ESS Tech, Inc. — FY2021 Form 10-K
Reporting period: Fiscal year ended December 31, 2021. This is an annual report; the filing does not provide a standalone fourth-quarter income statement. The 2021 results reflect Legacy ESS before the October 8, 2021 business combination and the combined company afterward, accounted for as a reverse recapitalization.
Business context and financial results
ESS develops iron-flow batteries for long-duration energy storage. It reported no revenue in either 2021 or 2020. Second-generation Energy Warehouse units began shipping in Q3 2021, but none was fully deployed by year-end and customer acceptance and testing criteria had not been met. The Energy Center remained in development.
| Metric | FY2021 | FY2020 |
|---|---|---|
| Revenue | $0 | $0 |
| Operating expenses | $60.6 million | $17.4 million |
| Operating loss | $60.6 million | $17.4 million |
| Net loss | $477.1 million | $30.4 million |
| Net loss per share, basic and diluted | $5.73 | $0.52 |
| Cash used in operating activities | $51.8 million | $16.6 million |
| Cash used in investing activities | $2.8 million | $0.5 million |
| Cash provided by financing activities | $288.5 million | $4.7 million |
FY2021 net loss included $415.6 million in fair-value losses on warrant, derivative and earnout liabilities, largely related to changes in ESS’s equity value. These were primarily noncash items; the operating loss was $60.6 million. As the company had no revenue, gross margin and operating margin are not meaningful.
At December 31, 2021, cash and cash equivalents were $238.9 million, restricted cash was $1.3 million, total current assets were $245.5 million and current liabilities were $13.6 million. Total assets were $250.2 million and total liabilities were $45.0 million. Debt was $3.8 million, including $1.9 million current and $1.9 million long-term. The $20 million bridge loan was repaid at the business combination closing. Deferred revenue was $3.7 million; noncancellable purchase commitments were $10.2 million.
Material changes versus FY2020
- Operating expenses increased $43.2 million, led by higher research and development ($30.3 million versus $12.9 million) and general and administrative expense ($27.3 million versus $3.3 million). The company cited product development, manufacturing preparation, staffing, and public-company costs.
- Operating cash use increased to $51.8 million from $16.6 million, while year-end cash and restricted cash rose to $240.2 million from $6.4 million, mainly due to financing from the business combination and PIPE.
- Business-combination and PIPE financing contributed $258.7 million in net cash. Financing cash flows also included proceeds from warrant exercises and Legacy ESS preferred-stock rights and warrants.
- Shareholders’ equity was $205.2 million at year-end, versus a $27.9 million deficit a year earlier. Common shares outstanding were 151.8 million at year-end and 152.6 million as of February 28, 2022.
Outlook, risks and unusual items
- No numerical revenue, earnings or cash-flow guidance is provided. Management said it expected to recognize revenue on the first three units shipped in 2021 during Q1 2022, subject to acceptance and testing. The company expected near- and medium-term revenue from second-generation Energy Warehouses; margin targets and cash generation depend on completing Energy Center development and manufacturing.
- Management expected operating expenses to rise as it ramps research, development, manufacturing and sales, and as it bears public-company costs. Planned manufacturing capacity additions—two 250 MWh lines expected in Q2 and Q4 2022—were subject to delivery and installation risks. The existing semi-automated line was stated to have about 250 MWh of annual capacity.
- Key risks include early-stage commercialization, lack of field deployment of second-generation products, manufacturing scale-up and yield, supply-chain delays and cost increases, customer acceptance and contract cancellations, competition, and the need for additional capital if cash use outpaces available resources. ESS cited COVID-related disruption and issued force majeure notices to customers.
- ESS’s 2020 audit report included a going-concern explanatory paragraph. The company said the business combination alleviated the related risk by year-end 2021; the 2021 audit opinion was unmodified. However, a Legacy ESS material weakness in financial-statement close review remained unremediated, and management concluded disclosure controls were not effective at December 31, 2021. Remediation was targeted by December 31, 2022; the auditor did not provide an ICFR opinion.
- There were no material legal proceedings disclosed. The filing reports no off-balance-sheet arrangements. It also notes that a 2021 PPP loan was forgiven, producing $0.9 million of income, and that FY2021 reported losses were heavily affected by fair-value remeasurement of equity-linked liabilities.
Important facts for investors to verify
- Whether shipped Energy Warehouses receive customer acceptance, complete required testing and generate recognized revenue on the expected timetable.
- Whether the planned production-line installations and capacity ramp occur on schedule, at acceptable yield and cost, given supplier concentration and ongoing supply-chain risks.
- Cash burn and available liquidity relative to operating plans, contractual commitments and the timing of customer cash collections.
- Whether the company remediates its remaining material weakness and sustains reliable financial reporting and controls.
- Potential share dilution from outstanding warrants, equity awards and other share issuances; the filing listed 11.5 million warrants outstanding at year-end, generally exercisable at $11.50 per share.
- Whether customer pipeline, including the SBE framework agreement, converts into binding orders; the filing states that SBE had placed no orders under that agreement as of the report.