Energy Vault Holdings, Inc. (NYSE:NRGV) Q1 2023 Earnings Call Transcript

Energy Vault Holdings, Inc. (NYSE:NRGV) Q1 2023 Earnings Call Transcript May 13, 2023

Operator: Greetings and welcome to Energy Vault First Quarter 2023 Earnings Call. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Laurence Alexander, Chief Marketing Officer for Energy Vault.

Laurence Alexander : Thank you. Good afternoon, and welcome to Energy Vault’s First Quarter 2023 Earnings Conference Call. As a reminder, Energy Vault’s earnings release and an updated first quarter earnings presentation is available now on our Investor website, and we will be referring to the presentation during this call. A replay of this call will be available later today on the Investor Relations page of our website. This call is now being recorded. If you object in any way, please disconnect now. Please note that Energy Vault’s earnings release and this call contain forward-looking statements that are subject to risks and uncertainties. These forward-looking statements are only estimates and may differ materially from the actual future events or results to be a variety of factors.

We caution everyone to be guided in their analysis of Energy Vault by referring to our 10-Q filing for a list of factors that could cause our results to differ from those anticipated in any forward-looking statement. We undertake no obligation to purposely update or revise any forward-looking statements, except as required by law. In addition, please note that we will be presenting and discussing certain non-GAAP information. Please refer to the safe harbor disclaimer and non-GAAP financial measures presented in our earnings release for more details, including a reconciliation to comparable GAAP measures. Joining me on the call today is Robert Piconi, our Chairman and Chief Executive Officer; and Jan van Gaalen, our Chief Financial Officer.

At this time, I’d like to hand the call over to Robert Piconi.

Robert Piconi : Thank you, Laurence. And I’d like to welcome everyone to our first quarter 2023 earnings call. We have a lot to share today, including, as you’ve come to expect some new announcements. But all of them focused on the key market and financial metrics that are driving long-term shareholder value for the company. I’d like to start as we normally do with what we’re seeing in the market in what remains a very robust and growing market for energy storage solutions, along with the positive customer dynamics we are seeing. Of course, to discuss the market, this always begins with numbers and what we’re seeing reflected in the movement through our near-term sales funnel. We’ve put forward a pretty strong commercial outlook going forward that’s driven by our near-term funnel that grew in the quarter over 40% to about 37 gigawatt hours.

This increase includes notably about $1 billion or 2.8 gigawatt hours of new project awards in the quarter. Of this amount, most of it, about $725 million or 2 gigawatt hour is related to our gravity EBX energy storage technology. These near-term funnel dynamics give us very high confidence in our continued growth and future conversion into bookings. Almost all of our future bookings and new announcements this year will be about building the project revenue that will make up our 2024 to 2025 revenue and beyond. So I’m quite pleased to see this level of overall funnel growth and expansion and new project opportunities into the next 3-plus years and highlight that our 2022 conversion rate from those awards already announced into bookings last year was very high, given our very experienced commercial and technical team and diverse set of capabilities that we bring to the table, and we expect to continue that trend in 2023.

Moving on to our customer project execution in the quarter, and it really all starts there for we focus and deliver for our customers. We saw revenue in line with our expectations, driven by construction progress across our battery projects in the United States under a billed commission and transfer model. As such, we recognized the revenue associated with that progress of $11.4 million, while exceeding our plan for gross margin posting 21% on pure battery project execution as well as finishing ahead of our internal expectations on a set of financial metrics, including adjusted EBITDA, net income and EPS and cash on hand. As such, we’re reconfirming our full year guidance, which is revenue of $325 million to $425 million; gross margins in the range of 10% to 15% and adjusted EBITDA of $50 million to minus $70 million.

Among the big headlines in the quarter is the race towards completion of the world’s first gravity energy storage system that is in a pumped hydroelectric dam, which is being deployed in Rudong, China and is expected to be the largest long-duration storage system operating in the world this year. I personally visited the site in Rudong, China in March and witnessed firsthand the strong progress as some of the pictures you may have seen had shown. It’s amazing to see that and just looking at the last 4 to 5 weeks since I was there, the recent pictures, which we’ve posted in our investment presentation online today that already the systems increased 6 to 7 floors in just that period. The system will confirm what we’ve already demonstrated on a full 5 megawatt scale in Switzerland in 2020, but this time on a larger grid scale of 25 megawatt targeted at a 4-hour discharge window yielding 100 megawatt hours of storage capacity.

As commissioning begins this summer and into the fall, we will have that watershed moment. When the 25-ton mobile masses of the gravity system will be moving up and down, storing potential energy and later releasing kinetic energy with round-trip efficiencies that exceed 80%, making this the most energy-efficient mechanical or thermodynamic system in the world as we had previously demonstrated with our Swiss system. Complementing Rudong and on the other side of the world, right here at home in the United States in Snyder, Texas is the second gravity system under construction. This is an investment we are making to own this project, which will have a long-term tolling agreement with Enel Green Power. Construction is progressing well to the site, piling and now civil works coming up to the ground.

Again, we have some pictures posted in the investor presentation of this project. It has a targeted completion for the second half of next year in 2024, and this investment gives us a domestic revenue-generating showcase for our gravity solution for all to see and allows us to realize significant benefits from the ITC portion of the IRA legislation as well as benefits from domestic U.S. content. And finally, classification is an underserved energy community, which can yield up to 50% of future cash benefit in total IRA benefits and ITC. China and Schneider and the 2 gigawatt hour gravity award I mentioned earlier, are building global momentum for our solution. And quite frankly, in a market where there’s a lot of talk about transformative technologies, our results are real, and we are very proud to be the leaders and disruptors in a new and evolving long-duration energy storage market that is still quite early in its development.

As has been highlighted by our diverse customer wins across short, long and even ultra long duration storage projects, our strategy is unique, and our gravity technology is a critical and proprietary component. We’re the only company that addresses both today’s market need for shorter duration storage using higher density, more efficient battery system architectures and the increasing need for longer and extended duration energy storage using gravity and even green hydrogen as we announced with Pacific Gas and Electric. To do this, we have developed our software platform with our EV solutions team that overlays and manages all of these storage technologies as well as the coexistence and generation systems, even hybrid storage configurations.

With that strategic frame on those solutions, I can share that we are executing to customer expectations across all of our projects and on schedule for the 1.6 gigawatt hour of battery and green hydrogen projects from the likes of PG&E in Nevada Energy, some of the largest public utilities in the United States as well as some of the world’s largest independent power players, such as Jupiter Power and wellhead. We anticipate Wellhead in particular in California will be delivered in Q3 with Jupiter Nevada Energy to follow before the end of the year. Since all of these projects are running in parallel, during Q1, we had expected investments in project working capital to support the projects at this phase of construction. At project completion, we continue to forecast each project delivering profitability, positive unit economics and a net positive cash flow as we manage the execution into the critical turnover phases.

As part of our execution on these growth projects and enhancing our availability to cash, let me also mention a new global relationship with Marshh that we had referred to briefly in our earnings last quarter. As some of you might know, Marsh is one of the world’s leading insurance brokers and risk advisers, and they are supporting us with significant capital project surety and bonding capacity, which is required for many of the projects that we execute. This also includes very importantly, requirements for letters of credit, but as opposed to tying up cash on a fully non-collateralized cash basis, allowing us to convert also the remaining restricted cash balances from letters of credit to unrestricted cash. We continue to evaluate other efficient and nondilutive ways to further strengthen and enhance our balance sheet as we execute on a combination of owned and EPC projects that eventually get turned over to the customer.

Let’s now move on to an update regarding the previously announced Q1 contract with Pacific Gas and Electric to address a special microgrid use case for multiday storage addressing PSPS events or public safety power shutdowns. This has gotten quite a lot of press in the last 2 weeks as the project received formal California Public Utility Commission approval. The project is structured as a long-term tolling agreement with PG&E over 10.5 years. The CPUC recently approved just in the last few weeks, as I just mentioned, for the hybrid battery energy storage and green hydrogen fuel cell system that will provide power in the event of a public safety power shutoff. We are developing the 8.5-megawatt 293 megawatt hour microgrid with planned expansion to up to 700 megawatt hour, thus providing up to 96 hours or 4 days of energy storage capabilities to the city of Calistoga.

Along with our customers, we believe that this project will provide a template for renewable community scale microgrids in the future and reflects execution to our energy solution-focused customer mindset as a company. Moving on, there has been a lot of focus in the last few months on the new IRA legislation and the potential impact to our industry and energy. I want to share with you for the first time a very strategic investment that we have made that also involves the IRA that we actually executed in the first tranche in Q4 but chose not to be named in the original announcement. We are pleased today to announce that we have executed on a strategic investment in KORE Power, a U.S. manufacturer of battery cells and modules to build supply continuity on a prioritized basis for the domestic U.S. content for Energy Vault’s U.S. customers, supporting our short-duration battery and even hybrid energy storage solutions on a preferred economic basis.

In Q4 of 2022, Energy Vault participated in the initial tranche, as I just mentioned, as an undisclosed investor alongside Siemens Financial Services, Quanta Services, Honeywell Ventures and a set of others. In Q1, this past quarter of 2023, we made the second and final part of the investment. The KOREPlex as is called will be built in Arizona and be among the first U.S. battery giga factories built independently of an automotive OEM. In parallel with our investment, we also established a comprehensive battery supply agreement. This investment and supply agreement will significantly benefit our domestic customers with their IRA project eligibility. This investment will maximize our supply chain flexibility in serving our local U.S. customers while ensuring continuity of domestic content supply at attractive economics, further amplified by the current IRA legislation.

Complementing the announcement above, I am also very happy to share another new announcement and an important announcement about deepening an existing U.S. customer relationship with Jupiter Power. As all of you are aware, we announced our first project with Jupiter for a total of 220 megawatt hour in the states of California and Texas in 2022. That project is under deployment and is scheduled to be turned over in the second half of this year. We are expanding today the previously announced Jupiter Power partnership to supply domestic U.S. content of battery modules from the original announcement of 2.4 gigawatt hour to 10 gigawatt hour, further strengthening the relationship with Jupiter to ensure supply chain priority on a forward 2- to 5-year planning horizon of project development, while maximizing shared financial benefits from the current IRA legislation.

This is so important for our customers as they’re doing their planning windows and project development over the next 3 to 5 years. And in fact, from talking to many of our investors that are investing in these projects as well as these same customers, their #1 risk they’re solving for is in the supply chain. And that means not only having local supply independent of other countries but also having it at the right cost point and an ability for them to be competitive. And we feel very, very good that this investment now positions us to be one of the best partners in the United States of these same project developers and even public utilities. I’m really excited to continue to partner with Andy Bowman, the CEO of Jupiter and his team. Jupiter is one of the top U.S. independent power providers, which was acquired late last year by BlackRock’s alternative groups.

We look forward to turning over our first 2 Jupiter projects this year while continuing to build upon our future relationship with Jupiter and projects to come. I now want to tie together all 3 of the investments. I know it’s been a lot to digest here over the last 10 minutes. Those are the Snyder Texas gravity system, the Pacific Gas & Electric hybrid system and this investment in KORE power. These are very important and very smart intelligent strategic uses of our capital to not only address our customer needs today, but to position ourselves very well over the next 2, 3, 4 and 5 years with our customers and with ongoing conversion of our large funnel into bookings. These investments are all aligned with our unique strategy that I described earlier, and they all involve extracting very attractive financial benefits from the IRA, which can yield higher returns for our customers.

and higher operating margins for our portfolio of solutions. Because of this, both our customers and our shareholders will enjoy the upside from better pricing, margins and cash flows. We will continue to pursue other strategic investments that provide such highly attractive returns. Let me now transition a bit and focus on what is fueling our growth. And that is the focus and tenacity of our commercial operations team continuing to drive our funnel of opportunities that we expect to convert to bookings and attractive margin revenue. Regarding the bookings going forward, our near-term funnel grew by 42% to almost 37 gigawatt hour, as mentioned above. As part of that, our submitted proposals grew by 37% quarter-over-quarter to almost 28 gigawatt hour.

Moving through the funnel, our short listings grew by 35% to 2.7 gigawatt hour and our awards grew by 78% to 6.4 gigawatt hour. We remain confident in our ability to convert these opportunities into bookings as we did successfully in 2022 on our project awards. To sum it all up, we are playing in an attractive, large and growing market, one where there has been more energy storage deployed in the past few years than in the preceding decade. We are at an inflection point of growth and, therefore, of opportunity. We also believe we are exceptionally well positioned to grow faster and more profitably than the market as these most recent developments demonstrate that belief is based on our unique multi-storage technology as well as very smart deployment of our capital for strategic investments.

Personally, I have never been more excited about where we are today in positioning ourselves to capture this future. With that, I’ll turn the call over now to Jan Kees to discuss our financial results in detail. Jan Kees?

Jan Kees van Gaalen : Thanks, Rob. Good afternoon, everybody. For the first quarter of 2023, revenue was $11.4 million, in line with our expectations and primarily reflecting revenue earned from the progress and execution of our battery storage projects. As we noted last quarter, we expect a significant step-up in revenue going into the second half of this year as our revenue cadence tracks the project deployment schedule. We expect to realize about 15% of our annual revenue guidance of the second quarter, growing to nearly 30% in the third quarter and a further 50% in the final quarter of the year. We recognized gross profit of $2.4 million or a gross margin of 21.2%, driven by our ability to earn better-than-expected margins on battery storage projects during the quarter.

Operating loss for the first quarter of 2023 was $32.9 million compared to prior quarter operating loss of $25.7 million, driven by a decrease in licensing revenue from Q4. First quarter 2023 adjusted EBITDA was negative $19 million. Our earnings release includes a reconciliation from net loss to adjusted EBITDA. The key noncash item that we added back was $13.7 million of stock-based compensation. The key noncash item that we deducted was $1.9 million in interest income net. As of March 31, 2023, we had $197 million in cash, cash equivalents and restricted cash, leaving us well-positioned to continue to progress towards our growth objectives throughout 2023 and beyond. The main use of cash in the quarter related to equipment purchases for our battery storage projects, which will translate into revenue, positive gross margin and cash in future quarters.

Lastly, I want to reiterate our full year 2023 revenue guidance within the $325 million to $425 million range, supported by our contracted backlog. We also reiterate our margin target of 10% to 15%, supported by our offering mix of energy storage projects and IP licensing agreements. We will continue to complement this with various consulting and construction services based on customer needs and demands. We continue to forecast adjusted EBITDA of negative $70 million to negative $50 million as we maintained a disciplined approach to our operating expenses and execute on our additional licensing and royalty agreements. With that, I will now turn the call back over to Rob.

Robert Piconi : Great. Thanks, Jan Kees. Before getting to questions, I want to thank the employees and the team here at Energy Vault for your continued dedication and customer focus. The results of which we’ve just talked through, especially in the type of volatile markets that we live in today. I also want to thank our investors and our broader energy ecosystem partners that share and support our mission of decarbonization. I’m happy that we continue to make significant progress on the development of our groundbreaking and innovative energy storage solutions that are solving complex customer problems as they make their own clean energy transition. This is the Energy Vault way and underscores our purpose and existing as a company. With that, operator, we are now ready for questions.

Q&A Session

Operator: [Operator Instructions] Our first question comes from Joseph Osha with Guggenheim.

Operator: Next question comes from Chris Ellinghaus with Siebert Williams Shank.

Operator: Next question comes from Brian Dobson with Chardan.

Operator: Next question comes from Thomas Boyes with TD Cowen.

Operator: Next question comes from Noel Parks with Tuohy Brothers.

Operator: There are no further questions at this time. I would like to turn the floor back over to CEO, Robert Piconi for closing comments.

Robert Piconi : Great. Thank you. And I want to thank everyone for the questions. I thank all of you for joining the call. Here are investors, I know our employees join this and partners and others out there. We feel really good about our progress and just close to saying that as you’ve come to expect from us, we’ve made some new announcements here and things that are all focused on, number one, our customers and executing well for them; two, putting together and enhancing our portfolio to provide more value-adding solutions to them, in the end, driving the long-term shareholder value of this company. Thank you very much.

Operator: This concludes the conference today. You may disconnect your lines at this time. Thank you for your participation, and have a great day.