Greetings and welcome to Energy Vault's Fourth Quarter and Full Year 2022 Earnings Conference Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder this conference is being recorded. It is now my pleasure to introduce to your host Laurence Alexander, Chief Marketing Officer for Energy Vault. Thank you. You may begin.

Thank you and good afternoon and welcome to Energy Vault's fourth quarter and fiscal year end 2022 earnings conference call. As a reminder, Energy Vault's earnings release and an updated fourth 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 due to a variety of factors. We caution everyone to be guided in their analysis of Energy Vault by referring to our 10-K filing for a list of factors that could cause our results to differ from those anticipated in any forward-looking statements. We undertake no obligation to publicly update or revise any forward-looking statements except as required by law. In addition please note that we'll be presenting and discussing certain non-GAAP information. Please refer to the safe harbor disclaimer and the 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 Kees van Gaalen, our Chief Financial Officer. At this time, I'd like to turn the call over to Robert Piconi.

Laurence, thank you and thanks to everybody for joining the call today. Just a few weeks ago, we finished our first year as a publicly-listed company, a year that saw us launch in February, while delivering our first $146 million in revenue throughout the year, $100 million of which was achieved in Q4 alone due to strong execution and customer focus by our people in our first start to deployments and project revenue. I was on the floor of the NYSE two weeks ago with Judy Shaw from the New York Stock Exchange who was interviewing me for a year-in review perspective as we have met the year before during the IPO. And it really struck me to step back and look at all that was accomplished. Starting the year having strategic investors like Korea Zinc and Atlas Renewable, step into the IPO with an additional $100 million of investment from the start, to then immediately breaking ground on our first EVx gravity system outside of Shanghai in March 2022 for the highlights of the first quarter. Note that this first 25-megawatt 100-megawatt-hour system once operating this year will be only one of two operating long-duration energy storage systems at this scale that is not a pump hydroelectric facility. And it really just shows you that the energy storage industry is still in its infancy, particularly for longer duration which is in its own early development stages. We're really excited to show the world what we're capable of here as the EVx system comes online this year. Sticking with gravity, we broke ground in Snyder, Texas in September with Enel Green Power with our first US-based EVx system. And we finished the year signing more territory expansions and license royalty agreement territories outside the United States in Europe and the…

Thanks Rob. Turning to our financial results for the fourth quarter of 2022, revenue in the quarter was $100.3 million primarily reflecting $84.5 million in revenue earned from our battery storage projects and $15.6 million from EVx licensing deals. Wellhead construction began in Q4 and we began recognizing revenue for that project during the quarter. Revenue from Wellhead drove battery storage project revenue during the fourth quarter. Licensing revenue in the fourth quarter was driven by $9.7 million in revenue from the Egypt, EVx licensing deal and $5.9 million from the Atlas licensing deal. For the full year 2022, revenue was $145.9 million, primarily reflecting $85.6 million in revenue earned from our battery storage projects and $58.5 million from EVx licensing deals. Fourth quarter 2022, gross profit was $15.9 million driven by licensing revenue recognized during the quarter, bringing full year 2022 gross profit to $59.3 million. Total operating expenses excluding cost of sales were $41.7 million in Q4, up $5.4 million versus the $36.3 million we reported in Q3 of this year. Stock-based compensation was $14.3 million in Q4, up $3.4 million versus Q3 2022. Depreciation expense in Q4 was $0.2 million compared to $5.2 million in Q3. Excluding these non-cash charges, operating expenses were up $7 million versus the third quarter, mainly driven by an increase in headcount. This brings total operating expenses to $122.4 million in 2022 and $81.3 million if we exclude stock-based compensation. Sales and marketing costs for the first -- for the fourth quarter of 2022 were $4.3 million compared to $3.8 million in Q3 of this year. Excluding stock-based compensation, sales and marketing expenses were up $0.6 million sequentially. 2022 total sales and marketing costs were $12.6 million. Excluding stock-based compensation, sales and marketing expenses were up $6.7 million year-over-year primarily due to…

Thank you, Jan Kees. And I would like to also welcome and thank Jan Kees for his first quarter under his belt here at Energy Vault. And he's a great addition to our team. And as we're looking at the business, given the growth, we're going to be taking on his global experience let alone his length of tenure across multiple public companies across the world is going to serve us very well.

Thank you.

Look here, we're at the end of the call. A few things I want to reiterate here before we turn it over for questions and a few data points I'll point to. We really tried at this point as we're digging into the forecast for this year to begin to share more information as we now have more visibility with executed contracts and booked orders. And a few data points I want to highlight and reiterate with you. One is on the funnel metrics. We shifted to a more near-term 12-month funnel approach and segmented it in four sections. There is a page within our investor deck that's on the website that summarizes that funnel. I want to point you to a 50% increase in the number of proposal submissions that we've made from 13 gigawatt hour last quarter, now up to 20 gigawatt hour, which is a massive number. I think it's a great leading indicator of what's to come. Not suggesting we're going to be batting 1,000 on those or win all of them. But you can count on the fact that we're going to win some of them. And I think that's a great leading indicator on that front end of that funnel as we move from those submitted proposals to shortlist to project awards and then into bookings. And we've, I think, demonstrated an ability to move that forward with velocity. The other thing I want to highlight, as Jan Kees mentioned right at the end of his review of the results, is liquidity. I think we're in just a fantastic position with no debt on the balance sheet and finishing with actually growing cash quarter-over-quarter is just a fantastic data point and puts us in a great position to now, as we evolve the business,…

Thank you. We will now be conducting a question-and-answer session. [Operator Instructions] We take our first question from the line of Thomas Boyes with TD Cowen. Please go ahead.

Thanks so much for taking my questions. Great to see the progress, especially, on the gravity storage front with the additional licensing agreements. I just wonder if you could dig a little bit deeper there on just how they're structured? Is this going to be similar to the agreement that you used in China? I think I remember a $15 million licensing payment that was associated with that agreement. Could you just kind of walk us through some of the mechanisms there? That would be great.

Sure. The structure of those agreements number one varies depending on a few factors some that would include exclusivity. Some of them are structured over years that could be as short as 7.5 years as an example and up to 10 years plus. So they'll vary both in length of time, inclusion of certain terms like exclusivity and also in payment structures. But generally what is common across them is there is a license component that is paid, that is typically tied only to the right to deploy the technology. So that is not tied to volume deployment. Typically that license and it would be the case here would involve an exclusivity for these regions. That exclusivity comes though with commitments on volume to retain that exclusivity regardless of the license payment. So that's required in any event. And then following that as deployments get started in those regions comes a royalty stream. We've been public with the royalty percentage as a part of our first deal which is 5% on total project revenue on volume deployments. And we -- essentially from a -- these new agreements you can expect that they would be in that same range.

Perfect. That's very helpful. And then maybe just as my second it sounds like obviously to a certain degree you're still going to be procuring battery storage hardware for some of your customers. Can you talk about the sourcing strategy there, or how far are you looking to contract supply? Are you contracted throughout for 2023 for projects that you are being required to deliver on now, or are you even looking further out?

Sure. We have a few different approaches relative to working with our customers on battery deployments. First of all, like with everything we do we seek to innovate and differentiate around how we think about deployment, integration, software performance and optimization around the economics for our customers. So fundamentally it really starts there. And if you look at the first deals we've won they were not because we had the lowest price. In one of the cases it was because we were able to achieve an energy density that was not able to be achieved by any competitor and this was specific to the Wellhead deal in Stanton where they needed to generate a little over 68 megawatts, but current solutions would only allow them to generate 50 megawatts over a four-hour period. So that's one example. Another example is PG&E where we integrated and responded to a proposal that didn't envision a renewable solution to solve a problem that could have only been solved with natural gas for example for multi-day storage. We developed a solution to integrate batteries with green hydrogen in that case to provide renewable solutions. So I would say first of all we -- from a battery and sourcing perspective we work on ways to innovate with our hardware architecture and unique designs for optimization whether that be with energy density that could be with performance that could be with safety. So ways that with our specific architectures if there is a shutdown for example we can enable ongoing performance of a system even if some specific modules may be shut down. That's not the case in a lot of battery systems where if there is a fire or a safety problem the entire system shuts down. So there's a level of differentiation we look…

Excellent. No, I really appreciate the insight. I'll drop back in queue. If I could just sneak one more in. Just for the domestic sourcing that you're talking to for lithium-ion batteries. Do you have a sense on when that type of capacity would be coming online? Is that a 2025 event do you think, or could that happen quicker?

We're seeing some coming online as early as the second half of 2024, but in real volumes 2025-plus. So that's from our work in the sector and working with players that are looking to build roughly what we see.

Great. I'll get back in queue. Thanks again.

Thank you. We take the next question from the line of Joseph Osha with Guggenheim Partners. Please go ahead.

Hi. Thank you for taking my question. Two questions. First, I greatly appreciate the detail in terms of the composition of revenue in the fourth quarter. Looking into 2023, it kind of broadly seems like there are three buckets. You've got your BESS revenue. You've got anything that might potentially come from delivery of EVx systems and then EVx licensing. I'm just wondering if you can help us understand how 2023 revenue might fall into those buckets, assuming that I'm thinking of it correctly.

Sure. Yeah, I think you've got the right buckets there. And there's a sort of a fourth bucket that I can give you a little bit of a flavor of Joe. I think as we've announced, we have three larger shorter duration projects that are going to be turned over in 2023 that make up a good chunk of that revenue on the battery side. And when I say batteries, some of those are hybrid-related systems but include lithium-ion battery. For EVx and EVx licensing, we're expecting to continue, let me start with the licenses, we're expecting to continue to develop in particular in the international markets, obviously, we don't expect this in the US for example. But given EVx is a primarily a building right a foundation of fixed frame lifting systems and power electronics because of the local nature of that, and the local suppliers that have to deploy that in local EPC companies, the licensing model is a very interesting business model for us. It also enables us to give the flexibility to the local suppliers without us having to invest in local feet on the street and infrastructure. They are the most knowledgeable in any event based on the type of construction this is. It is as you know primarily a local build. And that model and allowing for domestic jobs and domestic content which as we know in the market most countries are trying to pursue independence in energy and that means energy storage if they're going to use renewables. So, the model we're finding is a lot of interest in this model, which is let's say beneficial for both sides and creates a platform for future and very high-margin royalty streams to come as things get deployed. So, we are expecting to have a…

Okay. Thank you. And just a quick much shorter follow-up on the IRA. One thing that we've heard some BES system integrators talk about is the idea of not making cells on store necessarily but potentially doing pack assembly right? And there is a manufacturing tax credit associated with that. Any thoughts on whether we might see Energy Vault involved in battery pack manufacturing in the US?

Okay. Sorry I was just -- your question is specifically in and around just assembling integration in the United States versus actual manufacturing?

Well, no, no pack manufacturing because there's a cell credit and then there's a pack -- there's a module credit right? And so we've seen some -- one of your competitors for example talk about sourcing cells but actually doing module assembly in the US where there is an associated credit.

Okay. Sorry about that. Yes, I understand the question. So the answer is yes, in terms of our involvement. And we had announced as an example with Jupiter Power, an agreement to work with them it was 2.4 gigawatt hour of sourcing that we announced to work with them on around domestic content that will be up to, and including looking at leveraging the energy communities' aspect, but as well as sourcing whether that be in the direct manufacturing area or in the packaging and integration area.

All right. Thank you very much.

Thank you. We'll take a next question from the line of Chris Ellinghaus with Siebert Williams Shank. Please go ahead.

Hey, everybody. How are you? Rob can you talk about the change in the two-year revenue guidance and sort of how you have made that more conservative in terms of your view of revenue recognition for this year?

Sure. Yeah, there were three main factors that, I tried to be as explicit as I could in the announcement. So one of them had to do initially with just our acceleration from what was planned in Q1 this year, and due to faster execution went into Q4 of an amount of revenue. So that was one impact that we entered the year with. Secondly, and this is the primary impact has to do with a very large customer that is roughly about a gigawatt hour that initially we were going to be integrating the entire scope through our balance sheet. So as a project where we would contract directly for example for the battery packages in particular. What we chose to do with that customer is have the customer contract directly for that portion of the equipment. We are still the integrator for example of that solution and other aspects of balance of plant. So it's still a very large deal for us. But as you know, I believe, the battery modules themselves typically would make up anywhere from 55% to up to 70% of these deals. So if you remove that, while that's going to reduce the revenue what's very interesting about that for us is it means the mid- to high teens in gross margins for us which we're very happy to do. I've mentioned, this on an earlier question I had about our battery sourcing strategy, but generally, if it's a certain supplier that we're working with where we're including differentiation and how we optimize the solution which means I'll translate that differentiation lower cost for us and therefore generally higher margin for an integrated solution that we own all components of. There are customers that have existing relationships and they're with very large some of…

Okay. That helps a lot. Thanks, Robert.

You’re welcome. Operator, are you there?

Yes. Thank you. We'll take the next question from the line of Brian Dobson with Chardan Capital Markets. Please, go ahead.

Hey, Brian.

Brian, your line is unmuted. You may ask your question.

Thank you, very much. Thanks for taking my question. So just returning to the guidance issue for 2023. As you're thinking about it, would you say it's fair to characterize, call it, the bottom half of your guidance as a conservative approach in that, there is a potential for revenue slip into 2024 and that you're fairly confident as things stand right now that you could be at the mid to high end?

Yes. I would say, that's roughly right. We started with a buildup approach of a low end that is booked and we're executing toward and as I mentioned on track and on schedule to deliver. So that we consider in the bank. And as you move to that mid part and even to the upper part of the range, we have things in play that are well in hand to get there, again, leave the IRA aside. So I realize that, this may appear as, obviously, lower than what, in some cases, expectation with something up to $500 million this year, as we looked at our two-year view before. I mentioned the one deal, where we're taking a much lower part of the content but higher gross margin, which I think is important. But, yes, I think your characterization and in terms of the lower end of the range, we feel, obviously, quite good about, given the nature of where it started from. And then, I think, a very strong confidence in getting the mid to upper part of that range here as we progress a year. And our view on that is to also with every quarter, we're going to be much more knowledgeable. We're going to have another 60 to 90 days of bookings of seeing how we're executing and seeing things that pop in, maybe, that we didn't even see that could be things we could turn around for rev rec in year. So we designed the forecast to essentially, every quarter, tighten that range up and just build that range. And obviously, in an ideal world you -- because of the nature of being conservative here, is that we're going to be able to tighten to the mid to higher end of that range with every quarter. That’s what -- that was the intention of how we built this forecast. And, obviously, as we get into the second half of the year, be executing strongly toward -- ideally toward the higher end. And if the IRA things come in as planned, I think, we're going to have an excellent year.

Right. Understood. And I understand your desire not to include IRA benefits in the guidance range. But do you think you could potentially perhaps draw a range around what that could potentially look like?

Yeah. I would say we have two projects in particular that could garner some benefits and even in the year depending on the way the treasury mechanics come out. So I would say there are some benefits that are definitely in the double-digit millions of benefit. Now how much could we get in the year versus would go into 2024? That's another question. There are ways to monetize those benefits earlier. So I would say, if I had to tell you today and assuming the IRA come through there may be more cash related benefits this year versus revenue recognition benefit, okay. Those revenue recognition benefits may come next year. But given I think some of the alternative structures we're going to look at and taking advantage of it, we may very well see a good strong double-digit million type of cash benefit potentially this year that we wouldn't have in our forecast. And of course we like that. We like the cash flexibility. And we as I said we're trying to be now as we have more information and data be more transparent and sharing with the market so people would understand that we're very happy to take the cash even if the revenue recognition may come later. So those benefits anything that gets in double-digit million is significant. I think whether that's cash or even potential rev rec.

Yeah. Thanks. That's helpful. And then just stepping away from the mechanics of the guidance for a moment and taking I'd call it a 30,000-foot view. As you look around the world at different regions, where do you see the most opportunity? Which regions are you most excited about?

Sure. Well, I have to start in the US because it's definitely -- with the IRA, I think the US has done something to keep a lot of focus here. So that's -- I think that has a lot of upside and is one of the -- as you know one of the largest storage markets. I think Australia is going to be an interesting and important market for us specifically because of the nature of some of our investors. Two of our largest investors have significant operations there. I think the green hydrogen market given its desire and requirement in electrolysis and running electrolyzers for long-duration storage. I think that market and where Australia is going to play a strong role there will be important. I think moving to the European theater, Scotland is ahead of the game and with its offshore wind investments generally. And I think there's large needs and I think a lot of opportunities there that we see as opportunities definitely for us. I'd say also I'd be remised if I didn't talk about the Middle East given what -- not only we've just announced with a license partner, but we're looking at the region very strategically for very large things. As you know in the Middle East nothing is done small. If it's done, it's large and it's done big. And I think as you're aware we have Saudi Aramco Energy Ventures on our cap table. So I think that in that relationship and looking at now how we're thinking about leveraging that I think that's very interesting to us. Our company has done some more recent development I'd say there. And then I'd leave you with -- I think those are the primary main regions that we're excited about. We've announced some things…

We'll take your next question from the line of Brian Lee with Goldman Sachs. Please go ahead.

Hey, guys. Thanks for squeezing me in. In the interest of time maybe just one question from my end. Can you guys give us a sense of the margin differential between EVx and EVS? And are you currently profitable on EVS, or if not, what's sort of the path forward to become profitable on selling EVS? Thanks.

Okay. We don't sell EVS, so let me just clarify some things. The Energy Vault Solution is actually a group. It's not a product itself so. But just to be clear, I think what you're asking is, are there any things not profitable across between -- or anything not profitable specifically. I think when you say EVS, I think you're referring to some of the battery deployments where they've been leading with software. So to be clear, everything we're doing is profitable on a unit economic basis. Otherwise there would be no way for us to talk about 10% to 50% gross margins. So there's not one project, we've done or taken with a negative gross margin. And for us to forecast here with the visibility we have now of 10% to 15% and given our nature of being conservative relative to as we were looking at our 2023 forecast. We're -- from a profitability perspective, we have unit economics across the board. We're going to have a range of that percentage gross margin pending on things like for example are we taking batteries through our balance sheet at a like a mid-single digit or not. If we're not we're absolutely in the mid to high-teens relative to just our own straight solutions and that's today. And if we're on looking at EVx, for example and solutions on where we're going to be deploying that project as well on the initial deployment, so before we get to volumes or any optimization. As an example we're testing a lot of new cost reduction on the system in China in EVx that all the future systems will benefit from. That range of 10% to 15%, I think is a good range Brian for you to use relative to your modeling. And then the last thing I'd share is, it's really the use case that's the driver. So let me give you the example of PG&E where they -- it was an RFP for this multiday and they were thinking, they were only going to have natural gas as an option. We've proactively given we actually have expertise in hydrogen, both liquid and gas and or gas because of some engineering folks that we've hired in the team. So we proposed an architecture that integrated lithium-ion and green hydrogen. You can assume that because we were unique in being able to do that obviously that's going to be something that we don't take lightly relative to our pricing expectations and therefore the margins. And obviously it's a public utility. So that means that we have to provide a certain level of value to the utility if they -- is what they budgeted to deliver that. So those solutions where we're uniquely bringing hybrid solutions to the table as we did there those are things that are going to be a good part of our profit stream as well. Is that helpful?

Yes. No, appreciate all the additional color, Rob. Thank you.

Thank you. Ladies and gentlemen, we have reached the end of the question-and-answer session. And I'd now like to turn the call back over to Robert Piconi for closing remarks. Over to you, sir.

Okay. Look, thanks everyone who joined the call today, and we'll look forward to further updates going forward. Thank you very much.

Thank you. Ladies and gentlemen, this concludes today's teleconference. You may disconnect your lines at this time. And thank you for your participation.