Earnings call transcript Q1 2023

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Operator

Welcome to ESS Tech, Inc.'s First Quarter 2023 Earnings Call and Operational Review.

Please be advised that our remarks today, including the answers to your questions, may include forward-looking statements within the meaning of the Private Securities Litigation Reform Act. These forward-looking statements are subject to risks and uncertainties that could cause actual results to be materially different from the expectations contemplated by these forward-looking statements. Those risks include, among others, matters that we have described in our earnings release as well as our filings with the SEC, including our annual report on Form 10-K and our quarterly reports on Form 10-Q. We disclaim any obligation to update these forward-looking statements.

we income certain and call, including financial conference net adjusted adjusted this may non-GAAP discuss measures, During EBITDA. today. earnings Reconciliations closest of we the GAAP the issued release measures can these be found measures to in

ESS' With that, I'll the call CEO. Eric over Eric? to turn Dresselhuys,

Eric Dresselhuys

dive will have deeper expressed learning our I interest by opening make about Many some in the Today, business followed operations. quarter remarks a on you of more.

extra today time Vince, Ben, you Mark Tony to excited spend I'm call some progress. to have our So, updating on on and the

you likely related QX meet As have our seen financial expectations. to did by results our now, in revenue recognition not

more remember may for sooner. increased you at warehouse these the call, of from As recognizing we energy gained hoped momentum revenue our previous had shipments shipments with XXXX and end start to

for to two in able QX. were recognize units We revenue

delivered been we've its One Schiphol of pleased delivery. generated those excitement with was Amsterdam, Airport from in and to the

XX with units. we port to units of means that revenue have have However, they shipped final This in awaiting those for project, still that recognize arrived the delivery. while delays yet to due are

We given have receive we timing. project nine also waiting in until are the units ship to the delays, clarity that project. on energy QX we warehouses for built project But additional

schedules Although rework demand and quickly, the place for other we are units if confident project strong needed. can optimistic these recover we our are have that schedule will we solutions customers and with

our and are our delays given business this of disappointing early an in was are how a trajectory we it ESS. in as timing while stages the growth industry, where the are We of And unfortunate predictability. reality the affects project particularly

business. progress scaling are We important the making

batch we are manufacturing. transitioning you scale to know, As from

are in technology storage. with As companies, financial powerhouse on focus balancing is performance typical energy building a commercial for near-term emerging long-term our we

in made XX-plus know lot our have success important, all facets value. the learned a last significant energy XXXX storage. clear set we the zero-carbon of execute significant the ultimately the on long-term part Demand a We've will a opportunity an are former the long-duration business, strong, confident over generate be and capitalize market to our we to for solving remain grid. of improvements and is trends months, to of will determine focused initiatives we latter will potential and shareholder integral While that for

are put time down injection also The the chain the to to These profitability. help molding our into but X initiatives through scaling long-term and reducing designed in improving being third, plumbing simplifications optimizing for us and outsourcing us revenue initiatives installations; key our profitability. shorten to of only the These capacity, product to are and we are path move to us capture solutions at and focused and success help second, commission our quality supply customer sites. fourth, our of our ramping designs remainder are electrical cost place fall toward components; the manufacturing initiatives non-core allow company XXXX to on we not areas: drive opportunity automation first, the and the see, to including our processes; critical

to additional Now let scaling some chain Vince detail me supply to our turn Canino and it initiatives. over provide on

Vince Canino

major career ESS products my GE and precision Thanks, spent October, manufacturers, operations and I scaling manufacturing train. delivering in Eric. I in for joined including

electrolyte are proton flow our in what pumps. heart and important our electrolyte, X battery Of can cost. iron low you high advantages precision storage for be modules, give These system. storage. of and technology battery intellectual main Equally balancer for technologies: system incorporates and unique four, our the modules its the scaled As know, Each our may pumps, property long-duration system. battery is the energy those balancer proton are and

available. that elements stored where Our are energy is make low-cost non-toxic the the and it is readily electrolyte, up

production the recipe weight the scale as in to of we its material of working transportation due volume. are optimize this to this proprietary We

integration which optimizing the are on focused many of we components, system, are balance electronics. mostly of With the plumbing and

Our machine, limited more with very The requirements not in balance reliability. are achieve assembly complicated for to and just best or system like matter of the but orchestrating parts much stringent a supply. system a washing durability. is It's the efficiency of

and non-metal we battery find of that space of parts. of challenge, module tolerances. XX% have our very XX%, deliver of tooling to deeper and these molded look a consistently strict we repeatability, scale XX% expertise takes be is and you molding injection When you injection automation If in and a process it interesting is you perfecting parameters during Once the spec, parts into made in, modules, the design with large our that molding. dialed the battery construction the injection an up especially and process in precision craftsmanship have tool have apply to can sustained. which part, Of collaboration paramount. right the

stack X/XX designs, millimeters stack. we over already the three meet call that We the delivering up stringent we with specifications. entire our our Think a parts tool on of over challenges about focus each with this front Since total approximately module. stack processing of this together and on XX just are millimeter, through of what of easily progress they if long, to now molding we've other, these or materials, being our great injection many having made off a But parts stacked out were have frame. frames are these of inch and have a battery feet X.X build could consistently on techniques worked and of it way, tolerances. We are we suppliers be length by spec top by the

you In the another power have plate the electricity energy This the example, and component on cell plate on module. give end focused this the transmits the me would end we Let from to past, machine. stacks.

now injection X/X, which but Today, the provides this the stock due is process, its consistent the are highly manufacturing cost to material repeatable using very of to us of by we also an addition also precision In cost nature lowers machining, high raw a expensive and part the thickness. part. molding

right to we're data automation. focused for improved But in management like important. help are to chain supply of Through there key chain, electrolyte. our of quarters All equally manufacturing radar supply discuss now, which and supply we quality. drive the the some strategies three remaining is costs and down improvement will example systems, our chain have drive I'd management areas results, XXXX, improve inventory are One and for

strategies production energy We capacity. to and a of with multipronged have down developed in driving volume combination maximizing costs expand set

role we play not lower As also DC in is all energy the knowledge is major success a in and cost, collaborating in the but significant have storage ability technologies, production cost to electronics found industry firms scale an also that have the space, in. performance renewable This area only and with key. and

unless strong best But components base meaningless price drive best product is and team only high at is integrates the quality are the a having quality quality. part is of scale. highest repeatability intimately supply providing supplier to This where the engineering equation, of are the they they with ensuring our at

out quality and ensure have measuring We and actively consistently team suppliers' is been systems, building tools, giving them high. our processes to best the this

on through turn over to to design. some now automation making Dr. it and we you are will of walk product Heng the progress I Ben

Benjamin Heng

Vince. Thanks,

past elements in been our over of most year from integrating has the process. prototype important our to transition One underpinning automation the scale production

engineering in teams a but to our processes we leverage in so invested my Proton energy preventive part We're quality, procedures, first solution technology, control, company's enhance establish and the ARPU. to through this our develop product Pump learned critical I to prior scale. experience at a able line Tesla, and there. our time-consuming manufacturing and critical storage of increase our power develop ESS is automation modules at real and differentiation maintenance our our like high-quality, As in ability cost-effective The product

of of Wilsonville of from We cycle bode with goal have our our of XX%, deliver a X-gigawatt annual efforts a well reduction decrease our this labor footprint hour reaped and of XX%. capacity tremendous manufacturing to All automation savings from XX%, for on facilities. really overall improvement our

robot precise volume. to shows our crap, The as of internal this and complete power sample line module stacking our of accurately attach test using frames well as arms pictures slide the power the on automation a

we product a on energy successfully with focus simplifying design. warehouse Now side, RevX have our on released our the system

connections with only points. we product lower and not cost and optimization, momentum design reduced identified many have reduce improvement failure number on simplifying our which manufacturability also our costs and possible as focus piping this continuous well RevX the This a on but We the implemented improvement plan as the our of beyond, move reduction. improve We electronic on components. and quality and wiring product building into as in

about to journey. to now, Mark, And improve working the hand how he's who more customer Mark? I'll over talk it will

Mark Bindon

Customer projects, of companies President few. Vice Bindon, excellence my spent of in career Mark name I'm everyone. at afternoon, of and to good Networks and year, as and last joined Turntide Ben, delivery, having in Thanks, a ESS, complex Silver Energy, technology Spring Bloom much Success building such May

transition But first to our in to was took to broader certainly as needed to us Some it the commissioning to our product. it We really versus scale our customer as deliver This our implement our everything what lot turnkey process. projects manufacturer, evolve ESS solutions in model simply as delivery similar required well. a of product learned field. a enabled to intentional see the

with procurement going more and forward typical line model. model The deployment be is construction to expected in engineering

playbook enable standardized teams our our and technology as successfully a We support possible. are to to as developing commission efficiently

team different scale as ultimately can We business us as to well commissioning scale know-how, customer customer to our support documentation so the help collaborating Wilsonville the training playbook back we combines globally. are and with refine and tools, constantly sites enable experience. partners capabilities new with This at our the and

and with recipe for improvement leveraging deployment. is to ensure success hard working We're well-defined continuous each new the

to new XX% further process customer early gains. eliminate and QX line the our across Since as the sites contracting in throughout takes the the to I expect effort learnings early multiple systems in make everyone. of a it helps multiple compared last customers commission this surprises resulted has similar commission of see XXXX reduction with of for systems approach to improvement we'll we in remainder rate and a planning down efficiency During year, deployments.

role early their Figgatt, the Sacramento CEO we in International, as customers, our are the lessons about excited and Municipal about key of Steve will ensure in have share zero-carbon Then CEO with Paul As will the it goals. achieving products to District offered you couldn't product talk and our Sycamore technology Utility collaboration ambitious without delivered. these learned today; of was do the ultimately help talk support ESS field, two of to whom Lau, their perspectives get of we of to

Steve Figgatt

security. and We asset focus Sycamore is with non-salvageable Figgatt International. I Steve Sycamore responsibly of electronics. on secondary IT is name data a for refurbish My recycling an sustainable electronics and all company CEO the recycle am technology and Founder and reuse disposition

Our the operations are integrate impact. and to with promotes environmental most significant designed and economy, the circular into financial

a lost employ across types Sycamore, advantage, due and data individual sustainability past competitive the we to completely servers power lose destruction devastating. we For processing production power, an or in when storage of always procedures more outage was we entire been nature and media, day devices and the various of has each

of the solar-powered our chemicals very ideal Our with a on-site, contains are familiar for warehouse for daily storage. as develop and use XX-plus and very effectively for solution cycled At handling declaring completing our to now toxic was Energy energy and many ROI. is of the Warehouse ESS of uses independence, next of we a electricity be at to guaranteed partner recycling. a the batteries energy end-of-life heart XX Sycamore, has prices to Since now with it no flow types our years. microgrid, the with year which an fixed battery was availability are energy and designed Energies deployment to iron lifespan, reasonable safely TerraSol ESS' energy is microgrid our chemistries

solution, been I many a through bugs, applications see across slated there learned we ordered technology energy this We immense ESS done which to of it other is such and partner we this for complete my new as the initial have. really great potential have lot year. as some was of a navigated we industries. ESS to because later many industry the deploy technology, construction was and responsive lessons warehouse new deploy be to our And of another after in in candor, I'll building,

sustainably provide scales ESS really to out while energy excited storage to I'm their power decarbonize distributed to As this there the enable technology and long-duration see grid, greater we need generation. up safely production, the renewable capacity

Paul Lau

And largest plan aggressive Xth goal, SMUD, Hi, the the mission and power we to XXXX decarbonize General I'm I'm our for very, carbon utility CEO Paul zero very carbon-free U.S. Lau. in the SMUD, XXXX. goal. resources we XXX% and We plant public Manager call a something and the go by owned of have

have annualized things that do this so, U.S. successfully part that of is the ambitious plan, most is definitely the of one batteries as of the long-duration And extremely utility deploying that And we goal order of actually us in energy a actually future. need for in to area to one will in batteries ESS transition have help clean we're this with happy partnership we that very deploy in the very, and near sweet the Sacramento long-duration

Tony Rabb

Tony ESS. of I'm Rabb, the Hi, CFO

shared, two energy we million. recognized Eric As for $X.X warehouses on QX approximately revenue in

in material so delivery incurred of goods and production year. fall resulting cost In warehouses the We on this development delivered we've remained costs addition, completed we labor into sold. energy OpEx, rules slated quarter we producing the in QX, for under accounting products nine overhead in X in

Our million. we expectations QX negative million. EBITDA QX were in adjusted our at that, with $XX.X of With for expenses line non-GAAP operating reported $XX.X

continue prudent our We to to year. fiscal take ongoing ramp a this approach

our a challenging further our reduce customer cost our of with environment. continues balancing operations be up scale are in sold supply our desire what commitments to and to goods We

position. investing to in and expectations investments, with the in in production. our we feel first with million Finally, we very about which cash was and short-term up good while continue $XXX and manage in ended cash judiciously cash our and We projects line quarter scaling our liquidity infrastructure

processes, production doing have into XXXX. in so, optimize We We for forward plans cash to have believe capital to our sufficient plans going take scale have extended we our support and retooled and runway. our and our operating XXXX us

made to warehouse our recognition efforts associated While considerable revenue the we has still in some progress have deliveries. through our of early on work work ESS to with do, challenges energy

level Those XXXX largely deliverables like and system-level acceptance and that a XXXX testing and put site and to terms onus to project lagging responsibility from led recognition. on including contracts ESS items terms greater Earlier conditions contain revenue have commissioning. post completed

and much for contain through Moving product. delivery now which more contracts our reflect XXXX, and are we into that customer terms responsible acceptance delivering standard XXXX conditions, a new and

manner. of more some in many be new our still our our straightforward contracts and should of will remain shipments revenue which in legacy under place, While contract allow for to EW year structures, a this recognized expedited be

A asked reporting. about our number financial of you have

what typical of accounting for We standard are required as as a known development part our is companies accounting, stage. use practice of which to is

and of XXXX are preparing line We in profitability. to accounting to transition out continue ESS our our this and ultimate development the of processes to second and tied be the to change. path to of will support time standardize controls Obviously, half success

new and a product We are manufacturing volumes. commercializing to technology increase scaling

recognize we associated a progression. will So, there curve be with learning that

efficient volume company and Vince in as to have has labor shared, improved XXXX, direct progress made the cycle more from Since moving low Ben considerable times. production and high and yields and

in alone times, the we considerable with RevX our having EW. particular with still Gen by of being our challenges vendor are in supply and XX% reducing product the made cost X progress of chain, labor design the labor in we While reduced some lead

automated number yields and also a lower production initiatives that costs manufacturing These both increase continue materials labor is have going expected the projects via should our into and to We reduce and are our cost, the that labor initiatives EW. further to of line.

we ramp cover be the on non-GAAP cash projects With gross the breakeven the our volumes a fixed we margin how our to XX and months. Once to flow business. in XX point, these and quickly path that more up to have indirect initiatives, existing in believe to dependent profitability costs past will we next path company

While step, characteristics. model to scaling critical profitability business we long-term a the believe next has some our very is attractive business

that Importantly, product generate we do on capital the demand invested and expected our return not long-term see a over one ESS with problem is a to model higher is time.

long-term to tax to credits the achieve will volumes believe planning Within the years we Couple mid-teens. X agreements, the long-range trending considerable over margins the north our profitability gross along expansion to this bottom with towards the XX%, horizon, production with in expect increasing addition to of line. to service of we operating expand with to our we able deliver be expenses expect we next

CapEx capacity. production in require product our our capacity grow does drive investments considerable expansion and and not Investments to process capital

gigawatt existing returns of business resulting over lines. of million simple For therefore, delivering capable every in relatively of capacity approximately hour the strong we XXX our already that is, additional $XX model is currently we capacity, have and require longer cell about of hours term. straightforward, one CapEx, and The battery megawatt

wrap it up. back pass Eric to I'll that, to with And

Eric Dresselhuys

Thank are success increase and our as The improve discussed have cost drive long-term we experience. down to you, scale, customer Tony. initiatives we critical the

by one our in initiatives, transition. Importantly, internal be we impactful opportunities on of market believe executing is take energy advantage the what most of to we'll positioned the

Let solutions. are me that for touch tailwinds market on a few of accelerating the demand our

As hour investment and discussed, through working customers solutions receive build. deploying for production access solutions, we we've we a tax our the $XX-kilowatt credit is way can credits meaningful for can its significant now market. the This

United energy Europe have tax announcing reach in and addition states in and the these This, announcements credits, to major our have investment drive Australia continued resulted in interest States, regulatory or which XX in in Here can to more, for storage. incentives targets solutions. XX%

we have scale diligently discussed improve are we and those our recognition making progress, yet address am revenue manufacturing. prepares time storage are we've good in to already some are Although launching tailwinds, we we for to deployments. that recognize entire seeing surge closing, realize energy In do work a benefits of the and challenges working many these to has expect today. as activity system it pleased I transformative technology increase the significant but to customer the in will take we full we energy a

manufacture many and our products impractical Wilsonville, wanted to we we the see it for progress opportunity about give While you learn to is to you we to of we facility realize more an visit how in making. are our

investor our encourage website, the would you have at page of I it your to convenience. our tour posted and of On we factory, a watch

and pleased believe also UL client our of as our certification moat. IP new competitive including portfolio, with which are We as achieving customer of ever-expanding announcement a we adoption, as standards widen well to ETL the will Solar all Coldwell an

in long-term customers We needs. are require a and have building materials proposition energy customers a that our stores to that value the abundant for made meaningful their provide in market presence with fast-growing seeking, safe are a America transition

And with that, it questions. open I'll for up

Operator

And first Oppenheimer. Instructions]. our [Operator from question Rusch from comes Colin

Colin Rusch

Now got the some for talk the you've years. that bit field round couple in deployments? a you're seeing Can about product of efficiency that a those little on you of

Eric Dresselhuys

Sure. Well, XX% But in to with you is, improve range. of what of we're and customer satisfied but seeing are a were we've performance, aux hard kind at. kind round efficiency good and on hard we're We're trip the a seen bit we little working improve where depends efficiency, Colin, loads it that on the to use as working always case battery.

Colin Rusch

then the -- are guys you so you making total customers. process? are you over you've with some Can in since about of a opportunities last the obviously, at year guys progress through this nice or growth on gone little as sales diversity And pipeline looking front, the the bit talk you

Eric Dresselhuys

two Eric, I'd again -- say. Sure. It's things here. well,

customer juiced definitely the is conversations. of the has up number first IRA The

got use of into across what actual We're We've convert IRS -- to are that on waiting seen cases. rules be. yet. spectrum to hesitation interpretations going trying to the haven't see whole orders some the and We customers

a point. lot conversation, So, it's but of not lot generated of this at close a

of is a shifts. we've seen What couple

move municipal things from always change are and who on renewable interest more real Of come assets, trying see the IPPs the has course, but like to side. we firmed to developers of lot a

from So up XX% ramped get really who are an always can course, market to resiliency IRA reliability those up or for who municipal of interesting around us, folks the and cases. with utilities direct have And been ITCs. conversations have pay use more those

So those conversations. that's really encouraged

Operator

Moore Chip from comes from Hutton. question next EF our And

Chip Moore

expand then Eric, potential? on the that you you being your mentioned that wanted X project? of are at ability sitting ask to, Can are or those the the the think the about delays you built project kind there expand I that to to and on maybe more Can to rework port. units that in

Eric Dresselhuys

Sure.

two to So, that answer. parts

it's are that that's as just we shortly back both to case, quickly. going The And said, first is to are track. and customer. that, in get is have that project to hope to we that we units ship And happen going plus the the on we will that off the relatively hopeful, units delayed the already that import continue here just

rearranging product product, of standard rest the because is we looking pipeline customers a the our we've already looked build off we're at and and But relatively gone schedule. in at the

if states other the we'll probably we take than in just is a here for the whether ones units here units them country in and So, there Australia those project, for this to the in off shift others. further customers, delay like the -- still and immediate are that

Chip Moore

And then so we'd expect, commissioning else, and a -- there right, of course, everything on lag

Eric Dresselhuys

it -- this that could specific months bit of but quarter. predict hard delay depend, the course, of a a It's to be to at little a little projects, point. A on would

Chip Moore

a the straightforward. down? to you of much those on on referenced the you there those the curious, and wind And I legacy color more contracts guess, there kind guess, much contract are plant all the to of and when then need I progress side, through how Is newer of manufacturing. work work way you guys I around gave appreciate sort are contracts out that more quantify or is operationally

Eric Dresselhuys

and conditions. number But contracts have a continue that contracts majority the we're the through. of going terms of those to forward the contracts going should work and still new to new there's Yes,

some there's work a wind bit that but pipeline to going this So, in of still we're down the year, we'll those through.

Chip Moore

But of the terms cash? you line in, on talked where think on to you for could exit of if You in gross of thoughts Okay. margin get any the year -- the cash one year? more sneak sort any just sense I XX-month that to time positive. And about burn XX-

Eric Dresselhuys

Yes.

pretty structured manage We any end of this feel good for I year said, we cash. this this we the to about about on us feel guidance XXXX. haven't that plan position and being the taking production able execute we plans given and good cash our through the way very Like year into on through to

Operator

question Loop [Operator from Chris Capital. comes from Kapsch next Instructions]. And our

Elijah Obasanya

Chris Elijah flow in is is on Obasanya this in [indiscernible] the translating is that your for any Kapsch. of interest increase -- Is the ESS characteristics Part Hey, the there duration to battery system. iron an commercial of seeing long that systems?

Eric Dresselhuys

Sure, pretty I'll take a crack at the couple reasons. growing that. I interest mean of I is a for think dramatically

that XX We're in we've first longer. past is The ambitions you've announced seeing four-hour cases in kind grid country, of feelings this states like about Europe, states for across getting that now used the our max. be Australia, storage. -- have The use and the RFPs are highlighted but increasing to the in seen California,

X-plus Now quite we're hours seeing RFPs and broadly. happening rulemaking

So that's duration. longer in driving just interest a lot of

really and of that U.S. is technology to that's course, a of bit the all getting a time? is here are flow world to The by out of two And systems effect broadly quite aspect think, something putting I of safety do of we're that storage. The the talked very things. energy is it, the we be the How last ensure that around in people part long energy second renewable iron interest the across the driven that's we in publicity build piece about then, for in safe going becoming world are

appealing with chain are global simplicity trade really people and chains our of what -- anxious about supply with China. might is the who the So, to locality happen and supply

Elijah Obasanya

the of can't go is Yes. of let a that second point. that. IRA credit I in going Obviously, all off factor

they those IRA see increasing So, you community quantify currently? the you can on over other battery the from that and And you're from as the solutions seeing credit bonus and that that just that energy improvements lithium-ion interest credits? do commercial get any

Eric Dresselhuys

some know probably They something wouldn't performance comfortable lithium, And I absolute. the don't my I a feel meets just product needs say criteria, want me of a in want don't as are I to even non-lithium price. lithium people put in trying the want that's indifferent just it. at take number that that the to non-lithium. They interest. know give Yes. case the I to And don't I that versus cases, and they it's best the say, to technology. indexed how meets that best a guess to we're

built what processes at translate I we're the out me, long-term with at think But in five integrated seeing what's next as I volume that planning And very state course of level, people it's and Utility the level the resource over Commission at now for where plus. -- do getting Public the big the years planning think into storage excuse goals ramps utility, known come the the specific that's will into in field. the

Operator

further no I And over at are there remarks. closing turn time, like this would questions. to the back call for to Eric

Eric Dresselhuys

an talking call We progress I'd to of investor, you We extended on was time the making today. posted a And remind essinc.com. at video about that and our appreciate as the day. great business. great operations page we've the website and to us and of joining Investor go spent insightful. hope employees, we that the tour for customers, in hope We're all you on the that Thank watch have scaling we you the the all support everybody

Operator

This concludes today's you conference for Thank call. attending.

ESS Tech (GWH) 9 May 232023 Q1 Earnings call transcript