Energy Vault Holdings, Inc. — Q2 2023 Form 10-Q
Reporting period: Three and six months ended June 30, 2023. Energy Vault develops grid-scale energy storage systems, software and related services, including battery storage and gravity energy storage. Amounts below are in U.S. dollars; financial statement figures are generally shown in millions.
Key financial results
| Metric | Q2 2023 | Q2 2022 | Six months 2023 | Six months 2022 |
|---|---|---|---|---|
| Revenue | $39.7m | $1.0m | $51.1m | $43.9m |
| Gross profit / margin | $3.9m / 9.9% | $0.4m / 41.6% | $6.4m / 12.5% | $43.3m / 98.7% |
| Operating loss | $28.4m | $22.0m | $61.3m | $1.1m |
| Net loss | $26.2m | $6.2m | $57.3m | $26.3m |
| Adjusted EBITDA (non-GAAP) | $(18.0)m | $(14.2)m | $(37.1)m | $17.0m |
| Operating cash flow | Not presented by quarter | $(91.8)m | $(26.9)m |
Q2 revenue was primarily from building and transferring battery energy storage products. For the first half, this category contributed $50.8m; the prior-year period included $42.9m of intellectual-property licensing revenue, with no associated cost of revenue. The differing revenue mix largely explains the sharp year-over-year decline in first-half gross profit and margin. The company recorded $23.8m of stock-based compensation in the first half.
At June 30, cash and cash equivalents were $107.0m and restricted cash was $58.0m, for $165.0m combined. Current assets were $322.0m and current liabilities $124.4m. Total liabilities were $127.8m; the balance sheet reports no borrowings. Cash and cash equivalents declined from $203.0m at year-end 2022. First-half investing cash use was $24.8m, including $18.8m for property and equipment and $6.0m for equity securities. Working-capital demands, especially $82.9m of advances to suppliers and $62.4m of contract assets, contributed to operating cash use.
Changes, outlook and risks
- Bookings and backlog: Bookings were $33.1m in Q2 and for the first half; reported bookings in MWh were zero. Backlog and remaining performance obligations were $281.5m at June 30, with the company expecting to recognize the majority within 12 months. Management cautions that timing, delays or cancellations may affect conversion.
- Liquidity outlook: Management said cash, cash equivalents and restricted cash on hand should fund operating activities for at least the next 12 months, without warrant proceeds. It may seek additional equity or debt financing depending on conditions and future business plans.
- Customer concentration: One customer represented 90% of Q2 revenue. Two customers represented 80% and 14% of first-half revenue. Three customers accounted for all reported accounts receivable at June 30, in proportions of 61%, 21% and 18%.
- Project and execution exposure: The company stated that no commercial EVx gravity storage system was completed and operating. It depends on project delivery, third-party EPC firms, suppliers, permitting and customer performance. Supply-chain disruptions, inflation, commodity costs, competition and project delays may affect margins and revenue.
- Commitments and contingencies: Non-cancelable purchase obligations were approximately $20.1m. The company had $79.7m of letters of credit, $197.2m of performance and payment bonds, and $28.8m of other bonds outstanding. Restricted cash primarily collateralized letters of credit. A $25.0m customer contribution is refundable upon substantial completion of a gravity storage project, subject to potential liquidated damages.
- Related-party license: A company affiliated with a board member exercised a territory option on June 30 for a $33.0m contract payable over 10 years. The filing also reports other payments to entities related to executives, employees or their families.
- Controls and unusual items: Management reported disclosure controls were not effective due to an unremediated material weakness concerning customer collectability assessment for a licensing contract. The filing also records a $2.4m cumulative-effect reduction to accumulated deficit upon adoption of the expected-credit-loss standard. First-half 2022 results included $20.6m of merger transaction costs and warrant fair-value changes, limiting comparability.
Important facts for investors to verify
- Whether the $281.5m backlog converts to revenue and cash on the expected timetable, and how much is exposed to customer, permitting or construction delays.
- Project-level economics and cash requirements, particularly given low reported 2023 gross margins and substantial supplier advances and contract assets.
- Customer credit quality, concentration and collectability, including the refundable $25.0m contribution and the extended-payment license contracts.
- Progress in remediating the revenue-recognition control weakness and the concentration of revenue among a small number of customers.
- Cash availability and financing needs: $58.0m of cash was restricted, and the filing separately states that approximately $78.0m of cash and cash equivalents consisted of government money market funds; investors should confirm the cash composition and associated exposure.
- Potential dilution from equity awards and warrants; 142.9m common shares were outstanding as of August 3, 2023, and the filing excludes substantial anti-dilutive securities from diluted loss per share.