Q4 2022 Energy Vault Holdings Inc Earnings Call
Greetings and welcome to energy for the fourth quarter and full year 2022 earnings conference calls.
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It is now my pleasure to introduce your host Laurence Alexander Chief Marketing Officer for energy vault.
Thank you you may begin.
Thank you and good afternoon, and welcome to energy, both fourth quarter and fiscal year end 2022 earnings conference call.
As a reminder, <unk> earnings release, and an updated fourth quarter earnings presentation is available now on our Investor website.
And we will be referring to the presentation. During this call.
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Please note that energy both earnings release and this call contains forward looking statements are subject to risks and uncertainties. These.
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 vote by referring to our 10-K filing for a list of factors that could cause our results to differ from those anticipated in any forward looking statements.
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Joining me on the call today is Robert Kennedy, Our Chairman and Chief Executive Officer, and Yan Yan case, when Garland, our Chief Financial Officer at this time I'd like to turn the call over to Robert for Kony.
Alright, Thank you and thanks to everybody for joining the call today.
Just a few weeks ago, we finished our first year as a publicly listed company.
Year that soft launch.
In February while delivering our first $146 million in revenue throughout the year.
$100 million of which was achieved in Q4 alone due to strong execution and customer focus by our people and our first start to deployment and project revenue.
I was on the Florida and IC two weeks ago with duty Shaw from the New York Stock Exchange, who is interviewing me for a year end review perspective.
We had met the year before during the IPO.
Really struck me to step back and look at all that was accomplished.
Starting the year, having strategic investors like Korea, zinc and outlets renewable step into the IPO with an additional $100 million of investment from the start.
And then immediately breaking ground on our first AVX gravity system outside of Shanghai in March 2022 for the highlights of the first quarter.
Note that this first 25 megawatt 100 megawatt hour system. Once the operating this year will be only one of two operating long duration energy storage systems. At this scale that is not a pump hydroelectric facility.
And it really just shows you the energy storage industry is still in its infancy, particularly for longer duration, which is in its own early development stages.
We're really excited to show the world what we're capable of here is the AVX system comes online this year.
Sticking with gravity, we broke ground in Snyder, Texas in September with annual Green power with our first U S. Based <unk> system, and we finished the year signing more territory expansions and license royalty agreement territories outside the United States, and Europe , and the Middle East all of which set the platform for future <unk>.
Builds and subsequent high margin royalty streams as the longer duration storage markets develop and become more important as renewables become a greater portion of our power generation.
Turning to where there is much larger than immediate demand in the short duration energy storage market, our evs team executed with velocity and quality and development of our energy management system, enabling the signing of about one six gigawatt hours of battery hybrid and green hydrogen energy storage.
Projects with multiple regulated utility companies.
And some of the largest leading independent power players in the world.
This is further proof that customers see in value not only our differentiation and unique hardware architectures and software design.
But perhaps most importantly, they recognize the seasoned operational and prior energy storage project experience of our team trusting.
Trusting us to deliver on very large scale and complex projects as we will be turning over this year.
The type of customers that we are working with do not take risks on execution full stop.
Their jobs are mission critical providing power and our energy storage needs. Therefore have to support that and we're excited this year to turnover our first systems.
Our current backlog and awarded contracts now exceeds five gigawatt hours and approximately $2 billion and I could not be more proud and supporting the team here at energy ball.
We set some benchmarks in 2022.
While executing well with a strong Q4 finish.
Demonstrating significant market validation via our strategy across short long, an ultra long duration storage wins across multiple storage mediums enabled through our software and innovative energy management system and we look to continue to build upon this momentum in 2023.
Let's spend a minute here on Q4 and regarding Q4, we announced our 2022 revenue of.
Of approximately $146 million, which is within the midpoint of our pre announced higher range of revenue with gross margins of approximately 16%, reflecting a mix of gravity license revenue from regional expansion in Europe , and the middle East.
And execution on battery related projects in the United States.
Our adjusted EBITDA of approximately negative $11 4 million was slightly under our prior guidance driven by upticks in investments in employees in Q4 to support the aggressive projects ramping into 2023 as well as some compensation related expense given the over performance achieved in Q4.
And the year.
Young case will be reviewing more financial details of the Q4 performance shortly.
Before we get there I do want to talk in some detail about the 2023 forecast, which I know many of you are very interested to understand.
Okay.
Yes.
As we had already announced and pre announce a stronger than expected Q4 revenue I would like to spend some time talking about that forecast and before jumping into the specifics and our financial guidance I first want to outline our framework and philosophical approach as we begin to share more financial details with investors.
Transitioning from our first year in 2022.
Mark by large contract wins announcements and deployment starts with top utilities and global independent power providers to.
Now in 2023, where we will be commissioning and training over our first gravity and battery energy storage systems globally.
Yes.
Let me first talk a little bit about the shape of the year and how we see our progress ramping.
As we saw in Q4 with a significant revenue upside achieved through executing ahead of schedule for a 275 megawatt hour, California deployment.
We continue to expect a level of lumpiness in our results, which could result in potential timing shift quarter to quarter and really not unusual at all given our stage of executing on our first deployment as a company.
Our outperformance in the fourth quarter is expected to result in successive quarterly growth ramps, starting low double digit million revenue.
To high double digit revenue into Q2 and.
And getting quickly into triple digit revenue quarter over quarter in the second half of the year.
Our second half of 2023, well, thus represent our largest quarterly revenues in Q3, and Q4 coincident with our first project turnovers as expected and per contractual commitments.
Progressive build to a year based on contracted bookings from 2022.
I wanted to talk a little bit about the macro factors.
And talk about how those could potentially impact our forecast as well.
We are approaching the revenue forecast that we've given and specifically our cash and operating expense management with a level of tightness in conservatism as we prudently plan.
For one continued uncertainty in the macro interest rate inflationary environment, and thus general financial market volatility.
Two the potential for further regional impact of Covid related pandemic issues and work stoppages.
Three general supply chain and labor tightness.
And for the potential for geopolitical and unforeseen escalation that may occur.
At the same time, and given our strong liquidity and cash position with no debt.
We are well positioned and poised to take advantage of the industry growth tailwind for energy storage globally and specific growth and economic accelerators in the U S market driven by the passage of the IRA and we'll talk more about that in just a minute.
Okay.
Third, let's talk about how we're playing to our strength.
Compounding the momentum we're seeing across our business.
As our portfolio of proprietary and differentiated storage solutions that is unmatched in the market and our unique ability to address short long an ultra long duration needs across multiple customer use cases under the same asset management digital platform.
The perspective that we garner from our customers from their short term shifting needs given peak demand cycles.
To fossil fuel asset retirement tied to longer duration needs.
And even very specific regional needs for backup and Microgrid solutions, requiring ultra long or multi day storage are all contributing to fortify <unk> role as a true strategic partner.
Helping our customers manage through this complexity.
In fact, we're very proud to have recently had our energy management system selected by one of the largest U S public utilities over other current leading platforms, which we believe demonstrates our innovation.
Our advantaged economics.
And the velocity of our energy Volte solutions team.
Fourth I'd like to talk about the IRR, which is really a game changer to our industry and just really refreshing to see the United States lead in this area given the priority.
On solving the climate change problem.
And first to note that we haven't baked any of its expected benefits into our current forecast.
In the U S market in particular, we uniquely can take direct advantage of the IRA monetizing one the ITC.
Which represents up to 50% Capex reduction thanks to our domestic content and project site and energy communities as defined.
For our gravity projects in particular.
Given we can be 100% domestic content.
And for the projects that we initially owned for gravity.
But in addition, the advanced manufacturing credit, which is a $45 per kilowatt hour for our hybrid green hydrogen storage solutions that we integrate deliver under EPC contracts.
While the general energy storage market is made up of players that are more single threaded and their technology and selling into broader growth trends energy volte uniquely can capture significant direct benefits on top of the broader market growth for projects. We may initially one.
And we have optimized our strategy to do just that pending the treasury guidance that we expected forthcoming.
Especially with our gravity energy storage portfolio, given its optimal positioning enabled through the IRI for the U S market.
Yes.
Just to remind we are not currently including these benefit and our forecast for revenue.
Cash or margin.
As we await final guidance from the Treasury Department on the actual mechanics.
But we strongly believe the legislation as intended can and will have significant benefit to our company in an outsized way.
Okay.
First I'd like to dig in a bit more on the unit economics for our business, which is an area that many of you have asked about as we began our project deployments in 2022.
And as evidenced in our 2022 project wins, we will continue to generate higher returns than the industry average because we are continuing to focus on large projects with unique needs that we can match with our high energy storage solutions from a megawatt hour per acre high density.
And more efficient design for augmentation as.
As is the case with battery.
No degradation in the storage medium as is the case with our gravity energy storage solution.
And for ultra long durations and small footprint.
As we did with our hybrid green hydrogen solution for <unk>.
Generally this means a move from the mid to high single growth margin percentages on our initial projects.
To mid teen gross margin percentages across the board on all content and value added that we supply.
And in fact, our 2023 gross margin will reflect this.
Our projection reflects of 10% to 15%.
This includes allowing customers who wish to do so or if we strategically decide to contract directly with suppliers to pass through products, such as battery packages and utilizing energy volte to deliver our proprietary hardware architecture.
Cross the gravity battery and hybrid systems, coupled with our energy management system.
Importantly, our business model and approach.
Flexible to be able to adapt to each specific customer and project whether customers choose procure batteries on their own or not for example.
This may result in lower lower total revenues for some projects, but importantly in those cases, we will be exclusively focused on the higher margin opportunity set associated with the project development, which we target in the mid teen to 20% margin range.
While our revenue will be growing in the two to three X range year over year, we're holding our operating expense flat off of our annualized Q4 2022 run rate as we exit the year.
This will allow us the potential to achieve positive adjusted EBITDA in Q4 2023, as we exit the year.
Assuming that we execute within the high end of the revenue range.
And perhaps more importantly allow us subsequently to enter 2024 on pace to achieve positive operating cash flow and adjusted EBITDA for full year 2024 results.
Now back to the specific 2023 guidance that we highlighted in our earnings announcement sent out just 30 minutes ago.
Yes.
We hold all of the factors above to influence our 2020 outlook.
But have taken a very conservative baseline approach that we're adopting and how we forecast our business.
Felt it most prudent to take a very measured approach to 2023, especially given the significant second half revenue ramp.
It constitutes our range of $325 million to $425 million for the year.
At the low end, our updated 2020 through revenue forecast of $325 million reflects only contracted revenues.
Already under execution with planned Cod's within 2023.
At the upper end of our range captures the potential associated with projects forecasted to be placed in service later in the year.
Some pending gravity and technology portfolio license agreements that are underway.
Other territory expansion.
And other potential projects.
Within the short listing or submission phase of our sales funnel.
Importantly, we would emphasize that even at the high end, we have adopted a level of conservatism that does not fully capture the various projects and discussions our team is working on.
We plan to update this and refine this range throughout the year as we gained greater visibility on the development and completion.
Of our large scale projects.
Additionally, as I noted earlier, our forecast does not assume any benefits as well from the pending IRA legislation.
Pending the treasury guidance.
Based upon our revenue forecast above and projects contracted and under development and deployment.
We are projecting gross margins in the range of 10% to 15% for 2023.
As expected gross margin outcome reflects a blend across our wide ranging project slate, including gravity battery and hybrid green hydrogen projects.
Further we believe it evidences our thoughtful approach to managing the returns of our business as well as our ability to remain nimble and flexible and developing the right solution to our customers energy storage needs.
Okay.
As mentioned above we are holding our opex.
Our total operating expense relatively flat to our fourth quarter 2022 annualized run rate.
Given the growth investments made in 2022.
While this might be surprising given the two to three X revenue ramp.
From 2022 to 2023.
We believe this will enable more flexibility as we ramp the year and ability to continue to invest in the most attractive opportunities that prevent themselves.
Taken together, we're currently forecasting adjusted EBITDA in the range of minus $50 million to $70 million in 2023.
Importantly, however, there is a significant amount of leverage within our range as we ramp into the second half of the year.
Of between minus 15% to positive $1 1 million, allowing us to potentially be adjusted EBITDA positive as we exit the year if revenue approach, it's a higher end of the range and.
And thus entering 2024 with a platform for positive operating cash flow.
One thing I want to iterate here at the end of some of the specific guidance.
And so our primary focus for this year, which really hasnt changed our focus from last year, which is executing to customer needs.
This year becomes even more critical in that regard as we will be turning over our first systems to customers.
And demonstrating.
Not only our innovation and the development of technology.
Our innovation and execution capabilities to deliver on time and on budget, but delivering a quality technical performance and operating performance performance for our customers.
For our initial gravity and battery energy storage systems that will be delivered and turned over this year.
I wanted to talk also a little bit now about AVX and turning to some project specific progress update.
Let's start in China, which where it's where we broke ground in March of last year with the first 100 megawatt hour system.
And China continues to progress.
And and this success is leading to more opportunities for us in the Asia market have you may have seen announced.
I'm really proud of the outlets renewable and the team from China tightening as they work through too long Covid related shutdowns in particular in the Shanghai area, which.
Which is where <unk> is located approximately 45 minutes outside of Shanghai.
We've included in the Investor presentation.
Some additional pictures from <unk> and you can see the extraordinary progress being made in such a short period of time.
This is also further validation of Avx's economic and technology technological viability.
In a few short years from 2017 and 18, when we built the first five megawatt system in Switzerland.
We have been able to develop.
The new <unk> system, and a new form factor leveraging all of what was proven.
In Switzerland, with a five megawatt system to an interconnected grid system.
And to now to be close to be commercially developed and our first 25 megawatt 100 megawatt hour unit and route on China, China that as I mentioned early earlier, we will be one of the first systems in the world.
In long duration at that scale, that's not pumped hydro.
We continue to be very excited about that and excited also about what we're implementing in that system.
Yes.
Let me give you a little bit of high level context, as well as we see the present and future market segments for our AVX and how we are maximizing our opportunities for success.
Let's start by segmenting, the AVX market into two end use types.
The first segment is the utility grid uses and the second being the industrial and micro grid uses.
The first segment for utility grids continues to be heavily biased in the current time to shorter duration needs and use cases.
That are currently being served as we are serving them with lithium ion solutions.
As time goes by and renewable power.
Reaches a larger percentage of the overall powerful.
The need for long duration will drive broader adoption of solutions like AVX and broader deployment.
And to address these market realities, we're establishing strategic relations early on with these same utilities that were currently integrating some of the shorter duration projects, where we've gained installed footprint.
Our.
<unk> to expand these relationships in.
In the future to include the AVX has their long duration storage needs emerge in progress and in fact, most of the utilities were working with have those needs as they are shutting down some of their existing fossil fuel assets over time and will require longer duration storage solutions at the end of the existing grid.
Shifting to the industrial and micro grid applications, we see a lot of strong interest today that requires durations of 8% to 12 hour and use cases, accordingly, and are not well suited for existing shorter duration technologies like lithium ion.
We've talked a lot about our metals and mining investors and operations are great. Examples as they electrify their operations and this has enabled us to work with our strategic partners, such as Korea, zinc and BHP.
To develop ways to implement the AVX to decarbonize their operations.
Other segments, such as green hydrogen that are emerging as well as the strong demand required to meet the needs for sustainable aviation fuel.
Which is a market that we believe is going to be in the multibillion dollars in the coming five to 10 years.
In parallel with how we are addressing these segments. We are also executing three initiatives for us to extract both near term and longer term economic benefit from AVX.
The first as you might expect as our continued cost reduction programs.
With the feedback design and construction of the AVX and rude on China, which follows all the learnings from Switzerland on our first grid interconnected five megawatt system and our <unk>.
Coupled again with the R&D efforts with our team in Switzerland, and the United States led by Andreas already and Chris Sweezey, We continue to design test and validate the latest innovations to increase the economics of the <unk> system.
This includes leadership from Dr Jose and <unk>.
As a former ph D and head of the seismic studies department at Caltech and joined Us over one year ago.
Bringing tremendous expertise in research to help us continue to optimize the performance of that system.
Im also pleased to share with you.
We have retained the services of William Baker, the renowned engineer of the Berge Khalifa tower in Dubai, which is the world's largest building at the height of over 2700 feet.
Bill will be applying has surpassed expertise and development of the world's most innovative high end <unk> structures to our optimization efforts, but also to specific customer opportunities, where his presence and expertise will be welcomed and will also help us accelerate the permitting the permitting of the existing <unk>.
A height of our structures and then potential to even accelerate.
Those same heights of those same structures.
Within our gravity focus we have a team that supported by over 70 team members.
And we're excited to see the development they are able to make throughout 2023 and look forward to share the details of their progress in the coming quarters.
Another initiative associated with our <unk> system as we previously announced our continued licenses and royalty program that gives us the opportunity for attractive recurring revenue at very high margins that we will materially and positively impact our overall company blended margins.
In addition to the announced opportunities in China and the follow on opportunities alone in China of up to six gigawatt hours.
Announced in the last six to eight months.
I am pleased to announce today to new <unk> licensing partners in.
In Cit's fee based and the UAE.
For Egypt.
And also new energy keepers based in Greece.
To also develop the Cyprus market, which were signed in the fourth quarter.
We will continue to pursue these type of businesses globally to make <unk>, a meaningful margin contributor to the bottomline today, while bridging to the future state of broader market adoption of.
Of longer duration systems as the grid.
Develops with more renewable power generation and therefore, the need to address.
The increased intermittency that comes with renewables.
The third initiative is leveraging the IRA is another amplifier an accelerator for our <unk> business within the United States as we've discussed above.
And perhaps globally.
Other nations and even regions may follow suit.
On the leadership the U S is provided and developing incentives to accelerate the deployment of renewable energy and renewable storage.
While the legislation has not yet been fully defined at a detailed implementation level.
We believe that it will come to market more or less in the same form and function as currently understood.
We currently believe that both the advanced manufacturing credit and project investment tax credits could significantly and positively impact the economics of the <unk> in particular for the coming years.
We believe that the local manufacturing construction of AVX would make it suitable to receive advanced manufacturing credits.
Or perhaps as much as $45 a kilowatt hour.
An attractive design and drive the <unk> has the ability to locally source mature and label that would enable the system to take advantage of many of the domestic content portions of the ITC as well.
You can expect a lot of focus and continued updates in this regard on AVX the U S market and development of the IRI in the coming quarters.
Just to highlight a few of the commercial activities and progress as we came out of Q4.
We have one six.
Gigawatt hour of signed contracts and booked orders in the backlog.
This is more than <unk> increase from the third quarter of 2022.
Where we exited with 495 megawatt hour.
This includes 275 megawatt hour with wellhead electric too.
220 megawatt hour with Jupiter power, which was acquired by Black rock infrastructure in Q4.
440 megawatt hour with Nevada energy.
And up to 700 megawatt are with <unk>.
PGE in California.
Our submitted proposal pipeline grew more than 50% quarter over quarter as energy storage demands and needs as we see remain robust and we remain with a seat at the table and making proposals.
Okay.
Our awarded category shifted by approximately 17% for the quarter over quarter driven by positive factors as projects were converted.
We're sitting in the awarded category.
Booked orders.
As I mentioned before the primary focus of 2023 will be on project execution we.
We are currently on track to deliver all of our signed projects on time and.
And our team is working very hard to know.
Navigate that.
The supply chain permitting and interconnection delays.
That are prevalent in the industry, but thus far have been able to manage through and working both with our customers and with our supply chain partners.
Given the rapid pace that we are seeing with the energy transition and all the unique use cases and solutions required to meet our customer needs. We continue to believe our differentiated holistic solutions based energy storage approach is the best one suited for this market.
We will set up energy vault for a very large and unique future.
As a major leading player over the next five to 10 years.
Yes.
One last comment on the project, we signed with <unk> for a hybrid green hydrogen plus battery storage solution in January really showcases the differing needs of our customers.
And our ability to deliver on them.
In this case and as is the case in California, they needed a product, which could provide a minimum of 48 hour long duration energy storage.
To address needs in the event of a power safety shutdown as it was evidenced by the wildfire fires that impacted the utility industry in California some years back.
But they also required black start.
And grid forming capabilities.
In the event that there was a public safety shut off event.
And given our technology agnostic approach with our software we were able to engineer design integrate.
And we will in the future operate the system with our proprietary software that will actually enable up to 700 megawatt hour almost four days of long duration energy storage.
We're very excited to bring and demonstrate and showcase our broad technology expertise to be able to design and architected solution with our partners and to progress on this project to completion planned in the second quarter of 2024.
And to continue and even broaden this partnership with <unk> and the city of Calistoga.
With that I'd like to turn the call over to our CFO Jan <unk>, who can provide more details into our financial results from Q4.
Thanks, Ron.
Turning to our financial resort results for the fourth quarter of 2022.
Revenue in the quarter $100 3 million, primarily reflecting $84 5 million in revenue earned from our battery storage projects.
And $15 6 million from <unk> licensing deals.
When that construction again in Q4, and we began recognizing revenue from that project during the quarter.
Revenue from wellhead to drove battery storage project revenue during the fourth quarter.
Licensing revenue.
To fourth quarter was driven by $9 7 million in revenue from the Egypt <unk> licensing deal.
And $5 9 million from the Atlas licensing deal.
For the full year 2022.
Revenue was 114 point.
9 million.
Primarily reflecting $85 6 million in revenue earned from our battery storage projects and.
And $58 5 million from <unk> licensing deals.
Fourth quarter 2022, gross profit was $15 9 million.
Given by licensing revenue recognized during the quarter, bringing.
Bringing full year 2022, gross profit to $59 3 million.
Total operating expenses.
Excluding cost of sales were.
Were $41 7 million in Q4.
$5 4 million.
Versus the $36 3 million, we reported in Q3 of this year.
Stock based compensation was $14 3 million in Q4.
$3 4 million.
<unk> Q3 2022.
Depreciation expense in Q4 was 0.2 million compared to $5 2 million in Q3.
Excluding these noncash charges operating expenses were up $7 million versus the third quarter may.
Mainly driven by an increase in head count.
This brings.
Total operating expenses to $122 4 million in 2022.
And 81 3 million, if we exclude stock based compensation.
Sales and marketing costs for the first for the fourth quarter of 2022 were $4 3 million compared to $3 8 million in Q3 of this year.
Excluding stock based compensation sales and marketing expenses were up <unk> 6 million sequentially.
2022, total sales and marketing costs were $12 6 million, excluding stock based compensation sales and marketing expenses were up $6 7 million year over year, primarily due to an increase in head count and an increase in marketing and public relations costs.
Now turning to research and development costs for the fourth quarter of 2022.
They were $13 9 million compared to $16 7 million in the third quarter of this year.
Excluding stock based compensation and depreciation.
<unk> expenses were up $2 7 million versus Q3, driven by an increase in R&D activities and stick that accounted for $1 9 million.
Total R&D expenses for the year was $50 1 million, excluding stock based compensation and depreciation R&D expenses were up $20 3 million versus 2021, primarily due to higher R&D activity levels.
G&A for the fourth quarter increased to $23 5 million compared to $13 million in Q3 of this year.
Excluding stock based compensation G&A was up $6 6 million versus Q3.
Driven primarily by an increase in head count, which typically <unk> for $3 5 million of the $6 6 million increase.
Year over year G&A increased from $18 1 million in 2021 to $56 9 million in 2022.
In line with our business plan.
We will exercise continued focus.
Operating expenses.
As we selectively expand globally and positioned the company for the <unk>.
Overall growth of the business.
<unk>.
Operating loss for the fourth quarter of 2022 was $25 7 million.
Compared to an operating loss of $36 million sequentially.
This brings total operating loss for 2022 to $63 1 million.
Fourth quarter 22, adjusted EBITDA was negative $11 2 million, bringing total full year 22, adjusted EBITDA to a negative 11 four in 2022.
Our earnings release, which we filed this afternoon includes a bridge from net income to adjusted EBITDA.
The key non cash or nonrecurring items that we added back with $41 1 million of stock based compensation.
$20 6 million in merger transaction costs.
$7 7 million and depreciation and amortization expense.
And $2 8 million in asset impairment charges.
The key noncash or nonrecurring items that we deduct it.
We had $3 7 million and the income interest income net and.
And $2 3 million gain from the change in the fair value of our warrants.
As of December 31, two.
2022, we had approximately 286 2 million in cash cash equivalents and restricted cash, leaving us well positioned to continue to progress towards our growth objectives in 'twenty three and beyond.
As of December 31, 2022.
Still have $5 1 million outstanding private warrants.
And are required to be re measured to fair value each period.
I would like to reiterate the 2023 financial guidance that <unk> introduced earlier in the call.
For 2023, we expect revenue guidance to be in the range of $325 million to $425 million.
Our latest forecast.
<unk> more than doubling year over year growth at the midpoint.
Evidenced in the strong commercial and financial momentum.
Our team continues to achieve.
With that said, our 2023 guidance reflects a more conservative approach to our financial expectations for the year.
We have taken this philosophical re look at how we forecast our business better to better account for the inherent lumpiness associated with our large scale projects and development.
Compounded by the backend weighted nature of our expected financial results this year.
We remain relentlessly focused.
<unk> continued measured growth with our infrastructure and organization to further results of our business and that of our customers.
We will also target adjusted EBITDA in the range of negative $50 million and negative $70 million with year over year difference as a result of the change in revenue mix as we roll off.
The margin tailwind from the licensing and royalty deal signed in the first quarter of 2022.
And as we continue to build and develop our infrastructure hiring key resources for the delivery of all of our projects and expanding international markets.
With this I will now turn the call back over to Rob.
Thank you Yung case and wed like to also welcome and thank <unk> for his first quarter under his belt here in energy vault and he's a great addition to our team and as we're looking at the business given the growth we're going to be taking on his global experience. Let alone is length of tenure across multiple.
Public companies across the world is going to serve us very well. Thank you.
Look here, we are at the end of the call a few things I want to iterate reiterate here before we turn it over for questions in a few data points point to we really tried at this point as we're digging into the forecast for this year to begin to share more information.
As we now have more visibility with executed contract and booked orders in.
And a few data points I want to highlight and reiterate with you. One is on the funnel metrics, we shifted to a more near term 12 month funnel approach and segment it in four sections.
There is a page within our investor deck, that's on the website.
Summarizing that funnel.
Want to point you to a 50% increase in the number of proposal submissions that we've made from 13 gigawatt hour last quarter now up to 20 gigawatt hour, which is a massive number.
I think it is a great leading indicator of what's to come.
Not suggesting were going to be batting 1000 on those are win all of them, but you can count on the fact that we're going to win some of them.
And I think Thats, a great leading indicator on that front end of that funnel as we move from those submitted proposals to short lists to project Awards and then into bookings and we've I think demonstrated.
<unk> ability to move that forward with velocity.
The thing I want to highlight as Keith mentioned right at the end.
His review of the results is liquidity.
I think we're in just a fantastic position with no debt on the balance sheet, and finishing with actually growing cash quarter over quarter.
It's just a fantastic data point and puts us in a great position.
To know as we evolve the business.
Entertained and have discussions as we are.
To get surety bonding capacity for example for these larger projects and with non collateralized solutions.
<unk> really avoiding letters of credit that require us to restrict cash, but we're working in a very positive way with marsh, which is one of the largest players in the United States.
And bringing solutions together for non collateralized bonding.
Bonding capacity as well as non collateralized letters of credits and Thats going to serve as well as we will not restrict cash on our balance sheet.
The other thing that I want to highlight and emphasize is for the first time, we shared information about our gross margins and unit economics, but also spent some time about our philosophical approach to how we contract our deals and the blend of our portfolio as well as the mix across customers.
That we work with where they want us to integrate 100% through our books of all the third party equipment, and others, where we choose not to and focus on the integration component.
We're very sensitive about that because we want the highest returns on the work we're doing it demonstrates value.
We should be.
Generating.
The high returns on what we're doing that shows we are differentiated and in some cases can command a price and even a premium because of the nature of that differentiation. So it's a very important strategic area for us. It is an incentive for the entire company.
So gross margin performance is one of the key incentives this year tied to compensation of our executive team and all of the employees in the company.
I also want to highlight here at the end that hopefully you can appreciate.
A much more conservative nature of bidding as we look at our forecast for 2023.
And this is just a function of one the world we live in as 2022 demonstrated as the last few years.
We joke with the team a bit that as we sit here today, we know that as we sit here a year from now.
We're going to look back and see that the year went to completely different than we thought.
Obviously certain things we know will go as we expect them to in terms of delivery to our customers of projects underway, but in terms of what we're going to book this year.
The new things that pop into our funnel.
And that we don't see today, maybe somethings that fallout.
We're very excited about that and we will continue to capitalize on we believe it is a very differentiated solution.
However, we have taken an approach and have attempted to share with a lot of you on this call.
Being sensitive to factors that are part also of our current growth phase of the company. We're turning over first projects, we're going to be starting more projects the second half of the year.
This is the first year, we're turning over projects and systems.
And so there are certain things, we outlined that I encourage you to think about and hopefully appreciate.
That's reflected in the current forecast we've given we feel very very good about the low end of that forecast because it's made up of what's already contracted and booked.
And we feel very good about where we are in that execution and thus we feel very good about executing towards the higher end of that forecast.
And as we mentioned there.
There are certain things that are not included in that forecast like the potential benefits, which we believe will be positive of the IRA legislation.
Finally, I just want to always thank the employees of this company and where our days beginning and everyday.
I cannot be more <unk>.
<unk> <unk>.
Excited about continuing to support this team.
We do not limit our thinking because of the talent that we attract to this company, which is why in Q4, you saw us continue to add at a little greater rate to set ourselves up well for good execution here in.
In 2023 to deliver on our goals.
And we will continue to make strategic adjustments.
Adjustments in strategic additions to the team as we evolve the company.
With that operator, we're now ready for questions.
Thank you we will now be conducting a question and answer session.
If you'd like to ask a question. Please press star one on your telephone keypad.
The confirmation tone will indicate your line is in the question queue.
You May press Star two if you would like to remove your.
Question from the queue.
So participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys.
Great question limit to one question and one follow up.
One moment please poll for questions.
We'll take our first question from the line of Thomas Boyes with TD Cohen.
Please go ahead.
Thanks, so much for taking my questions.
Great to see the progress, especially on the gravity storage front with the additional licensing agreements I was just wondering if you could dig a little bit deeper there on just how they are structured as this is going to be similar to the agreement that you used in China, I think I remember 8 million ladies.
Please proceed payment that was associated with that agreement could you just kind of walk us through some of the mechanisms that would be great.
Sure.
The structure of those agreements number one berries.
Depending on a few factors some that would include exclusivity.
Some of them are structured over years that could be as short as seven five years as an example, and up to 10 years plus so they'll vary both in length of time inclusion of certain terms like exclusivity and also in payment structures, but generally what is common across them is there is a.
License component.
And that has paid that is typically tied only.
To the right to deploy the technology, so that is not tied to a volume deployment.
Typically that license and it would be the case here would involve an exclusivity for these regions.
Data exclusivity comes though with commitments on volume to retain that exclusivity regardless of.
The license payments so that's required in any event.
And then following that as deployments get started in those regions comes a royalty stream.
We've been public.
With the royalty percentage as a part of our first deal which is 5% on total project revenue on volume deployment.
And.
Essentially from a the new agreement you can expect that they would be in that same range.
Perfect. That's very helpful and maybe just as my my second it sounds like obviously, a certain degree youre still good.
During battery storage hardware for some of your customers can you talk about the sourcing strategy there or how.
How far are you looking to extract supplier.
Between 'twenty three for projects that you are being required to run now.
Ground.
Sure we have a few different approaches relative to working with our customers on on battery deployments.
First of all like with everything we do we seek to innovate and differentiate around how we think about deployment integration software performance and optimization around the economics for our customers. So fundamentally it really starts there and if you look at the first deals we've won they were not because.
We had the lowest price.
In one of the cases it was because we were able to achieve an energy density.
That was not.
Able to be achieved by any competitor and this was specific to the wellhead deal in Stanton, where they needed to generate a little over 68 megawatt, but current solutions would only allow them to generate 50 megawatt over a four hour period.
So thats. One example, another example is <unk>, where we integrated and responded to a proposal that didn't envision.
Our renewable solution to solve a problem that could have only been solved with natural gas for example for multi day storage weak <unk>.
<unk> developed a solution to integrate batteries with green hydrogen in that case to provide.
Renewable solution. So I would say first of all we from a battery and sourcing perspective, we work on ways to innovate with.
Our hardware architecture and unique designs for optimization, whether that be with energy density that could be with performance that could be with safety. So ways that with our specific architectures. If there is a shutdown for example, we can enable ongoing performance of our system.
Even if some specific modules may be shut down that's not the case in a lot of battery systems, where if there is a fire or a safety problem the entire system shuts down.
So there's a level of differentiation, we look to achieve.
In implementation and that impacts our sourcing our team that's led by Akshay <unk>, who is based on the east coast with our energy Volte solutions team spend significant time with battery suppliers and looking at qualifying even new and upcoming suppliers to.
To focus on differentiation of their specific cell development and batteries with our hardware design and our software design to deliver potential performance benefits that don't exist in the market. So our sourcing strategy will involve some of that in that direct engagement with suppliers that may not be for.
Ample some of the largest names in the world. So we work I would say with.
Develop with a few suppliers to try to tie differentiation into our solutions.
The other way we work with customers in some cases with customers that have pre existing relationships with very large battery suppliers in some cases, they may even dictate the choice of that battery supplier in which case, we may choose as we have been chosen to be an integrator directly and work directly with that customer.
Rosen supplier or and we referenced this on our earnings today, we may work with that supplier.
And integrate their solution, but have it directly procured by the customer in which case the customer takes the risk on the working capital on delivery any associated liquidated damages et cetera.
And as I said, we talked a little bit about that today. So the last thing I would share about our sourcing strategy for batteries, which is very important is.
We are not standing by and just waiting for domestic battery production to come in the United States.
We are evaluating the players that are looking to build in the United States we.
We are active not just as a potential customer.
But as a potential participant in the development of that value chain.
We're there because we believe that can be valuable to achieve.
Some sustainable differentiation in terms of both availability and pricing and therefore margin.
As the domestic supply chain will now be developed very aggressively given the incentives under the IRA and we'll be sharing publicly.
Here in the very near term some of the results of some of those efforts.
So I'd say across those that portfolio of areas of battery suppliers is how we are currently working and developing and with which in what today is 95% of all energy storage that is being deployed is shorter duration lithium ion battery and let's let's not forget that.
Excellent I really really appreciate the insight.
Back in queue. If I can just sneak one more in just further domestic sourcing that youre talking to you for lithium ion batteries do you have a sense on when that type of capacity will be coming online is that a 2025 event.
Or could that happen quicker.
We're seeing some coming online as early as the second half of 2024, but in real volumes 2025, plus.
So thats.
From our work in the sector and working with players that are looking to build roughly what we see.
Great I'll jump back in queue. Thanks again.
Thank you we'll take our next question from the line of Joseph Osha with Guggenheim Partners. Please go ahead.
Yes.
Hi, Thank you for taking my question two questions first.
I greatly appreciate the detail in terms of the composition of revenue in the fourth quarter.
Looking into 2023 kind of broadly seems like there are three buckets, you've got your <unk> revenue.
<unk> got anything that might potentially come from delivery of <unk> systems and the <unk> licensing.
I'm just wondering if you can help us understand how how 2020 revenue might might fall into those buckets, assuming and I'm thinking of it correctly.
Sure Yeah, I think <unk> got the right buckets there.
And with there is a sort of a fourth bucket that I can give you a little bit of a flavor of.
Joe I think.
As we've announced we have three larger shorter duration projects that are going to be turned over in 2023.
That make up a good chunk of that revenue on the on the battery side and when I say battery. Some of those are hybrid related systems, but include lithium ion battery.
For Evs and Avs licensing we're expecting to continue let me start with the licenses.
We're expecting to continue.
To develop and particular in the international markets. Obviously, we don't expect this in the U S. For example, but.
Given <unk> is a primarily a building right.
The foundation of <unk>.
Just frame lifting systems and power electronics because of the local nature of that and the local suppliers have to deploy that and local EPC companies the licensing model.
He is a very interesting business model for us. It also enables us to gives us flexibility to the local suppliers without us having to invest.
In local feet on the street and infrastructure. They are the most knowledgeable in any event based on the type of construction. This is it is as you know primarily a local build.
And.
That model and allowing for domestic jobs and domestic content, which as we know in the market.
Most countries are trying to pursue independents and energy and that means energy storage, if theyre going to use renewables.
So the model we are finding is a lot of interest in this model, which is let's say beneficial for both sides and creates a platform for future and very high margin royalty streams to.
<unk> as things get deployed so we are expecting to have a.
Percentage of our revenue I wouldn't say, it's a it's a large percentage for example, it's not going to be triple digit.
Although I never rule.
Interest in some.
Some large deals that comes.
As we had with Atlas renewable for example, but that will be a you can consider it a something that most likely could be a double digit million type of revenue stream in 2023.
Let me talk about AVX interestingly, our first AVX deployments.
Either are going to be done through the royalty license agreement model as Atlas is building out.
Or projects that we are going to own initially in particular in the U S market, whereas I mentioned.
We see a lot of.
Interesting upside from the IRA tied to gravity because it's on lithium for all the things I mentioned on the call that I know you know very well.
About the benefits of that and the economics at the IRI can help accelerating create so.
Our ability to develop those projects find points of interconnection.
And now I think a way to monetize that.
<unk> in an accelerated way.
As long duration needs become more prevalent and is going to be very interesting. However for this year for 2023.
Given the nature of both the licensing side as well as the ownership.
Of systems.
Initially for example, we were looking at and now as something that was going to be our standard EPC and that has shifted to a project, we're actually going to own for other reasons.
That has a lot of benefits for us I think on the from the potential IRR perspective, and because it's a <unk> system.
And with the Itc's, but what that does mean is revenue recognition, obviously is going to come later in a tolling agreement. So after rebuild it so you aren't going to see revenue impact on that in in the United States. This year. So those are on the three.
The three questions you raised I would share that.
As you think about systems like what we announced for example, with Pacific gas and electric or hybrid systems unique things we're doing that.
The <unk> system as one as announced that we are owning as.
As an example, and.
In those cases.
We definitely plan.
To get those projects developed and built we may convert those to where we are in an into an EPC agreement, where we build them in all cases, we will be the asset manager.
So.
Which is interesting and it another we will schedule another call I think with you to take you through a little bit of our thinking around the asset management space, but that is an area of.
Our growth in an area that we're definitely going to be a player in relative to operating systems on behalf of large IPP or on behalf of large infrastructure fund. So that would be just an area that I tease you a little bit relative to something that we've already announced.
And we will be developed as we as.
As we progress the year.
Okay. Thank you and just a quick much shorter follow up on the IRI.
Yes, one thing that we've heard them.
The system integrators talked about is the idea of not making cells on through unnecessarily, but potentially doing pack assembly right in there or is it manufacturing tax credit associated with that.
Any thoughts on whether we might see energy bought involved in battery tax manufacturing in the U S.
Okay, sorry, I was just add your question specifically in and around just assembly integration in the United States versus actual manufacturing.
No.
<unk> manufacturing because you just don't credit and then Theres, a Pac Theres a module credit right and so we've seen some one of your competitors for example talk about sourcing sales, but actually doing module assembly in the U S where there is an associated credit.
Okay, sorry about that guidance.
I understand the question. So the answer is yes.
In terms of our involvement and we had announced.
As an example, with Jupiter power an agreement to work with them.
And it was two four gigawatt hour of sourcing that we announced to work with them on <unk>.
Domestic content.
It will be up to and including looking at leveraging the energy communities aspect, but as well as sourcing whether that be in the.
Direct manufacturing area or in the packaging and integration area.
Alright, Thank you very much.
Thank you for taking a next question from the line of Chris <unk> with Siebert Williams Shang. Please go ahead.
How are you.
Yes.
Rob could you talk about.
The change in the two year revenue guidance.
How you have made that more conservative in terms of.
View.
Our revenue recognition for this year.
Sure. Yes, there were three main factors that <unk> tried to be as explicit as I could in the in the announcement.
So one of them had to do initially with just our acceleration from what was planned in Q1 this year and due to faster execution went into Q4 of at amount of revenue. So that was one impact that we entered the year with.
Secondly, and this is the primary impact has to do with a.
Very large.
Customer that is roughly about a gigawatt hour.
Initially we were going to be integrating the entire scope through our balance sheet. So as a project, where we would contract directly for example.
For the battery packages in particular, what we chose to do with that customer as have the customer contract directly for <unk>.
That portion of the equipment.
We are still the the integrator for example.
Of that solution.
<unk> and other aspects of balance of plant. So it's still a very large deal for us, but as you know I believe the.
Battery modules themselves typically would make up.
Anywhere from 55 to up to 70% of these deals. So if you remove that.
While that's going to reduce our revenue what's very interesting about that for US is it means the mid to high teens in gross margins for us, which we're very happy to do.
And.
I've mentioned this on an earlier question I had about our battery sourcing strategy, but.
Generally if it's a certain supplier that we're working with where were including differentiation and how we optimize the solution, which means I'll translate that differentiation lower cost for us and therefore higher generally higher margin for an integrated solution that we own all components of there are customers that have existing.
Our relationships and they're with very large of the largest battery players where there's not a lot of value add we put on top beyond being a single throat to choke from the customer so.
Specifically the second area to back to your question of what would the revenue to two year revenue.
It was specifically, but that that primary gap I mean, almost that entire gap was just related to the choice.
For us to focus on.
An integrated and balance of plant.
Capability in scope versus.
The battery aspect of it.
And there is a third factor that that we hit on here is we have a massive second half ramp coming in.
In the in the business in terms of returning over almost a gigawatt hour of systems.
In the second half two of those actually in Q3 plan.
<unk>.
And then a larger one in Q4. In addition, we're going to be starting projects.
And so as you know can happen, especially if you have a large part of your revenue.
That's in the fourth quarter as an example, as we do this year, we have a triple digit million revenue in Q4.
This year, if anything moves a little bit.
We just wanted to safe guard. If there was any portion of revenue that should shift from Q4 to Q1, which we haven't lost anything it just means something shifts the quarter, we took a little more conservative approach in terms of as we looked at.
Full revenue recognition in that quarter, even for things that are contracted so.
The second half ramp of this year that we wanted to provide a level of both visibility as I'm doing now.
And transparency on that revenue and therefore coming up with something that.
I'd say, we feel extremely comfortable with our low to even the mid part of our range, we provided because of where we stand with visibility and where we are with customers.
We're also quite confident about executing well as we did last year just to share an example.
We contracted in the summer last year in July and August .
Last year, so actually signed deals.
One of those deals that we signed that we signed in August ended up with over $80 million of revenue in Q4 last year.
So within four months.
We actually were able to recognize revenue on almost $80 million, so that and we didnt contract those and book those until the summer. So now my saying, we're going to do that every time or my saying, we're going to things are going to execute ahead of plan every time no.
I'm sharing that level of detail with you so that while we've taken a more conservative approaches as we've outlined on this call in particular, given the second half ramp.
We're confident in our ability to execute.
Mid to upper part of that range and as I said with IRA and <unk>.
Given what we did in our first year of almost $150 million of revenue and.
Two gigawatt hours in.
And book deals in up to 5 million awards total of bookings and awards.
We have a lot I think we're going to be able to do in the year regardless.
Okay that helps a lot thanks Robert.
Youre welcome.
Operator are you there.
Yes. Thank you.
We'll take the next question is from the line of Brian Dobson with Chardan capital markets. Please go ahead.
Hey, Brian .
Brian Your line is on mute you may ask your question.
Thank you very much thanks for taking my question.
So just returning to the guidance issue.
For 2023.
We're thinking about it would you say its fair to characterize the bottom half of your guidance as a conservative approach.
There is the potential for revenue slipped into 2024.
We're fairly confident as things stand right now that you could be at the mid to high end.
Yes, I would say.
I would say that's roughly right we started with a buildup approach of a low end it is.
Booked in.
We're executing toward and as I mentioned.
On track and on schedule to deliver.
So that we consider in the bank.
And as.
As you move to the.
To that mid part and even to the upper part of the range, we have things in play that.
Our well in hand to get there again leave the IRA side.
So.
I realize that's a.
May appear is obviously lower than what in some cases expectation with something up to $500 million. This year as we looked at our two year view before I mentioned that one deal where we're taking a much lower part of the content, but higher gross margin, which I think is important but yes, I think your characterization.
Yes.
In terms of the lower end of the range we.
We feel obviously quite good about given the nature of where it started from and then I think a very.
<unk>.
Our strong confidence in getting the mid to the upper part of that range here as we progressed a year in our our view on that is to also with every quarter.
Going to be much more knowledgeable we're going to have another.
60 to 90 days of bookings of seeing how we're executing and seen things that pop and maybe we didn't even see that could be things, we could turnaround for Rev. Rec in year. So we designed the forecast to essentially every quarter tightened that range up and just build that range and obviously.
An ideal world view because of the nature of being conservative here is that we're going to be able to tightened to the mid to higher end of that range with every quarter that what.
That was the intention of how we built this forecast.
And.
And obviously as we get into the second half of the year.
Executing strongly toward ideally toward the higher end.
IRA things come in as planned.
We're going to have an excellent year.
Right understood.
Understand your desire not to include IRA guidance range, but do you think you could potentially pursue.
<unk> draw a range around what that could potentially look like.
Yes, I would say we have we have two projects in particular that could.
Could garner some benefit.
And even in the year, depending on that depending on the way the treasury mechanics come out so.
I would say there are some benefits that are definitely in the double digit millions of benefit.
Now how much could we get in the year versus would go into 2024 Thats. Another question.
There are ways to monetize those benefits earlier, so I would say if I had to tell you today and assuming the IRA comes through there may be more cash related benefits. This year versus revenue recognition benefits. Okay. Those revenue recognition benefits may come next year, but given I think.
Some of the alternative structures, we're going to look at and taking advantage of it we may very well see.
A good strong double digit type of cash benefit potentially this year that.
That we wouldn't have in our in our forecast and of course of course, we like that we like the cash flexibility.
And we as I said, we're trying to be now as we have more information and data being more transparent in sharing with the market. So people would understand that.
We're very happy to take the cash even if the revenue recognition may come later so.
Those benefits anything that gets in double digit million is as significant I think whether that's cash or or or even potential Rev. Rec.
Yes.
Yeah. Thanks, that's helpful. And then just just stepping away from the mechanics of the guidance for a moment.
Thinking about call. It 30000 foot view as you look around the world at different regions, where do you see the most opportunity.
What have you which regions are you most excited.
Okay.
Sure.
I have to start in the U S. Because it's it's definitely.
With the IRA I think the U S has done something to keep a lot of.
Our focus here. So thats I think that has a lot of upside and it's one of the.
One of the largest storage markets.
<unk>.
I think Australia is going to be a.
An interesting and important market for us specifically because of the nature of some of our investors two of our largest investors have significant operations. There I think the green hydrogen market given its desire and requirement in electrolysis and running electrolyze for long duration storage.
I think I think that market and where Australia is going to play a strong role there.
We will be will be important.
I think moving to the European Theater.
Scotland is.
Out of the game and with its offshore wind.
Investments generally and I think there is large needs in I think a lot of.
Opportunities that.
There that.
We see as opportunities definitely for us.
I would say also I'd be remiss of IV iron.
Talk about the middle East given what not only we've just announced with our licensed partner but.
We're looking at the region very strategically for very large things as you know in the Middle East Nothing is done small if it's done it's done large ins done big and I think as Youre aware, we have Saudi Aramco energy ventures on our cap table. So I think that in that relationship and looking at.
Now.
How we're thinking about leveraging that I think that's that's very interesting.
To us and we have our company has done some.
A more recent development I would say there.
And then I leave you with I think those are the primary main regions that we're excited about.
We've announced some things in India that we continue to develop we had announced an mou with and TPC, which is the largest public utility and one of the largest power players. There I think over 60 gigawatts of generation and a large coal plant.
Infrastructure, So I think looking at.
Alternative.
Alternative too.
For uses of coal ash in ways, we can use weight materials with our AVX.
We have a few interactions there right now.
Looking at how we could deploy and deploy quickly there and even start some initial projects this year. So.
That's what I would say generally on some of the new regions I wouldn't I'd be remiss if I didn't talk about also our existing customers that given how we execute with them and assuming we continue to execute well.
We are in discussions with some of the same customers we've announced on follow on projects.
Because of how we're performing obviously, we need to keep up the good performance from an execution perspective.
<unk>.
Follow on good performance.
Will mean that we're going to be perceived well for new deals and that we're really excited about that.
An example is with Jupiter, we announced the first project actually two projects with them, they're the largest in ERCOT that we announced two projects one in California, one in Texas, but in addition, we had announced with them our sourcing.
Operations around two four gigawatt hours of batteries for them.
Together and.
Those are our customers and Jupiter as you know was acquired by Blackrock infrastructure group.
Back in Q4, and so obviously no shortage of capital there, but you can.
Assume that our existing customers, where we're going to.
Execute well there are follow on discussions ongoing with those same customers that will represent strength and upside for us.
Yes.
Thank you we'll take our next question is from the line of Brian Lee with Goldman Sachs. Please go ahead.
Hey, guys. Thanks for squeezing me in the interest of time, maybe just one question from my end.
Can you guys give us a sense of the margin differential between <unk> and eds.
And are you currently profitable on EPS or if not what's sort of the path forward to become profitable on selling UBS. Thanks.
Okay, we don't sell Evs, So let me just clarify some things.
The energy belt solutions is actually an organized a group it's not a it's not a product itself. So but just to be clear I think what you're asking is.
Are there any things not profitable across between.
Or anything not profitable specifically I think when you say evs I think you're referring to some of the battery deployments, where they have been leading with software so to be clear everything we're doing is profitable on a unit economic basis, otherwise there'd be no way for us to talk about 10% to 50% gross margins. So we.
There is not one project, we've done undertaken with a negative gross margin.
And for us to forecast here with the visibility we have now of 10% to 15%.
And given our nature of being conservative relative to.
We're looking at our 2023 forecast.
We're from a profitability perspective.
We have unit economics across the board.
We're going to have a range of.
That percentage.
Gross margin.
Pending.
On things like for example are we taking batteries through our balance sheet. It like a mid single digit or not if we're not we're absolutely in the mid to high.
Teens relative to just our own straight salute.
<unk> solutions and that's today.
And.
If we're looking at <unk> for example, and solutions on where we're going to be deploying that that that project is well on the initial deployments. So before we get to <unk>.
Volumes are any optimization as an example, where we're testing a lot of.
A lot of <unk>.
New cost reduction on the system in China, and AVX that all of the future systems will benefit from by our that range of 10% to 15% I think is a is a good range.
Brian for you to use relative to your your your modeling and then the last thing I'd share. It. It's really the use case that the driver. So let me give you. The example of <unk>, where they it was an RFP for this multi day in and they were thinking they were only going to have natural gas as an option we proactively given we actually have.
Expertise in and hydrogen both liquid and gas in our gas.
Because of some some engineering folks.
That we've hired in the team. So we proposed an architecture that integrated lithium ion and green hydrogen you can assume that because we were unique in being able to do that obviously, that's going to be something that.
We don't take lightly relative to our pricing expectations and therefore, the margins and obviously its a public utility so that means that we have to provide a certain level of value to the utility as a as what they budgeted to deliver that so those solutions, where we're uniquely bringing.
Hybrid solutions to the table as we did there those are things that are going to be a good part of our profit stream as well.
Is that helpful.
Yes, no I appreciate all the additional color out thank you.
Thank you ladies and gentlemen, we have reached the end of the question and answer session.
I'd like to turn the call back over to Robert <unk> for closing remarks.
Sir.
Okay look thanks, everyone, who joined the call today, and we'll look forward to further updates going forward. Thank you very much.
Thank you ladies and gentlemen. This concludes today's teleconference. You may disconnect. Your lines at this time and thank you for your participation.
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