Q1 2025 ESS Tech Inc Earnings Call
Unknown Executive: Ladies and gentlemen, thank you for standing by. At this time, all participants are in listen only mode. Later, we will conduct a question and answer session.
Ladies and gentlemen, thank you for standing by at this time, all participants are in listen only mode.
Later, we will conduct a question and answer session.
Unknown Executive: At that time, if you have a question, you will need to press the star one on your push button.
At that time, if you have a question you press the star one on your push button phones.
Erik Bylin: I would now like to turn the conference over to Eric Bylin, please go ahead. Welcome to ESS's first quarter of fiscal year 2025 financial results joining me on the call today from ESS are Kelly Goodman, interim CEO, and Tony Rabb, CFO. following management's prepared remarks, we will hold the Q&A Earlier today, ESS released financial results for the first quarter of 2025.
Eric Violent: I would now like to turn the conference over to Eric violent. Please go ahead.
Thank you.
Eric Violent: Welcome to <unk> first quarter of fiscal year 2025 financial results Conference call.
Telling Goodman: Joining me on the call today for me as I start, telling Goodman interim CEO and Tony Rob CFO.
Eric Violent: Following managements prepared remarks, we will hold a Q&A session.
Eric Violent: Earlier today, Yes, that's released financial results for the first quarter of 2025.
Erik Bylin: Earnings release is available in the investor relations section of the company's web As a reminder, the information presented today will include four looking statements, including without limitation, statements about our growth prospects, part Financial. Capital Raise. Strategy for 2025. Forelooking 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 filings filed with the Securities and Exchange as well as the current uncertainty and unpredictability in our business.
Eric Violent: The earnings release is available in the Investor Relations section of the company's website.
Eric Violent: As a reminder, the information presented today will include forward looking statements, including without limitation statements about our growth prospects partnerships financial performance.
Eric Violent: Capital raising and strategy for 2025 and beyond.
Eric Violent: 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.
Eric Violent: In particular those described in our risk factors set forth in more detail in our most recent periodic filings filed with the securities and exchange question.
Eric Violent: As well as the current uncertainty and unpredictability in our business challenges with raising capital issues with our partnerships the markets the economy and the current geopolitical situation.
Erik Bylin: Challenges with Raising Capital, Issues with our Partners. The markets, the economy and the current geopolitical You should not rely on our forward-looking statements as predictions of future events.
Eric Violent: You should not rely on our forward looking statements as predictions of future events.
Erik Bylin: All forward-looking statements that we make on this call today are based on assumptions and beliefs as of the date you're of, and we disclaim any obligation to update any forward-looking statements, except as required by law. During the call, we will also present certain financial on a non-gap. Management believes that non-GAAP financial measures taken in conjunction with US GAAP provide useful information for both management and investors by excluding certain items that are not indicative of our core management uses certain non GAP measures internally to understand, manage and evaluate our and Make Operate.
Eric Violent: 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.
Eric Violent: During the call we will also present certain financial metrics.
Eric Violent: On a non-GAAP basis.
Eric Violent: Management believes that non-GAAP financial measures taken in conjunction with U S. GAAP financial measures provide useful information for both management and investors by excluding certain items that are not indicative of our core operating results.
Eric Violent: Management uses certain non-GAAP measures internally to understand.
Eric Violent: Managed and evaluate our business and make operating decisions.
Erik Bylin: Reconciliations between US GAAP and non-GAAP results are presented within With that, I'll turn the call over to Thank you, Eric.
Eric Violent: Conciliations between U S GAAP and non-GAAP results are presented within our earnings release with that I'll turn the call over to Kelly.
Kelly Goodman: And thank you everyone for joining the call. I am pleased to be here again to report our first quarter results for 2025. As we noted on our last call, we continue to work diligently to manage liquidity in the near term, support capital raising measures, and give us time to implement our turnaround and current strategy. Our focus this quarter was execution of the energy-based launch and gaining commercial momentum, which I will talk about momentarily. Our first quarter revenue is tied to final deliveries of our battery systems to our Florida utility customer and came in at $0.6 million with roughly 65% tied to equipment and 35% tied to site preparation.
Kelly: Thank you Eric and thank you everyone for joining the call.
Kelly: I am pleased to be here again to report our first quarter results for 2025.
Kelly: As we noted on our last call. We continue to work diligently to manage liquidity in the near term.
Part capital raising measures and give us time to implement our turnaround and current strategy.
Kelly: Our focus this quarter was execution of the energy based launch and gaining commercial momentum, which I will talk about momentarily.
Kelly: Our first quarter revenue is tied to final deliveries of our battery systems to our Florida utility customer and <unk>.
Kelly: I'm in at point $6 million with roughly 65% tied to equipment and 35% tied to site preparation.
Kelly Goodman: Additional project revenues are anticipated to be realized as the project is installed and commissioned through the course of this year. We expect that revenue will maintain these levels in the first half of the year and ramp in the back half based on energy-based sales, although we are certainly exploring near-term revenue opportunities. The results reflect in part our pivot from the Energy Warehouse and Energy Center products to implement a more focused business strategy related to the energy based product and address longer duration storage opportunities at 10 plus hours. This strategic shift is already yielding results. Within just three months of launching the energy based product, we secured early momentum.
Kelly: Additional project revenues are anticipated to be realized as the project is installed and commission through the course of this year.
Kelly: We expect that revenue will maintain these levels in the first half of the year and ramp in the back half based on energy based sales. Although we are certainly exploring near term revenue opportunities.
Kelly: The results reflect in part our pivot from the energy warehouse in energy center products to.
Kelly: To implement a more focused business strategy related to the energy based product and address longer duration storage opportunities at 10 plus hours.
Kelly: This strategic shift is already yielding results.
Kelly: Within just three months of launching the energy based products, we secured early momentum.
Kelly Goodman: We were notified in late April that ESS beat more than 10 shortlisted competitors in a non-lithium RFP initiated by an Arizona public power utility that serves 2 million people and services a significant load from hyperscale leaders. Contracting and approvals for the 50-megawatt-hour, 5-megawatt pilot project are anticipated to conclude by September. We expect there will be a significant follow-on RFP opportunity for this customer and our proposal included indicative pricing for a 2 gigawatt hour, 200 megawatt follow-on project. This opportunity is representative of the significant emerging demand for non-lithium ion, longer duration storage technologies. We believe that our ability to deliver 10 plus hours of storage, offer competitive pricing, perform in a wide range of temperatures, and bring broad field experience with our core technology, scaled to gigawatt capacity in the energy base were important factors in securing this opportunity.
Kelly: We were notified in late April that ESI speed more than 10, shortlisted competitors and a non lithium RFP initiated by an Arizona public power utility that serves 2 million people and services a significant load from Hyperscale leaders.
Kelly: Contracting and approvals for the 50 megawatt hour five megawatt pilot projects are anticipated to conclude by September.
Kelly: We expect there will be a significant follow on RFP opportunity for this customer.
Kelly: And our proposal included indicative pricing for a two gigawatt hour 200 megawatt follow on project.
Kelly: This opportunity is representative of the significant emerging demand for non lithium ion longer duration storage technologies.
Kelly: We believe that our ability to deliver 10 plus hours of storage offer competitive pricing perform in a wide range of temperatures and bring broad field experience with our core technology scale to gigawatt capacity and the energy base were important factors in securing this opportunity.
Kelly Goodman: In addition, the project offtaker is confirmed, and we are in further discussions for two additional projects. The project will be structured as a power purchase agreement, allowing us to deploy capital and raise financing at the project level. Project level capital and monthly payment structures like PPAs or tolling agreements also have been new opportunities for ESS to maintain some level of ownership in project companies and receive revenue ratably that will help to smooth our revenue projections and provide a revenue baseline to the extent these projects close and become operational. Separate from this particular project, proposal activity has increased substantially on the back of the energy-based launch.
Kelly: In addition, the project off taker is confirmed and we are in further discussions for two additional projects.
Kelly: The project will be structured as a power purchase agreement, allowing us to deploy capital and raise financing at the project level.
Kelly: Project level capital in monthly payment structures like Ppas or tolling agreements also been new opportunities for ESI to maintain some level of ownership in project companies and received revenue Ratably that will help to smooth our revenue projections and provide a revenue baseline to the extent these projects close and become operational.
Kelly: Al.
Kelly: Separate from this particular project.
Kelly: Postal activity has increased substantially on the back of the energy based lunch.
Kelly Goodman: totaling approximately 1.2 gigawatt hours and $400 million in the last two quarters, with over 70% representing the energy base. Our Portland General Energy Center systems are continuing grid operation and running daily cycling, having transacted another 158 megawatt hours. In addition, we are taking steps to leverage the grid infrastructure that was installed to support the PGE project to connect additional ESS systems and deploy a Wilsonville energy hub right here in our backyard. These batteries are demonstrating commercial applications and daily cycling. We plan to deploy our first extended duration stacks in an on-site system to demonstrate a 12-hour duration during the second quarter.
Kelly: Totaling approximately one two gigawatt hours and $400 million in the last two quarters with over 70% representing the energy base.
Kelly: Our Portland General Energy Center systems are continuing grid operation and running daily cycling, having transacted another 158 megawatt hours.
Kelly: In addition, we are taking steps to leverage the grid.
Kelly: So that wasn't staff to support the PZ project to connect additional ESI systems and deploy our Wilsonville energy hub right here in our backyard.
Kelly: These batteries are demonstrating commercial applications and daily cycling.
Kelly: We plan to deploy our first extended duration stacks and an onsite systems to demonstrate a 12 hour duration during the second quarter.
Kelly Goodman: This effort is a key step in demonstrating the technology at longer durations of up to 22 hours. Operating multiple systems on site that all utilize our core technology will allow us to continue to understand product deployment and field activity firsthand and optimize a hands on operational approach to better implement learnings and usability for our customers. We continue to work closely in our partnership with Honeywell across a number of fronts, including related to the energy based product as discussed on our last call. based on Honeywell's expertise and process design and procurement positions related to core elements like tanks, pumps, and control systems. Our first four projects under our joint development agreement are complete or near completion, and the next round is already in flight or will be executed during the second quarter.
Kelly: This effort is a key step in demonstrating the technology at longer durations of up to 22 hours.
Kelly: Operating multiple systems onsite that all utilize our core technology will allow us to continue to understand product deployment and field activity firsthand and optimize our hands on operational approach to better implement learnings and usability for our customers.
Speaker Change: We continue to work closely and our partnership with Honeywell across a number of friends.
Speaker Change: Including related to the energy based product as discussed on our last call.
Speaker Change: Based on honeywell's expertise and process design and procurement position related to core elements like tanks pumps and control systems.
Speaker Change: Our first four projects under our joint development agreement are complete.
Speaker Change: Our near completion in the next round is already in flight or will be executed during the second quarter.
Kelly Goodman: There have been significant changes in the last several weeks related to tariffs, but as noted on our last call, we are proud that we have made our batteries here in the United States since day one. All of our manufacturing is conducted in our Wilsonville facility, and we do not import foreign cells for U.S. Assembly. We have an extremely high degree of American-made inputs from our supply chain with over 98% of the components in our bill of materials sourced domestically. The cost for Chinese lithium batteries have recently come down, but the tariff landscape remains both significant and volatile.
Speaker Change: There have been significant changes in the last several weeks related to tariffs, but as noted on our last call. We are proud that we have made our batteries here in the United States since day one.
Speaker Change: All of our manufacturing is conducted in our Wilsonville facility and we do not import foreign cells for U S Assembly.
We have an extremely high degree of American made inputs from our supply chain.
Speaker Change: With over 98% of the components in our bill of material sourced domestically.
Speaker Change: The cost for Chinese lithium batteries have recently come down, but the tariff landscape remains both significant and volatile.
Kelly Goodman: The 90-day agreement between the US and China that was announced last weekend and came into effect yesterday still imposes over 40% cumulative tariffs on Chinese stationary lithium-ion batteries in the near term. And over 50% tariffs in 2026 if a broader trade agreement isn't reached before the Section 301 tariffs on Chinese stationary lithium-ion batteries are scheduled to increase from 7.5% to 25%. We also continue to see positive legislative tailwinds for domestic battery manufacturing, including for long-duration energy storage manufacturers. On April 8, Senator Bill Cassidy introduced the Foreign Pollution Fee Act, which would levy tiered and escalating tariffs on selected imported goods, including battery components, based on their carbon emissions.
Speaker Change: The 90 day agreement between the U S and China that was announced last weekend and came into effect yesterday.
Speaker Change: Imposes over 40% cumulative tariffs on Chinese stationary lithium ion batteries in the near term.
Speaker Change: And over 50% tariffs in 2026, that's a broader trade agreement isn't reached before the section 301 tariffs on Chinese stationary lithium ion batteries are scheduled to increase from seven 5% to 25%.
Speaker Change: We also continue to see positive legislative tailwind for domestic battery manufacturing, including for long duration energy storage manufacturers.
Speaker Change: On April 8th Senator Bill Cassidy introduced before and pollution fee Act, which would levy tiered and escalating tariffs on selected imported goods, including battery components based on their carbon emissions with.
Kelly Goodman: with the intention to boost U.S. manufacturing competitiveness in low carbon goods and raise tax revenue. Based on the FDFA's variable charge by sector and country of origin formula, battery inputs from China will face an additional 200% levy if the bill becomes law. On March 10th, the Decoupling from Foreign Adversarial Battery Dependence Act passed the House of Representatives. This bill would prohibit the Department of Homeland Security from purchasing batteries produced by CATL, BYD, Envision Energy, EVE Energy, Gotian Hitech, and Hythium. On Monday, the House Ways and Means Committee released its bill as part of the budget reconciliation process.
Speaker Change: With the intention to boost U S manufacturing competitiveness in low carbon goods and raise tax revenue base.
Speaker Change: Based on the <unk> variable charged by sector and country of origin Formula.
Speaker Change: Battery inputs from China will face an additional 200 per cent levy at the Bill becomes law.
Speaker Change: On March 10th the decoupling from foreign Adversarial Battery Dependents Act passed the house of Representatives.
Speaker Change: This bill would prohibit the department of Homeland security from purchasing batteries produced by cattle BYD envision energy EV energy Gucci on Hy Tech in Hiseq.
Speaker Change: On Monday, the house ways and means committee released its spell as part of the budget reconciliation process.
Kelly Goodman: While many in the industry were concerned that the Section 45X Advanced Manufacturing Production Tax Credit would be rescinded, the Ways and Means Committee proposed adjustments to 45X as foreign entity of concern provisions that strengthen a company like ESS's ability to claim the credit between now and 2031. There is broad bipartisan support for the Section 45X credit as a vehicle to scale domestic manufacturing of energy technology and reduce dependence on Chinese technology and supply chains for domestic energy projects. In short, these multiple pending legislative efforts indicate strong continued support for domestic manufacturing. And we continue to believe that ESS and its technology are well positioned to support the administration's mission to reestablish American energy dominance at home and abroad.
Speaker Change: While many in the industry were concerned that the section 45 X advanced manufacturing production tax credit would be rescinded.
The ways and means committee proposed adjustments to forty-five acts as foreign entity of concern provision that strength than a company like <unk> ability to claim the credit between now and 2031.
Speaker Change: There is broad bipartisan support for the section 45 ex credit as a vehicle to scale domestic manufacturing of energy technology, and reduce dependence on Chinese technology and supply chains for domestic energy projects.
Speaker Change: In short these multiple pending legislative efforts indicate strong continued support for domestic manufacturing.
Speaker Change: And we continue to believe that ESI and its technology are well positioned to support the administration's mission.
Speaker Change: To reestablish American energy dominance at home and abroad.
Kelly Goodman: All of that said, while our team has made significant progress over a very short period, we have not completed our capital raise and the current capital markets environment is challenging against the current uncertain macro political landscape. We are aggressively pursuing all available options to extend our runway and maximize the value of what we believe is a critical technology in the broader energy landscape.
Speaker Change: All of that said, while our team has made significant progress over a very short period, we have not completed our capital raise and the current capital markets environment is challenging against the current uncertain macro political landscape.
Speaker Change: We are aggressively pursuing all available options to extend our runway.
Speaker Change: And maximize the value of what we believe is a critical technology in the broader energy landscape.
Anthony Rabb: With that, I'll pass it on to Tony to review the financials and our outlook. Thanks, Kelly. Unless otherwise noted, all numbers we discussed today will be on a non gap basis.
Speaker Change: With that I'll pass it on to Tony to review the financials and our outlook.
Speaker Change: Okay.
Tony Rob: Thanks Kelly.
Speaker Change: Unless otherwise noted all numbers, we discuss today will be on a non-GAAP basis if you.
Anthony Rabb: You'll find the reconciliation of GAAP to the non-GAAP financial measures and earnings release, which is posted on our investor relations website. reported gap revenue of $0.6 million in the first quarter with the associated gap cost of revenue at $8.7 million. This reflected the remaining two energy center deliveries in Q1 to a Florida utility following the six energy centers we delivered in Q4 for a total of eight energy centers delivered. As Kelly mentioned, these energy centers will be installed and commissioned later this year as ESS completes all of the project site EPC activities. I'll note again that our cost of revenue associated with these ECs doesn't reflect the numerous product cost out initiatives we have realized across both of our current products that will also flow into the energy base.
Speaker Change: You'll find the reconciliation of GAAP to the non-GAAP financial measures in our earnings release, which is posted on our Investor Relations website.
Speaker Change: We reported GAAP revenue of $6 million in the first quarter with the associated GAAP cost of revenue at $8 7 million.
Speaker Change: This reflected the remaining two energy set of deliveries in Q1 to a Florida utilities.
Speaker Change: Following the six energy centers, we delivered in Q4 for a total of eight energy centers delivered.
Speaker Change: As Kelly mentioned these energy centers will be installed and commission later this year as ESF completes all of the project site EPC activity.
Speaker Change: I'll note again that our cost of revenue associated with these he sees doesn't reflect numerous product cost out initiatives, we have realized across both of our current products that will also flow into the energy base.
Anthony Rabb: We will continue to control our spend to minimize our cash burn. We're encouraged by the interest in our energy-based products, as Kelly noted, and that's reflected in our inquiry responses and proposal activity, and we anticipate realizing revenue from our recent EB award, once fully contracted, and from other EB projects in 2026 and beyond. From a cash perspective, we receive a portion of customer payments upon contracting, which we expect to help provide cash inflows to support material purchases and offset other costs and working capital while we continue to ramp up energy-based deal activity. As we've noted, our colleagues in the first quarter 2025 still reflects an LC NRV adjustment that continues to impact our results.
Speaker Change: We will continue to control our spend to minimize our cash burn.
Speaker Change: We're encouraged by the interest in our LNG based product as Kelly noted and that's reflected in our inquiry responses in proposal.
Speaker Change: Activity and we anticipate realizing revenue from our recent <unk> award was fully contracted and from other <unk> projects in 2026 and beyond.
Speaker Change: From a cash perspective.
Speaker Change: We receive a portion of customer payments upon contracting, which we expect to help provide cash inflows to support material purchases.
Speaker Change: Other costs and working capital, while we continue to ramp up.
Energy base deal activity.
Speaker Change: As we've noted our Cogs in the first quarter 2025 still reflects an LC and RV adjustment that continues to impact our results.
Anthony Rabb: This adjustment will continue to impact us at our current lower volumes as well while we're purchasing materials and producing products for sale in future course. Our non-GAAP operating expenses for Q1 were $9.4 million. Our R&D spend of $2.3 million reflects our investment in our cost-out initiatives as well as the technology and product development improvements in performance, reliability, and durability of the Energy Center as well as the energy-based products. As a result of our Q1 activity, we reported adjusted EBITDA of negative $15 million. We continue to expect this loss to narrow as units produced in 2025 and beyond will be non-gap gross margin positive.
Speaker Change: This adjustment will continue to impact us at our current lower volumes as well, while we're purchasing materials and producing products for sale in future course.
Speaker Change: Our non-GAAP operating expenses for Q1 were $9 $4 million.
Speaker Change: And our R&D spend of $2 3 million reflects our investment in our cost out initiatives as well as the technology and product development improvements in performance reliability and durability of the energy center as well as the energy based product.
Speaker Change: Result of our Q1 activity, we reported adjusted EBITDA of negative $15 million.
Speaker Change: We continue to expect this loss to narrow as units produced in 2025 and beyond will be non-GAAP gross margin positive and based on the expected ramp up of our energy based production and sales in 2026 and beyond we believe we have a path to transition to EBITDA and cash flow positive in the next few years.
Anthony Rabb: And based on the expected ramp of our energy-based production and sales in 2026 and beyond, we believe we have a path to transition to EBITDA and cash flow positive in the next few years. As we mentioned last quarter, we've crossed over to non-gap gross margin breakeven on our MG Center. We continue to make good progress on further reducing costs, improving performance, reliability and durability and all of our ongoing initiatives and efforts. Due to the response we're seeing for energy based product, we're actively reallocating our engineering supply chain and product management resources to accelerate our progress on the energy based cost out performance and durability initiative.
Speaker Change: As we mentioned last quarter, we've crossed over to non-GAAP gross margin breakeven on our energy Center, we continue to make good progress on further reducing costs.
Speaker Change: Proving performance reliability, and durability and all of our ongoing initiatives and efforts.
Speaker Change: Due to the response, we're seeing for energy based product we are actively reallocating.
Speaker Change: Our engineering supply chain and product management resources to accelerate our progress on the energy based cost performance.
Speaker Change: Performance and durability initiatives.
Anthony Rabb: These initiatives will further ready the energy base for field deployment, also delivering a product with a lower cost per megawatt hour, allowing us to both increase unit profitability while also delivering a more cost competitive product to the market. The years of significant cost reduction in our energy warehouse and energy center are being leveraged into further capitalizing on our fundamental cost entitlement advance. A product that delivers energy from iron, salt, and water to compete head-to-head with lithium-ion in the coming years. We're actively bidding projects to be delivered starting in 2027 and 2028 and beyond for pricing expectations are trending towards 200 kilowatt hours or less on a fully installed cost base.
Speaker Change: These initiatives will further out of the energy base for field deployment, while also delivering a product with a lower cost per megawatt hour.
Speaker Change: <unk> us to both increase unit profitability, while also delivering a more cost competitive product to the market.
Speaker Change: The year is a significant cost reduction in our energy warehouse and energy center are being leveraged into further capitalizing on our fundamental cost entitlement advantage.
Speaker Change: That delivers energy from iron Salt and water to compete head to head with lithium ion in the coming years.
Speaker Change: We are actively bidding projects to be delivered starting in 2027 in 'twenty and beyond the pricing expectations are trending towards 200 kilowatt hours or less on a fully installed cost basis.
Anthony Rabb: Our current projected long term cost reductions and technology roadmap for the energy base can deliver a product that is on par or can be lithium ion and other long duration energy storage technologies available. Couple that with safety and reliability of our core technology and you can see why we were awarded the 50 megawatt hour PPA project in Arizona.
Speaker Change: Our current projected long term cost reductions and technology roadmap for the energy base can deliver a product that is on par or can be lithium ion and other long duration energy storage technologies available.
Speaker Change: With safety and reliability of our core technology and you can see why we were awarded a 50 megawatt hour PPA project in Arizona.
Anthony Rabb: Turning to cash flow and liquidity. We ended the first quarter with $12.8 million in cash and short term investment. Cash burn rates in the first quarter reduced from the fourth quarter due to lower production rates, lower material purchases, and proactive measures we took to reduce spend and more efficiently allocate resources across the organization. Based on the progress we made on our cost out initiatives to the designs, as of March 31, 2025, we'll see the benefit of those lower cost on materials purchased for production in 2025. While we are ensuring we're allocating our resources to initiatives that will generate the greatest return.
Speaker Change: Turning to cash flow and liquidity. We ended the first quarter was $12 $8 million in cash and short term investments.
Speaker Change: Cash burn rates in the first quarter reduced from the fourth quarter due to lower production rates raw material purchases and proactive measures, we took to reduce spend and more efficiently allocate resources across the organization.
Speaker Change: Based on the progress we made on our cost out initiatives to the designs as of March 31, 2025, we will see the benefit of those lower cost on materials purchased for production in 2025, while we are ensuring we are allocating our resources to initiatives that will generate the greatest returns.
Anthony Rabb: In addition, we monetize 1.9 million of our 2024 production tax credits in Q1 2025. We're also aggressively continuing to work to prioritize allocation of capital across internal resources and third party services, closely managing spend on value added relative to cash burn. We anticipate that our lower bill of materials, actions taken to reduce spend, and reallocation of resources will further reduce our burn rate in the coming quarter. As Kelly mentioned, we're continuing with 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: In addition, we monetize $1 $9 million of our 2020 for production tax credits in Q1 2025.
Speaker Change: We're also aggressively continuing to work to prioritize allocation of capital across internal resources and third party services.
Speaker Change: Closely managing spend on value added relative to cash burn.
Speaker Change: We anticipate that our lower bill of materials actions taken to reduce spend and reallocation of resources will further reduce our burn rate in the coming quarters.
Speaker Change: As Kelly mentioned, we're continuing with our capital raise process to bolster our balance sheet with the funding required to continue to execute on our business plans and growth objectives. However, we have not yet concluded on that process.
Anthony Rabb: However, we have not yet concluded on that process. While the variability and uncertainty surrounding tariffs and the Inflation Reduction Act will have nominal impact on ESS, there are clearly implications to capital markets that are impacting our fundraising activity. We're still exploring a number of near term interim financing solutions. that could also allow us to extend our timeline to achieve our broader capital raise.
Speaker Change: While the variability and uncertainty surrounding tariffs and the inflation reduction that we will have nominal impact on DSS. There are clearly implications to capital markets that are impacting our fund raising activities.
Speaker Change: We're still exploring a number of near term interim financing solutions.
Speaker Change: Could also allow us to extend our timeline to achieve our broader capital raise objectives.
Anthony Rabb: I'll now address the going concern disclosure we included in our 10-Q. As both Kelly and I noted, we are working towards the optimal path to clearing this analysis, and we're focused on extending our cash runway through securing new capital, aggressively managing and reducing our spend, and very actively reducing our cash consumption. reiterated again that we're constantly evaluating a variety of strategic financing alternatives, both dilutive and non dilutive, to choose the best possible means to strengthen our balance sheet and extend our cash runway to enable ESS to continue operating through 2025.
Speaker Change: I'll now address the going concern disclosure we included in our 10-Q as both Tony and I noted we are working towards the optimal path to clearing this analysis and we're focused on extending our cash runway through securing new capital aggressively managing and reducing our spend and very actively reducing our cash.
Speaker Change: Cash consumption.
Speaker Change: Ill reiterate again that we're constantly evaluating a variety of strategic financing alternatives, both dilutive and non dilutive to choose the best possible means to strengthen our balance sheet and extend our cash runway to enable USS to continue operating through 2025.
Unknown Executive: With that, I'll open it up for time I would like to remind everyone in order to ask a question, press star the number one on your telephone keypad. We'll pause for just a moment to compile the Q&A roster.
Speaker Change: And with that I'll open it up for questions.
Speaker Change: Time, I would like to remind everyone in order to ask a question Press Star then the number one on your telephone keypad.
Speaker Change: We'll pause for just a moment to compile the Q&A roster.
Justin Clare: Our first question is from Justin Clare with Roth Capital Partners. Your line is now open. Hi, good afternoon. Thanks for taking the questions here. First, wanted to just ask about the outlook, make sure I heard correctly. It sounds like Q2 sales might be similar to Q1, and then you could see a ramp in the second half. So wanted to just check in, make sure I heard that correctly. And then just wanted to see is the second half ramp contingent upon a successful capital raise? Do we need to see that first before you could kind of unlock the production at your facilities and ramp sales up?
Speaker Change: Our first question is from Justin Clare with Roth Capital Partners. Your line is now open.
Justin Clare: Hi, good afternoon, thanks for taking the questions here.
Speaker Change: First wanted to just ask about the outlook to make sure I heard correctly it sounds like.
Speaker Change: Q2 sales might be similar to Q1, and then you could see a ramp in the second half. So wanted to just check and make sure I heard that correctly and then.
Speaker Change: Just wanted to see is the.
Speaker Change: A second half ramp.
Speaker Change: Contingent upon a successful capital raise that we need to see that first before you could kind of unlock the production facilities and branch sales up.
Speaker Change: Yes.
Kelly Goodman: Yeah, thanks for the question, Justin. Yeah, that's that's accurate, Justin. You know, we do continue to moderate our spend in production until we can access the additional capital to capital to support ramping production and orders.
Speaker Change: Yes, thanks for the question Justin Yes, that's accurate Justin.
We do.
Speaker Change: Continue to moderate our spend in production until we can access the additional capital to capital to support.
Speaker Change: Ramping production and orders.
Anthony Rabb: Okay, got it. And then just wondering if you could speak to you know, how long your cash runway might be here? How many quarters of operations can you support at the current burn rate? And then also considering the other levers that you might have at your disposal to extend that that cash runway. I think you did mention some intermediate steps that you might take here. If you just share a little bit more about how you're thinking about it. Yeah, sure, Justin. I mean, I think if you look at the last several quarters of cash burn, you know, that's, that's an indicator for you in terms of what what our cash burn rates typically have been, our go forward cash burn will be lower than, than, than what we've seen in the past couple of quarters.
Speaker Change: Okay got it and then just wondering if you could speak to.
Speaker Change: How long your cash runway might be here, how many quarters of operations can you support that the current burn rate and then also considering the other levers that you might have.
Speaker Change: Suppose all to extend that cash runway I think you did mentioned some intermediate steps that you might take here.
Speaker Change: If you could just share a little bit more about how you're thinking about that that'd be great.
Speaker Change: Yeah sure Justin I mean, I think if you look at the last several quarters of cash burn.
Speaker Change: That's an indicator for you in terms of.
Speaker Change: What what our cash burn rates typically have been our go forward cash burn will be lower than.
Speaker Change: Then than what we've seen in the past couple of quarters, because a big part of what we.
Anthony Rabb: Because a big part of what we went through in the fourth quarter and part of the first quarter was was tied to the the Florida Utility Project and the Energy Center. And right now, you know, we're not we're not producing significant volumes of product. So, I think if you look at it from that standpoint and our cash balance at the end of the quarter, I think you can gauge in terms of where that runway would get us to. And then in terms of interim things that we're working on, we did launch our ATM at the end of the first quarter, and we'll go to market with that at the appropriate time.
Speaker Change: Went through and.
Speaker Change: In the fourth quarter and part of the first quarter was tied to.
Speaker Change: The.
Speaker Change: Florida utility project in the energy centers.
Speaker Change: And right now.
Speaker Change: We're not we're not producing significant volumes of <unk>.
Speaker Change: Product.
Speaker Change: So I think if you look at it from that standpoint in our in our cash balance at the end of the quarter.
Speaker Change: I think you can gauge in terms of where that runway would get us to.
Speaker Change: And then in terms of interim things that we're working on we did launch our ATM.
Speaker Change: At the end of the first quarter.
Speaker Change: We'll go to market with that at the at the appropriate time.
Anthony Rabb: And then there's, you know, other interim capital available to us that we also will evaluate to draw on at the appropriate time. Like the EXIM loan that we have in place, and then there's a few other things that we've been exploring as well, but obviously critical for us to access additional capital to extend that runway. Got it. Okay, makes sense.
Speaker Change: And then there is other other interim.
Speaker Change: <unk>.
Speaker Change: Capital available to us.
Speaker Change: That we also will evaluate to draw on at the appropriate time.
Speaker Change: Like the <unk> loan that we have in place and then there's a few other things that we've been exploring as well but.
Speaker Change: Obviously critical for us to access additional capital to.
Speaker Change: Extend that runway.
Speaker Change: Got it okay makes sense.
Kelly Goodman: And then I did want to ask about the energy-based product here that you guys have launched, and I was wondering, with the RFP in Arizona and the award that you won, could you share a little bit more about the requirements of that RFP? I mean, I think it had to be non-lithium, but was there a particular duration requirement or other requirements that maybe you are uniquely suited to provide? Yeah, this is Kelly, I'm happy to answer that one. It was non-lithium, as you noted, I think this utility is really looking at seeking additional and incremental technologies to support their needs.
Speaker Change: And then I did want to ask about the <unk>.
Speaker Change: Energy base products here that you guys have launched and was wondering what's the RFP.
Speaker Change: Arizona and the award that you won could you share a little bit more about the requirements of that RFP I mean, I think it had to be non lithium what was there a particular duration requirements.
Speaker Change: Or other requirements that maybe you were uniquely suited to provide.
Speaker Change: Yes. This is Kelly I'm happy to answer that one and it was non lithium as you noted.
Speaker Change: I think this utility is really looking at seeking.
Speaker Change: Additional and incremental technology to support their needs there wasn't any particular duration, but I think the ability of the NRG base to deliver at the 10 plus.
Kelly Goodman: There wasn't any particular duration, but I think the ability of the energy base to deliver at the 10 plus requirement is one of the things that helped us get over the edge. The other thing that is unique for our technology is the ability to operate in various temperatures. So Arizona, you have both the extreme heat in the summer, but I think, you know, people don't realize it gets fairly cold at night as well. So we were able to accommodate that broad temperature range. And then we were competitive on cost in this case. And then I think, lastly, the operational experience that we have in the field, I think, really proved invaluable in pitching our overall solution.
Speaker Change: Requirement as one of the things that helped us get over the edge. The other thing that is unique for our technology is the ability to operate in various temperatures. So.
Speaker Change: Arizona you have both the extreme heat in the summer, but I think people don't realize it gets fairly cold at night as well.
Speaker Change: We were able to accommodate that broad temperature range.
Speaker Change: And then and we are competitive on cost in this case and then I think.
Speaker Change: Lastly, the operational experience that we have in the field I think really proved invaluable in pitching our overall solution and we were very pleased with the result.
Kelly Goodman: And we were very pleased with the result.
Thomas Boyes: Our next question is from Thomas Boyes with TD Cowan. The line is now open. Thanks for taking the questions.
Speaker Change: Our next question is from Thomas Boyes with TD Cowen. Your line is now open.
Thomas Boyes: Thanks for taking the questions.
Anthony Rabb: Maybe the first one, since we're speaking on the kind of the cash position, you know, for customers, you know, that move forward for me a booked order, like what is a deposit ranges of percentage that do get split down and kind of the early innings of a project? Um, you know, the the ranges that we've seen historically are anywhere from five up to about 20%. and as we move forward on future contracts, our expectation is that we'll be looking to push that to the higher end of that range and have additional interim milestones to ensure that from a working capital perspective we'll be at least cash neutral.
Speaker Change: The first one.
Speaker Change: We were speaking on the kind of the cash position.
Speaker Change: For customers.
Speaker Change: Forward for booked order like what is deposit.
Speaker Change: As a percentage split down in the kind of the early innings.
Speaker Change: The other project.
Speaker Change:
Speaker Change: The the range is that.
Speaker Change: We have seen historically.
Anywhere from five up to about 20%.
Speaker Change: And.
Speaker Change: As we move forward on.
Speaker Change: Future contracts, our expectation is that will.
Speaker Change: We will be looking to push that to the higher end of that range.
Speaker Change: Have additional interim milestones to ensure that from a working capital perspective will be.
Speaker Change: At least cash neutral.
Unknown Executive: I don't know, so far.
Speaker Change: Okay.
Kelly Goodman: And then Just thinking through kind of forward demand for energy base, you know, are there opportunities with customers that you've identified maybe that are not ready to move forward just because of the current manufacturing capability? You know, where a second facility or additional capacity would unlock that where, you know, a lot of customers don't want to be say 50% of your overall capabilities. I'm just wondering how you think about that when you're saying Yeah, I guess, no, we're not seeing that. And, you know, in general, in the sort of cut-spoke ways, we've had contracts with customers, you know, SoftBank, Energy, Honeywell, among them that tend to have, you know, pretty significant order volumes.
Speaker Change: Alright Thats helpful.
Speaker Change: Then.
Speaker Change: Yeah.
Speaker Change: Just thinking through kind of forward demand.
Speaker Change: And as your base.
Speaker Change: Opportunities with customers that you've identified maybe theyre not ready to move forward just because of the current manufacturing capability.
Speaker Change: Second facility or additional capacity was a mark that were a lot of customers don't want to be say, 50% of your overall capabilities.
Speaker Change: Wondering how are you.
Speaker Change: Think about what you're seeing.
Speaker Change: Yes, no we're not seeing that and in general in this sort of cuts both ways we've had.
Speaker Change: Contracts with customers Softbank energy Honeywell among them that tend to have pretty significant order volumes there were happy and we haven't heard any concern.
Kelly Goodman: So we're happy and we haven't heard concerns from customers about being at the level of, you know, scaling. One of the things that's relatively straightforward for us to do, too, is we have pretty significant additional manufacturing capacity or facility in the sense of being able to deploy additional lines. Additional lines are relatively inexpensive from a CapEx perspective and also pretty quick to deploy. So we have the ability to extend manufacturing capacity and diversify, but we haven't heard from customers concerned about, you know, being sort of more robust as far as our manufacturing capacity at the moment.
Speaker Change: Concerns from customers about being at the level is.
Speaker Change: Scaling one of the things that's relatively straightforward for us to do too is we have pretty significant additional manufacturing capacity our facility in the sense of being able to deploy additional lines.
Speaker Change: Additional lines are relatively inexpensive from a capex perspective and also.
Speaker Change: Pretty quick to deploy so we have the ability to.
Speaker Change: Extend manufacturing capacity and diversified, but we haven't heard from customers concerned about being sort of more robust as far as our manufacturing capacity at the moment.
Unknown Executive: understood.
Kelly Goodman: I think if we just squeeze in one more I just wanted to get maybe you'd mentioned so I missed it but was there a status update on any of the delays associated with the customer in Australia? Yeah, no, I didn't. Good question. So our understanding is that the government funding for that project still has not come through. So we don't have any further update or visibility on timing for that project at this time.
Speaker Change: Understood.
Speaker Change: Squeeze in one more just wanted to get maybe you had mentioned this I missed it but was there a status update on any of the delays associated with the customer in Australia.
Speaker Change: Are there.
Speaker Change: Yes good.
Speaker Change: A good question. So our understanding is that the government funding for that project still has not come through so we don't have any further update or visibility on timing for that project at this time.
Unknown Executive: Excellent. I'll hop back in queue.
Speaker Change: Excellent I'll hop back in queue. Thanks again.
Ben Kella: Our next question is from Ben Kella with Baird.
Ben: Our next question is from Ben <unk> with Baird. Your line is now open.
Kelly Goodman: Your line is now Hey guys, thanks for taking the time. Just on sources of cash, can you talk about... you know, any discussions with strategic partners. you know, Honeywell in the past. SoftBank in the past as well. But if you've had those, or how do you think that could be an option? You know, we are having a lot of ongoing discussions across multiple fronts with Honeywell and other, you know, existing investors, and we continue to have that dialogue and they continue to be productive conversations. So, you know, I think that's ongoing for us, and we'll continue to work with our existing investors as well as having multiple conversations with other parties around our strategic capital race.
Ben: Hey, guys.
Speaker Change: Good question.
Ben: Sure.
Ben: Josh could you talk about.
Ben: Discussions with strategic partners.
Ben: Hollywood.
Ben: Oh Softbank.
Ben: US as well.
Ben: If you had those.
Ben: Oh, it could be an option.
Ben: Yes.
Ben: Having.
Ben: A lot of ongoing discussions across multiple fronts.
Ben: With.
Ben: With Honeywell and other.
Ben: <unk>.
Ben: <unk> existing.
Ben: And investors.
Ben: Continue to have that dialogue in there.
Ben: They continue to be productive conversation so.
Ben: I think I think that's.
Ben: Ongoing.
Ben: For us in.
Ben: We will continue to.
Ben: Workers are existing investors as well as.
Ben: Having a.
Ben: Multiple conversations with.
Ben: Other parties around our strategic capital raise.
Kelly Goodman: This is Kelly. One thing I would just add to is I think we're fortunate to benefit from really strong relationships with our existing investors who have You know, state and I don't know if it's well known, but we don't have an investor that has sold a single share that's currently on the cap table. But it also raises a bit of a challenge in that our cap table is comprised significantly of those investors, which at times can impact our volume. So, you know, to the extent we can bring in additional investors and round that out, that's certainly something of interest and part of the discussions that we've been having.
Ben: This is Kelly one thing I would just add too is I think we're fortunate with benefit from really strong.
Ben: <unk> with our existing investors who has and.
Speaker Change: State in I don't know if its well known that we don't have an investor that has sold a single share that's probably on the cap table, but it also reasons a bit of a challenge and that our cap table and is comprised significantly those investors, which at times can impact our volumes. So to the extent we can bring in additional inverse.
Speaker Change: <unk> and round that out that's certainly something of interest and part of the discussions that we've been having.
Kelly Goodman: And just to follow up, just because of the tariffs and uncertainty with IRA, like you guys called out, have you seen that change your... inquiry level. from prospective customers. Just me, like, as an alternative to Lucy Wiles. Yes, I would say to the positive, I think there's two things happening. I think there's the tariff impact and uncertainty around the availability of imported batteries. I think the other thing is the significant drive in electrification growth that people are seeing there's, you know, there's really kind of a space for all so I think between hyperscalers and then parties looking to lithium ion alternatives, either in the near term or the short term that sorry, near term or long term that has definitely driven inquiries in recent weeks.
Speaker Change: Okay.
Speaker Change: Just a follow up.
Speaker Change: Because the tariff uncertainty with <unk>.
Speaker Change: Called out.
Speaker Change: Have you seen that change your.
Speaker Change: The inquiry level.
Speaker Change: Sure.
Speaker Change: Customers.
Speaker Change: This is an ultra yes that would be one of the better.
Speaker Change: Yes, I would say to the positive I think there's two things happening I think there is the tariff impact and uncertainty around the availability of imported.
Speaker Change: Imported batteries I think the other thing is the significant drives in electrification growth that people are seeing there is there is really kind of a space for also I think between hyper scaler and then parties looking to lithium ion alternatives either in the near term or the short term that sorry near term or long term that has definitely.
Speaker Change: Driven inquiries.
Speaker Change: In recent weeks.
Unknown Executive: Great, thank you guys. Thanks, Ben.
Speaker Change: Great. Thank you guys.
Speaker Change: Right.
Speaker Change: Thanks Brent.
Unknown Executive: There are no more questions. So that concludes the conference call. Thank you for your participation. Enjoy the rest of your day.
Speaker Change: There are no more questions. So that concludes the conference call. Thank you for your participation and enjoy the rest of your day.