ESS Tech, Inc. (GWH) - Q2 2024 10-Q Summary
Business Context and Reporting Period
This Quarterly Report on Form 10-Q covers the period ended June 30, 2024. ESS Tech, Inc. is a long-duration energy storage company specializing in iron flow battery technology. The company transitioned from a research and development phase to commercial inventory accounting on July 1, 2023. As of June 30, 2024, the company had 176.8 million shares of common stock outstanding.
Key Financial Metrics
| Metric (in thousands) | Q2 2024 | Q2 2023 | YTD 2024 | YTD 2023 |
|---|---|---|---|---|
| Total Revenue | $348 | $2,827 | $3,086 | $3,199 |
| Cost of Revenue | $11,748 | $0 | $22,874 | $0 |
| Gross Profit (Loss) | $(11,400) | $2,827 | $(19,788) | $3,199 |
| Net Loss | $(21,940) | $(22,929) | $(40,250) | $(44,830) |
| Net Loss Per Share | $(0.12) | $(0.15) | $(0.23) | $(0.29) |
| Cash & Equivalents | $36,744 | Balance Sheet Data | ||
| Short-Term Investments | $37,695 | Balance Sheet Data | ||
| Total Assets | $111,133 | Balance Sheet Data | ||
| Accumulated Deficit | $(736,407) | Balance Sheet Data |
Liquidity: As of June 30, 2024, the company held $36.7 million in cash and cash equivalents and $37.7 million in short-term investments. Management believes these resources are sufficient to fund operations for at least 12 months.
Material Changes vs. Prior Period
- Revenue Decline: Q2 2024 revenue dropped 88% to $0.3 million compared to $2.8 million in Q2 2023. YTD revenue decreased 4% to $3.1 million.
- Gross Loss: The company reported a gross loss of $11.4 million in Q2 2024, compared to a gross profit of $2.8 million in Q2 2023. This shift is due to the transition to commercial inventory accounting, where production costs significantly exceed selling prices, triggering Lower of Cost or Net Realizable Value (LCNRV) write-downs.
- Operating Expenses: Total operating expenses decreased 57% in Q2 2024 to $11.7 million from $27.0 million in Q2 2023. Research and Development (R&D) expenses fell 85% to $2.8 million as costs previously classified as R&D are now capitalized into inventory or recognized as cost of revenue.
- Inventory Write-downs: Inventory was written down by $12.1 million to net realizable value as of June 30, 2024, up from $11.3 million at year-end 2023.
Outlook, Risks, and Management Commentary
- NYSE Listing Compliance: The company received notice from the NYSE regarding failure to meet the minimum $1.00 per share listing standard. On July 12, 2024, the Board approved a proposal for a reverse stock split (ratios ranging from 1-for-8 to 1-for-25) to be voted on by shareholders on August 23, 2024.
- Cost Reduction Strategy: Management emphasizes that achieving profitability depends on reducing production costs and scaling operations. Current unit production costs exceed selling prices.
- Macroeconomic Risks: The company cites supply chain constraints, shipping delays, and payment delays from customers due to macroeconomic conditions and geopolitical tensions.
- Government Grants: The company recognized $0.3 million in Production Tax Credits (PTC) under the Inflation Reduction Act for the six months ended June 30, 2024, recorded as a reduction of cost of revenue.
- Related Party Transactions: Significant deferred revenue of $14.4 million is recorded related to a non-refundable deposit from Honeywell for future equipment purchases.
Investor Verification Checklist
- Reverse Stock Split Approval: Verify the outcome of the shareholder vote on August 23, 2024, regarding the reverse stock split and its impact on share count and liquidity.
- Unit Economics: Assess the timeline and feasibility of reducing manufacturing costs to below the current selling price to eliminate gross losses.
- Inventory Valuation: Review the magnitude of future LCNRV charges and the recoverability of the $4.4 million net inventory balance.
- Cash Burn Rate: Monitor the $34.1 million net cash used in operating activities for the first half of 2024 against the $74.4 million in liquid assets to determine runway.
- Customer Concentration: Evaluate reliance on specific large customers and the status of the $14.4 million Honeywell deposit and related performance warrants.