Q4 2024 ESS Tech Inc Earnings Call
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Unknown Executive: Ladies and gentlemen, thank you for standing by. At this time, all participants are in a listen-only mode. Later, we will conduct a question and answer session.
Speaker Change: Ladies and gentlemen, thank you for standing by at this time all participants are in a listen only mode. Later, we will conduct a question and answer session at that time. If you have a question you will need to press star one or get to push coal.
Unknown Executive: At that time, if you have a question, you will need to press the star 1 on your push button.
Erik Bylin: I would now like to turn the conference over to Erik Bylin, please go ahead. Thank you, Matt. Welcome to ESS's fourth quarter and fiscal year 2024 financial results.
Speaker Change: I would now like to turn the conference over to Eric violent. Please go ahead Sir.
Matt: Thank you Matt.
Matt: Welcome to <unk> fourth quarter and fiscal year 2024 financial results Conference call.
Erik Bylin: Joining me on the call today from ESS are Kelly Goodman, Interim CEO, and Tony Robb, CEO. following management's prepared remarks. We will hold a Q&A.
Speaker Change: Joining me on the call today from U S. S. R. Kelly Goodman interim CEO and Tony Rob CFO.
Speaker Change: Following managements prepared remarks, we will hold a Q&A session.
Unknown Executive: Earlier today, ESS released financial results for the fourth quarter and fiscal year 2020. The earnings release is available in the investor relations section of the company's website.
Speaker Change: Earlier today, Yes, that's released financial results for the fourth quarter and fiscal year 'twenty 'twenty four.
Speaker Change: The earnings release is available in the Investor Relations section of the company's website.
Unknown Executive: As a reminder, the information presented today will include forward-looking state including without limitation statements about our growth prospects, partner Financial Performance, Capital Raising, and Strategy for 2025 and beyond. The forward-looking statements are also subject to known and unknown risks and uncertainties that could cause actual results to differ materially from those projected or implied during this call. In particular, those described in our risk factors set forth in more detail in our most recent periodic filing with filed with the Securities and Exchange as well as the current uncertainty and unpredictability in our business. Challenges with Raising Capital.
Speaker Change: As a reminder, the information presented today will include forward looking statements.
Including without limitation statements about our growth prospects partnerships financial performance capital raising and strategy for 2025 and beyond.
Speaker Change: The forward looking statements are also subject to known and unknown risks and uncertainties.
Speaker Change: Could cause actual results to differ materially from those projected or implied during this call.
Speaker Change: In particular those described in our risk factors set forth in more detail in our most recent periodic filings with filed with the Securities and Exchange Commission as well as the current uncertainty and unpredictability in our business.
Speaker Change: Challenges with raising capital.
Unknown Executive: issues with our partners. The market, the economy, and the current geopolitical You should not rely on our poor looking statements as predictions of future events.
Speaker Change: It is with our partnerships.
Speaker Change: Market.
Economy, and the current geopolitical situation.
Speaker Change: You should not rely on our forward looking statements as predictions of future events.
Unknown Executive: All forward looking statements that we make on this call today are based on assumptions and beliefs as of the date you're up, and we disclaim any obligation to update any forward looking statements except as required by law.
Speaker Change: All forward looking statements that we make on this call today are based on assumptions and beliefs as of the date hereof, and we disclaim any obligation to update any forward looking statements, except as required by law.
Unknown Executive: During the call, we'll also present certain financial information on non Management believes that non-GAAP financial measures, when taken in conjunction with U.S. GAAP provide useful information for both management and investors by excluding certain items that are not indicative indicative of our core operating Management uses non-GAAP measures internally to understand, manage, and evaluate our business and make operating decisions.
Speaker Change: During the call. We will also present certain financial information on non-GAAP basis.
Speaker Change: Management believes that non-GAAP financial measures when taken in conjunction with U S. GAAP financial measures provide useful information for both management and investors by excluding certain items that are not indicate indicative of our core operating results.
Speaker Change: Management uses non-GAAP measures internally to understand manage and evaluate our business and make operating decisions.
Unknown Executive: Reconciliation between US GAAP and non-GAAP results are presented within our And with that, I'll turn the call over to. Thank you, Eric. And thank you everyone for joining the call.
Speaker Change: Reconciliation between U S GAAP and non-GAAP results are presented within our earnings release.
Kelly Goodman: And with that I'll turn the call over to Kelly.
Kelly Goodman: Thank you Eric and thank you everyone for joining the call.
Kelly Goodman: I am pleased to be here today as interim CEO of ESS to report our 2024 results, as well as discuss what we see in the future for the company. Having already been involved in numerous aspects of the company, and with 20 years in clean energy across commercial roles at a number of different companies, particularly in project development, I am excited to have the opportunity to lead this company and the team we have here in the near term to bring out the full potential of ESS and our differentiated technology. Tony and Ben Heng, the EVP of Engineering, join me in the office of the Interim CEO to guide ESS's next phase.
Kelly Goodman: I am pleased to be here today as interim CEO of ESI to report our 2024 results as well as discuss what we see in the future for the company.
Kelly Goodman: Having already been involved in numerous aspects of the company and with 20 years in clean energy across the commercial roles at a number of different companies, particularly in project development.
I'm excited to have the opportunity to lead this company and the team we have here in the near term to bring out the full potential of ESI and our differentiated technology.
Kelly Goodman: Tony and benzene EVP of engineering join me in the office of the interim CEO to guide yes. That's his next phase.
Kelly Goodman: In addition, the board intends to commence a comprehensive search considering internal and external candidates for the next CEO of ESS. Moving on to our fourth quarter performance. Our results did not meet expectations. We came in at $6.3 million of revenue for the year, below our guidance range of $9 to $11 million. This shortfall is primarily due to the inability of one of our partners to fully secure funds to enable payments on their orders. This has been a persistent challenge with our current tech scale, and any delays to achieving revenue have an outsized impact on our ability to meet our forecast.
Speaker Change: In addition, the board intends to commence a comprehensive search considering internal and external candidates for the next CEO of ESI.
Speaker Change: Moving on to our fourth quarter performance, our results did not meet expectations.
Speaker Change: Came in at $6 $3 million of revenue for the year below our guidance range of $9 million to $11 million.
Speaker Change: This shortfall was primarily due to the inability of one of our partners to fully secure fun to enable payments on their orders.
Speaker Change: This has been a persistent challenge with our current check scale in any delays to achieving revenue have an outsized impact on our ability to meet our forecast.
Kelly Goodman: In addition, in 2024, as we scale our technology from the energy warehouse to the energy center, which has more than two and a half times the capacity at a much better price per megawatt hour, we continue to see the demand for larger installations. During the same time, we saw considerable decreases in the price of lithium-ion batteries, making them more attractive at greater scale and duration. That said, for lithium ion to scale, it just adds more of the same battery packs that have the same cost and safety concerns.
Speaker Change: In addition in 2024 as we scale our technology from the energy warehouse to the energy Center, which has more than two and a half times the capacity at a much better price per megawatt hour.
Speaker Change: We continue to see the demand for larger installations.
Speaker Change: During the same time, we saw considerable decreases in the price of lithium ion batteries, making them more attractive at greater scale and duration.
Speaker Change: That said for lithium ion to scale. It just adds more of the same battery packs that have the same cost and safety concerns.
Kelly Goodman: We have taken a hard look at these trends and intend to accelerate our strategic shift for the business in 2025. I would like to lay out the details of that shift here today. First, in the short term, we focused on our Energy Center product deployment. We delivered six EC systems to a Florida utility customer in December 2024. The final two energy center systems were delivered this quarter to complete the initial order. The eight energy center systems translate to a one megawatt project and site construction is ongoing with commissioning expected later this year. This was not only a significant contribution to our revenue for 2024, but a step forward in our understanding of project-level implementation of our battery.
Speaker Change: We have taken a hard look at these trends and intend to accelerate our strategic shift for the business in 2025.
Speaker Change: I would like to lay out the details of that shift here today.
Speaker Change: First in the short term, we focus on our energy center product deployment.
Speaker Change: We delivered six E C system to afford a utility customer in December 2024.
Speaker Change: The final two energy Center systems were delivered this quarter to complete the initial order.
Speaker Change: The eight energy centers that translate to a one megawatt project and site construction is ongoing with commissioning expected later this year.
Speaker Change: This was not only a significant contribution to our revenue for 'twenty 'twenty four but a step forward in our understanding project level implementation of our battery.
Kelly Goodman: ESS, rather than the utility, has responsibility for the EPC project scope and work at the customer site, which helps us to better understand full solution implementation and how our battery fits in with the sites and grid connections. This foundation was instrumental in optimizing the design of the next generation of our technology, the energy-based product, which I will talk about in a little bit. This quarter, the first two energy centers that we manufactured in 2024 completed connection to the grid and passed final commissioning for Portland General Electric just two weeks ago in a real world utility application.
Speaker Change: Yes that rather than the utility has the responsibility for the E. P. C project scope and work at the customer site with.
Speaker Change: Which helps us to better understand full solution implementation and Howard batteries fits in with the sites and grid connection.
Speaker Change: This foundation was instrumental in optimizing the design of the next generation of our technology.
Speaker Change: G based product, which I will talk about in a little bit.
Speaker Change: This quarter the first two energy centers that we manufactured in 'twenty 'twenty four.
Speaker Change: <unk> connection to the grid and passed final commissioning for Portland General Electric just two weeks ago in a real world utility application.
Kelly Goodman: Prior to the handover to PGE, we completed comprehensive on G19 testing of both units. cycling the unit to transact more than 350 megawatt hours. Our initial product deployments have and continue to yield invaluable real world field operating and use case data. The addition of the PGE Energy Center Project, located right here in Wilsonville, gives us improved visibility into full grid implementation of our batteries, as well as on-site visibility to operability. Between our energy warehouses and energy centers and total ESS batteries have now transacted almost two and a half gigawatt hours of energy across our global fleet.
Speaker Change: Prior to the handover to P. J, we completed comprehensive on June 19 testing of both units.
Speaker Change: Click on the units at transact more than 350 megawatt hours.
Speaker Change: Our initial product deployments has and continue to yield invaluable real world field operating and use case data.
Speaker Change: The addition of the P. G E Energy Center project located right here in Watsonville.
Speaker Change: It gives us improved visibility into full grid implementation of our batteries as well as onsite visibility operability.
Speaker Change: Between our energy warehouses and energy centers in total is just batteries have now transacted, almost two and a half gigawatt hours of energy across our global fleet.
Kelly Goodman: A great deal of this is not lab or subscale testing, but commercial system operations, including ongoing cycling at the SolarPAC and DuPlane's facilities of our partners SoftBank Energy and Honeywell, respectively. We also have tested our batteries against industry standard metrics, including the RG19 testing regime mentioned previously, and PNNL testing.
Speaker Change: A great deal of this is not lab or subscale testing, but commercial system operation, including ongoing cycling at the solar Tac in the plains facilities of our partner Softbank, NRG and Honeywell respectively.
Speaker Change: We also had tested or battery against industry standard metrics, including the LNG 19 testing Rajeev mentioned previously.
Speaker Change: P&L testing.
Kelly Goodman: Second, we aggressively executed our Cost Young program for the Energy Center. We were able to achieve breakevens on our latest Energy Center design at the end of the fourth quarter of 2024. hitting our target almost a year faster than expected. We achieved this milestone by innovating within the core components of the battery design to improve performance, capacity, cost, manufacturability, and reliability. Put simply, we reduced our battery pack costs by nearly 50%.
Speaker Change: Second we aggressively executed our cost young program, so the energy center.
Speaker Change: We were able to achieve breakeven on our latest energy center design at the end of the fourth quarter of 2024.
Speaker Change: Hitting our targeted almost a year faster than expected.
Speaker Change: We achieved this milestone by innovating within the core components of the battery design to.
Speaker Change: To improve performance.
Speaker Change: Paucity cost manufacture ability and reliability.
Speaker Change: Put simply we reduced our battery pack cost by nearly 50%.
Kelly Goodman: Tony will speak to this more in his segment. This cost reduction work translates directly to the improved cost profile of all future generations of our technology. Both of these efforts directly supported our longer term vision to develop and productize a non-containerized optimal version of our product, which we are calling the Energy Base. We executed the soft launch of this product recently at InterSolar on our website and in recent FIT activity. Our first product type solutions, the Energy Warehouse and the Energy Center fit well for certain use cases, but they're inherently limited in scale because they are in a container.
Speaker Change: Tony will speak to this more in his segment.
Speaker Change: This cost reduction work translate directly to the improved cost profile.
Speaker Change: All future generations of our technology.
Speaker Change: Both of these efforts directly supported our longer term vision to develop and product ties and non containerized optimal version of our product, which we are calling the energy base.
Speaker Change: We executed a soft launch of this product recently it in our solar on our website and in recent bid activity.
Speaker Change: Our first prototype solutions, the energy warehouse and the energy Center fit.
Speaker Change: Well for certain use cases, but they are inherently limited in scale because they are in a container.
Kelly Goodman: That said, the Energy Center utilizes the same scaled-up version of our Power Module technology that the Energy Base will use. And in adding the energy base to our technology portfolio, we can leverage the benefits of real-world learning from supporting operating systems in the field. The non-containerized energy base is comprised of two distinct systems. The first system is an integrated SCID unit with our core technology with nominal discharge power of 400 kilowatts per core building block. The other system integrates the commoditized balance of system components. Think tanks, pumps, and actuators. In the addition of the energy base, we redesigned the product with these two systems decoupled, which is transformational for our operations and approach to the market.
Speaker Change: That said the energy center utilizing the same scaled up version of our power module technology. So the energy base for years.
Speaker Change: And then adding the energy based smart technology portfolio, we can leverage the benefits of real world learnings from supporting operating systems in the field.
Speaker Change: The non containerized energy base is comprised of two distinct systems.
Speaker Change: The first system is an integrated skip unit with our core technology with nominal discharged power 400 kilowatts per core building block.
Speaker Change: Other system integrates the commoditized balance of system components things chinks pumps and actuators.
Speaker Change: And the addition of the energy base, we redesigned the product with these two systems decoupled.
Speaker Change: Transformational for our operations and approach to the market.
Kelly Goodman: First, it gives us more flexibility in our business and manufacturing strategy. ESS can focus its resources on the parts of the battery system where we have the most expertise and create the most incremental value. This facilitates ESS shipping its core intellectual property in the most concentrated manner and is expected to improve ESS's margin profile while giving us the option to secure a design process partner or procure contract manufacturing as a balance of systems. We're actively exploring this model with Honeywell. leveraging their expertise in process design and procurement for core elements like tanks, pumps, and control systems. Second, the design accommodates the level of scale that truly solves for grid level demand.
Speaker Change: First it gives us more flexibility in our business and manufacturing strategy.
Speaker Change: Seth can focus its resources on the parts of the battery system, where we have the most expertise and create the most incremental value there.
Speaker Change: Facilities E S S shipping its core intellectual property in the most concentrated manner.
Speaker Change: And is expected to improve year, such as margin profile, while giving us the option to secure design process partner.
Speaker Change: Or procure contract manufacturing is a balance of system.
Speaker Change: We're actively exploring this model with Honeywell.
Speaker Change: Leveraging their expertise and process design and procurement for core elements like tanks.
Speaker Change: And control systems.
Speaker Change: Second the design accommodates the level of scale that truly solves for grid level demands.
Kelly Goodman: The modular format of the energy base will vastly simplify manufacturing and shipment, especially for very large projects and accommodate plug-and-play on-site deployment. In getting to this point, we have again worked deeply with our partner Honeywell to help drive improved industrialized design, particularly across balance of systems. to redeploy our core technology in a product form that is modular and scalable at the levels required to meet increasing energy demand. The most exciting thing about the new design is the significant impact to the technology form factor. We now have the ability to truly separate power delivery and total capacity, unlocking our ability to achieve durations beyond 8 to 10 hours by simply building larger tanks with more electrolytes.
Speaker Change: The modular format of the energy base will vastly simplify manufacturing and shipment.
Speaker Change: Especially for very large projects and accommodate plug and play onsite deployment.
Speaker Change: And getting to this point, we have again more deeply with our partner Honeywell to help drive improved industrialized design, particularly across balance of system.
Speaker Change: So read the play our core technology and our product form that is modular and scalable at the levels required to meet increasing energy demand.
Speaker Change: The most exciting thing about the new design, it's a significant impact to the technology form factor.
Speaker Change: We now have the ability to truly separate power delivery and total capacity unlocking our ability to achieve duration beyond eight to 10 hours.
Speaker Change: Simply building larger tanks with more electrolyte.
Kelly Goodman: Our current roadmap targets 12 plus hour duration for our 2027 projects and we have line of sight to 22 hours. These are projects that we are already implementing and we plan to execute during 2025 and 2026. The extended duration expands our ability to meet the needs of our customers. including energy shifting, clean from capacity, and UPS deployment. This extended duration is in stark contrast to lithium-ion deployments. Lithium ion is a two to four hour storage technology that provides incremental but not baseload storage capacity. For example, a typical daily solar power curve allows for 10 to 12 hours of solar to grid generation from approximately 6 a.m.
Speaker Change: Our current road map targets 12, plus hour duration for our 2027 projects and we have line of sight to 22 hours.
Speaker Change: These are projects that we are already implementing and we plan to execute during 'twenty 'twenty fives and 'twenty 'twenty six.
Speaker Change: The extended duration expands our ability to meet the needs of our customers.
Speaker Change: Including energy shifting clean from capacity and U P S deployment.
Speaker Change: This extended duration is in Stark contrast to lithium ion deployments.
Speaker Change: With an eye on is it two to four hour storage technology that provides incremental but not faithful storage capacity.
Speaker Change: For example, a typical daily so solar power curve allows us for 10 to 12 hours with solar to grid generation.
Kelly Goodman: to 6 p.m., of course, varying by location and season, while recognizing that even the best regions in the world realize peak solar generation for roughly five to six hours in the middle of the day. During summer and winter peaking hours, when temperature control is required for homes and businesses, the need for energy extends beyond the maximum solar generation period. four-hour duration is not sufficient to meet the residual daily needs. And we are already seeing lithium ions deployment in the eight hour space to address this issue. The need is even more pronounced for a rapidly growing corner of the energy ecosystem.
Speaker Change: From approximately 60 on the six P. M of course varying by location and see them well recognizing that even the best regions, New World realized peak solar generation for roughly five to six hours in the middle of the day.
Speaker Change: During the summer and winter, peaking hours when temperature control is required for homes and businesses.
Speaker Change: Need for energy extends beyond the maximum solar generation period.
Speaker Change: So our average duration is not sufficient to meet the residual daily meat.
Speaker Change: And we are already seeing lithium ion disappointment in the eight hour space to address this issue.
Speaker Change: The need is even more pronounced for our rapidly growing corner of the energy ecosystem.
Kelly Goodman: Hyperscale AI data centers that effectively need base-level energy storage to power normal operations with intermittent generation resources in order to service critical backup power supply, which currently tends to be served by diesel power generators. Additionally, the extended duration feature of the energy base dramatically reduces our total installed cost on a capacity basis, be that megawatt hour or gigawatt hour, with the potential to not only compete, but beat lithium on a dollar per megawatt hour basis. We have modeled costs against a variety of project sizes, including 5, 10, 50, and 100 megawatts. We will continue to execute on our existing opportunities in the eight to 10 hour space.
Speaker Change: Hyperscale AI data centers that effectively need baseload level energy storage to power our normal operations.
Speaker Change: With intermittent generation resources in order to serve as a critical backup power supply, which currently tends to be served by diesel power generators.
Speaker Change: Additionally, the extended duration feature of the energy based dramatically reduces our total installed cost on a capacity basis.
Speaker Change: Megan one hour or gigawatt hours.
Speaker Change: With the potential to not only compete but beat with him on a dollar per megawatt hour basis.
Speaker Change: We have modeled costs against a variety of project sizes, including 510, 15, and 100 megawatts we.
Speaker Change: We will continue to execute on our existing opportunities in the eight to 10 hours space.
Kelly Goodman: We are extremely excited to extend our duration to support future customer demands that most current technologies cannot. The energy base represents a natural, long-term configuration of the core ESS technology. In this model, we can customize capacity, power, and duration, optimized to customer needs. The timing of unlocking this potential seems to be synergistic. Demand for electricity has undergone its first major uptick in decades, as the power required by data centers has increased the trajectory of electricity usage across the globe. Between 2024 and 2040, electricity demand in the U.S. is expected to grow by 35 to 50 percent, driven by a combination of underlying economic growth, large industrial loads like data centers and manufacturing, and the electrification of transport and heating.
We are extremely excited to extend our duration.
Speaker Change: Port future customer demands that most current technology cannot.
Speaker Change: The energy base represents a natural long term configuration of the core <unk> technology.
Speaker Change: In this model, we can customize capacity power and duration optimized to customer needs.
Speaker Change: <unk> is unlocking potential seems to be synergistic.
Speaker Change: Demand for electricity has undergone its first major uptick in decades.
Speaker Change: Power required by data centers has increased the trajectory of electricity usage across the globe.
Speaker Change: Between 'twenty 'twenty, four and 'twenty 40.
Speaker Change: Electricity demand in the U S is expected to grow by 35% to 50% driven.
Speaker Change: Driven by a combination of underlying economic growth margin definitely like data centers and manufacturing and the electrification of transport and heating.
Kelly Goodman: This is bringing new mandates for green renewable power supplemented by safe, scalable energy storage to provide reliable, safe 24-7 coverage. ESS is vigorously pursuing this market. We are currently bidding on projects with the energy base and have already been shortlisted this quarter on one project representing a key market opportunity for us. We also have the opportunity to optimize our existing relationship with another ESS partner. South Bank Energy, who develops and operates American-made solar projects to help power data centers. SoftBank Energy is just one example of a company that is prioritizing American-made components in its project.
Speaker Change: This is bringing new mandates for green renewable power supplemented by safe scalable energy storage.
Speaker Change: If I had reliable safe 2047 coverage.
Speaker Change: DSS is vigorously pursuing this market.
Speaker Change: We are currently bidding on projects with the energy Bates and they've already been Shortlisted. This quarter on one project, representing a key market opportunity for us.
Speaker Change: We also have the opportunity to optimize our existing relationship with another partner.
Speaker Change: <unk> energy, who develops and operates American made solar projects to help power data centers.
Speaker Change: So I think energy is just one example of a company that is prioritizing American made components in its projects.
Kelly Goodman: And we are proud that making our batteries here in America is not new for ESS, as already recognized by the U.S. Export-Import Bank under its Make More in America program. All of our manufacturing is conducted in our Wilsonville facility. We are not importing cells for U.S. Assembly. We have an extremely high degree of American-made inputs from our supply chain. Over 98% of the components in our bill of material are sourced domestically, and we have already positioned ourselves with redundant suppliers domestically to maintain highly predictable supplies while mitigating tariff risks. In addition, we believe there are positive legislative tailwinds for domestic long-duration energy storage manufacturers and recognition of the importance of continuing and strengthening several of the IRO tax credits that have helped scale domestic manufacturing of energy technology and reduce dependence on Chinese technology for energy projects.
Speaker Change: And we are proud that making or batteries here in America is not new for ESI.
Speaker Change: It's already recognized by the U S export import bank under it to make more in America program.
Speaker Change: All of our manufacturing is conducted in our Wilsonville facility.
Speaker Change: We are not importing sells for U S Assembly.
We have an extremely high degree of American made inputs from our supply chain over.
Over 90% of the components in our bill of material are sourced domestically and we have already positioned ourselves with redundant suppliers domestically to maintain highly predictable supply while mitigating tariff risks.
Speaker Change: In addition, we believe there are positive legislative tailwind for domestic long duration energy storage manufacturers.
Speaker Change: In recognition of the importance of continuing and strengthening several of the Irish tax credits that have helped scale domestic manufacturing of energy technology and reduce dependence on Chinese technology for energy projects in.
Kelly Goodman: In short, we believe ESS is well positioned to support the administration's mission to re-establish American energy dominance at home and abroad. We believe we have a transformational opportunity ahead of us. To bolster our balance sheet, we are seeking to raise capital and have engaged financial advisors to manage that process. We are also pursuing financing for specific projects and are working with Honeywell to explore joint project delivery opportunities that will help ensure the success of projects for which we are selected in the near term. Our current process timeline is targeting transactions losing during the second quarter.
Speaker Change: In short, we believe ESI is well positioned to support the administration's mission to reestablish American energy dominance.
Speaker Change: Home and abroad.
Speaker Change: We believe we have a transformational opportunity ahead of us.
Speaker Change: To bolster our balance sheet, we are seeking to raise capital and have engaged financial advisors to manage that process.
Speaker Change: We are also pursuing financing for specific projects and are working with Honeywell to explore joint project delivery opportunities.
Speaker Change: That will help ensure the successful projects for which we are selected and the near term.
Speaker Change: Our current process timeline is targeting transactions closing during the second quarter.
Kelly Goodman: The conclusion of this process is expected to give us the foundation to sell, manufacture and deliver our future state tech. We also have learned hard-gained experience of areas where we can continue to build our team, including around the expansion of and support for our sales team in light of a broader range of project opportunities with the availability of extended duration, grid connectivity, software development, and product documentation, and we look forward to filling out these and other positional needs. Full implementation of our strategy will take some time to execute, and we do expect a need for ramping in 2025.
The conclusion of this process is expected to give us the foundation to self manufacture and deliver our future state attack.
Speaker Change: We also have learned hard gained experience of areas, where we can continue to build our team include.
Speaker Change: Including around the expansion up and support for our sales team in light of the broader range of project opportunities with the availability of extended duration.
Speaker Change: Great connectivity software development and product documentation and we look forward to filling out views and other positional needs.
Speaker Change: Full implementation of our strategy will take some time to execute and we do expect the need for ramping in 2025.
Kelly Goodman: Our primary focus is on the back half of the year. We are actively bidding on projects and working our 2025 orders, and we believe that the inherent scale of our newer product designs will allow us to better position ourselves to compete in RFPs and scale our operations.
Speaker Change: Our primary focus is on the back half of the year.
Speaker Change: We're actively bidding on projects and working our 2025 orders and we believe that the inherent scale of our newer product designs.
Speaker Change: Allow us to better position ourselves to compete in Rfps and scale our operations.
Kelly Goodman: I also want to address the filing last Friday regarding our listing status with the NYB. We received notice last week that we fell below the NYSE market cap requirements of $50 million over a 30-day period. We are taking action to remedy this situation, which includes submitting a plan of aniseed and working to execute that plan within an 18-month cure period. Please refer to our recent 8K for more details.
Speaker Change: I also want to address the filing last Friday regarding our listing status with the Navy.
Speaker Change: We received notice last week that we fell below the nikkei market cap requirement at <unk>.
Speaker Change: $50 million over a 30 day period.
Speaker Change: We are taking action to remedy this situation, which include submitting a plan of the Navy and working to execute that plan within an 18 month cure period.
Speaker Change: Please refer to our recent 8-K for more details.
Tony Robb: With that, I will pass it on to Tony to review the financials and our outlook. Thanks, Collie. Unless otherwise noted, all numbers we discussed today will be on a non-GAP basis.
Speaker Change: With that I will pass it on to Tony to review the financials and our outlook.
Tony Rob: Thanks, Doug.
Tony Rob: Unless otherwise noted all numbers, we discuss today will be on a non-GAAP basis.
Tony Robb: will find the reconciliation of gap to the non-gap financial measures in our earnings release, which is posted on our investor relations website. We reported revenue of $2.9 million in the fourth quarter with the associated cost of revenue at $16 million. This included our first six commercial energy center shipments to a Florida utility, and we're extremely pleased with our supply chain manufacturing and engineering teams ability to produce and deliver the first six of eight ECs to this customer. The cost of revenue associated with the ECs doesn't reflect many of the savings initiatives we have realized for both the energy warehouse design, as well as for this current version of the EC design.
Tony Rob: You'll find the reconciliation of GAAP to non-GAAP financial measures in our earnings release, which is posted on our Investor Relations website.
Tony Rob: We reported revenue of $2 $9 million in the fourth quarter with the associated cost of revenue of $16 million.
Tony Rob: This included our first with commercial energy shipments to a Florida utilities.
Tony Rob: Extremely pleased with our supply chain manufacturing and engineering teams ability to produce and deliver the first six he seems to this customer.
Tony Rob: Cost of revenue associated with it he sees doesn't reflect many of the city initiatives. We have realized for both your energy warehouses on <unk> as well as for this current version.
Tony Rob: She desires.
Tony Robb: As Kevin mentioned, one of the most significant milestones for us this quarter, from a cost reduction perspective, was achieved on both the EW and EDC, where we are now at a design and build materials as of the end of Q4, where both products have crossed over the breakeven threshold on a non-gap gross margin basis. Non-Gap Gross Margin Breakeven is defined as sales price less direct materials, direct labor, all direct consumables, scrap and warranty costs, plus the benefit of the production tax credit, but excludes all indirect overhead costs.
Tony Rob: As Kelvin mentioned one of the most significant milestones for us this quarter from a cost reduction perspective.
Tony Rob: Achieved on both E. W. M D C.
Tony Rob: We are now out of design and bill of materials.
Tony Rob: Q4 were both products have crossed over the breakeven threshold.
Tony Rob: non-GAAP gross margin basis.
Tony Rob: non-GAAP gross margin breakeven has defined itself pose most direct materials direct labor all drug consumables scrap and warranty costs plus the benefit of the production tax credit.
Tony Rob: Excludes all indirect overhead costs.
Tony Robb: I'll touch more on our cost savings initiatives and progress later. For the full year 2024, revenue was $6.3 million, below the low end of our guidance, with the associated cost of revenue of $51.7 million. As Kelly mentioned, while we were optimistic in Q4 about the ability of our Australian partner to pay for and take shipment of product that they had orders for, they ultimately have been unable to date to secure the adequate funding to enable us to achieve our expected revenue guide. In addition, some timing delays related to our Florida Utility Customer Project has pushed a portion of that project revenue into 2025.
Tony Rob: I'll touch more on our cost savings initiatives and progress.
Tony Rob: For the full year of 2020 for revenue of $6 3 million below the low end of our guns with the associated cost of revenue of $51 7 million.
Speaker Change: As Kelly mentioned, while we were optimistic in Q4 about the ability of our Australian partner to pay for it until shipment of products to their orders for the ultimately weren't able to do to secure funding to enable us to achieve our expected revenue gods.
Speaker Change: In addition, some timing delays related to our Florida until the customer project push a portion of the project revenue into 2024.
Tony Robb: So a lot of revenue for Q4 was disappointing relative to our expectations. Delivering six of eight ECs to our customer in Florida is a great milestone achievement in our product line evolution, and we're excited about the even greater potential ESS will have with our new energy based product. While we continue to make great progress on our cost-out initiatives, our costs for the full year and full quarter 2024 still reflect and are subject to an LCNRV adjustment that continues to significantly impact our results. This adjustment will continue to impact us at our current lower volumes, as well as while we are purchasing materials and producing products for sale in future quarters.
Speaker Change: Total revenue for Q4 was disappointing relative to our expectations delivering 680 <unk> towards customer in Florida is a great milestone achievement.
Speaker Change: Product line evolution, and we're excited about the even greater potential for hub with a new energy based product.
Speaker Change: While we continue to make good progress on our cost out initiatives, our Cogs for the full year and fourth quarter of 2024 still reflect our subject to an <unk> adjustment.
Speaker Change: Changes to significantly impact our results.
Speaker Change: This adjustment will continue to impact us other lower volumes as well as well, we were purchasing materials and producing products for sale in future quarters.
Tony Robb: However, due to the significant progress we have made in our cost down initiatives and manufacturing process improvements, we have realized a nearly 60% reduction to our energy adjustment per unit year-over-year, which is reflected in our Q4 financial These improvements are a strong indicator and reflection that we're able to deliver on our cost-bet initiatives and make progress towards more normalized college support.
Speaker Change: However, due to the significant progress we've made on our cost out initiatives and manufacturing process improvements.
Speaker Change: Have realized a nearly 60% reduction towards it'll be adjustment per unit year over year, which is reflected in our Q4 financials.
Speaker Change: These improvements are a strong indicator in reflection that we're able to deliver on our cost out initiatives and make progress towards more normalized College report.
Tony Robb: But more importantly and critically, our goals to achieve growth, marketing and adjusting to debt breakeven. The non-GAAP operating expenses for Q4 were $7.9 million, which includes R&D spend of $2.2 million, reflecting our continued investment in our cost-out initiatives, as well as the technology and product development roadmap improvements in performance, reliability, and durability of our energy center, as well as the energy-based product we recently announced and Kelly shared earlier. Due to the customer response to our EV product relative to its scalability, power and energy footprint as Kelly outlined, we've been allocating incremental engineering and other OPEX and overhead resources to support our ability to bid customer projects out in 2077 and beyond.
Speaker Change: But more importantly, and critically our goal is to achieve gross margin and adjusted EBITDA breakeven.
Speaker Change: Yeah.
Speaker Change: non-GAAP operating expenses for Q4 was $7 $9 million, which includes R&D spend of $2 $2 million, reflecting our continued investments in our cost out initiatives as well as the technology and product development roadmap improvements in performance reliability and durability of our energy center as well as the energy based products.
Speaker Change: We recently announced until we shared earlier.
Speaker Change: Due to the customer response to our EV product relative to our scalability power and energy footprint as Kelly outlined we've been allocating incremental engineering.
Speaker Change: And the other opex and overhead resources to support our ability to build customer projects 27 and.
Speaker Change: That would be up.
Tony Robb: It is important to reemphasize, as Kelly noted, that all of our design and developmental initiatives on the core technology carry over from the EW to the EC and then to the EB, as there's no differentiation in that underlying core tech from one product to the other. As a result of all this activity, for Q4, we reported adjusted EBITDA of negative $18.2 million. And for the full year 2024, adjusted EBITDA was negative $71.3 million. We anticipate this loss to narrow as all units produced in 2025 and beyond will be non-GAAP gross margin positives. And based on our expected volume of production and sales have a path to transition to EBITDA and cash flow positive in the next several years.
Speaker Change: It is important to reemphasize as Tony noted that all of our design and development all initiatives on the core technology carryover from the VW to D. C. And then to the EBIT is theres no differentiator no differentiation in that underlying quarter from one product to the other.
Speaker Change: As a result of all this activity for Q4, we reported adjusted EBITDA of negative $18 2 million.
Speaker Change: For the full year of 2024, adjusted EBITDA was negative $71 3 million.
Speaker Change: We anticipate this loss tomorrow is all units produced in 2025 and beyond will be non-GAAP gross margin positive.
Speaker Change: Our expected volume of production and sales.
Speaker Change: Have a path to transition to EBITDA and cash flow positive in the next several years.
Tony Robb: I'm going to expand on and highlight some of the great progress we've delivered on our engineering, production and supply chain initiatives that have led us to this extremely significant milestone of achieving nine gap gross margin positive on all of our products as of December 31, 2024. To emphasize the point, every product we produce and sell in 2025 will be profitable on a direct variable cost basis. Overall, we realized incremental reductions in cost on the EW of about 35% in 2024, and those savings all translated into cost savings on our EC. In addition to those cost reduction benefits, we also realized 26% cost reductions on EC.
Speaker Change: I'm going to expand on and highlight some of the great progress we've delivered on our engineering production and supply chain initiatives that have led us to this extremely significant milestone of achieving non-GAAP gross margin positive on all of our products as of December 31 2024.
Speaker Change: To emphasize the point.
Speaker Change: Every product, we produce and sell in 2025 will be.
Speaker Change: Profitable on the direct variable cost basis.
Speaker Change: Overall, we realized incremental reductions in cost on the EW of about 35% in 2024.
Speaker Change: And those savings all translated into cost savings on our seats.
Speaker Change: The difference of those cost reduction benefits, we also realized 26% of cost reductions on D. C.
Tony Robb: The investment in and strong execution of our supply chain, R&D, engineering and manufacturing operations have allowed us to realize these gains.
Speaker Change: The investment in in store execution of our supply chain R&D engineering and manufacturing operations have allowed us to realize these gains and I'll touch on just a few of them here.
Tony Robb: And I'll touch on just a few of them here. One major cost reduction initiative was ESS developing its own electric... This immediately reduced the elective cost by over 35% and gave us a line of sight to another annual 70% cost reduction. Important to note here is that control of the electrode is also a key enabler of increasing our performance gain. A second key initiative was the reformulation of our electrolyte, which reduced its cost by over 50% while also increasing the energy output by 20%. This is a substantial benefit to our overall product cost and performance, and also highlights the benefits of our core technology that Kelly noted on decoupling power from energy and all the advantages that provides to a product platform over other technologies.
Speaker Change: Our major cost reduction initiative was USS developing its own electrodes with.
Speaker Change: This immediately reduce the electrode costs by over 35%.
Speaker Change: Give us a lot of sites to another level, 70% and cost reductions.
Speaker Change: To note here is that control of your agility is also a key enabler of increasing our performance sketch.
Our second key initiative with the reformulation of our electrolyte, which reduced its cost by over 50%, while also increasing the energy output by 20%.
Speaker Change: This is a substantial benefit to our overall product cost and performance and also highlights the benefits of our core technology that Kevin Kelly noted.
Speaker Change: Decoupling power from energy and all the advantages that provides to our product platform over other technologies.
Tony Robb: In addition to those two, I'll note that several initiatives to transition to domestic secondary sourcing of key battery stack and balance system materials cut product costs by about 16%, which also has the effect of reducing any potential impact of tariff implications while continuing to increase the domestic content of our product. Lastly, I want to point out that our yields and scrap rates have improved considerably year over year with a reduction in scrap losses by over 90%. This is a testament to the productivity and efficiency improvements for our manufacturing team and utilizing our fully automated production line.
Speaker Change: In addition to those two I know that several initiatives to transition to a domestic secondary sourcing of key battery stack and balance of system materials cut pilot costs by about 16%.
Speaker Change: Which also has the effect of reducing any potential impact of tariff implications, while continuing to increase the domestic content of our products.
Speaker Change: Lastly, I want to point out that our yields and scrap rates have improved considerably year over year with a reduction in scrap losses by over 9%. This.
Speaker Change: This is a testament to the productivity and efficiency improvements to our manufacturing team in Italy, utilizing our fully automated production line.
Tony Robb: These are all great accomplishments by our team and we're very satisfied with the progress and realization of the benefits of the investment in these initiatives, and anticipate continued progress with our team on our 2025 and 2026 cost-out performance and durability projects and initiatives that are already well underway. So while we've crossed over this critical milestone sooner than we originally expected, it's also important to note that we're in progress on multiple other cost out performance and durability issues to deliver incremental savings in 2025 and 2026, allowing us to both increase and expand our margins while ensuring we can be more cost competitive relative to lithium-ion and other technologies in the market.
Speaker Change: These are all great accomplishments by our team and we're very satisfied with the progress <unk> the benefits of the investment in these initiatives and anticipate continued progress with our team our 2025 and 2026 cost out performance and durability projects and initiatives that are already well underway.
Speaker Change: So while we've crossed over this critical milestone sooner than we originally expected. It's also important to note that were in progress on multiple other cost outperformance and durability initiatives to deliver incremental savings in 2025 and 2026.
Speaker Change: Allowing us to both increase and expand our margins, while ensuring we can be more cost competitive relative to lithium ion and other technologies in the market.
Tony Robb: Well, we continue to aggressively pursue and execute on a planned product cost out initiatives and technology roadmap of performance improvements to be realized in 2025 and 2026. We're also seeing market data on a fully installed pricing basis for lithium-ion and other technologies continuing to drop as well in the 2027 through 2030 timeframe. We're currently actively bidding projects to be delivered in 2027, 2028 and beyond, where in that timing, pricing for lithium ion and other technologies are trending towards $200 per kilowatt hour on a fully installed cost-based With our current projected long term cost initiative improvements and the technology roadmap through 2027 and out to 2030, we anticipate our pricing trends to be competitive with those market projected levels on a fully installed cost basis and still realize gross margins with the PTC north of 30%.
Speaker Change: While we continue to aggressively pursue and execute on our planned product cost out initiatives and technology roadmap of performance improvements to be realized in 2025 and 2026.
Speaker Change: We're also seeing market data on a fully installed pricing basis for lithium ion other technologies continuing to drop as well from the 2027 through 2030 timeframe.
Speaker Change: We're currently actively bidding projects to be delivered in 2027, and 2020 and beyond.
Speaker Change: We are in that timing pricing for lithium ion and other technologies are trending towards $200 per kilowatt hour on a fully installed cost basis.
Speaker Change: With our current projected long term cost initiatives or improvements in the technology roadmap through 2027 at out to 2030.
Speaker Change: We anticipate our pricing trends to be competitive with those market projected levels on a fully installed cost basis.
Speaker Change: Realized gross margins with the PTC north of 30%.
Tony Robb: With our projected install pricing being more competitive, and because our solution doesn't require augmentation like lithium-ion requires, as well as have superior incentives for both ITCs and PTCs. were able to beat lithium-ion in many of these cases on a levelized cost of storage basis. We also made very solid progress in our realization and monetization of our production tax credits. The good news here is that we expanded the amount of PTCs we can claim to include the electrode active materials in our product, which increased the amount we can claim on our products sold by over 30%.
Speaker Change: With our projected install pricing being more competitive and because our solution doesn't require augmentation like lithium ion or cars as well as have superior incentives for both ITC and PTC.
Speaker Change: We're able to people with EMR and many use cases on a level of cost a storage basis.
Speaker Change: We also made very solid progress on our realization or monetization of our production tax credits. The good news here is that we expanded the amount of Ptc's. We can claim to include the electroactive materials in our products, which increased the amount we can claim on our products sold by over 30%.
Tony Robb: As a result, in the first quarter, we were also able to monetize $1.9 million of our 2024 production tax credits at a very favorable discount rate of $0.92 on the dollar, so a great result from a cash liquidity and discount range standpoint, adding to the PTCs we realized in 2024 for our 2023 production. This over 30% expansion per unit sold of realizable PTCs year over year has reduced our COGS and provides an improved line of sight to expanding our gross margins and path to even that breakeven. Finally, based on our ability to monetize these PTCs, we're encouraged about realizing the benefit of the PTC both from a P&L, cash and liquidity standpoint, as we continue to scale up our manufacturing and sales and 25 and beyond.
Speaker Change: As a result in the first quarter, we're also able to monetize once ongoing over 2020 for production tax credits.
Speaker Change: A very favorable discount rate of 92 cents on the dollar. So a great result from a cash liquidity and discount rate standpoint, and to the PTC as we realized in 2024 for our 2023 production.
Speaker Change: With over 30% expansion per unit sold are realized for PTC as year over year as reduced our Cogs and provides an improved line of sight to expanding our gross margins and path to EBITDA breakeven.
Speaker Change: Finally based on our ability to monetize these ptc's, we're encouraged about realizing the benefit of the PTC both from a P&L cash and liquidity standpoint, as we continue to scale up our manufacturing and sales in 'twenty five and beyond.
Speaker Change: Yeah.
Tony Robb: Turning to cash flow and equity, we ended the fourth quarter with $31.6 million in cash and short-term investments. Our cash burn rates in the fourth quarter were impacted by the production costs of the eight ECs we purchased material for and built for our Florida Utility customers. Based on the progress we made on our cross-data initiatives through the zones completed as of 12-31-24, we will see the benefit of those lower costs on materials purchased for production in 2025, while ensuring we're allocating our resources to initiatives that will generate the greatest return. One of our largest uses of cash is our product bill of materials.
Speaker Change: Turning to cash flow and liquidity, we ended the fourth quarter with $31 6 million in cash and short term investments.
Speaker Change: Our cash burn rates in the fourth quarter were impacted by the production cost.
Speaker Change: He sees we purchase material forward built for our Florida utility customer.
Speaker Change: Based on the progress we made on our cost out initiatives food results completed as of 12 31, 24, we will see the benefit of those lower cost on materials purchased for production in 2025.
Speaker Change: I'm sure, we're allocating our resources to initiatives that will generate the greatest returns.
Speaker Change: One of our largest uses of cash as a product build materials.
Tony Robb: And as I've noted regarding our cost-out initiative results, reducing the cost of bill of materials is driving meaningful reduction in the associated cash burn and working capital investment. We're also continuing to work to prioritize allocation of capital across internal resources and third party services closely managing spend based on value added relative to cash burn. We anticipate that our lower bill of materials, actions taken to optimize spend, and increased focus and prioritization of the allocation of investments will reduce our burn rates several million dollars below our average quarterly burn rate in 2024 and ensure we have the runway to access the additional capital required to meet our near-term and longer-term growth and expansion objectives.
Speaker Change: I've noted regarding our cost out initiatives results, reducing the cost of the build.
Speaker Change: <unk> is driving meaningful reduction in the associated cash burn and working capital investment.
Speaker Change: We're also continuing to work to prioritize allocation of capital across internal resources and third party services closely managing spend based on value added relative to cash burn.
Speaker Change: We anticipate that a lower bill of materials actions taken to optimize spend and increased focus on prioritization of the allocation of investments.
Speaker Change: We will reduce our burn rates several million dollars below our average quarterly burn rate in 2024, and ensure we have the runway to access the additional capital required to meet our near term and longer term growth and expansion objectives.
Tony Robb: As Kelly mentioned, we're in the middle of our capital raise process to bolster our balance sheet with the funding required to continue to execute our business plans and growth objectives. As we work to complete that process in the upcoming quarter, there are a number of near-term, interim financing solutions we're exploring to allow us to successfully complete our broader capital raise objectives. Along those lines, one of the financing alternatives we'll be launching is our at-the-market offering. We're filing a prospective supplement today and anticipate being in the market by the back half of April. We believe the ATM facility, along with several other near-term financing solutions on which we're actively working, can provide the funding needed to allow us to effectively complete our broader strategic capital raise process by the end of Q2.
Speaker Change: As Kevin mentioned, we're in the middle of our capital raise process to bolster our balance sheet with the funding required to continue to execute on our business plans and growth objectives.
Speaker Change: As we work to complete that process in the upcoming quarter.
Speaker Change: Number of near term interim financing solutions, we are exploring to allow us to successfully complete our broader capital raise objectives.
Speaker Change: Along those lines one of the financing alternatives will be launching as our aftermarket offering.
Speaker Change: Following a.
Speaker Change: Prospectus supplement today and anticipate being in the market by the back half of April.
Speaker Change: We believe the ATM facility along with several other near term financing solutions on which we're actively working can provide the funding needed to allow us to effectively complete our broader strategic capital raise process by the end of Q2.
Tony Robb: In addition, and as we previously noted, in the fourth quarter, we signed our credit agreement with the Export-Import Bank of the United States, or EXIM. With the signing of the first tranche of the $50 million financing package, we are proud to become the first energy storage manufacturer to be supported by the Make More in America initiative of EXIM. These funds have a very favorable interest rate and can be borrowed against past and future battery manufacturing capacity capital expenditures with repayment by the middle of 2031 and interest only payments through 2026. We anticipate potentially drawing on this facility in the second quarter to provide us additional liquidity related to CAPEX invested in on our first fully automated production line, as well as potentially for the additional investment we make into our second automated production line.
Speaker Change: And Additionally, as we previously noted in the fourth quarter, we signed our credit agreement with the export import bank of the United States with the signing of the first tranche of the $50 million financing package we have.
Proud to become the first energy storage manufacturer to be supported by the make more Nashville LIBOR in America initiative of exit.
Speaker Change: These funds are a very capable.
Speaker Change: A very favorable interest rate and can be borrowed against past and future battery manufacturing capacity capital expenditures with repayment by the middle of 2031.
Speaker Change: Interest only payments through 2026.
Speaker Change: We anticipate potentially drawing on this facility in the second quarter to provide us additional liquidity related to Capex invested in on our first fully automated production line as well as potentially put the additional investment we're making to our second automated production line.
Tony Robb: Finally, I would also like to address the going concern disclosure we included in our 10k. As both Kelly and I noted, we are working towards the optimal path to clearing this analysis. And we are focused on extending our cash runway to secure new capital, continued efficient management of spend and reducing our cash consumption. I'll reiterate again that we're actively evaluating a variety of strategic financing alternatives, both diluted and non diluted, to choose the best possible means to strengthen our balance sheet to extend our cash runway to enable ESS to operate through 2025 and beyond. With such strong market tolerance, we continue to see considerable investor interest in long-duration energy storage, and we're working to raise the necessary capital to fund us through cash flow breaking.
Speaker Change: Finally, I would also like to address the going concern disclosure. We included in our 10-K as both Kelly and I noted we are working towards the auto path to clearing this analysis and we are focused on extending our cash runway to securing new capital continued efficient management of spend and reducing our cash consumption.
Speaker Change: Ill reiterate again that we are actively evaluating a variety of strategic financing alternatives, both dilutive and non dilutive to choose the best possible means to strengthen our balance sheet to extend our cash runway to enable DSS to operate through 2025 and beyond.
Speaker Change: With such strong market tailwind, we continue to see considerable investor interest in long duration energy storage and we're working to raise the necessary capital to fund us through to cash flow breakeven.
Unknown Executive: And with that, I'll open it up for questions. At this time, I would like to remind everyone in order to ask a question, press start and the number one on your telephone keypad. We'll pause for just a moment to compile the Q&A off.
Speaker Change: And with that I'll open it up for questions.
Speaker Change: At this time I would like to remind everyone in order to ask a question Press Star then the number one on your telephone keypad, we'll pause for just a moment to compile the Q&A roster.
Justin Clare: Your first question comes from the line of Justin Clare with Rock Capital Partners, your last Hi, good afternoon. Thanks for taking our question. Good afternoon. So first thing I wanted to start with here was just, you know, given the ramp and the deliveries that we've seen for the EC in Q4, and then the deliveries you mentioned in Q1, wondering how should we think about the trajectory of your revenue growth over the next few quarters?
Speaker Change: Your first question comes from the line of Justin Clare with Roth Capital Partners. Your line is now open.
Justin Clare: Hi, good afternoon, thanks for taking my questions.
Speaker Change: Good afternoon.
Speaker Change: Uh huh.
Speaker Change: Good afternoon. So first thing I wanted to start with here was just.
Speaker Change: Even the ramping of deliveries that we've seen for the EC in Q4, and then the deliveries you mentioned in Q1 wondering how should we think about the trajectory of your revenue growth over the next few quarters and then could you talk about how you anticipate 2025 revenue compared to what.
Tony Robb: And then could you talk about how you anticipate 2025 revenue, you know, compared to what, what we saw in 2021? Yeah, thanks. Thanks, Justin, for the question.
Speaker Change: What we saw in 2024.
Tony Rob: Yes, Thanks, Justin for the question.
Tony Rob: This is Tony.
Tony Robb: This is Tony. So, at this stage, we're not going to be providing guidance for 2025, but we do anticipate that our revenue for the first half will be fairly moderate in terms of the ramp and scale up of our revenue for the full year. We will see revenue in the first quarter tied to those two ECs that we delivered to our core utility customer, and then somewhat moderate throughout the rest of the first half of the year. And then the back half of the year is where we'll see a bit of a scale up in revenue, primarily tied to ECs that we would expect to produce and sell.
Speaker Change: So.
Speaker Change: At this stage, we're not going to be providing.
Speaker Change: Our guidance.
For 2025.
Speaker Change: But we do anticipate that our revenue.
Speaker Change: For the first half will be.
Speaker Change: Fairly moderate in terms of the ramp and scale up of our revenue for the full year.
Speaker Change: We'll see revenue in the first quarter tied to those.
Speaker Change: Those two indices that we delivered to our Florida utility customer.
Speaker Change: And then somewhat moderate.
Speaker Change: Throughout the rest of the first half of the year and then the back half of the year as well.
Speaker Change: See a bit of a scale up and revenue primarily tied to.
Speaker Change: ECS.
Speaker Change: But we would expect to produce itself.
Unknown Executive: Okay, got it.
Speaker Change: Okay got it.
Tony Robb: And then wanted to just dig into the margins here a little bit more. So you talked about reaching breakeven profitability for the EC. But I know this excludes the direct overhead costs. So wondering how we should think about the trend in gap gross margins in 2025. It sounds like volume might ramp in the back half of the year a little bit more so than the first half. But wondering, are there certain volume or revenue milestones that might need to be achieved before we really see an inflection point in the in the gap gross margin profile?
Speaker Change: And then wanted to just dig into the margins here a little bit more so you talked about reaching breakeven profitability for the E C.
Speaker Change: This excludes the direct overhead costs. So wondering how we should think about the trend in GAAP gross margins in 2025, it sounds like volume might ramp in the back half of the year, a little bit more so than the first half.
Speaker Change: I'm wondering are there certain volume or revenue milestones.
Speaker Change: I need to be achieved before we really see an inflection point in the in the GAAP gross margin profile.
Tony Robb: Yeah, that's correct. It's still quite a bit of indirect overhead that we would need to cover with the margins, the direct margins on sale of ECs and EVs and even EWs. And so we wouldn't anticipate being a U.S.
Speaker Change: Yes.
Speaker Change: Correct.
Speaker Change: Still.
Speaker Change: Sure.
Speaker Change: Quite a bit of indirect overhead.
Speaker Change: That we would need to cover with.
Speaker Change: The margins the direct margins.
Speaker Change: On sale of <unk> and <unk> and.
Speaker Change: And even in the revenues.
Speaker Change: So we wouldn't anticipate.
Speaker Change: Being a U S GAAP gross margin positive.
Tony Robb: GAAP gross margin positive this year, but we anticipate realizing that post 2025. Okay, gotcha.
Speaker Change: This this year, but we anticipate.
Speaker Change: Realizing that post the post 2025.
Speaker Change: Okay got you and then just on the balance sheet.
Tony Robb: And then just on the balance sheet, any sense for how much capital you might look to raise, what might be needed in order for you to fund the CAPEX plans and your investment needs in 2025? And then just on the Export-Import Bank, are there certain requirements that need to met in order to access that financing? And then just wondering how you're thinking about it. Is it likely that you access the funding or we're still thinking through it? Yeah, just a couple points on your question. So we we are looking to raise enough capital to get us well into 2026.
Speaker Change: You sense for how much capital you might look to raise.
Speaker Change: Be needed in order for you to.
Speaker Change: To fund the Capex plans and investment needs in 2025, and then just on the export import bank are there certain requirements that need to be met in order to access that financing.
Speaker Change: And then just wondering how youre thinking about it.
Speaker Change: Is it likely that you access.
Speaker Change: The funding or we're still thinking through it at this point.
Speaker Change: Yeah.
Speaker Change: A couple.
Speaker Change: So on your question. So we are.
Speaker Change: Looking to raise enough capital to get us well into 2026 first of all.
Tony Robb: First of all, and if you look at what our cash burn was in the fourth quarter, it was higher than what we're anticipating our cash burn is going to be on a quarterly basis this year. And even our first quarter cash burn was was below the fourth quarter. So so we anticipate that cash burn decreasing as we as we move out in the further quarters this year. So so that's sort of the first point. And then in terms of the amount of capital that we're looking to raise, we'd like to raise at least enough capital that allows us to ensure we have access to the full amount of the export import bank loan.
Speaker Change: And.
Speaker Change: If you look at what our cash burn was in the fourth quarter was higher than what we're anticipating our cash burn.
Speaker Change: Is going to be on a quarterly basis, this year and even our first quarter cash burn was below.
Speaker Change: The fourth quarter.
Speaker Change: So we anticipate that cash burn decreasing.
Speaker Change: As we as we move out in the further quarters this year.
Speaker Change: So that's sort of the first point and then in terms of the amount of capital that we're looking at rates, we'd like to raise.
Speaker Change: At least enough capital that allows us to.
Speaker Change: Until we have access to the full amount of the export import bank loan.
Tony Robb: And so, you know, we need to raise at least $50 million to be able to access that. And we do anticipate potentially drawing on the import bank loan in the second quarter, assuming certain other criteria are resolved and also supplemented with other facilities like the ATM that they were launching. Okay, got it.
Speaker Change: And so we need to raise at least $50 million to be able to access that.
Speaker Change: And we do anticipate.
Speaker Change: Potentially drawing on the export import bank loans in the second quarter.
Speaker Change: Assuming certain other criteria unresolved and.
Speaker Change: And also supplemented with.
Speaker Change: Other facilities like the ATM that we're launching.
Speaker Change: Okay got it that's helpful. That's it for me thank you.
Unknown Executive: It's helpful.
Unknown Executive: That's it for me.
Unknown Executive: Thank you.
Unknown Executive: Thanks, thank you.
Speaker Change: Thank you.
George Gianarikas: Your next question comes from the line of George Gianarikas with Canaccord Genuity. Hi, good afternoon, and thank you for taking my question. I'd like to ask about the product you have in the field so far. Any sort of anecdotes, any performance metrics you can share as to how they're working out so far?
Speaker Change: Your next question comes from the line of George <unk> with Canaccord Genuity. Your line is open.
Speaker Change: Hi, good afternoon, and thank you for taking my questions.
Speaker Change: I'd like to ask about the products you have in the field so far I D.
Speaker Change: Sort of anecdotally performance metrics, you can share as to how they're working out so far.
Kelly Goodman: Yeah, George, this is Kelly. Thanks for that question. And I think the short answer is that, you know, with any new tech deployment, you definitely see issues. And that's something that we've been working through. A lot of that is in, you know, operability, when we're, you know, working systems here, before they go out in the field, you don't see all the different use cases, or the things that may come up as customers are working to operate independently. So I think there's two major areas that we've been working to improve. One is with software. That's an area where we've been improving the team and really helping the battery, sort of, if you will, operate, quote, unquote, without user error, be able to respond to commands and know what's optimal for the battery, very much along the lines of how you might see your cell phone learn to adapt to your charging activities so that you don't, you know, degrade that battery.
Speaker Change: Yeah. George This is Kelly thanks for that question and I think the short answer is that with any new type of deployment you definitely see issues and that's something that we've been working through a lot of that is in.
Speaker Change: Operability when were working systems here before they go out in the field you don't see all of the different use cases or the things that may come up as customers are looking to operate independently. So I think theres two major areas that we've been working to improve one as with software that's an area where we are.
Speaker Change: Improving the team and really helping the battery.
Speaker Change: So really if you will operate quote unquote without easier air B.
Speaker Change: Be able to respond to commands and know what's optimal for the battery very much along the lines of how you might see there.
Speaker Change: Cellphone learning to adapt to your charging activity. So that you don't degrade that batteries, you don't have degradation issues, but our battery like any anything certainly could cause adapt to how users are operating it and I think the other area frankly is in documentation, we have a lot of expertise here within E. S.
Kelly Goodman: We don't have degradation issues, but my remarks. Both of those energy warehouse systems have now been operating at their facilities for some time. They have folks coming through that are interested in doing projects, and we're really pleased with the operations at those facilities with folks that have been really collaborative with us and helping better understand the optimal use of the battery and how to really ensure that our customers can use it, frankly, without us, other than from a maintenance perspective.
Speaker Change: But I think we certainly could be better and how we articulate how that's used with customers with operators and weapons in the field.
Speaker Change: So with those two areas, we're really excited about the progress that we've made I've mentioned Softbank and Honeywell My remarks, both of those energy warehouse system have now been operating.
Speaker Change: At their facilities for some time they have folks coming through that are interested in doing projects and we're really pleased with the operations at these facilities with folks that have been really collaborating with us in helping better understand the optimal use of the battery and how to really ensure that our customers can use that frankly without other.
Speaker Change: And then from a maintenance perspective.
Tony Robb: Thank you. And maybe to focus on the on the OpEx just for a second, is this level, I just see the non-gamma number 44 million. for last year, if I'm not mistaken. Is that the right level to think about going forward or is there additional room for cost?
Speaker Change: Thank you.
Speaker Change: And they are going to focus on the on the Opex just for a second.
Speaker Change: Is this level I just see that.
Speaker Change: The non-GAAP number $44 million.
Speaker Change: Over the last year, if I'm not mistaken is that the right level to think about going forward or.
Speaker Change: <unk>.
Speaker Change: For cost cuts.
Tony Robb: Well, I think, you know, this is Tommy, thanks for the question. You know, we're We've been evaluating where we think we need to be allocating the appropriate investment in our resources. And so we've taken a number of steps. to ensure that we have that appropriately structured in terms of our operating expenses. And so, you know, from one perspective, our go-forward operating expenses. From a run rate standpoint are slightly lower than what they were last year, but at the same time, we're also selectively investing in needed resources that Kelly alluded to. Uh, that'll allow us to ensure we can get to those key initiatives that we have around the, the energy based product.
Speaker Change: Well I think.
Speaker Change: This is Tony Thanks for the question.
Speaker Change: <unk>.
Speaker Change: We've been.
Speaker Change: Evaluating where we think we need to be allocating the appropriate.
Speaker Change: Investment in our resources.
Speaker Change: So we've.
Speaker Change:
Speaker Change: A number of steps.
Speaker Change: Two.
Speaker Change: To ensure that we have that.
Speaker Change: Appropriately structured in terms of our operating expenses and so.
Speaker Change: From one perspective, our go forward operating expenses.
Speaker Change: From a run rate standpoint are slightly lower.
Speaker Change: What they were last year.
Kelly Goodman: At the same time, we're also selectively investing in needed resources that Kelly alluded to.
Kelly Goodman: That will allow us to ensure we can get to.
Kelly Goodman: Key initiatives that we have around the energy based product so I wouldn't see a substantial.
Tony Robb: So I wouldn't see a substantial. Area to reduce in terms of operating expenses, but, but I think we're, we are focused on reallocating our, our investment and resources to the appropriate areas of the company. Thank you.
Kelly Goodman: Area to reduce in terms of operating expenses.
Kelly Goodman: <unk>.
Kelly Goodman: But I think.
Kelly Goodman: We are focused on.
Kelly Goodman: Kidding.
Kelly Goodman: Our investment and resources to the appropriate.
Kelly Goodman: Areas of the company.
Kelly Goodman: Thank you maybe final one for me.
George Gianarikas: And maybe final one for me.
Kelly Goodman: You mentioned, I think I heard that the energy based product you plan on bringing out in production partners and sort of becoming more of an IP company that did I hear that correctly? And how is that? Evaluation and Manufacturing Partners.
Kelly Goodman: I think I heard that the energy based products you plan on bringing in production partners sort of becoming more of an IP company that did.
Kelly Goodman: Did I hear that correctly and how is that.
Valuation of manufacturing partners gone so far thank you.
Kelly Goodman: Yeah, thanks, George. And thanks for that, because I should add a clarification. So the one thing that's really different about the EnergyBase, the EW and the EC both come in an integrated solution, right? It's container based. The way the EnergyBase is configured, there's two discrete systems that are then integrated. So what we're thinking is not to be an IP, you know, licensing model, per se, but rather we would continue to manufacture what we call the power lock unit, and it consists of our core components, our stacks, our electrolyte health management system, and then the electrolyte.
Kelly Goodman: Yeah. Thanks George.
Kelly Goodman: Thanks for that because they should add a clarification. So the one thing that's really different about the energy base, the EW and the EC both come in an integrated solution right. It's <unk> the way the energy basis configured theres two discrete fits them better than integrated so we're thinking is not to be in.
Kelly Goodman: Licensing model per se, but rather we would continue to manufacture what we call. The power block unit and it consists of our core components. Our stocks are intellectually Hilton management system, and then the electrolyte and having a decoupling it gives us the ability to either manufacture the balances.
Kelly Goodman: And having it decoupled gives us the ability to either manufacture the balance of system ourselves, or frankly, leverage folks that have expertise in that field. It's really, you know, industrial components, things like pumps, tanks, and actuators. And as mentioned, that's something that we're actively exploring with Honeywell, you know, that kind of chemical processing is exactly what they do. And we've looked at our business model, if we are manufacturing core components alone, and there's definitely a case to look at there, as far as us bringing incremental value in the area where we have the most expertise.
Kelly Goodman: The Marcellus or frankly leverage folks that have expertise in that feel it's really industrial and components things like pumps things and actuators and as mentioned that's something that we're actively exploring with Honeywell that kind of chemical processing is that is exactly what they do and we've looked at our business model.
Kelly Goodman: If we are manufacturing core components alone and there is definitely a key is to look out there.
Kelly Goodman: As far as us, bringing incremental value in the area, where we have the most expertise.
Kelly Goodman: Thank you very much.
Unknown Executive: Thank you for your question. There are no further questions at this time.
Kelly Goodman: Thank you for your question there are no further questions at this time with Goodman I turn the call back over to you.
Kelly Goodman: Ms. Goodman, I turn the call back over to you. Thanks, Matt. Thanks, everyone for joining our fiscal year 24 year end call. Appreciate the time and your support of the company. Thanks very much, everybody.
Kelly Goodman: Thanks, Matt.
Speaker Change: Thanks, everyone for joining our fiscal year 'twenty for yearend call I appreciate the time and your support of the company.
Kelly Goodman: That's what I'm not sure but.
Unknown Executive: This concludes today's conference call. May you now disconnect your line.
Kelly Goodman: This concludes today's conference call you now disconnect your lines.