megawatt hour project is tracking to mechanical completion and commissioning is planned in the first half of 2023.

Foundation activities were completed in August and construction shifted to the fixed frame structural erection and power electronics staging.

Energy Volte will continue to support the project in Q4 and into next year with the power electronics startup overall system mechanical completion and commissioning of the final system and software to full operation.

Work being done in <unk> by our partners is truly remarkable as you can really understand the size and scope of the project through the picture is published in the Investor presentation.

Okay.

We are really excited by our work with Atlas renewable and China tightening is 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.

IPC, which is a policy oriented support organization of the investment Association of China.

In conjunction with China tightening in selective provincial and local government will develop five national zero carbon industrial parks.

The parks will all utilize energy vaults gravity energy storage technology, and its energy management software platform to support China's mandated climate change and environmental policy.

The person outside 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.

Yes.

Momentum in China continues to progress and real time, just a few days ago. It was announced that China tightening in Atlas together with multiple partners included 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 in <unk>.

Grated energy base supported by our VX gravity energy storage technology, and BG city and in China's Guizhou Province.

Establishing a foothold in deploying our AVX 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.

In 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 2035 year plan.

Given our footprint and early mover advantage with a financially attractive and low risk license royalty model, we anticipate that <unk> will play a large role in the Chinese market over the next decade towards enabling the net carbon neutrality by 2060 I can't share with you how excited I am about the URL.

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 German yen from China timing and Eric Fong to CEO .

Outlets renewable.

Back Youre 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 <unk> system in Snyder, Texas with annual Green power I think is really demonstrates the flexibility of our <unk> system to produce on a <unk>.

Our basis, let alone the longer durations of 8% to 12 plus hours.

We're happy to partner with the largest global IPP and all green power to develop and deploy the first <unk> 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, zinc and its portfolio of companies located in Australia.

Last quarter, we announced the commitments of site and feasibility planning with arc energy, the Australia and wholly owned subsidiary of Korea, Inc. For multi gigawatt hours of both long and short duration storage projects supporting the sister Company Sun Metals Corporation, and North Cleveland'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 continue to exhibit positive progress as well and has been in the news recently and while they await finalization of their loan grant they have announced significant offtake agreements and 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 ABS systems in Louisiana, and there are other announced locations to support their facilities when they come online given the critical need to reduce <unk> within the transportation.

Sector and flight travel specifically.

All of these new awards announced today combined with our existing award pipeline of signed contracts will add 495 megawatt hours to our backlog and nearly five gigawatt hours of gravity battery and hybrid energy storage awards for energy volt.

This is a reflection of the differentiated value proposition, we provide our customers that come from a world class team at energy ball.

Okay.

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 hire focus exclusively on the scaling and continuous improvement of our existing project management construction and deployment teams and coverage.

Second we're also partnering with strong engineering procurement and construction companies with support from our partners and geographies of growth development.

Third our strategy to have an innovative and flexible software architecture 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 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 next year, our mandate and focus is absolutely clear. This is about execution as we noted above to 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 young case Angolan as CFO .

And Dr. Craig Horn as Vice President of advanced energy storage development responsible for the expansion of energy vaults portfolio of storage solutions and.

And also <unk> 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 are growing head count, 18% sequentially quarter over quarter, bringing our year to date 2022 head count 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.

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 am happy to reaffirm both our 2022 full year revenue and adjusted EBITDA projections of $75 million 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 does visibility we have today into the timing and the magnitude of our project contract awards and the final deployment.

I will now turn the call over to young case, our incoming chief financial officer to provide a few introductory words.

He will then turn it over to David Hitchcock Energy vaults interim Chief Financial Officer to cover our Q3 financial results in more detail yeah. Okay. Thanks, Rob Good afternoon, everybody I'm delighted to have joined <unk>.

<unk> at this stage time and 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 earnings call.

Thanks, Sean case really wish you the best of luck at energy Volte 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 $5 million in revenue relating to providing construction support services to our renewable.

Construction has begun and we expect to begin recognizing revenue for that project in the fourth quarter.

Third quarter 2022, gross profit was $71000 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 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 $22. Four 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 easy one tower in Switzerland and associated break machines in the quarter.

Excluding these noncash expenses operating expenses were up $2 9 million versus the prior quarter.

Sales and marketing costs for the third quarter of 2022 was $3 8 million compared to $1 9 million in Q2 of this year, excluding stock based compensation sales and marketing expenses were up $63 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 AVX 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 head count 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, and 10-Q, which we filed this afternoon include a bridge from net income to adjusted EBITDA, the key noncash or nonrecurring items that we added back.

Were $10 9 million of stock based compensation $5 2 million of depreciation expense in the $2 8 million asset impairment, the key noncash or nonrecurring items that we deducted.

Our $6 7 million in gains from the change in fair value of our warrant liability relating to our public and private warrants.

Roughly $1 million in interest income.

On a year to date basis, adjusted EBITDA is a negative 184000.

As of September 32022, 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.

Italy by the surety requirements on the projects, we are starting to deploy in Q3, we used $29 million of cash from operations.

I am pleased to report that as of August <unk> 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 32022, we still have $5 1 million outstanding private warrants, which are required to be re measured at fair value.

Each period.

Finally, just as Rob said I would like to reiterate our 2022 revenue guidance in the range of $75 million 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 cash position of $260 million to $280 million I will now turn the <unk>.

Call back over to Rob.

Great. Thank you David.

Look I.

I'm 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 our leadership team here.

<unk> seen us day to day.

Clearly speed and demonstrating our speed to market has been 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. So I'd like to ask a question. Please press star one on your telephone keypad.

Formation tone will indicate your line is in the question queue you.

You May press Star two if you would like to remove your question from the queue.

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Star one at this time, one moment, while we pull for first question.

Our first question comes from Joseph Osha with Guggenheim. Please proceed.

Good evening this is actually Hilary.

I just I 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 hour.

<unk> listed projects and any characteristics details you can provide on what those projects look like as well as what a reasonable assumption might be.

Converting that into.

Yes.

Great. Thank you Larry and good to speak to you again.

We're early days here as we're making proposals on getting conversion through I think we've got a.

Quite a good rate thus far is 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.

I'm here as we go forward in the next few quarters and I think we will have something to point to in terms of our our success rate. Thus far I will emphasize that we've been very focused on less projects, but large projects. So what that means is we can focus Hillary our resources to ensure we are providing a law.

What are the technical differentiation around the design or layout or any energy density considerations on our projected 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 <unk> and his team here locally in Maryland, and Virginia.

Supporting that customer on an optimized design to really achieve the maximum output.

So so I think that that's been fundamental and thats, how we are using our resource.

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 short listing 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 we're very happy with our 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 that is there any moving pieces on the revenue side.

Any color you can provide on what the margin profile for that business looks like next year would be helpful. On that set for me. Thank you.

Sure.

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 in cells, where we're going to be recognizing revenue.

On a POC basis, and that has given us the visibility to reaffirm that 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 an initial deployment now what that won't include or 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.

And any other cost.

Benefits from volume so I.

I would expect we're going to be in that range. As we also finalized 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.

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.

So we're going to be a result of those multi gigawatt hours of projects that Atlas renewable.

Announced.

Yes.

Okay.

Does that help to start.

Yes. Thank you so much.

Kim.

Thank you. Our next question comes from Thomas Boyes with Cowen. Please proceed.

Great. Thanks for taking the questions.

Great information and definitely appreciate some of the more.

Holistic.

Roche in both the long duration and short duration court.

Battery storage offerings could you actually just talk a bit about the battery supply chain.

There you have a lot of announcements, obviously and how much of your contracted and maybe over what timeframe do you see that coming in.

Sure it's a great question.

Look as we.

Get to a closure and assigning both from an award perspective, so even before we get to the contract booking as a part of that process from moving from short listing to award and then award to contract booking you can assume that we're securing an lineup that battery supply now in some cases that involves our.

Customer fit may have already secured it so through their relationships and have asked us to play an integrator role so.

So it will be clear on that a little more going forward on a project by project basis in other cases through our direct involvement in relationships in the battery supply chain, we will get commitments.

On that supply.

Including all the scheduled commitments that we have to make to our customers to deploy before we actually signed and booked that order.

So to emphasize we we line all that up in advance we are.

Not in the business of taking risk in that sense, both from a schedule and and any specific individual rare materials or 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.

Continue to hire and put in place a very experienced team to manage the execution side of that so.

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.

For us it's very important as we look at any project, we arent 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 in domain rich teen so that's that's how I would characterize a bit around the battery supply chain.

Perfect and maybe one thing.

So it was interesting of course.

Just know that that project is moving forward.

It has to proceed.

Using this is the plan to still use the retired when bleach in the construction and then any insight.

So you can have around the progress there testing you've done.

<unk>.

Yes, yes that is that's an important part of 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.

In Enel does have.

Wind blade.

Decommission capacity there in the United States and they are in Texas, So as a part of our recipe for the bricks utilization of that wind blade is important and this will be one of the actually the first deployments of our gravity solution with the recycled wind blade as a part of our recipe.

Yes.

I'll hop back in queue. Thank you.

Thank you.

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

Hi, Robyn Laurence and nice to meet you Yankee.

Thanks for taking the questions. This is Greg on for Brian .

I appreciate all the color in our prepared remarks.

First question is on your two gigawatt deal with Atlas.

I'm just curious how the system should be accounted for within energy Walt.

I E. How are you going to get pay on on projects developed by Atlas I know you talked about monetizing it as royalty frame 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 you want to cover that to the 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 are just at the initial startup phase of this and its a new market.

We are working with our partners in China to understand the timing and more importantly, the tariff structure for the business that will take the 5% royalty off of to have a much clearer understanding of what that revenue stream will be from a dollar perspective I would expect as we move into 2023, we'll be able to.

To talk more in detail about that.

And Greg 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 a total project revenue that 5% is off of that total project value. So not a lower item down the income statement.

Yes.

That's very helpful I guess.

Second question is on your.

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 like what you embedded in your 2023 outlooks regarding project delays and potential battery constrained.

And also how many projects are connected to solar if so are you seeing supply risk on the solar side that may have pressed on project timing. Thanks.

But let me address the last two the latter two and David will go back to the first to the first item.

Relative to.

Any potential delays and what were 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.

And we're seeing that in fact here in this very first quarter.

With the type of project size creates 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 in and very candidly, that's what we're seeing with the relationships and the interactions we're having with our with our.

With our partner so.

<unk> building contingency so into our into our plans, we take very seriously our scheduled 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.

We we built in the appropriate amount of.

I'd say, both contingency as well as the 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 has done this before.

If you look across our leadership team.

And not only with the addition of <unk> 35 years, plus a 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.

Inappropriate 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 storage and and do we have any concerns in that space.

We have a very interesting portfolio of projects, we have with some of the first ones announced one of them is actually a hybrid project combined cycle natural gas 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 in the early cases, those solar plants actually are already operating and we're looking to capture that excess solar in general So we don't it.

Everything we're seeing right now and even some of the projects have been awarded we're actually looking to store capacity that already exists and is not tied to any future.

Future Solar development project, the David do you want to hit the question of sort of the ramp through the year sure. Obviously were still are not 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 booked.

In Q3.

Jupiter power and wellhead electric which are roughly $200 million Rob.

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 will overlay the bookings we expect in Q4 and Q1.

Okay.

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

Thanks, Greg.

Question comes from Brian Dobson with Chardan capital. Please proceed.

Yes, thanks very much for taking my question, so exciting news on on Green hydrogen.

I suppose as you're looking at over the next couple of years, how do you expect that technology in that business to evolve.

What other energy storage technologies are currently considered.

Right.

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 and the energy storage space, but the size of it 300 megawatt hour.

Youre complementing.

A short duration need with a 48 hour storage need and.

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 a 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 and working with our technical team. In this case are not just taking what we have in our portfolio and trying to shove something down our customers' 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.

And until now.

Pointing out that the green hydrogen architecture so.

Specifically to your question for certain applications, where you need a if you can call it sort of an insurance policy on some unforeseen event that could be weather related it could be.

Related to some other shortage or a shortfall in power that may have long term implications. We I won't go over the examples we know the last few years, but to have the capability with green hydrogen and the combination of our fuel cell to provide a longer duration need to ensure that that people can keep the lights on.

Most importantly, I guess heat and in some cases in the heat air conditioning.

I think youre going to see an application of this type that.

They can apply in many different architecture. So I would say specific to this type of application we see other uses for it.

I honestly believe a lot of customers werent.

Utilities arent aware that this type of combination could be brought to bear 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 can play an important role, especially given.

What we've seen in the geopolitical space where.

Full lines.

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 will continue to see I think hydro can play an important role.

And 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 some more of the our andreyev hydrating leads that we don't limit that to our own thinking. So we do look at partners in this 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 alternatives for our customers and we'll continue to do that but I have nothing specific more to say here publicly on on those at this time.

Excellent that's very helpful. Thanks very much.

Thank you. Our next question comes from Noel Parks with Tuohy Brothers. Please proceed.

Hi, good afternoon.

How are you doing well.

Good good just a couple of things I also wanted to touch on the green hydrogen announcements.

Just trying to sort of wrap my head around.

So a year ago when the Evs.

Group is.

Being formed I'm, just trying to get a sense.

At what point.

At that point, where you already thinking about that.

Application of the platform to integration with our hydrogen project I'm just curious.

I assume the architecture the design could more than support it.

Just trying to get a sense of at what point.

You had that functionality on the roadmap as another element to be to be handled within the storage integration.

Sure it's a great question.

And the answer May surprise, you, but you really need to go back to the founding of this company.

Understand and from our Division, we had important software was going to play the role of software would play and how we thought about.

Energy and utility grids evolving and.

The first application came very clearly.

Two 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 growth was a co founder here and for those of you that new idea lab in build growth most everything he's ever done has a lot to do with software and in particular, the last 15 years a lot of the innovations that he's developed.

Optimizing.

For example, the the solar.

Solar panels and the C is concentrated solar power and as it looked at the.

The concentration of that powers, the Sun moved using our software to move those those panels with the Sun, It's a lot of that application.

As I said started with gravity, but our vision was it software in a very similar way to telecommunication networks and how software move 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.

<unk> always believed to have a division that software was going to play that role and moving electrons around and we also understood very early on that.

<unk>.

The customer needs, we're going to be very very different and the applications very different and.

Individual customers would have even multiple needs.

And 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 will 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 Evs 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 and hybrid systems.

Great question.

From that is.

Don't know if you can quantify this but.

That would imply.

Yes.

Prospective this vision goes so far back.

A pretty substantial lead compared to other competitors and I have no doubt theres a long list of people who are a long ways back can you sort of characterize may be 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 you get.

Do approach or a platform like yours.

But we'll look.

We stay pretty focused on what we're doing and heads down in executing our strategy.

As you heard today, it's really served us well.

<unk> and one thing its customer wins and customer award that's really how we measure ourselves.

I will say, we don't really see anyone else Thats really doing what were 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 were.

Part of our core values start 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 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 throughout the fourth quarter and full year revenue guidance is it then.

Revenues for modeling and royalties that.

The most visible element of what you're going to be booking for the quarter.

Well, yes. This what we're doing for this for this quarter as a result of some of the deals you heard announced an execution to some of those.

Initial deals with Jupiter and wellhead for example, it also as we said in our in our earnings announcement, we do have expansion of some of the gravity project in.

And the territorial expansions of that.

On a licensing basis there in the quarter. So I think I think that the project execution on those things.

Final things the 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.

Alright, 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 a tremendous execution starts with our customers. We focus their commercial team has done an amazing job also and the team work in partnership with our technical teams and all of the support areas the functional support legal finance.

All of that it takes two to make these things happen and get deals across the table people listening in on this I understand that.

What that take.

Tremendous tremendous complement to the team there at energy Volker for.

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 and what we're going to be sharing with our progress. So thank you very much.

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