Stephen Gengaro: Great. That’s helpful. And then just one more quick one. Just to triangulate your gross margin guidance for the year suggests something for the fourth quarter, which could get you pretty close to EBITDA breakeven if things go well. Am I thinking about that right?
Robert Piconi: You are.
Stephen Gengaro: Okay. Good. Thanks for the color on all that.
Robert Piconi: No problem, Stephen.
Operator: Your next question will come from Noel Parks with Tuohy Brothers. Please go ahead.
Noel Parks: Hi. Good afternoon.
Robert Piconi: Hi, Noel.
Noel Parks: I just had a couple. I had a couple about China in particular. And I was wondering with the most recent announcement that specified the five new plants in various regions in China. With that level of detail now disclosed, just curious. Was Tianying planning these different projects? As far as I know — was that a pretty much a centralized negotiation, all of these sort of coming together or sort of being planned out contracted simultaneously? Or sort of were they all in the independent streams and just sort of got bunched together at the time of announcement?
Robert Piconi: Yes. By the way, it’s a great question given the nature of the regulatory structure and even the government structure here. But it’s not what you would think, meaning there’s — these aren’t things driven necessarily by a central plan that then CNTY sort of just bolting into. CNTY is doing its own development and leading development in different provinces of China with this technology because it is new. As I mentioned in my comments, and these are things that hopefully aren’t lost on people because it’s not easy to do. But we’ve been approved in China as a technology already, which if you look at the installed base here, you’ve got pumped hydro, lithium-ion and there’s really, as far as energy storage goes with the 20% mandate, there’s really nothing else to deploy.
And hence, you’re seeing these announcements of project signings with CNTY a multi-gigawatt hours, and we’re not even up and operating yet at full capacity here in Rudong. But to specifically answer your question, this isn’t being sort of driven out of a single office in Beijing, and we’re just sort of bidding into some Central. We’re going province by province because the decision-making — while the overall goals obviously in the country are out of Beijing, the provinces decide. So CNTY is doing the development work and very impressively doing the development work, sharing the technology, sharing how they’ve optimized it specifically for Chinese and driving that development that you’re seeing. Does that make sense?
Noel Parks: Totally. Great. It’s just what I was wondering. And as you look to the royalty revenue stream, I guess not taking anything for granted was revenue recognition. Is that pretty straightforward from an accounting perspective? Like you’re just going to be booking a receivable over time is going to get sort of smoothly move over into cash?
Robert Piconi: Yes. Let me explain how that works. And under GAAP accounting and also specific SEC guidelines here on royalties, we don’t really create a receivable for them just because until they actually start building projects, we don’t have that exact visibility when it’s coming in. Now once there’s a project that’s defined under if they’re going to own it and operate it, which will mean a certain timing of the rev rec or if they’re going to be building them and handing them over, that would be under a more accelerated type of recognition. So I think once those things are contracted in a way where we get timing visibility. We might create a receivable for that. And generally, we’re rev receiving these as they come. So as the royalties will be paid and they will become more predictable and we can sort of build them in and share with you what we’re seeing.
As you’ve seen, you’ve got about 3.2 gigawatt hours of projects announced here. And those are going to be built out. Now over time and depending on the business model, we’ll be receiving royalties on those projects, and we can build those into the timing. So that will get more predictable. But this is, I’d say, something from a modeling perspective, on the royalty side typically come into the other income line item or the royalty revenue, just depending on the type of income it’s going to hit and if it’s recognized over time or in a lump sum. So we’ll be able to provide some more guidance now as these projects are getting built out. I know it’s a little frustrating as people look at is understanding, hey, what’s the timing, what’s the margin impact?
Obviously, these are essentially 95% basically pure profit that comes in because we recognized the cost through the R&D or to the license already. So there are great streams to have and giving some guidance on the timing of those, we will be doing with investors as we get into our Q4 results. I will say that I think the good news is you look at it and as people look at us is we’re going to have these streams coming for people that are hopefully long-term investors looking at Energy Vault the fact that we’re monetizing this that will result in as these projects that were just announced, large and profitable streams or royalties that will become a larger percentage of our revenue. I think that is all a good thing. It’s just a matter of timing.
As we build these things out, we’ll be able to shed more light on how that timing is going to work into the second half of 2024 and into 2025.
Noel Parks: Terrific. Thanks a lot.
Robert Piconi: Yes. Thanks, Noel.
Operator: This concludes our question-and-answer session. I would like to turn the conference back over to Mr. Robert Piconi for any closing remarks. Please go ahead.
Robert Piconi: Just to thank everyone for your time. We have a very intense quarter we’re in the middle of here, given multiple customer sites and supporting customers here. So a lot of focus continues there, as I mentioned. I think that is absolutely job one, as is our ability here on continuing to convert from our large awards bucket there in the bookings and as we go into 2024. So I appreciate everybody’s time and support through this and your feedback. And we’ll be back to you here and be looking forward to more interactions here in the coming months. Thank you very much.
Operator: The conference is now concluded. Thank you for attending today’s presentation. You may now disconnect.
