Table of Contents UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K (Mark One) x ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2022 OR o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from _______ to ________ Commission file number 001-39525 (855) 423-9920 Registrant's telephone number, including area code Securities registered purs ...

ESS Tech, Inc. (NYSE:GWH) Q3 2022 Earnings Conference Call November 3, 2022 5:00 PM ET Company Participants Erik Bylin - Investor Relations Eric Dresselhuys - Chief Executive Officer Amir Moftakhar - Chief Financial Officer Conference Call Participants Colin Rusch - Oppenheimer Thomas Boyes - Cowen & Co. Joseph Osha - Guggenheim Partners Chip Moore - EF Hutton Operator Ladies and gentlemen, thank you for standing by. At this time, all participants are in a listen-only mode. Later, we will conduct a question ...

ESS Tech, Inc. (NYSE:GWH) Q2 2022 Earnings Conference Call August 11, 2022 5:00 PM ET Company Participants Erik Bylin - Investor Relations Eric Dresselhuys - Chief Executive Officer Amir Moftakhar - Chief Financial Officer Conference Call Participants Colin Rusch - Oppenheimer Thomas Boyes - Cowen Joseph Osha - Guggenheim Partners Operator Ladies and gentlemen, thank you for standing by. At this time, all participants are in a listening only mode. Later, we will conduct a question-and-answer session. [Opera ...

Financial Data and Key Metrics Changes - The company reported Q1 adjusted EBITDA of negative $19.2 million and non-GAAP operating expenses of $19.4 million, aligning with expectations [22][24] - The company ended Q1 with $213.5 million in cash and short-term investments, with cash used by operations amounting to $19.4 million [22][28] Business Line Data and Key Metrics Changes - The company shipped two energy warehouses to San Diego Gas and Electric in Q1 and expects to complete deliveries for a total of six units [20][21] - Despite shipping units, the company did not recognize revenue in Q1 due to delays in achieving final revenue recognition hurdles [9][21] Market Data and Key Metrics Changes - The total pipeline remains at approximately $7 billion, with a notable increase in demand from Europe, particularly for combined solar or wind plus storage solutions [33][34] - The market dynamics for long-duration storage are shifting favorably, with increasing inquiries and a growing recognition of the importance of energy storage [11][12] Company Strategy and Development Direction - The company aims to ramp up manufacturing operations while reducing unit costs, with expectations to ship 40 to 50 energy warehouses in 2022 [7][18] - The company is focused on enhancing its delivery and customer success team to ensure quick realization of value for customers and accelerate revenue recognition [10][18] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in navigating supply chain challenges and maintaining production schedules, with no ongoing issues expected to impact delivery plans [23] - The company anticipates a transformative year in 2022, positioning itself as a viable alternative to lithium-based energy storage systems [17][18] Other Important Information - The company is implementing design for manufacturability improvements and has taken delivery of a second semi-automated manufacturing line, with plans for a fully automated line by Q4 [26][28] - The company expects to exit 2022 with a production capacity of 750 megawatt hours per year [26] Q&A Session Summary Question: What are the challenges with revenue recognition? - Management indicated that challenges are due to legacy contracts and customer site learnings, but they feel positive about progress [32] Question: Can you discuss the growth in the customer pipeline? - The pipeline continues to grow, particularly in Europe, with a focus on combined solar or wind plus storage solutions [33] Question: Will Energy Center systems be deployed in 2023? - Management confirmed that they still expect Energy Center systems to be operational in 2023 [37] Question: What types of component shortages have you faced? - Management noted that while there have been general supply chain challenges, they currently do not see major issues impacting production [39] Question: Is there a competitive advantage due to lithium supply issues? - Management confirmed that the current lithium supply challenges are driving increased interest in their solutions, alongside regulatory and safety concerns [75][76]

[CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS](index=4&type=section&id=CAUTIONARY%20NOTE%20REGARDING%20FORWARD-LOOKING%20STATEMENTS) This note advises that forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from projections - Forward-looking statements are identified by terms like 'believes,' 'estimates,' 'anticipates,' 'expects,' 'intends,' 'plans,' 'possible,' 'may,' 'might,' 'will,' 'potential,' 'projects,' 'predicts,' 'continue,' 'could,' 'would' or 'should,' or their negative variations[9](index=9&type=chunk) - Actual results may differ materially due to various factors, risks, and uncertainties, including financial and business performance, changes in strategy, market acceptance of technology, ability to scale, competitive developments, impact of health epidemics (like COVID-19), intellectual property protection, future capital requirements, and relationships with suppliers[10](index=10&type=chunk)[11](index=11&type=chunk) - The company undertakes no obligation to update or revise any forward-looking statements, except as required by applicable securities laws[10](index=10&type=chunk) [PART I – FINANCIAL INFORMATION](index=6&type=section&id=PART%20I%20%E2%80%93%20FINANCIAL%20INFORMATION) This part presents the unaudited consolidated financial statements and management's discussion for the period ended March 31, 2022 [ITEM 1. FINANCIAL STATEMENTS](index=6&type=section&id=ITEM%201.%20FINANCIAL%20STATEMENTS) This section presents the unaudited consolidated financial statements of ESS Tech, Inc. for the period ended March 31, 2022 [Consolidated Balance Sheets](index=6&type=section&id=Consolidated%20Balance%20Sheets) This section provides a snapshot of the company's financial position at March 31, 2022, and December 31, 2021 Consolidated Balance Sheet Highlights (in thousands) | Metric | March 31, 2022 | December 31, 2021 | Change ($) | Change (%) | | :-------------------------------- | :------------- | :---------------- | :--------- | :--------- | | Cash and cash equivalents | $212,331 | $238,940 | $(26,609) | -11.13% | | Total current assets | $220,832 | $245,518 | $(24,686) | -10.05% | | Total assets | $235,484 | $250,199 | $(14,715) | -5.88% | | Total current liabilities | $18,346 | $13,622 | $4,724 | 34.68% | | Total liabilities | $36,035 | $45,040 | $(9,005) | -20.00% | | Total stockholders' equity | $199,449 | $205,159 | $(5,710) | -2.78% | [Consolidated Statements of Operations and Comprehensive Loss](index=7&type=section&id=Consolidated%20Statements%20of%20Operations%20and%20Comprehensive%20Loss) This section details the company's financial performance and comprehensive loss for the three months ended March 31, 2022 and 2021 Consolidated Statements of Operations Highlights (Three Months Ended March 31, in thousands, except per share data) | Metric | 2022 | 2021 | Change ($) | Change (%) | | :------------------------------------ | :----- | :----- | :--------- | :--------- | | Research and development | $12,898 | $5,652 | $7,246 | 128.19% | | Sales and marketing | $1,501 | $512 | $989 | 193.16% | | General and administrative | $7,789 | $2,120 | $5,669 | 267.41% | | Total operating expenses | $22,188 | $8,284 | $13,904 | 167.84% | | Loss from operations | $(22,188) | $(8,284) | $(13,904) | 167.84% | | Gain (loss) on revaluation of warrant liabilities | $15,664 | $(8,426) | $24,090 | N/M | | Loss on revaluation of derivative liabilities | $0 | $(138,141) | $138,141 | N/M | | Net loss and comprehensive loss | $(5,709) | $(154,918) | $149,209 | -96.32% | | Net loss per share - basic and diluted | $(0.04) | $(2.51) | $2.47 | -98.41% | [Consolidated Statements of Stockholders' Equity (Deficit)](index=8&type=section&id=Consolidated%20Statements%20of%20Stockholders'%20Equity%20(Deficit)) This section outlines changes in stockholders' equity (deficit) for the three months ended March 31, 2022 and 2021 Stockholders' Equity (Deficit) Changes (amounts in thousands, except share data) | Metric | December 31, 2021 | March 31, 2022 | Change ($) | | :------------------------------------ | :------------------ | :--------------- | :--------- | | Common Stock (shares) | 151,839,058 | 152,606,563 | 767,505 | | Common Stock (amount) | $16 | $16 | $0 | | Additional paid-in capital | $745,753 | $745,752 | $(1) | | Accumulated deficit | $(540,610) | $(546,319) | $(5,709) | | Total stockholders' equity (deficit) | $205,159 | $199,449 | $(5,710) | - Key activities impacting equity during Q1 2022 included issuance of common stock upon exercise of options (**$47 thousand**), cancellation of shares for payroll tax withholding (**$(2,808) thousand**), and stock-based compensation expense (**$2,760 thousand**)[20](index=20&type=chunk) [Consolidated Statements of Cash Flows](index=9&type=section&id=Consolidated%20Statements%20of%20Cash%20Flows) This section presents the cash inflows and outflows from operating, investing, and financing activities Consolidated Statements of Cash Flows Highlights (Three Months Ended March 31, in thousands) | Cash Flow Activity | 2022 | 2021 | Change ($) | | :------------------------------------ | :----- | :----- | :--------- | | Net cash used in operating activities | $(19,374) | $(6,483) | $(12,891) | | Net cash used in investing activities | $(4,041) | $(133) | $(3,908) | | Net cash (used in) provided by financing activities | $(3,244) | $11,878 | $(15,122) | | Net change in cash, cash equivalents and restricted cash | $(26,659) | $5,262 | $(31,921) | | Cash, cash equivalents and restricted cash, end of period | $213,573 | $11,656 | $201,917 | - Non-cash investing and financing transactions in Q1 2022 included **$2,235 thousand** for property and equipment purchases in accounts payable and accrued liabilities, **$4,534 thousand** for right-of-use operating lease assets, and **$123 thousand** for right-of-use finance lease assets[24](index=24&type=chunk) [NOTES TO CONSOLIDATED FINANCIAL STATEMENTS](index=11&type=section&id=NOTES%20TO%20CONSOLIDATED%20FINANCIAL%20STATEMENTS) This section provides detailed disclosures and explanations for the consolidated financial statements and significant accounting policies [1. DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION](index=11&type=section&id=1.%20DESCRIPTION%20OF%20BUSINESS%20AND%20BASIS%20OF%20PRESENTATION) This note describes the company's business, its long-duration iron flow battery technology, and the basis of financial statement presentation - ESS Tech, Inc. specializes in long-duration iron flow battery technology for commercial and utility-scale energy storage, designed for a **25-year operating life** without performance degradation[27](index=27&type=chunk) - The company is currently in the research and development phase, with products not yet Commercially Available[27](index=27&type=chunk) - The Business Combination on October 8, 2021, was accounted for as a reverse recapitalization, with Legacy ESS treated as the accounting acquirer[28](index=28&type=chunk)[29](index=29&type=chunk)[31](index=31&type=chunk) [2. SIGNIFICANT ACCOUNTING POLICIES](index=12&type=section&id=2.%20SIGNIFICANT%20ACCOUNTING%20POLICIES) This note details the critical accounting policies and estimates used in preparing the financial statements - The preparation of financial statements requires management to make estimates and judgments, particularly for useful lives of assets, deferred tax assets, and fair value of warrant liabilities[34](index=34&type=chunk) - The company follows the two-class method for net loss per share, with potentially dilutive securities excluded when anti-dilutive due to net losses[35](index=35&type=chunk) - No revenue was recognized for the three months ended March 31, 2022 or 2021, as products are still under development and revenue recognition criteria have not been met[38](index=38&type=chunk) - The company adopted ASU 2016-02, Leases (ASC 842) on January 1, 2022, resulting in the recording of lease assets and liabilities of **$4,534 thousand** and **$5,229 thousand**, respectively, with no material impact on results of operations or cash flows[51](index=51&type=chunk)[53](index=53&type=chunk) [3. BUSINESS COMBINATION](index=14&type=section&id=3.%20BUSINESS%20COMBINATION) This note outlines the details and accounting treatment of the Business Combination completed on October 8, 2021 - The Business Combination closed on **October 8, 2021**, with Legacy ESS becoming a wholly owned subsidiary of ESS Tech, Inc[54](index=54&type=chunk) - Legacy ESS securityholders received **99,700,326 shares** of common stock, and up to **16,500,000 Earnout Shares** were issuable, with **15,674,965 shares** issued upon milestone achievement on November 9, 2021[54](index=54&type=chunk)[55](index=55&type=chunk) [4. NET LOSS PER SHARE](index=14&type=section&id=4.%20NET%20LOSS%20PER%20SHARE) This note presents the calculation of basic and diluted net loss per share for the reporting periods Net Loss Per Share (Three Months Ended March 31, in thousands, except per share data) | Metric | 2022 | 2021 | | :------------------------------------ | :----- | :----- | | Net loss attributable to common stockholders | $(5,709) | $(154,918) | | Weighted-average shares outstanding – Basic and Diluted | 151,683,819 | 61,693,067 | | Net loss per share – Basic and Diluted | $(0.04) | $(2.51) | - Potentially dilutive securities (stock options, RSUs, warrants) were excluded from diluted EPS calculation for both periods as their effect would have been anti-dilutive due to net losses[58](index=58&type=chunk) [5. PREPAID EXPENSES AND OTHER CURRENT ASSETS](index=15&type=section&id=5.%20PREPAID%20EXPENSES%20AND%20OTHER%20CURRENT%20ASSETS) This note provides a breakdown of prepaid expenses and other current assets as of the reporting dates Prepaid Expenses and Other Current Assets (in thousands) | Category | March 31, 2022 | December 31, 2021 | | :-------------------------------- | :------------- | :---------------- | | Insurance | $2,397 | $3,482 | | Vendor advances | $1,514 | $1,103 | | Other | $495 | $259 | | Total prepaid expenses and other current assets | $4,406 | $4,844 | [6. PROPERTY AND EQUIPMENT, NET](index=15&type=section&id=6.%20PROPERTY%20AND%20EQUIPMENT,%20NET) This note details the composition and net book value of property and equipment Property and Equipment, Net (in thousands) | Category | March 31, 2022 | December 31, 2021 | | :-------------------------------- | :------------- | :---------------- | | Machinery and equipment | $2,910 | $2,868 | | Furniture and fixtures | $88 | $90 | | Leasehold improvements | $1,030 | $746 | | Construction in process | $7,944 | $2,517 | | Total property and equipment | $11,972 | $6,221 | | Less accumulated depreciation | $(1,916) | $(1,720) | | Total property and equipment, net | $10,056 | $4,501 | - Depreciation and amortization expense increased to **$196 thousand** for Q1 2022 from **$130 thousand** for Q1 2021[60](index=60&type=chunk) [7. ACCRUED AND OTHER CURRENT LIABILITIES](index=15&type=section&id=7.%20ACCURUED%20AND%20OTHER%20CURRENT%20LIABILITIES) This note provides a breakdown of accrued and other current liabilities as of the reporting dates Accrued and Other Current Liabilities (in thousands) | Category | March 31, 2022 | December 31, 2021 | | :-------------------------------- | :------------- | :---------------- | | Payroll and related benefits | $1,552 | $1,876 | | Materials and related purchases | $2,596 | $2,108 | | Deferred rent | $0 | $142 | | Professional and consulting fees | $1,140 | $1,820 | | Other | $1,327 | $541 | | Total accrued and other current liabilities | $6,615 | $6,487 | [8. LEASES](index=16&type=section&id=8.%20LEASES) This note describes the company's lease arrangements, including operating and finance leases - The company leases office and manufacturing space under operating leases and printers/copiers under finance leases, with operating lease costs for Q1 2022 at **$371 thousand**[64](index=64&type=chunk)[65](index=65&type=chunk) - As of March 31, 2022, the weighted-average remaining term for operating leases was **3.4 years** with a **7.5% discount rate**, and for finance leases was **4.9 years** with a **7.5% discount rate**[65](index=65&type=chunk) Future Maturities of Lease Liabilities (in thousands) | Year | Operating Leases | Finance Leases | | :--- | :--------------- | :------------- | | 2022 | $1,222 | $21 | | 2023 | $1,670 | $30 | | 2024 | $1,720 | $30 | | 2025 | $983 | $30 | | 2026 | $0 | $30 | | Thereafter | $0 | $7 | | Total minimum lease payments | $5,595 | $148 | | Less imputed interest | $(673) | $(25) | | Total | $4,922 | $123 | [9. BORROWINGS](index=16&type=section&id=9.%20BORROWINGS) This note details the company's outstanding notes payable and their associated terms Long Term Debt (in thousands) | Category | March 31, 2022 | December 31, 2021 | | :-------------------------------- | :------------- | :---------------- | | Total notes payable | $3,300 | $3,769 | | Less current portion of notes payable | $1,817 | $1,900 | | Notes payable, non-current | $1,483 | $1,869 | - Notes payable include a **$1,000 thousand** note (maturity extended to September 1, 2022) and a **$4,000 thousand** note (maturity extended to January 1, 2024), bearing interest at **0.50% below the bank's prime rate** (**3.00%** on March 31, 2022)[67](index=67&type=chunk)[68](index=68&type=chunk)[69](index=69&type=chunk)[70](index=70&type=chunk) [10. COMMITMENTS AND CONTINGENCIES](index=17&type=section&id=10.%20COMMITMENTS%20AND%20CONTINGENCIES) This note outlines the company's material commitments, contingencies, and legal proceedings - The company is not aware of any material legal proceedings or other claims[71](index=71&type=chunk) - As of March 31, 2022, the company had a **$725 thousand** standby letter of credit secured by a **$75 thousand** restricted certificate of deposit account[72](index=72&type=chunk) - Total unfulfilled noncancellable purchase commitments increased to **$23,344 thousand** as of March 31, 2022, from **$10,160 thousand** as of December 31, 2021[74](index=74&type=chunk) [11. LEGACY ESS REDEEMABLE CONVERTIBLE PREFERRED STOCK](index=17&type=section&id=11.%20LEGACY%20ESS%20REDEEMABLE%20CONVERTIBLE%20PREFERRED%20STOCK) This note describes the conversion of Legacy ESS preferred stock and related derivative liabilities prior to the Business Combination - All Legacy ESS redeemable convertible preferred stock converted into Legacy ESS common stock immediately prior to the Business Combination on **October 8, 2021**[75](index=75&type=chunk)[76](index=76&type=chunk) - The Series C-2 Redeemable Convertible Preferred Stock Issuance Right was initially valued at **$11,379 thousand** and resulted in a net increase in derivative liability of **$138,141 thousand** for Q1 2021 due to fair value changes[79](index=79&type=chunk)[82](index=82&type=chunk) - In March 2021, Legacy ESS issued **5,746,003 shares** of Series C-2 preferred stock for **$11,500 thousand**, and in conjunction with the Business Combination, C-2 warrants and Purchase Rights were exercised, yielding **$15,559 thousand** in proceeds[80](index=80&type=chunk)[81](index=81&type=chunk) [12. COMMON STOCK WARRANTS](index=18&type=section&id=12.%20COMMON%20STOCK%20WARRANTS) This note details the company's common stock warrants, including their types, activities, and fair value measurements Common Stock Warrant Activities (in thousands, except for share data) | Warrant Type | December 31, 2021 | Issued | Exercised | March 31, 2022 | | :-------------------- | :------------------ | :----- | :-------- | :------------- | | Earnout Warrants | 583,334 | — | — | 583,334 | | Public Warrants | 7,377,913 | — | 20 | 7,377,893 | | Private Warrants | 3,500,000 | — | — | 3,500,000 | | Total Common Stock Warrants | 11,461,247 | — | 20 | 11,461,227 | - Public Warrants, Private Warrants, and Earnout Warrants are exercisable at **$11.50 per share**, with Public Warrants expiring on **October 8, 2026**, and redeemable under certain conditions[88](index=88&type=chunk)[89](index=89&type=chunk)[91](index=91&type=chunk) - For Q1 2022, the company recorded a net decrease in liabilities for Earnout Warrants (**$840 thousand**), Public Warrants (**$10,624 thousand**), and Private Warrants (**$5,040 thousand**) due to fair value changes[93](index=93&type=chunk) [13. STOCK-BASED COMPENSATION PLAN](index=20&type=section&id=13.%20STOCK-BASED%20COMPENSATION%20PLAN) This note describes the company's equity incentive plan and the stock-based compensation expense recognized - The 2021 Equity Incentive Plan, effective October 2021, authorizes the issuance of **17,610,000 shares** of common stock as of March 31, 2022, with **13,021,489 shares** available for future grant[94](index=94&type=chunk)[96](index=96&type=chunk) Stock-Based Compensation Expense (Three Months Ended March 31, in thousands) | Department | 2022 | 2021 | | :-------------------------- | :----- | :----- | | Research and development | $587 | $64 | | Sales and marketing | $54 | $16 | | General and administrative | $2,119 | $49 | | Total stock-based compensation | $2,760 | $129 | - As of March 31, 2022, unamortized stock-based compensation expense was approximately **$24,071 thousand**, expected to be recognized over a weighted average period of **3.11 years**[97](index=97&type=chunk) [14. FAIR VALUE MEASUREMENTS](index=21&type=section&id=14.%20FAIR%20VALUE%20MEASUREMENTS) This note provides information on the fair value hierarchy used for financial assets and liabilities Fair Value Hierarchy for Financial Assets and Liabilities (March 31, 2022, in thousands) | Category | Level 1 | Level 2 | Level 3 | Total | | :-------------------------------- | :------ | :------ | :------ | :------ | | **Assets:** | | | | | | Money market funds | $211,369 | $0 | $0 | $211,369 | | Certificate of deposit | $0 | $75 | $0 | $75 | | **Liabilities:** | | | | | | Earnout warrant liabilities | $0 | $636 | $0 | $636 | | Public common stock warrants | $8,042 | $0 | $0 | $8,042 | | Private common stock warrants | $0 | $3,815 | $0 | $3,815 | - Public common stock warrants are valued using **Level 1 inputs** (market price), while earnout warrant liabilities and private common stock warrants are valued using **Level 2 inputs** (market price of public warrants)[101](index=101&type=chunk)[102](index=102&type=chunk) - As of March 31, 2021, warrant liabilities and Series C-2 Convertible Preferred Stock Issuance Right liability were measured using **Level 3 unobservable inputs**, with a total ending balance of **$154,395 thousand**[104](index=104&type=chunk)[108](index=108&type=chunk) [15. INCOME TAXES](index=23&type=section&id=15.%20INCOME%20TAXES) This note discusses the company's income tax position, including deferred tax assets and valuation allowances - The company did not record a tax provision for Q1 2022 or Q1 2021 due to a history of losses and has recorded a valuation allowance against substantially all net deferred tax assets[109](index=109&type=chunk) [16. RELATED PARTY TRANSACTIONS](index=23&type=section&id=16.%20RELATED%20PARTY%20TRANSACTIONS) This note discloses transactions and agreements with related parties, including framework agreements and deferred revenue - In April 2021, ESS signed a framework agreement with SB Energy Global Holdings One Ltd (SBE) to supply energy storage products, but no orders have been placed to date[110](index=110&type=chunk) - SBE and Breakthrough Energy Ventures, LLC were issued **6,707,318 Earnout Shares**[111](index=111&type=chunk) - Deferred revenue from sales of Energy Warehouse products to related parties was **$237 thousand** as of March 31, 2022, up from **$171 thousand** as of December 31, 2021[111](index=111&type=chunk)[112](index=112&type=chunk) [ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.](index=24&type=section&id=ITEM%202.%20MANAGEMENT'S%20DISCUSSION%20AND%20ANALYSIS%20OF%20FINANCIAL%20CONDITION%20AND%20RESULTS%20OF%20OPERATIONS.) This section provides management's perspective on the company's financial condition, operational results, and key business drivers [Overview](index=24&type=section&id=Overview) This overview introduces ESS's long-duration iron flow battery technology and its product offerings - ESS specializes in long-duration iron flow battery technology, designed for over **20,000 cycles** without capacity fade, using non-toxic, recyclable materials[115](index=115&type=chunk)[116](index=116&type=chunk) - The company offers two products: the Energy Warehouse (4-12 hour duration, behind-the-meter) and the Energy Center (larger scale, front-of-the-meter, for utility and large C&I)[117](index=117&type=chunk) - Second-generation Energy Warehouses began shipping in Q3 2021 and are currently undergoing installation, commissioning, and testing[118](index=118&type=chunk) [The Business Combination](index=24&type=section&id=The%20Business%20Combination) This section briefly describes the consummation of the Business Combination on October 8, 2021 - The Business Combination was consummated on **October 8, 2021**, with Legacy ESS merging into STWO, which then changed its name to ESS Tech, Inc[119](index=119&type=chunk) [Key Factors and Trends Affecting our Business](index=24&type=section&id=Key%20Factors%20and%20Trends%20Affecting%20our%20Business) This section discusses critical factors and trends influencing the company's business, including scalability and supply chain disruptions - Future success depends on achieving economies of scale and lower product costs to enable profitable growth, leveraging a scalable business model[121](index=121&type=chunk) - Operating expenses are expected to increase in the near term due to ramp-up in R&D, manufacturing, supply chain activities, and costs associated with being a public company[121](index=121&type=chunk) - The COVID-19 pandemic has disrupted supply chains, affecting production and sales, and its ultimate impact on financial performance remains uncertain[123](index=123&type=chunk) [Components of Results of Operations](index=25&type=section&id=Components%20of%20Results%20of%20Operations) This section explains the key components contributing to the company's results of operations, including revenue and expenses - Revenue is recognized from product sales and service contracts, deferred until written customer acceptance after system testing, or until a history of successful acceptance is established[125](index=125&type=chunk) - Research and development costs are expected to increase as the company invests in its product roadmap[126](index=126&type=chunk) - General and administrative expenses are expected to increase due to headcount growth and costs associated with operating as a public company[128](index=128&type=chunk) - Other income (expenses), net includes interest expense, gains/losses on revaluation of warrant liabilities, and derivative liabilities[129](index=129&type=chunk)[130](index=130&type=chunk)[131](index=131&type=chunk)[132](index=132&type=chunk) [Results of Operations](index=26&type=section&id=Results%20of%20Operations) This section provides a comparative analysis of the company's operating results for the three months ended March 31, 2022 and 2021 Operating Results Comparison (Three Months Ended March 31, in thousands) | Category | 2022 | 2021 | $ Change | % Change | | :------------------------------------ | :----- | :----- | :------- | :------- | | Research and development | $12,898 | $5,652 | $7,246 | 128% | | Sales and marketing | $1,501 | $512 | $989 | 193% | | General and administrative | $7,789 | $2,120 | $5,669 | 267% | | Total operating expenses | $22,188 | $8,284 | $13,904 | 168% | | Loss from operations | $(22,188) | $(8,284) | $(13,904) | 168% | | Gain (loss) on revaluation of warrant liabilities | $15,664 | $(8,426) | $24,090 | N/M | | Loss on revaluation of derivative liabilities | $0 | $(138,141) | $138,141 | N/M | | Gain on revaluation of earnout liabilities | $840 | $0 | $840 | N/M | | Net loss | $(5,709) | $(154,918) | $149,209 | N/M | - No revenue was recognized in Q1 2022 or Q1 2021 as second-generation products are not fully deployed and revenue recognition criteria have not been met[135](index=135&type=chunk) - Interest expense, net decreased by **$28 thousand** due to lower outstanding borrowings[139](index=139&type=chunk) [Liquidity and Capital Resources](index=27&type=section&id=Liquidity%20and%20Capital%20Resources) This section assesses the company's liquidity position and capital resources, including cash flows and accumulated deficit - The company has incurred significant losses and had an accumulated deficit of **$546,319 thousand** as of March 31, 2022[144](index=144&type=chunk) - Unrestricted cash and cash equivalents were **$212,331 thousand** as of March 31, 2022, believed to be sufficient for at least **12 months** of operations[144](index=144&type=chunk) Cash Flow Summary (Three Months Ended March 31, in thousands) | Activity | 2022 | 2021 | | :------------------------------------ | :----- | :----- | | Net cash used in operating activities | $(19,374) | $(6,483) | | Net cash used in investing activities | $(4,041) | $(133) | | Net cash (used in) provided by financing activities | $(3,244) | $11,878 | - Net cash used in investing activities increased significantly in Q1 2022 to **$4,041 thousand**, primarily due to investment in automating production[150](index=150&type=chunk) [Contractual Obligations and Commitments](index=28&type=section&id=Contractual%20Obligations%20and%20Commitments) This section outlines the company's significant contractual obligations and purchase commitments - Contractual obligations include lease commitments, notes payable, and a standby letter of credit[153](index=153&type=chunk) - Non-cancellable purchase commitments totaled **$23,344 thousand** as of March 31, 2022[153](index=153&type=chunk) [Off-Balance Sheet Arrangements](index=28&type=section&id=Off-Balance%20Sheet%20Arrangements) This section confirms the absence of material off-balance sheet arrangements impacting financial statements - The company is not a party to any off-balance sheet arrangements that have, or are reasonably likely to have, a material effect on its financial statements[154](index=154&type=chunk) [Critical Accounting Policies and Estimates](index=28&type=section&id=Critical%20Accounting%20Policies%20and%20Estimates) This section discusses the critical accounting policies and estimates requiring significant management judgment - All costs related to research and development are expensed as the company's products do not yet meet standard specifications for commercial sale[157](index=157&type=chunk) - Revenue recognition for energy storage systems is deferred until customer acceptance, which is expected to be a longer process for new products[158](index=158&type=chunk)[160](index=160&type=chunk) - The company is an 'emerging growth company' and 'smaller reporting company,' electing to use extended transition periods for new accounting standards, which may affect comparability[161](index=161&type=chunk)[312](index=312&type=chunk)[313](index=313&type=chunk) [ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK](index=29&type=section&id=ITEM%203.%20QUANTITATIVE%20AND%20QUALITATIVE%20DISCLOSURES%20ABOUT%20MARKET%20RISK) This section outlines the company's exposure to market risks, primarily focusing on interest rate risk related to its cash equivalents, restricted cash, and outstanding notes payable [Interest Rate Risk](index=29&type=section&id=Interest%20Rate%20Risk) This section details the company's exposure to interest rate fluctuations on its cash and debt instruments - As of March 31, 2022, cash, cash equivalents, and restricted cash totaled **$213,573 thousand**, primarily in money market funds and certificates of deposit[164](index=164&type=chunk) - Outstanding variable rate notes payable were **$3,300 thousand** as of March 31, 2022, bearing interest at **0.50% below the bank's prime rate** (**3.00%**)[165](index=165&type=chunk) - A hypothetical **100 basis point** change in interest rates would not have a material impact on interest expense[166](index=166&type=chunk) [ITEM 4. CONTROLS AND PROCEDURES](index=30&type=section&id=ITEM%204.%20CONTROLS%20AND%20PROCEDURES) This section details the company's disclosure controls and procedures, identifying a material weakness in internal controls over financial reporting and outlining management's remediation initiatives [Disclosure Controls and Procedures](index=30&type=section&id=Disclosure%20Controls%20and%20Procedures) This section assesses the effectiveness of the company's disclosure controls and procedures - The company's disclosure controls and procedures were not effective as of March 31, 2022, due to an existing material weakness related to the operating effectiveness of internal controls over the review and analysis of certain transactions within the financial statement close process[168](index=168&type=chunk) [Management's Remediation Initiatives](index=30&type=section&id=Management's%20Remediation%20Initiatives) This section outlines management's plans and actions to remediate identified material weaknesses in internal controls - Remediation efforts include hiring additional personnel, expanding the team, and designing/implementing a formalized internal control framework, including over journal entries and management review controls[169](index=169&type=chunk)[170](index=170&type=chunk) - In March 2022, the company implemented a new stock plan administration platform, which resulted in a material change in internal control over financial reporting[169](index=169&type=chunk) [Part II – Other Information](index=31&type=section&id=Part%20II%20%E2%80%93%20Other%20Information) This part includes disclosures on legal proceedings, risk factors, equity sales, and other required information [ITEM 1. LEGAL PROCEEDINGS](index=31&type=section&id=ITEM%201.%20LEGAL%20PROCEEDINGS) This section states that the company is not currently a party to any material legal proceedings, nor is any material legal proceeding threatened against it - The company is not currently involved in any material legal proceedings, nor are any threatened[172](index=172&type=chunk) [ITEM 1A. RISK FACTORS](index=31&type=section&id=ITEM%201A.%20RISK%20FACTORS) This section details significant risks and uncertainties that could adversely affect the company's business, financial condition, and prospects [Summary Risk Factors](index=31&type=section&id=Summary%20Risk%20Factors) This section provides a high-level overview of the most significant risks facing the company's operations and financial performance - Significant barriers exist in producing energy storage products at commercial scale, and the products are still under development[174](index=174&type=chunk) - Dependence on third-party suppliers for key raw materials and components, with experienced disruptions to supply chains and increased costs[174](index=174&type=chunk) - Inability to adequately control operational costs and effectively scale operations may impair profitability[174](index=174&type=chunk) - History of losses and the need for significant business growth to achieve sustained profitability[174](index=174&type=chunk) - Risks related to protecting intellectual property and potential infringement claims[174](index=174&type=chunk) [Risks Related to Our Technology, Products and Manufacturing](index=32&type=section&id=Risks%20Related%20to%20Our%20Technology,%20Products%20and%20Manufacturing) This section outlines risks associated with developing, producing, and commercializing the company's iron flow battery technology - Challenges in developing and producing iron flow batteries at commercial scale include increasing volume, yield, reliability, and uniformity of components, as well as cost reduction and qualifying new vendors[177](index=177&type=chunk) - The company's second-generation Energy Warehouses are still in the development stage, with no units fully deployed as of March 31, 2022, and face potential yield, cost, and performance challenges[178](index=178&type=chunk)[183](index=183&type=chunk) - Significant disruptions to key supply chains, shipping times, and costs have been experienced, exacerbated by the COVID-19 pandemic and geopolitical conflicts, potentially delaying production and revenue recognition[185](index=185&type=chunk)[188](index=188&type=chunk) - Inconsistent quality and supply of key power module components from limited qualified suppliers pose risks to manufacturing and commercialization[190](index=190&type=chunk) - The company has experienced product recalls for Gen I battery modules and is replacing components in Gen II modules, indicating potential quality issues that could damage reputation and increase costs[207](index=207&type=chunk) - The framework agreement with SBE does not obligate SBE to place firm orders, and any future orders may be subject to negotiations that the company may not satisfy[209](index=209&type=chunk) [Risks Related to Our Business and Industry](index=38&type=section&id=Risks%20Related%20to%20Our%20Business%20and%20Industry) This section covers broad business and industry-specific risks, including market demand, competition, and operational challenges - The company has a history of net losses, with **$5.7 million** in Q1 2022, and requires significant business growth to achieve sustained profitability[215](index=215&type=chunk) - Uncertainty exists regarding customer demand for energy storage products, especially as nonbinding pre-orders may not convert to sales, and initial purchases may be limited[217](index=217&type=chunk) - Dependence on warranty insurance from Munich Re, with potential adverse effects if the relationship cannot be maintained or a similar replacement found[219](index=219&type=chunk) - Failure of iron flow battery technology to operate as expected, or improvements in competing technologies (e.g., lithium-ion), could reduce demand and market acceptance[222](index=222&type=chunk)[223](index=223&type=chunk)[224](index=224&type=chunk) - Selling to large customers (utilities, C&I businesses) involves risks such as increased purchasing power, longer sales cycles, and potential litigation for delays or unmet specifications[226](index=226&type=chunk)[227](index=227&type=chunk) - The COVID-19 pandemic has caused significant uncertainty, disrupting operations, supply chains, and potentially affecting demand and financial condition[193](index=193&type=chunk)[250](index=250&type=chunk) - A material weakness in internal controls over the review and analysis of certain transactions within the financial statement close process remains unremediated, potentially affecting financial reporting accuracy[256](index=256&type=chunk) - Defects or performance problems in products could lead to loss of customers, reputational damage, decreased revenue, and warranty/product liability claims[264](index=264&type=chunk)[265](index=265&type=chunk) - The company's IT systems are vulnerable to unauthorized access, cyber-attacks, and disruptions, which could lead to data loss, reputational harm, and significant costs[266](index=266&type=chunk)[267](index=267&type=chunk)[271](index=271&type=chunk) [Risks Related to Regulatory, Environmental and Legal Issues](index=51&type=section&id=Risks%20Related%20to%20Regulatory,%20Environmental%20and%20Legal%20Issues) This section addresses risks stemming from regulatory compliance, environmental laws, and potential legal challenges - Regulatory challenges or limitations on selling Energy Centers and Energy Warehouses in certain markets, especially internationally, could harm business[286](index=286&type=chunk)[287](index=287&type=chunk) - Failure to obtain necessary environmental, health, safety, or other certifications (e.g., IEC) for products could negatively impact revenues[288](index=288&type=chunk) - Subject to numerous federal, state, and local environmental and safety regulations, with potential for increased costs, operational changes, and safety incidents[290](index=290&type=chunk)[291](index=291&type=chunk)[292](index=292&type=chunk) - Collection and processing of customer and individual data subject to evolving privacy, data protection, and cybersecurity laws, posing risks of non-compliance, litigation, and reputational harm[294](index=294&type=chunk)[295](index=295&type=chunk) - Exposure to the FCPA and other anti-bribery/anti-corruption laws, with potential for substantial fines, penalties, and reputational damage from violations by employees or third parties[297](index=297&type=chunk)[300](index=300&type=chunk) - Subject to U.S. export and import controls and economic sanctions, which could impair international competitiveness or lead to liability for violations[301](index=301&type=chunk)[303](index=303&type=chunk) - Dependence on government tax credits, subsidies, and economic incentives for renewable energy solutions, with potential for reduced demand if these incentives are reduced or eliminated[308](index=308&type=chunk)[309](index=309&type=chunk) [Risks Related to Our Intellectual Property](index=56&type=section&id=Risks%20Related%20to%20Our%20Intellectual%20Property) This section details risks concerning the protection, enforcement, and potential infringement of the company's intellectual property - Failure to protect intellectual property (patents, trademarks, trade secrets) could materially harm the business, especially if pending applications are not approved or existing rights are challenged[317](index=317&type=chunk)[318](index=318&type=chunk) - Risk of third parties asserting infringement claims, leading to significant costs, diversion of management attention, and potential prohibition from using certain technology[320](index=320&type=chunk) - Uncertainty regarding the issuance of patents from applications, or the scope and enforceability of issued patents, could affect the ability to prevent competitors from exploiting similar products[321](index=321&type=chunk)[323](index=323&type=chunk) [Risks Related to Our Indebtedness](index=57&type=section&id=Risks%20Related%20to%20Our%20Indebtedness) This section discusses risks associated with the company's debt, capital requirements, and potential funding challenges - Expanding the business will incur significant costs that could outpace cash reserves, and unfavorable capital/credit market conditions may adversely impact liquidity[324](index=324&type=chunk)[325](index=325&type=chunk) - The company may need additional capital in the future, which may not be available on acceptable terms, leading to potential dilution for existing stockholders if equity is issued[326](index=326&type=chunk) - Government grants for research may subject the company to restrictions, such as non-exclusive licenses to the U.S. government and potential 'march-in rights,' which could lessen commercial value of intellectual property[327](index=327&type=chunk)[328](index=328&type=chunk)[329](index=329&type=chunk) [Risks Related to the Business Combination and STWO](index=58&type=section&id=Risks%20Related%20to%20the%20Business%20Combination%20and%20STWO) This section outlines risks arising from the Business Combination, including financial restatements and internal control weaknesses - The company faced restatements of financial statements due to material weaknesses in internal controls related to warrant accounting and classification of Class A ordinary shares[330](index=330&type=chunk)[331](index=331&type=chunk)[332](index=332&type=chunk)[333](index=333&type=chunk) - These material weaknesses and restatements create potential for litigation or other disputes, which could materially adversely affect the business[334](index=334&type=chunk)[335](index=335&type=chunk) [Risks Related to our Common Stock and Warrants](index=59&type=section&id=Risks%20Related%20to%20our%20Common%20Stock%20and%20Warrants) This section addresses risks related to the company's common stock and warrants, including price volatility and dilution - The price of the Common Stock may be volatile due to industry changes, operating performance, market reactions, key personnel changes, regulatory changes, litigation, capital structure changes, analyst reports, and general economic/political conditions[336](index=336&type=chunk) - Sales of a significant portion of outstanding shares, including those from warrant exercises, could cause the market price to drop and result in dilution to shareholders[338](index=338&type=chunk)[342](index=342&type=chunk)[343](index=343&type=chunk) - Public Warrants may be amended in a manner adverse to holders with the approval of **65%** of outstanding Public Warrants[344](index=344&type=chunk) - The company may redeem unexpired warrants prior to their exercise at a disadvantageous time, potentially making them worthless[345](index=345&type=chunk)[346](index=346&type=chunk) - The company does not anticipate declaring cash dividends in the foreseeable future, requiring investors to rely on stock price appreciation for gains[348](index=348&type=chunk) - Provisions in the company's certificate of incorporation and bylaws, along with Delaware law, might discourage, delay, or prevent a change in control or management[351](index=351&type=chunk)[352](index=352&type=chunk) - Exclusive forum provisions in the bylaws designate Delaware courts and federal district courts as exclusive forums for certain disputes, potentially limiting stockholders' ability to choose a favorable judicial forum[355](index=355&type=chunk)[357](index=357&type=chunk)[358](index=358&type=chunk) [ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS](index=63&type=section&id=ITEM%202.%20UNREGISTERED%20SALES%20OF%20EQUITY%20SECURITIES%20AND%20USE%20OF%20PROCEEDS) This section states that there were no unregistered sales of equity securities during the reporting period - No unregistered sales of equity securities occurred[364](index=364&type=chunk) [ITEM 3. DEFAULTS UPON SENIOR SECURITIES](index=63&type=section&id=ITEM%203.%20DEFAULTS%20UPON%20SENIOR%20SECURITIES) This section indicates that there were no defaults upon senior securities during the reporting period - No defaults upon senior securities occurred[365](index=365&type=chunk) [ITEM 4. MINE SAFETY DISCLOSURES](index=63&type=section&id=ITEM%204.%20MINE%20SAFETY%20DISCLOSURES) This section states that mine safety disclosures are not applicable to the company - Mine safety disclosures are not applicable[366](index=366&type=chunk) [ITEM 5. OTHER INFORMATION](index=63&type=section&id=ITEM%205.%20OTHER%20INFORMATION) This section confirms that there is no other information to report - No other information is reported[367](index=367&type=chunk) [ITEM 6. EXHIBITS](index=64&type=section&id=ITEM%206.%20EXHIBITS) This section lists all exhibits filed as part of the Quarterly Report on Form 10-Q, including the Merger Agreement, corporate governance documents, and certifications - Exhibits include the Merger Agreement, Amended and Restated Certification of Incorporation, Amended and Restated Bylaws, and various certifications (CEO, CFO) under Sarbanes-Oxley Act[369](index=369&type=chunk) [SIGNATURES](index=65&type=section&id=SIGNATURES) This section contains the official signatures, confirming the due authorization and filing of the Quarterly Report on Form 10-Q - The report is duly signed on behalf of ESS Tech, Inc. by Eric P. Dresselhuys, Chief Executive Officer, on May 12, 2022[372](index=372&type=chunk)[373](index=373&type=chunk)

ESS Tech, Inc. (NYSE:GWH) Q4 2021 Earnings Conference Call February 24, 2022 5:00 PM ET Company Participants Eric Dresselhuys – Chief Executive Officer Amir Moftakhar – Chief Financial Officer Conference Call Participants Jed Dorsheimer – Canaccord Genuity Colin Rusch – Oppenheimer Thomas Boyd – Cowen and Company Jayson Osha – Guggenheim Operator Ladies and gentlemen, thank you for standing by. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. ...