Energy Vault Holdings Inc. Q1 2023 Earnings Call
[music].
Greetings and welcome to energy first quarter 2023 earnings call. At this time, all participants are in a listen only mode.
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I would now like to turn the conference over to your host Laurence Alexander Chief Marketing Officer partner developed.
Thank you good afternoon, and welcome to energy, both first quarter 2023 earnings conference call as.
As a reminder, and as you both earnings release and an updated first 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 contain forward looking statements are subject to risks and uncertainties. These forward looking statements <unk> estimates and may differ materially from the actual future events or results to be a variety of factors.
We caution everyone to be guided in their analysis of energy vote by referring to our 10-Q 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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Please note that we will be presenting and discussing certain non-GAAP information.
Please refer to the safe Harbor disclaimer and non-GAAP financial measures presented in our earnings release for more details, including a reconciliation to comparable GAAP measures. Joining me on the call today is Robert <unk>, Our chairman and Chief Executive Officer, and then Keith Van Carlin, Our Chief financial.
It should offset at this time I'd like to hand, the call over to Robert Kennedy.
Thank you Laura I'd like to welcome everyone to our first quarter 2023 earnings call, we have a lot to share today, including as you've come to expect some new announcements.
But all of them focus on the key market financial metrics. They are driving long term shareholder holder value for the company.
I'd like to start as we normally do with what we're seeing in the market and what remains a very robust and growing market for energy storage solutions, along with the positive customer dynamics, we are seeing.
Of course to discuss the market. This always begins with numbers and what we're seeing reflected in the movement through our near term sales funnel.
We put forward a pretty strong commercial outlook going forward, that's driven by our near term funnel that grew in the quarter over 40% to about 37 gigawatt hours.
This increase includes notably about $1 billion or 2.8 gigawatt hours of New project awards in the quarter.
Of this amount.
Most of it about $725 million or two gigawatt hour is related to our gravity E V X energy storage technology.
These near term final dynamics give us very high confidence in our continued growth and future conversion into bookings.
Almost all of our future bookings and new announcements this year will be about building. The project revenue that will make up our 2024 to 2025 revenue and beyond so I'm quite pleased to see this level of overall funnel growth and expansion and new project opportunities into the next three plus years.
And highlight that our 2022 conversion rate from those awards already announced in the bookings last year was very high given our very experienced commercial and technical team and diverse set of capabilities that we bring to the table and we expect to continue that trend in 2023.
Moving onto our customer project execution in the quarter and it really all starts there for are we focus and deliver for our customers. We saw revenue in line with our expectations driven by construction progress across our battery projects in the United States under a build commission in trash.
For model.
As such we recognized the revenue associated with that progress of $11 4 million.
While exceeding our plan for gross margins posting 21%.
On pure battery project execution as well as finishing ahead of our internal expectations on a set of financial metrics, including adjusted EBITDA net income and EPS and cash on hand.
As such we're Reconfirming, our full year guidance, which is revenue of $325 million to $425 million gross.
<unk> in the range of 10% to 15% and.
And adjusted EBITDA of 52 minus $70 million.
Among the big headlines in the quarter as a race towards completion of the world's first gravity energy storage system that isn't a pump hydroelectric dam, which is being deployed and rude on China and is expected to be the largest long duration storage system operating the world This year.
I personally visited the site and rude on China in March and witnessed firsthand the strong progress at some of the pictures you may have seen a hedge on.
It's amazing to see that and just looking at the last four to five weeks since I was there the recent pictures, which we've posted in our investment presentation online today that already the systems increased 6% to seven floors and just that period.
The system will confirm what we've already demonstrated on a four five megawatt scale in Switzerland in 2020, but this time on a larger grid scale up 25 megawatt targeted at a four hour discharge window, yielding 100 megawatt hours of storage capacity.
As commissioning begins this summer and into the fall, we will have that watershed moment, when they're 25 ton mobile masses of the gravity system will be moving up and down storing potential energy and later, releasing kinetic energy with round trip efficiencies that exceed 80%.
Making this the most energy efficient mechanical or thermodynamic system in the world as we have previously demonstrated with our Swiss system.
Complementing Rudolf and on the other side of the World right here at home in the United States Insider, Texas is our second gravity system under construction.
This is an investment we are making to own this project, which will have a long term tolling agreement with an all green power.
Construction is progressing well to the site piling and now civil works coming up to the ground.
Again, we have some pictures posted in the Investor presentation of this project.
It is a targeted completion for the second half of next year in 2024.
And this investment gives us a domestic revenue generating showcase for our gravity solution for all to see and allows us to realize significant benefits from the ITC portion of the IRA legislation as well as benefits from domestic U S content.
And finally classification as an underserved energy community, which can yield up to 50% of future cash benefit in total I R a benefits and itc's.
China, and Snyder and the two gigawatt hour Gravity Award I mentioned earlier, our billing global momentum for our solution.
And quite frankly in a market, where there's a lot of talk about transformative technologies. Our results are real and we are very proud to be the leaders and disruptors in a new and evolving long duration energy storage market that is still quite early in its development.
Yeah.
As has been highlighted by our diverse customer wins across short long and even ultra long duration storage projects. Our strategy is unique and our gravity technology is a critical and proprietary component.
We're the only company that addresses both today's market need for shorter duration storage using higher density more efficient battery system architectures, and the increasing need for longer than extended duration energy storage using gravity and even green hydrogen as we announced with Pacific gas and electric.
To do this we have developed our software platform with our EV solutions team that overlays and manages all of these storage storage technologies as well as the coexistence and generation systems, even hybrid storage configurations.
With that strategic frame on those solutions I can share that we are executing to customer expectations across all of our projects and on schedule for the one six gigawatt hour of battery and green hydrogen projects.
From the likes of PGE in Nevada energy some of the largest public utilities in the United States as well as some of the world's largest independent power players such as Jupiter power and wellhead.
We anticipate wellhead in particular in California will be delivered in Q3 with Jupiter, Nevada energy to follow before the end of the year.
Since all of these projects are running in parallel during Q1, we had expected investments in project working capital to support the projects at this phase of construction.
And project completion, we continue to forecast each project delivering profitability.
Positive unit economics, and a net positive cash flow as we manage the execution into the critical turnover phases.
As part of our execution on these growth projects and enhancing our availability to Kash. Let me also mentioned our new global relationship with March that we had referred to briefly in our earnings last quarter.
As some of you might know Marsh is one of the world's leading insurance brokers and risk advisors.
And they are supporting us with significant capital projects surety and bonding capacity, which is required for many of the projects that we execute.
This also includes very importantly requirement for letters of credit.
But as opposed to tying up cash on a fully non collateralized cash basis, allowing us to convert also the remaining restricted cash balances from letters of credit to unrestricted cash.
We continue to evaluate other efficient and non dilutive ways to further strengthen and enhance our balance sheet.
As we execute on a combination of owned and EPC projects that eventually get turned over to the customer.
Let's now move onto an update regarding our previously announced Q1 contract with Pacific gas and electric to address the special Microgrid use case for multi day storage addressing PSP.
P S P S events or public safety power shutdowns.
This has gotten quite a lot of press in the last two weeks at the project received formal California public utility Commission approval.
The project is structured as a long term tolling agreement with P. Janie over 10, and a half years.
The CPUC recently approved just in the last few weeks as I just mentioned for the hybrid battery energy storage and green hydrogen fuel cell system that will provide power in the event of a public safety power shutoff.
We are developing the $8 five megawatt 293 megawatt hour micro grid with planned expansion to up to 700 megawatt hour.
Thus, providing up to 96 hours or four days of energy storage capabilities to the city of Calistoga.
Along with our customers. We believe that this project will provide a template for renewable community scale micro grids in the future and reflects execution to our energy solution focused customer mindset as a company.
Yes.
Moving on there has been a lot of focus the last few months on the new <unk> legislation and the potential impact to our industry and energy.
I want to share with you for the first time, a very strategic investment that we've made that also involves the IRR.
That we actually executed in the first tranche in Q4, but chose not to be named in the original announcement.
We are pleased today to announce that we have executed on our strategic investment in core power.
Manufacturer of battery cells and modules to build supply continuity on a prioritized basis for the domestic U S content for energy volt U S customers supporting our short duration battery and even hybrid energy storage solutions on a preferred economic basis.
In Q4 of 2022 energy both participated in the initial tranche as I just mentioned.
As an undisclosed investor alongside Siemens financial services, Quanta services, Honeywell ventures, and a set of others.
In Q1, this past quarter of 2023, we made our second and final part of the investment.
The core <unk> as it's called will be built in Arizona and be among the first U S battery Giga factories built independently of an automotive OEM.
In parallel with our investment we also established a comprehensive battery supply agreement.
This investment in supply agreement will significantly benefit our domestic customers with their IRA project eligibility.
This investment will maximize our supply chain flexibility and serving our local U S customers, while ensuring continuity of domestic content supply at attractive economics further amplified by the current IRI legislation.
Yeah.
Complementing the napkin above I'm also very happy to share another new announcements and an important announcement about deepening and existing U S customer late relationship with Jupiter power.
As all of you are aware, we announced our first project with Jupiter for a total of 220 megawatt hour in the states of California, and Texas in 2022 that project is under deployment and is scheduled to be turned over in the second half of this year.
Yeah.
We are expanding today, the previously announced Jupiter power partnership to supply domestic U S content of battery modules modules from the original announcement of two four gigawatt hour to 10 gigawatt hour.
Further strengthening our relationship with Jupiter to ensure supply chain priority.
On a forward two to five year planning horizon of project development, while maximizing shared financial benefits from the current IRI legislation.
This is so important for our customers as they're doing their planning windows and project development over the next three to five years and in fact from talking to many of our investors that are investing in these projects as well as the same customers.
And that means not only having local supply independent of other countries.
But also having it at the right cost point and an ability for them to be competitive and we feel very very good that this investment now positions us to be one of the best partners in the United States.
The same project developers and even public utilities.
I'm really excited to continue to partner with Andy Bowman, the CEO of Jupiter and his team Jupiter is one of the top U S independent power providers, which was acquired late last year by Blackrock alternative groups.
We look forward to turning over our first two Jupiter projects this year.
Continuing to build upon our future relationship with Jupiter and projects to come.
I now want to tie together all three of the investments I know, it's been a lot to digest here over the last 10 minutes.
Those are the Schneider, Texas gravity system, the Pacific gas and electric hybrid system and this investment in core power.
These are very important and very smart intelligent strategic uses of our capital.
To not only address our customer needs today.
But to position ourselves very well over the next 234 and five years.
With our customers and with ongoing conversion of our large funnel into bookings.
These investments are all aligned with our unique strategy that I described earlier and they all involve extracting very attractive financial benefits from the IRA which can yield higher returns for our customers.
And higher operating margins for our portfolio of solutions.
Because of that both our customers and our shareholders will enjoy the upside from better pricing margins and cash flows.
We will continue to pursue other strategic investments that provide such highly attractive returns.
Let me now transition a bit and focus on what is fueling our growth.
And that is the focus and tenacity of our commercial operations team continuing to drive our funnel of opportunities that we expect to convert to bookings and attractive margin revenue.
Most 37 gigawatt hour as mentioned above.
As part of that are submitted proposals grew by 37% quarter over quarter.
Almost 28 gigawatt hour.
Moving through the funnel are short listings grew by 35%.
The two seven gigawatt hour.
By 78% to $6 four gigawatt hour.
We remain confident in our ability to convert these opportunities into bookings as we did successfully in 2022 on our project Awards.
To sum it all up we are playing in in attractive large and growing market.
One where theres been more energy storage deployed in the past few years than in the preceding decade.
We are at an inflection point of growth.
And therefore a opportunity.
We also believe we are exceptionally well positioned to grow faster and more profitably than the market as these most recent developments demonstrate.
That belief is based on our unique multi storage technology.
As well as very smart deployment of our capital for strategic investments.
Personally I have never been more excited about where we are today and positioning ourselves.
To capture this future.
With that I'll turn the call over now to young case to discuss our financial results in detail.
Okay. Thanks, Rob good afternoon, everybody.
For the first quarter of 2023 revenue was $11 4 million in line with our expectations and primarily reflecting revenue earned from the progress and execution of our battery storage projects.
As we noted last quarter.
We expect a significant step up in revenue going into the second half of this year.
Our revenue cadence tracks the project deployment schedule.
We expect to realize about 15% of our annual revenue guidance of the second quarter grew.
Growing to nearly 30% in the third quarter and a further 50% in the final quarter throughout the year.
We recognized gross profit of $2 4 million or a gross margin of 21, 2% drill.
Driven by our ability to earn better than expected margins.
Battery storage projects during the quarter.
Operating loss for the first quarter of 2023 was $32 9 million.
Compared to prior quarter operating loss of $25 7 million.
Driven by a decrease in licensing revenue from Q4.
First quarter 2023 adjusted EBITDA.
Was negative $19 million.
Our earnings release includes a reconciliation from net loss to adjusted EBITDA.
The key noncash item that we added back was $13 7 million of stock based compensation.
The key noncash item that we deducted was $1 9 million and interest income net.
As of March 31, 2023, we had $197 million in cash cash equivalents and restricted cash, leaving us well positioned to continue to progress towards our growth objectives.
2023 and beyond.
The main use of cash in the quarter related to equipment purchases for our battery storage projects, which will translate into revenue positive gross margin and cash in future quarters.
Lastly, I want to reiterate our full year 2023 revenue guidance within the $325 million to $425 million range supported by our contracted backlog.
We also reiterate our margin target of 10% to 15% supported by our offering mix of energy storage projects and IP licensing agreements.
We will continue to complement this with various consulting and construction services based on customer needs and demands.
We continue to forecast adjusted EBITDA of negative 70 to negative $50 million as we maintained a disciplined approach to our operating expenses and execute on additional licensing and royalty agreements.
With that I will now turn the call back over to Rob.
Alright, Thanks, John case before getting into questions I want to thank the employees and the team here at Entergy evolve for your continued dedication.
And customer focus.
The results of which we've just talked through.
Especially in the type of volatile markets that we live in today.
I also want to thank our investors and our broader energy ecosystem partners that share and support our mission of de carbonization.
I'm happy that we continue to make significant progress on the development of our groundbreaking and innovative energy storage solutions that are solving complex customer problems as they make their own clean energy transition.
This is the energy ball way and underscores our purpose and existing as a company.
With that operator, we are now ready for questions.
Thank you Kim.
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Yeah.
Asks you that limit yourself on the one question and one follow up.
One moment, please pool for questions.
Our first question comes from Joseph Osha with Guggenheim. Please go ahead.
Hello, This is actually Hilary on for Joe and I first.
Wanted to touch on the pipeline there you had a pretty big uptick in does that.
Admitted proposal then shortlisted projects I'm, just wondering if you could share any additional color on what the composition of that looks like as well as conversion rates and timelines for when we will see that become a wash.
Yes.
Sure, Thanks, Hillary and good to hear again.
Yeah first of all what I'd say about across those categories of the funnel. Okay. The submitted proposals to short listings.
And our New awards.
There is no one dominant technology or duration, so but I can tell you is that generally we continue to see the strength.
In particular in the European and the U S markets around the shorter duration opportunities, we continue to see demand and I'd say earlier than the rest of the long duration market for our graph our gravity systems, sorry, do you want to highlight that we announced two gigawatt hour.
Of gravity systems under AVX.
And then generally.
We continue to see a lot of interest from our customers following on the Pacific gas and electric announcement, they're looking to solve unique needs that are involved in some cases backup system micro grids. The use of new technologies to help meet those needs.
In ways, where they do not have to rely on diesel.
Diesel Gen generators are a natural gas and really working to look at bringing renewable solutions to the table. So I would say generally to the first part of your question.
Activity across various parts of our portfolio and solutions.
The second thing I'd addressing your question, which is timing of flow through.
That depends project to project as we continue to see so as we looked at last year, we were able to convert on a lot of the larger opportunities that we're now executing this year.
We see no reason why we're not going to continue to do that this year and in terms of Timeframes. These projects I would categorize in terms of timing to think about in.
I'll start with our existing customers. So we have some projects that are follow ons with for example, existing customers and in those can move pretty quickly.
Through our funnel because theyre already.
Set up with the legal basis contracting our teams know each other so those can move in 90 days.
And so we would expect to see some of those things move more quickly other new customers, where we're beginning to establish those relationships or there is additional.
Timelines are permitting involved those will move on a three to six month basis and there is there's a big chunk of projects there.
The third thing influencing timing has to do with.
Some of the requirements on the customer and to close things like permitting.
Or clothes on other final approvals, where they have chosen in some cases to lock us in medium to actually issue an award to us So where we have been chosen and then there's the contracting.
<unk> frame that may be influenced by any additional approvals required on there and we have some customers that are.
Happy to move into an actual booked contract.
While there is still some final approvals required that our more procedural I think P. J and he's a good example of that where we announced and did a contract with them and then move to an expected public utility Commission approval, which just happened a few weeks ago and that was in line with their timeframe. So to use as an example, they had.
That may 15th is there a date for when they expected that approval and in fact, it came a few weeks before that.
So all of those things will influence that flow through the funnel I guess the last thing I'd say about that is we do have some strategic.
<unk> investors that obviously know us very well they are investors in the company and typically those types of.
<unk> solutions in discussions can also move potentially on a.
On a faster basis, so I would say to range. It I'd say anywhere from 90 days to up to nine months plus.
Just pending timing on.
Some of the longer duration and strategic large projects in particular.
Great. Thanks for all the detail.
Second question just on the grid.
The margin profile of that business. Just wondering if you can provide a little more detail as we look beyond this year.
Kind of between the cost structure as well as the revenue mix, there and kind of what the different puts and takes are and how we might expect to see that margin.
Sure.
Since you asked about next year.
One of the things we announced today is the investment in core power show as were.
As we look at.
The market over the next three years to five planning horizon, and we do that as informed by our customers. So we do a lot of planning.
With our customers, but what we some of the things we announced today have to do with enhancement of that margin structure. As you know our range. This year is 10% to 15%.
As we reaffirmed we expect to be within that range, we obviously had a slightly better performance.
Of over 20% on pure battery project execution revenue.
This quarter.
But we still maintain that range of 10% to 15% for this year.
Everything we're building and doing as we volume and scale as a company should have in enhancing effect on our margin. So we're going to be demonstrating the first gravity system of course this year as we look at building those out we're going to be building them out in a way that will increase volumes across the supply chain and we're going to expect benefits. They are in our.
Arjun structure to evolve on the gravity systems as well the actions, we're taking and the types of agreements we are signing with our partners.
Now in looking at even the short duration market are all focused on I would say not only margin, but in particular supply chain continuity.
Interesting as I mentioned with the Jupiter discussion.
A lot of the focus and risk from investors.
<unk> own independent power providers or even generally in strategic companies that are deploying energy storage large industrial companies.
<unk> you mean during the <unk>.
Prepared remarks are from the last question, yes, no the prepared remarks.
Yeah, I just mentioned are.
The Enel project, which is in Snyder, Texas and that's the.
Second gravity Bx system Thats being built.
Progressing through pilings and civils.
And enter into the foundations now that theyre getting into in this phase and I think we've shared a few pictures of that as well so that is a.
That is a tolling agreement so we're building that that project out.
And.
We're expecting that project to be fully online in the second half of 2024.
Okay, great. Thank you.
Do you have any.
Mueller that you can provide them why margins might have been a little more than you had expected.
Yeah, I'd say two things.
One as we executed well.
And in terms of maintaining our schedules and maintaining.
The relationships on the supplier base and with the local customers to ensure that.
That we don't trigger any issues schedule wise or any additional.
Problems in the field that would need to be managed it would increase cost. So I'd say one aspect is.
Better execution I would say ahead of plan in terms of how we are managing projects and any associated contingencies with them and the second piece is you are seeing now for the first time some pure <unk>.
Battery revenue that doesn't have any IP licenses for example in the gross margin line, we do recognize.
Some of the ongoing IP licenses, but down into other income.
So we've been.
Clear, Chris about our positive unit economics.
I know there was a lot of questions earlier as we start to announce battery projects given other companies that have had negative gross margins for example in that space.
We've always highlighted how we've not only contracted the projects, but also the fact that we didn't win these first projects by buying them, we didnt under priced them, we want them because of differentiation, we provided that other companies couldnt and at the end of the day that has to be reflected in margins.
That's it.
So I think.
The market in Europe is youll see quarter to quarter, we will remain focused on that execution, obviously things can happen in the field.
We're very focused on ensuring that we meet the customer expectations in that regard and while dates might move because of things on their end, meaning permitting or other customer driven changes as I mentioned and reiterated we are on track on all of our projects to the customer expectation now whether that day.
It moves a month or two because of the things on their end.
Those things happen in anytime Youre building things out in an EPC model, but.
As I as I stated in our update we feel good about our current execution and are managing the projects. So that we can.
Stay within the ranges, we said and in this case in this quarter, we did above or above our range of 10% to 15%.
Does that makes sense, yes, it makes sense can.
Can you give us any more color on the core power investment what are they saying their expectations for domestic production look like today.
Well I think from their own public announcements.
They are projecting to be in actually producing.
They're fully integrated.
So here in the next in the next.
12 to 24 months, so they're going to they're going to speak to that and give give those give those updates but there are there are already a U S company so to be clear core isn't didn't get just newly formed because IRA legislation. So they are a U S company they've been here they make.
Batteries today.
And they're going to be expanding that operation in a very very large way as you could get a sense of from some of the things that we just announced so.
So we're we took that action in looking at the market, Chris not only just to participate as a customer meaning like many of our companies in our space now that domestic production should become a reality of lithium ion in the U S.
Many companies will be advantaged in terms of having that local content. However, we chose to actually participate in it and therefore.
Get some advantages around both supply continuity as.
As well as preferred economics by becoming an investor, which with one of the early adopters and so that's what's what's behind it and why we're excited to make that move and I think you heard the announcement with Jupiter on the expansion by a factor of four three to four on the scope of domestic <unk>.
<unk> content for one of the largest independent power players in the United States.
The gravity awards are particularly interesting can you give us any more flavor for.
Right now we are going to be providing the only guidance is.
Providing the regional some regional pieces of that so it is a.
They are projects that are outside of the United States.
And they are projects that we're going to be expecting to.
Now as we are already working on the contracts to convert those into bookings. So most of the things you're going to hear from us in terms of new bookings announcements there may be some.
Revenue that gets into the fourth quarter, but most of it will be for the years going forward in terms of revenue recognition that we will be executing in 2025 and even into 2026, given the size of these deals and that that obviously puts us in a very strong position and makes us feel very good that we're not only executing this.
This year on things, we've already contracted that gives us very good visibility, but now a lot of the awards and the bookings are going to be hearing will be about building out that that future growth of the business over the coming two to three years.
Great. Thanks for the color I appreciate it Robert thank.
Thank you Chris.
Okay.
Next question comes from Brian Dobson with Chardan.
Please go ahead.
Hi, it's Gregg pending in for Brian Johnson, just one quick one and I guess dovetailing on that last question you mentioned that.
The two gigawatts.
Outside of the U S on the gravity since that is there anything unique about having a system and taxes that would showcase it more towards domestic clients or do you think that.
It's fair to say that China will.
Showcase the technology.
Completed in <unk>.
Sure. So what I'd say is for sure China will be the first system up and operating at that scale. So they were well ahead of the pack and so they will be the first system.
Also to be clear the United States market is also an important market for our gravity systems Thats why we worked in collaborating with Enel the largest global IPP on having that system in Texas. So.
The United States remains a very important the largest market for energy storage in any event.
Interestingly, it's primarily short duration today.
But we will be continuing to involve to longer duration from the let's say the two to four hour, we're going to begin to see four to six I think here in the.
In the coming 12 to 24 to 36 months.
But that doesn't minimized.
The opportunities for gravity and were looking at capturing those in particular with the IRA legislation that's focused on domestic content right. So we have that today and gravity. We don't have to go build giga factories, we have it today. So we can capture that.
Think China will play an important role in demonstrating not only the operating and technology, but something very important around our round trip efficiency and efficiency that we can achieve with that system. So.
<unk>.
I know, we're talking about those two markets, but Europe , Australia those will also be.
Good markets for our gravity solution as long duration becomes more of a need in the market in the coming years.
That's very helpful. Thanks.
Thank you.
Okay.
Comes from Paul Marsch.
<unk> Suisse T D. Cohen. Please go ahead.
Thanks for taking my questions and apologies if any of these are covered in the prepared remarks, but.
First I just wanted to dig into a bit more about awards, we're winning with solutions that incorporate green hydrogen.
Given the early success there are there specific pockets of demand that you see maybe on a geographic basis.
Certain customers.
B.
Dispositions to that type of approach.
So I would say micro grids in the U S generally which is.
Essentially.
What we are building calistoga, although that will be grid connected as well, but just we will have a special microgrid focused on the city calistoga. So I would say generally that use case takes different forms but the general use case of the microgrid is very relevant to the United States, especially regionally in certain areas that are solved.
<unk> four.
Potentials for plant shutdowns and even unplanned shutdowns.
Our primary use case and in emerging markets, where our grid doesn't exist for example.
You have to build out micro grids.
So I would say it's.
It's going to be something that will be targeted at certain applications and in certain locations.
Where there is a need for example for multi day storage. The reality is there's really not any long duration technology out in the market that's proven at scale today.
So our gravity is going to be one of the first ones thats not pumped hydro.
Large scale.
You add in what we're doing with this multi day storage that's unique because it also has a hybrid component of lithium ion batteries to it to meet black start and grid forming capability. So.
If you look at that and go to multi day and we're going to have that up scheduled for mid next year, we're going to have some of the first longer duration solutions.
Out of the market operating at this type of scale as well in the world and that has a longer duration market heats up.
We're going to be therefore in a very good position to meet those needs but.
I think that these hybrid type of solutions.
Customers have some unique needs is where we do see the potential use of green hydrogen as a.
What we call an ultra long duration or a multi day type of.
Storage medium that debt today really has no corollary in the market.
Got it no appreciate the color there.
And then maybe as my follow up just if you could.
Previously identified.
When gigawatt hour of projects.
Youre going to be operating as the system integrator with the kind of the battery hybrid procurement being taken are undertaken by the customer.
How have you been seeing traction.
Traction with this approach and Jim maybe an update.
Gigawatt hour basis, just for integrator work relative to where your backlog now.
Sure.
That gigawatt hour represent those first three projects that are in deployment and exactly to what you said those are under what's called a build commission transfer model. It doesn't stop there. So we are doing additional management post turnover, so including long term service agreements maintenance.
And one of the cases, we will also be doing some asset management.
Those will have.
Longer tail revenue and margin stream for us outside of those but that that model.
To your question of what else are we seeing with those that is.
Pretty much the standard model, we do for the shorter duration solutions, where you have either public utilities that can have a base rate asset.
Or independent power players that are investing in the solutions and providing them over a long term agreements for example to utilities themselves. So in both of those cases, they want to own those solutions and it's not our business model to compete with our customers in any event.
We do have some customers we mentioned the Enel Green power gravity system and the hybrid system for Pacific gas and electric where we will be owning those systems.
And.
And in fact be signing long term tolling agreements with those now we don't have to own those forever.
I would say there is.
Other type of funds.
Pension funds or other type of groups that like to own these long term fixed.
And nice predictable cash streams and cash flows.
So that's not necessarily our long term model so.
That buyers model and that's another interesting part of our evolving business model. That's also margin accretive.
Excellent very helpful I'll jump back in the queue.
Next question comes from Noel Parks suites.
Please go ahead.
Hi, good afternoon.
Couple of quick.
I had a couple of questions.
Talked a bit about.
Sort of the geographic reach of the gravity.
It can be good markets for long durations.
The first installation in China ramping a lot of domestic attention there I am just wondering if you.
Just any updated thoughts on nature of that interest when you think it might materialize or.
And inflection point.
Sure there is.
Been some announcements they're.
Locally in China that involve our partners.
With multi gigawatt hour gravity towards projects using obviously, our technology there and so those are announcements we've.
We have shared or put out through our socials, we typically don't make follow on public announcements of that but.
There is absolutely a lot of interest there locally.
And even from by the way other customers that we have across the world that want to go visit the site.
And some already have.
What I'd say is what we're very happy to see as before we're even operating the system. There's been follow on announcement of between 2% to four gigawatt hours and broad initiatives one of them in particular is called the zero carbon Park initial.
Initiative.
And some of those things are being done.
In partnership with some of the largest players in China like three gorges power, which is the largest pumped hydro electric.
Asset management and engineering company in the World.
So those.
So that's all encouraging to see and Thats going to drive royalty those were all drive.
Royalty streams with we've been public that's a 5%.
Off the top project royalty stream for us.
I was wondering on the.
Just on the software and technology side.
With.
Everything.
Being coordinated through Evs are there any particular milestones ahead for system enhancements or or other things that.
Tom add to the selling proposition or or response.
Customer feedback.
Having over the past year or two.
Sure I'd say two two primary things.
First of all let's just talk about what's happening this year for the first time, we're going to be turning over our first battery systems. This year and with that new software system. So I would say one of the first milestones is the fact that we are going to be turning over on time.
And commissioning these systems.
So that those will be the first milestones and there's three of them. This year, because we have three projects, we're going to be turning over.
Secondly, we were chosen as well for our what we call our energy management system, which is.
The system that in addition to running our core operations.
And management of the battery storage system itself Theres other higher end capabilities in.
In a software platform or what we call our EMF, our energy management system.
It is not only managing the storage, but can also manage the existence of other generation technology, so that can be wind solar and even fossil.
But also manage other other energy storage technologies.
Those functionalities, which.
We were selected for example by a large western utility.
For our energy management system.
Over the last the last three to four months those milestones that youre going to see are providing other functions that are higher level that get into things like the economic dispatching for example, and charging of the system. So so in addition to managing the battery system itself some of those milestones youre going to see.
Post these first turnovers.
And we will be the result of therefore, a higher value added systems, which will generate a higher software content and a higher portion of the deals which will enhance our margin capability and those those milestones are going to be coming later in the year and into 2024.
Terrific. Thanks, a lot.
There are no further questions at this time I would like to turn the floor back over to CEO Robert call needs for closing comments.
Great. Thank you and I want to thank everyone for the questions. Thank all of you for joining the call here our investors I know our employees join this and partners and others out there.
Feel really good about our progress in just close to saying that.
As you've come to expect from US we made some new announcements here and things that focused on number one our customers and executing well for them to put them together and enhancing our portfolio to provide more value, adding solutions to them in the end driving the long term shareholder value of this company. Thank you very much.
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This concludes this conference today you may disconnect your lines at this time.
Participation and have a great day.
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