Energy Vault Holdings, Inc. — Q3 2022 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2022. Energy Vault develops grid-scale battery and gravity-based storage systems and related energy-management software. The February 2022 business combination was accounted for as a reverse recapitalization; prior-period operations reflect Legacy Energy Vault.
Financial performance and liquidity
| Metric | Q3 2022 | Nine months 2022 | Comparison |
|---|---|---|---|
| Revenue | $1.7 million | $45.6 million | No revenue in comparable 2021 periods |
| Operating loss | $36.2 million | $37.3 million | 2021 losses were $5.6 million and $16.7 million, respectively |
| Net loss | $28.8 million | $55.0 million | 2021 losses were $6.2 million and $18.6 million, respectively |
| Net loss per share | $0.21 | $0.46 | 2021: $0.45 and $1.54, respectively; share counts changed significantly after the merger |
| Adjusted EBITDA (non-GAAP) | $(17.2) million | $(0.2) million | 2021: $(4.9) million and $(12.6) million |
| Operating cash flow | Not separately presented | $(47.8) million | 2021 nine-month use: $14.1 million |
Q3 revenue less cost of revenue implies approximately $0.1 million gross profit, or about a 4% gross margin. Nine-month revenue less cost of revenue implies approximately $43.4 million gross profit, or about a 95% margin; this was heavily influenced by the one-time Atlas intellectual-property license revenue and is not necessarily representative of project economics.
- Revenue concentration: Nine-month revenue included $42.9 million of IP licensing and $1.2 million from energy-storage project construction; Atlas represented 97% of revenue. Q3 revenue was $1.2 million from Jupiter project construction and $0.5 million from Atlas construction support; the two customers accounted for 68% and 32% of quarterly revenue.
- Cash and liquidity: Cash and cash equivalents were $249.6 million; restricted cash was $25.1 million, primarily collateral for letters of credit. Combined cash, cash equivalents, and restricted cash were $274.7 million. Management said available funds were expected to cover operations for at least the next 12 months.
- Cash flows and financing: Investing activities used $2.7 million. Financing provided $220.2 million, principally from merger/PIPE proceeds and warrant exercises, offset partly by transaction costs and equity-award tax payments. The merger and PIPE generated $191.0 million in net cash proceeds.
- Debt and obligations: The filing reports no material conventional debt balance; lease liabilities were modest. Contract liabilities were $29.0 million. Non-cancellable purchase obligations were approximately $23.9 million.
- Contract assets and backlog: Contract assets were $24.7 million, including a $22.5 million refundable contribution to Atlas. Remaining performance obligations/backlog were $211.5 million, with the majority expected to be recognized within 12 months.
Changes, unusual items, and operating developments
- Operating expenses rose substantially as the company expanded headcount, R&D, sales and marketing, and public-company infrastructure. Nine-month stock-based compensation was $26.8 million, including $7.1 million recognized at the merger closing.
- The company recorded $2.8 million of Q3 impairment and accelerated depreciation related to the demonstration unit and equipment after completing dismantling of the Swiss CDU. The CDU was its only operating system; no commercial EVx installations were in place at the filing date.
- Nine-month results included $20.6 million of merger transaction costs. Q3 included a $6.7 million non-cash gain from the change in warrant fair value; the nine-month gain was $2.1 million. Public warrants were redeemed or exercised by August 2022; 5.2 million private warrants remained outstanding.
- Bookings were reported at $206.8 million and 495 MWh for Q3; nine-month bookings were $256.8 million and 495 MWh. Backlog is not a guarantee of future revenue and may be delayed, reduced, or cancelled.
- New project contracts included two Jupiter battery projects and a 275.2 MWh Wellhead/W Power project, with completion expected in 2023 or mid-2023. These are execution plans, not reported completed projects.
- After quarter-end, the board approved an inducement award plan reserving 8.0 million shares. The filing also disclosed updated executive compensation arrangements, including a new CEO agreement and CFO appointment, which investors may wish to assess for dilution and compensation cost.
Outlook, risks, and controls
The filing provides no formal financial guidance. Management expects continued losses and investment in R&D, commercialization, hiring, and public-company costs. It expects most of the stated backlog to convert to revenue within 12 months, but cautions that timing and realization are uncertain. Management cited supply-chain constraints, inflation, construction and permitting delays, and project cost variability as factors that could affect deployment and results.
Key risks include the company’s early-stage operating history; limited commercial validation of EVx; customer and revenue concentration; dependence on converting bookings and indications of interest into performed contracts and cash collections; competition from established storage technologies; execution, warranty, and performance risks; access to future financing; and exposure to raw-material, labor, foreign-exchange, and regulatory changes. The $22.5 million Atlas contribution is refundable only if the first project reaches substantial completion and specified performance metrics are met. The company reported ordinary-course legal proceedings not expected to have a material adverse effect.
Management concluded disclosure controls were effective, but previously identified material weaknesses in internal control over financial reporting relating to warrant accounting and redeemable-share classification had not yet been fully remediated. The company said remediation efforts were underway and require further testing.
Important facts for investors to verify
- Whether the Atlas project reaches substantial completion and satisfies repayment conditions for the $22.5 million refundable contribution, and whether the remaining $5.0 million license payment is collected.
- Whether the $211.5 million backlog and announced project bookings convert to timely revenue, cash receipts, and acceptable project margins.
- Commercial deployment, cost, performance, and reliability evidence for EVx, given the dismantling of the sole operating demonstration unit and the absence of commercial EVx installations at the filing date.
- Cash-burn trajectory, restricted-cash requirements, purchase commitments, and any need for additional financing; also assess potential dilution from private warrants and equity-award plans.
- Progress in remediating the identified internal-control weaknesses and the continuing effect of stock-based compensation and non-cash warrant remeasurement on reported results.