Energy Vault Holdings, Inc. — Q1 2023 10-Q
Reporting period: Three months ended March 31, 2023; comparative period is Q1 2022. Energy Vault develops grid-scale energy storage systems, software, and related services. Figures below are in U.S. dollars; financial statement figures are rounded to millions unless stated otherwise.
Financial performance and liquidity
- Revenue: $11.4 million, down $31.5 million (73%) from $42.9 million. Q1 2023 revenue was mainly from physical progress on battery energy storage projects; Q1 2022 revenue was entirely from an EVx intellectual-property license.
- Gross profit and margin: $2.4 million and 21.2%, versus $42.9 million and 100% in Q1 2022. The prior-period licensing revenue had no associated cost of revenue, so the margins are not directly comparable.
- Operating expenses and loss: Operating expenses were $44.4 million, including $9.0 million cost of revenue. Operating loss was $32.9 million, compared with operating income of $20.8 million in Q1 2022. Higher sales and marketing, R&D, and general and administrative expenses contributed; general and administrative costs rose to $19.5 million from $9.8 million.
- Net loss: $31.2 million, or $0.22 per share, versus a $20.1 million loss, or $0.25 per share. Q1 2022 included $20.2 million of warrant fair-value expense and $20.6 million of merger transaction costs; Q1 2023 had neither. Other income rose to $1.8 million, primarily reflecting higher interest income and foreign-exchange effects.
- Adjusted EBITDA (non-GAAP): Loss of $19.0 million versus positive $31.2 million. The prior-period result included adjustments for warrant fair-value expense and merger costs. The company cautions that adjusted EBITDA is supplemental and not a substitute for GAAP results or cash flow.
- Cash flow: Operating cash use was $70.8 million versus $16.8 million. Investing cash use was $17.6 million, including $11.6 million for property and equipment and $6.0 million for an equity investment. Financing cash use was $0.8 million. Total cash, cash equivalents, and restricted cash fell by $89.2 million during the quarter.
- Liquidity at March 31: Cash and cash equivalents were $114.6 million; restricted cash was $82.4 million, primarily collateral for letters of credit. The company reported total assets of $382.5 million, current liabilities of $114.8 million, and stockholders’ equity of $264.5 million. No conventional borrowing balance is reported; lease obligations are included in liabilities.
- Subsequent cash disclosure: The filing reports approximately $87.0 million of cash and cash equivalents as of May 8, 2023, consisting of government money market funds. Management stated quarter-end cash, cash equivalents, and restricted cash would fund operations for at least 12 months, but restricted cash is largely collateralized.
Material changes and operating position
- Revenue shifted from a large prior-year EVx licensing transaction to current-period project construction activity. Three customers represented 43%, 39%, and 16% of Q1 2023 revenue; one customer represented all Q1 2022 revenue.
- Bookings were zero in both Q1 2023 and Q1 2022. Backlog and remaining performance obligations were $319.8 million at March 31, with the company expecting to recognize the majority within 12 months. Backlog is subject to delays, cancellations, and other estimation uncertainty.
- Advances to suppliers increased to $95.3 million from $24.3 million; accounts payable declined to $8.4 million from $60.3 million. Current contract liabilities rose to $86.0 million from $49.4 million.
- Stock-based compensation was $13.7 million, up from $9.2 million. Common shares outstanding were 141.4 million at March 31; weighted-average shares were 139.7 million.
- The company disclosed no completed, operating commercial EVx installation. Its prior EV1 Tower demonstration unit was decommissioned in September 2022.
Outlook, risks, and contingencies
- Management expects sales and marketing, R&D, and general and administrative expenses to increase as the business expands. It says future funding may be sought depending on market conditions and business needs; additional equity could dilute shareholders, while debt could impose senior claims and operating restrictions.
- Management cited supply-chain disruption, inflation, project cost volatility, customer acceptance, competition, permitting and customer delays, and commodity-price exposure as risks to deployment, margins, and revenue timing. The company does not hedge commodity exposure.
- At March 31, non-cancelable purchase obligations were approximately $14.5 million. Outstanding performance and payment bonds totaled $197.2 million; letters of credit totaled $82.3 million. The company reported no material claims relating to outstanding letters of credit.
- A $25.0 million refundable customer contribution is recorded as a contract asset and is expected to be returned when the customer’s first gravity storage system reaches substantial completion, subject to possible liquidated damages tied to performance metrics.
- The company adopted the expected-credit-loss standard on January 1, 2023, recording a $2.4 million cumulative adjustment to accumulated deficit. It recorded credit-loss allowances, including $1.1 million for contract assets and $1.2 million for customer financing receivables.
- Management concluded disclosure controls were not effective because of an unremediated material weakness in controls over assessing collectibility for a licensing contract’s international customer. Remediation was in progress but not complete.
- The company identified ordinary-course legal proceedings but said their adverse outcome would not, individually or collectively, have a material adverse effect. It also warned that a U.S. government default or credit downgrade could affect the liquidity or valuation of its government money market funds.
Important facts for investors to verify
- Whether backlog converts to revenue and cash on the expected schedule, given zero quarterly bookings and project-delay or cancellation risks.
- Availability of liquidity: distinguish unrestricted cash from restricted cash and assess cash use, including the reported decline to approximately $87.0 million of cash and cash equivalents by May 8.
- Progress, costs, margins, and customer acceptance for BESS projects, and whether commercial EVx systems become operational.
- Customer and counterparty concentration, collectibility of receivables and contract assets, and recovery of the $25.0 million contribution.
- Remediation and testing of the material weakness in revenue-related internal controls.