Energy Vault Holdings, Inc. (NYSE:NRGV) Q2 2023 Earnings Call Transcript August 8, 2023 8:30 AM ET Company Participants Laurence Alexander - Chief Marketing Officer Robert Piconi - Chairman & Chief Executive Officer Jan Kees van Gaalen - Chief Financial Officer Conference Call Participants Joseph Osha - Guggenheim Securities Thomas Boyes - TD Cowen Brian Dobson - Chardan Capital Markets Noel Parks - Tuohy Brothers Operator Good morning, and welcome to the Energy Vault Second Quarter 2023 Earnings Call. At t ...

Financial Performance - Energy Vault recorded Q1 2023 revenue of $11.4 million[6], primarily from BESS projects[55] - The company's Q1 2023 gross margin was over 20%[6] - The net loss for Q1 2023 was $(31.1) million[54] - Adjusted EBITDA for Q1 2023 was $(19.0) million[77] - Cash on hand at the end of Q1 2023 was $197 million[6] Commercial Activities - Energy Vault recorded new project awards of approximately $1 billion or 2.8 GWh, with ~$725 million for gravity EVx systems[6] - The total near-term commercial funnel increased by over 40% or 11 GWh quarter over quarter[6] - Total Signed Contracts & Awards are approximately 8 GWh, representing more than $3 billion of potential revenue[18] - Booked Orders are 1,635 MWh, representing ~$540 million[17] Project Updates - The Rudong, China GESS project is on track for mechanical completion and start of commissioning in 2Q23, providing 25 MW / 100 MWh[6, 20]

Energy Vault Holdings, Inc. (NYSE:NRGV) Q1 2023 Earnings Conference Call May 9, 2023 4:30 PM ET Company Participants Laurence Alexander - Chief Marketing Officer Robert Piconi - Chairman & Chief Executive Officer Jan Kees van Gaalen - Chief Financial Officer Conference Call Participants Hilary Cauley - Guggenheim Securities Christopher Ellinghaus - Siebert Williams Shank & Co. Greg Pendy - Chardan Thomas Boyes - TD Cowen Noel Parks - Tuohy Brothers Operator Greetings and welcome to Energy Vault First Quart ...

Table of Contents UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One) x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 2023 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 001-39982 ___________________________________ ENERGY VAULT HOLDINGS, INC. ____________________ ...

Company Operations and Financial Performance - The company has a limited operating history and has only built one GESS, the EV1 Tower in Lugano, which was decommissioned in September 2022[75]. - The company expects to incur significant expenses and continuing losses for the foreseeable future, with no assurance of achieving profitability[73]. - The company reported revenue of $145,877,000 for the year ended December 31, 2022, compared to no revenue in 2021[381]. - Operating expenses totaled $145,080,000 in 2022, with significant increases in research and development costs to $50,058,000 from $7,912,000 in 2021[381]. - The net loss for the year was $78,299,000, resulting in a net loss per share of $0.64, compared to a net loss of $31,338,000 and a loss per share of $2.45 in 2021[381]. - Total current assets increased to $390,067,000 in 2022 from $110,663,000 in 2021, driven by cash and cash equivalents rising to $203,037,000[380]. - Total liabilities rose to $129,000,000 in 2022 from $11,251,000 in 2021, indicating a significant increase in financial obligations[380]. - The company has a total stockholders' equity of $287,713,000 in 2022, compared to a deficit of $68,666,000 in 2021[380]. - The balance of accumulated deficit as of December 31, 2022, was $147,265,000, showing a deterioration from the previous year's deficit[384]. - The company incurred issuance costs of $1,628,000 related to the Series C preferred stock, impacting the net proceeds from the issuance[384]. Market and Competitive Landscape - The company’s future growth is dependent on rising demand for clean electric power solutions and the adoption of digital software applications[76]. - The company faces intense competition from larger entities with more resources, which could affect its market share and operating results[131]. - Competition in energy storage technology is expected to intensify due to regulatory pushes for lower-carbon energy sources and advancements by competitors, which may adversely affect sales and gross margins[133]. - The energy storage market is driven by the installed capacity of renewable electricity generation, and any relaxation of government requirements could negatively impact market demand[128]. - The company is exploring alternative use cases for energy storage systems in energy-intensive industries, but there is no assurance these opportunities will be commercially viable[100]. Risks and Challenges - The company faces risks associated with construction, cost overruns, and delays, which could adversely affect its operations[78]. - The company has identified a material weakness in its internal control over financial reporting, which could impair the accuracy of its financial statements[73]. - The company’s projections for revenues and profitability are subject to significant risks and uncertainties, making actual results potentially different from expectations[79]. - The company faces risks related to climate change, which could disrupt operations and require additional expenditures[148]. - The company is exposed to international operational risks, including compliance with diverse regulations and potential currency fluctuations[123]. - The company faces potential liabilities for environmental damage, which could significantly impact its financial condition and reputation[210]. - The company may incur significant costs related to the maintenance and protection of its intellectual property rights, which could impact its financial condition[182]. - Cyber-attacks and security breaches pose a risk to the company's operations, potentially harming its reputation and leading to financial losses[190]. Customer and Revenue Dependence - The company relies on a limited number of customers for the majority of its revenue, and the loss of any significant customer could substantially reduce revenue[81]. - The lengthy sales cycle for energy storage systems ranges from 18 to 36 months for EVx systems and 9 to 18 months for BESSs, increasing operational risks[165]. - The company’s energy storage systems have significant upfront costs, and customer financing is crucial for deployment[87]. - Credit risk is present as the company relies on significant customers for revenue, and any default could negatively impact financial performance[368]. Regulatory and Compliance Issues - The company is subject to various government incentives, such as rebates and tax credits, which are crucial for maintaining revenue levels[208]. - The Inflation Reduction Act (IRA) passed in August 2022 is expected to provide government incentives that will benefit the company's operations[209]. - Compliance with environmental laws and regulations requires significant resources and could delay operational capabilities[212]. - Changes in regulatory enforcement policies may negatively impact the company's profitability and ability to compete[221]. - The company is subject to various licensing and operational requirements that incur substantial compliance costs[222]. Internal Management and Governance - The company is highly dependent on key personnel, including the CEO and CTO, and failure to retain them could disrupt operations and growth[137]. - As of December 31, 2022, executive officers, directors, and their affiliates beneficially own approximately 38.4% of the outstanding common stock, allowing them significant control over corporate decisions[230]. - The company expects to incur significant increased expenses and administrative burdens as a public company, which could negatively impact its financial condition and results of operations[236]. - Activist stockholders may attempt to effect changes within the company, potentially disrupting operations and diverting management's attention from strategic plans[246]. Financial Health and Capital Structure - The company may need to raise additional capital to fund ongoing costs, including research and development, which could be dilutive to stockholders[161]. - Market conditions and disruptions in capital markets could adversely affect the company’s cash resources and access to additional capital[162]. - The issuance of additional shares or other equity securities could dilute existing ownership interests and may depress the market price of the company's common stock[240]. - The company has approximately $3.4 million, $21.9 million, and $37.3 million of federal, state, and foreign net operating loss carryforwards, respectively[173]. - The company converted 85,741 shares of convertible preferred stock into common stock during the reverse recapitalization, resulting in an increase of common stock by $182,700,000[384]. - Stock-based compensation for the year ended December 31, 2022, amounted to $41,058,000, indicating ongoing investment in employee incentives[384].

Financial Data and Key Metrics Changes - Energy Vault reported total revenue of approximately $146 million for the fiscal year 2022, with $100 million generated in Q4 alone, reflecting strong execution and customer focus [6][52] - The gross margin for Q4 2022 was approximately 16%, with full-year gross profit reaching $59.3 million [52][81] - Adjusted EBITDA for Q4 was negative $11.2 million, leading to a total adjusted EBITDA of negative $11.4 million for the year [93][108] Business Line Data and Key Metrics Changes - Revenue from battery storage projects in Q4 was $84.5 million, while EVx licensing deals contributed $15.6 million [91] - The company has a current backlog exceeding five gigawatt hours and approximately $2 billion in awarded contracts [51] - The revenue forecast for 2023 is projected to be between $325 million and $425 million, indicating a potential doubling year-over-year [107][108] Market Data and Key Metrics Changes - The company is focusing on utility grid uses and industrial/micro-grid applications, with a significant demand for long-duration energy storage solutions as renewables become a larger part of power generation [28][67] - The proposal pipeline grew more than 50% quarter-over-quarter, reflecting robust energy storage demand [75] Company Strategy and Development Direction - Energy Vault aims to expand relationships with utilities as their long-duration storage needs emerge, particularly as fossil fuel assets are retired [66] - The company is leveraging the Inflation Reduction Act (IRA) to enhance the economics of its EVx systems, with potential benefits not yet included in current forecasts [47][71] - The strategy includes maintaining flat operating expenses while ramping revenue, allowing for flexibility in investment opportunities [33][43] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about the energy storage industry's growth, particularly for long-duration solutions, and emphasized the importance of executing customer needs [16][35] - The company is preparing for potential macroeconomic challenges, including inflation and supply chain issues, while remaining well-positioned due to strong liquidity and no debt [62][63] Other Important Information - The company has retained renowned engineer William Baker to assist in optimizing project development and permitting processes [84] - Energy Vault's unique hardware architectures and software design are recognized by customers, enhancing trust in delivering large-scale projects [49] Q&A Session All Questions and Answers Question: Can you talk about the sourcing strategy for battery storage hardware? - The sourcing strategy varies based on customer requirements and may involve working with customer-chosen suppliers or integrating third-party solutions [117][128] Question: How are the licensing agreements structured? - Licensing agreements typically include a license component tied to deployment rights, with royalties based on project revenue [123][124] Question: What is the company's approach to project execution in 2023? - The primary focus for 2023 is on executing signed projects on time while navigating supply chain and permitting challenges [76][119]

Energy Vault has provided a reconciliation of Adjusted EBITDA to net income (loss), the most directly comparable GAAP measure in slides 18 and 20 © 2023 ENERGY VAULT HOLDINGS INC. - ALL RIGHTS RESERVED Enabling a Renewable World 14 • Q4 Revenue was driven by $84.5M from building and transferring of energy storage products and $15.6M from the licensing of the Company's intellectual property; Q3 Revenue was driven by $1.2 million from building and transferring of energy storage products. ◦ Sales & Marketing ( ...

Financial Data and Key Metrics Changes - Revenue for Q3 2022 was $1.7 million, primarily from battery storage projects, with $1.2 million from Jupiter and $0.5 million from construction support services to Atlas Renewable [34] - Gross profit for Q3 2022 was $71,000, reflecting the mix of revenue sources [34] - Total operating expenses for Q3 2022 were $36.3 million, up from $22.4 million in Q2 2022, driven by increased stock-based compensation and depreciation [35] - Adjusted EBITDA for Q3 2022 was a negative $17.2 million, compared to a negative $14.2 million in Q2 2022 [37] - As of September 30, 2022, the company had approximately $274.7 million in cash and equivalents, positioning it well for growth objectives [38] Business Line Data and Key Metrics Changes - The company converted nearly 500 megawatt hours of prior project awards to signed booked orders and executed over 2 gigawatt hours of new project awards in the quarter [11] - Total signed contracts and customer project awards reached 4.8 gigawatt hours, representing approximately $2 billion of potential revenue [11] - The company announced a 275-megawatt hour project with Wellhead Electric and a 220-megawatt hour project with Jupiter Power, with engineering procurement construction already begun [19] Market Data and Key Metrics Changes - The company is expanding into the European market and has made significant inroads in Australia and China, with a focus on energy storage technology [18][22] - The energy storage market is expected to grow over 20% annually for the next decade, with Energy Vault positioned to be a significant leader [16] - The introduction of green hydrogen as a third pillar of the storage technology portfolio is expected to address market needs for integrated solutions [17] Company Strategy and Development Direction - The company focuses on large-scale projects and technology diversification to meet customer needs, emphasizing a solutions-based approach [12][17] - The strategy includes leveraging software capabilities for energy management and system integration, enhancing flexibility for customers [15] - The company aims to execute on its 2022 regional priorities for deployment in the US, Australia, and China, with plans for further geographic expansion [18] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in achieving 2022 revenue guidance of $75 million to $100 million and adjusted EBITDA guidance of a loss of $10 million to a profit of $3 million [40] - The company anticipates continued commercial momentum and strong visibility into project progress, which supports its revenue outlook [40] - Management highlighted the importance of execution and operational excellence as key focuses for the upcoming quarters [28] Other Important Information - The company has made key hires to support project management and execution efforts, including a new CFO and other leadership roles [27] - The company is committed to meeting or exceeding investor expectations and maintaining transparency regarding its growth trajectory [29] Q&A Session Summary Question: Details on the two-gigawatt hours of shortlisted projects - Management indicated a strong conversion rate from shortlisted to awarded projects, emphasizing a focus on large projects to optimize technical differentiation [44] Question: Margin profile for the business next year - Management expects initial project margins to be in the mid to high single-digit range, with additional revenue streams from long-term service agreements and software [46] Question: Battery supply chain strategy and contracts - The company secures battery supply in advance of project awards, ensuring no risk in scheduling and material availability [48] Question: Accounting for the two-gigawatt deal with Atlas - The royalty stream from the Atlas deal is set at 5% of total project revenue, with further details expected as the partnership develops [55][56] Question: 2023 revenue outlook and project delays - Management expects revenue to ramp up throughout 2023, with Q1 being the lowest quarter, and has built contingencies into their plans to manage execution risks [61]

ENERGY VAULT l Preeminent Energy Storage Company INVESTOR PRESENTATION l Third Quarter 2022 © 2022 ENERGY VAULT HOLDINGS INC. - ALL RIGHTS RESERVED Disclaimer Forward-Looking Statements This presentation includes forward-looking statements that reflect the Company's current views with respect to, among other things, the Company's operations and financial performance. Forward-looking statements include information concerning possible or assumed future results of operations, including descriptions of our busi ...

[Cautionary Note Regarding Forward-Looking Statements](index=4&type=section&id=Cautionary%20Note%20Regarding%20Forward-Looking%20Statements) This section outlines the nature of forward-looking statements and associated risks and uncertainties - This section contains forward-looking statements regarding future results, financial condition, business strategy, and management objectives, which involve known and unknown risks, uncertainties, and other important factors beyond the company's control[10](index=10&type=chunk) - Key areas of forward-looking statements include changes in strategy, expansion plans, customer opportunities, market acceptance of business model, brand development, industry developments, impact of health epidemics (e.g., COVID-19), intellectual property protection, capital requirements, and funding ability[13](index=13&type=chunk) - Investors should not rely on forward-looking statements as predictions of future events, as actual results, events, or circumstances could differ materially due to risks and uncertainties described in the 'Risk Factors' section[11](index=11&type=chunk) [Part I - Financial Information](index=5&type=section&id=Part%20I%20-%20Financial%20Information) This part contains the company's unaudited financial statements and management's analysis [Item 1. Financial Statements](index=5&type=section&id=Item%201.%20Financial%20Statements) This section presents the unaudited condensed consolidated financial statements and accompanying notes [Condensed Consolidated Balance Sheets](index=5&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) The balance sheets show a significant increase in assets and a shift to positive stockholders' equity | Item | September 30, 2022 (in thousands) | December 31, 2021 (in thousands) | | :-------------------------------- | :-------------------------------- | :-------------------------------- | | Cash and cash equivalents | $ 249,649 | $ 105,125 | | Restricted cash | $ 25,086 | $ — | | Accounts receivable | $ 22,824 | $ — | | Contract assets | $ 24,714 | $ — | | Total current assets | $ 331,694 | $ 110,663 | | Total Assets | $ 338,549 | $ 125,294 | | Total current liabilities | $ 34,700 | $ 7,343 | | Total liabilities | $ 38,239 | $ 11,251 | | Convertible preferred stock | $ — | $ 182,709 | | Total stockholders' equity (deficit) | $ 300,310 | $ (68,666) | | Total Liabilities, Convertible Preferred Stock, and Stockholders' Equity (Deficit) | $ 338,549 | $ 125,294 | [Condensed Consolidated Statements of Operations and Comprehensive Loss](index=7&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations%20and%20Comprehensive%20Loss) The statements detail revenue generation in 2022 alongside increased operating expenses and net loss | Item | Three Months Ended Sep 30, 2022 (in thousands) | Three Months Ended Sep 30, 2021 (in thousands) | Nine Months Ended Sep 30, 2022 (in thousands) | Nine Months Ended Sep 30, 2021 (in thousands) | | :--------------------------------------- | :--------------------------------------- | :--------------------------------------- | :-------------------------------------- | :-------------------------------------- | | Revenue | $ 1,694 | $ — | $ 45,555 | $ — | | Cost of revenue | $ 1,623 | $ — | $ 2,194 | $ — | | Sales and marketing | $ 3,758 | $ 169 | $ 8,287 | $ 443 | | Research and development | $ 16,731 | $ 1,697 | $ 36,155 | $ 4,920 | | General and administrative | $ 12,960 | $ 3,759 | $ 33,434 | $ 8,620 | | Asset impairment | $ 2,828 | $ (11) | $ 2,828 | $ 2,733 | | Loss from operations | $ (36,206) | $ (5,614) | $ (37,343) | $ (16,716) | | Change in fair value of warrant liability | $ 6,706 | $ — | $ 2,061 | $ — | | Transaction costs | $ — | $ — | $ (20,586) | $ — | | Net loss | $ (28,765) | $ (6,163) | $ (55,022) | $ (18,589) | | Net loss per share — basic and diluted | $ (0.21) | $ (0.45) | $ (0.46) | $ (1.54) | | Weighted average shares outstanding — basic and diluted | 140,302 | 13,598 | 118,560 | 12,094 | [Condensed Consolidated Statements of Convertible Preferred Stock and Stockholders' Equity (Deficit)](index=8&type=section&id=Condensed%20Consolidated%20Statements%20of%20Convertible%20Preferred%20Stock%20and%20Stockholders'%20Equity%20(Deficit)) These statements track changes in equity, highlighting the conversion of preferred stock post-merger | Item | Balance at June 30, 2022 (in thousands) | Balance at September 30, 2022 (in thousands) | | :--------------------------------------- | :-------------------------------------- | :--------------------------------------- | | Common Stock (Shares) | 134,441 | 137,839 | | Common Stock (Amount) | $ 13 | $ 14 | | Additional Paid-In Capital | $ 402,004 | $ 424,499 | | Accumulated Deficit | $ (95,223) | $ (123,988) | | Accumulated Other Comprehensive Income (Loss) | $ (208) | $ (215) | | Total Stockholders' Equity | $ 306,586 | $ 300,310 | | Item | Balance at December 31, 2021 (in thousands) | Balance at September 30, 2022 (in thousands) | | :--------------------------------------- | :-------------------------------------- | :--------------------------------------- | | Convertible Preferred Stock (Shares) | 85,741 | — | | Convertible Preferred Stock (Amount) | $ 182,709 | $ — | | Common Stock (Shares) | 20,432 | 137,839 | | Common Stock (Amount) | $ — | $ 14 | | Additional Paid-In Capital | $ 713 | $ 424,499 | | Accumulated Deficit | $ (68,966) | $ (123,988) | | Accumulated Other Comprehensive Income (Loss) | $ (413) | $ (215) | | Total Stockholders' Equity (Deficit) | $ (68,666) | $ 300,310 | - The conversion of convertible preferred stock into common stock in connection with the reverse recapitalization resulted in a reclassification of **$182.7 million** from convertible preferred stock to common stock and additional paid-in capital[23](index=23&type=chunk) [Condensed Consolidated Statements of Cash Flows](index=10&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) The statements summarize cash movements from operating, investing, and financing activities | Cash Flow Activity | Nine Months Ended September 30, 2022 (in thousands) | Nine Months Ended September 30, 2021 (in thousands) | | :--------------------------------------- | :-------------------------------------- | :-------------------------------------- | | Net cash used in operating activities | $ (47,795) | $ (14,075) | | Net cash used in investing activities | $ (2,679) | $ (76) | | Net cash provided by financing activities | $ 220,207 | $ 119,668 | | Effect of exchange rate changes on cash, cash equivalents, and restricted cash | $ (123) | $ 723 | | Net increase in cash, cash equivalents, and restricted cash | $ 169,610 | $ 106,240 | | Cash, cash equivalents, and restricted cash – end of the period | $ 274,735 | $ 116,291 | | Cash and cash equivalents - end of period | $ 249,649 | $ 116,291 | | Supplemental Disclosures of Cash Flow Information | Nine Months Ended September 30, 2022 | Nine Months Ended September 30, 2021 | | :------------------------------------------------ | :----------------------------------- | :----------------------------------- | | Income taxes paid | 3 | 1 | | Cash paid for interest | 1 | 50 | | Reclassification of inventory costs | — | 10,812 | | Supplemental Disclosures of Non-Cash Investing and Financing Information | Nine Months Ended September 30, 2022 | Nine Months Ended September 30, 2021 | | :----------------------------------------------------------------------- | :----------------------------------- | :----------------------------------- | | Conversion of redeemable preferred stock into common stock | 182,709 | — | | Warrants assumed as part of reverse recapitalization | 19,838 | — | | Actuarial gain on pension | 561 | 295 | | Assets acquired on finance lease | 35 | 43 | | Purchases of intangible assets recorded in accrued liabilities | — | 119 | [Notes to Condensed Consolidated Financial Statements](index=13&type=section&id=Notes%20to%20Condensed%20Consolidated%20Financial%20Statements) These notes provide detailed explanations of the accounting policies and figures in the financial statements [NOTE 1. ORGANIZATION AND DESCRIPTION OF BUSINESS](index=13&type=section&id=NOTE%201.%20ORGANIZATION%20AND%20DESCRIPTION%20OF%20BUSINESS) This note describes the company's business, its reverse recapitalization, and inherent operational risks - Energy Vault develops sustainable, grid-scale energy storage solutions to advance the transition to a carbon-free, resilient power grid[30](index=30&type=chunk) - The company's business model includes building/transferring energy storage projects, operating systems as equity sponsor, selling energy management software, and entering into intellectual property license and royalty agreements[35](index=35&type=chunk) - The Merger with Novus Capital Corporation II on February 11, 2022, was accounted for as a **reverse recapitalization**, with Novus treated as the acquired company[32](index=32&type=chunk) - As an early-stage clean energy company, Energy Vault is subject to risks such as dependence on key individuals, the need for commercially viable products, competition, protection of proprietary technology, and the need for adequate additional financing[34](index=34&type=chunk) [NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES](index=14&type=section&id=NOTE%202.%20SUMMARY%20OF%20SIGNIFICANT%20ACCOUNTING%20POLICIES) This note details the key accounting principles and policies applied in the financial statements - The company reports its operating results and financial information in **one operating and reportable segment**[46](index=46&type=chunk) - As an emerging growth company, Energy Vault has elected not to opt out of the extended transition period for complying with new or revised financial accounting standards[41](index=41&type=chunk) - Transaction costs related to the Merger totaled **$44.8 million**, with $24.2 million recorded as a reduction of proceeds in additional paid-in-capital and $20.6 million expensed immediately upon closing[47](index=47&type=chunk) - Warrants for common stock not indexed to the company's own stock are accounted for as **liabilities at fair value** and are subject to remeasurement at each balance sheet date, with changes recognized in the consolidated statements of operations[48](index=48&type=chunk) - Earn-Out Shares (9.0 million) are contingently issuable to Legacy Energy Vault stockholders based on specific stock price thresholds and were recognized at fair value in shareholders' equity upon the Merger closing[49](index=49&type=chunk) - Revenue from contracts with customers is recognized in accordance with ASC 606, with build-and-transfer energy storage projects recognized over time using the **percentage of completion method**, and intellectual property licensing recognized at a point in time[51](index=51&type=chunk)[58](index=58&type=chunk)[66](index=66&type=chunk) - A refundable contribution of **$22.5 million** to Atlas Renewable LLC is included in contract assets, to be refunded upon Atlas's first gravity energy storage system (GESS) reaching substantial completion and meeting performance metrics[70](index=70&type=chunk) [NOTE 3. REVERSE RECAPITALIZATION](index=19&type=section&id=NOTE%203.%20REVERSE%20RECAPITALIZATION) This note explains the accounting treatment and financial impact of the merger with Novus - On February 11, 2022, the company raised gross proceeds of **$235.8 million** from the Merger and PIPE financing, with net cash proceeds of **$191.0 million** after $44.8 million in transaction costs[79](index=79&type=chunk) - The Merger was accounted for as a **reverse recapitalization**, treating Novus as the acquired company, and Legacy Energy Vault's financial statements continued with the Merger being equivalent to Legacy Energy Vault issuing shares for Novus's net assets[80](index=80&type=chunk) | Item | Shares (in thousands) | | :--------------------------------------- | :-------------------- | | Legacy Energy Vault stock | 106,079 | | Novus public shares | 4,079 | | Novus sponsor shares | 3,975 | | PIPE shares | 19,500 | | **Total shares of Energy Vault common stock immediately after the Merger** | **133,633** | [NOTE 4. REVENUE RECOGNITION](index=20&type=section&id=NOTE%204.%20REVENUE%20RECOGNITION) This note breaks down revenue by category and details contract balances and performance obligations | Revenue Category | Three Months Ended Sep 30, 2022 (in thousands) | Three Months Ended Sep 30, 2021 (in thousands) | | :-------------------------------- | :--------------------------------------- | :--------------------------------------- | | Licensing of intellectual property | $ — | $ — | | Build and transfer energy storage products | $ 1,153 | $ — | | Other | $ 541 | $ — | | **Total revenue** | **$ 1,694** | **$ —** | | Revenue Category | Nine Months Ended Sep 30, 2022 (in thousands) | Nine Months Ended Sep 30, 2021 (in thousands) | | :-------------------------------- | :-------------------------------------- | :-------------------------------------- | | Licensing of intellectual property | $ 42,884 | $ — | | Build and transfer energy storage products | $ 1,153 | $ — | | Other | $ 1,518 | $ — | | **Total revenue** | **$ 45,555** | **$ —** | - For the nine months ended September 30, 2022, **one customer accounted for 97% of total revenue**, primarily from intellectual property licensing[87](index=87&type=chunk) - Remaining performance obligations totaled **$211.5 million** as of September 30, 2022, with the majority expected to be recognized as revenue within the next twelve months[88](index=88&type=chunk) | Contract Balances (in thousands) | September 30, 2022 | December 31, 2021 | | :-------------------------------- | :----------------- | :----------------- | | **Contract Assets:** | | | | Refundable contribution | $ 22,500 | $ — | | Unbilled receivables | $ 298 | $ — | | Retainage | $ 1,916 | $ — | | **Total Contract Assets** | **$ 24,714** | **$ —** | | **Contract Liabilities:** | | | | Current portion | $ 27,517 | $ — | | Long-term portion | $ 1,500 | $ 1,500 | | **Total Contract Liabilities** | **$ 29,017** | **$ 1,500** | [NOTE 5. FAIR VALUE MEASUREMENTS](index=21&type=section&id=NOTE%205.%20FAIR%20VALUE%20MEASUREMENTS) This note outlines the framework for measuring financial instruments at fair value | Financial Instruments (in thousands) | September 30, 2022 (Total) | December 31, 2021 (Total) | | :----------------------------------- | :------------------------- | :------------------------- | | Money market funds | $ 5,357 | $ 5,304 | | Derivative asset — conversion option | $ 1,025 | $ 350 | | Warrant liability | $ (271) | $ — | - The company categorizes assets and liabilities measured at fair value into **Level 1** (quoted prices in active markets), **Level 2** (observable inputs other than Level 1), and **Level 3** (unobservable inputs)[93](index=93&type=chunk) [NOTE 6. RELATED PARTY TRANSACTIONS](index=22&type=section&id=NOTE%206.%20RELATED%20PARTY%20TRANSACTIONS) This note discloses transactions conducted with entities related to the company's officers or shareholders - Received a **$1.5 million deposit** for an EV1 tower from a customer owned by one of its primary shareholders; the order remains outstanding as of September 30, 2022[96](index=96&type=chunk) - Paid consulting fees of **$0.1 million** (three months) and **$0.3 million** (nine months) to the father of an executive officer for the periods ended September 30, 2022[97](index=97&type=chunk) - Paid EVx/EV1 prototype construction labor costs of **$0.1 million** (three months) and **$0.4 million** (nine months) to a company owned by the brother of an employee for the periods ended September 30, 2022[98](index=98&type=chunk) - Paid marketing costs of **$0.3 million** (three months) and **$0.8 million** (nine months) to a company whose director is also an Energy Vault executive officer for the periods ended September 30, 2022[99](index=99&type=chunk) [NOTE 7. CONVERTIBLE NOTE RECEIVABLE](index=22&type=section&id=NOTE%207.%20CONVERTIBLE%20NOTE%20RECEIVABLE) This note details the terms and accounting for a convertible note investment in DG Fuels, LLC - The company purchased a **$3.0 million convertible promissory note** from DG Fuels, LLC, with an annual interest rate of 10.0%[100](index=100&type=chunk)[104](index=104&type=chunk) - The note includes a discounted conversion rate (20% discount to issuance price) into DG Fuels' equity securities, which is considered an embedded derivative and recognized as an asset at fair value (**$1.025 million** as of September 30, 2022)[105](index=105&type=chunk)[106](index=106&type=chunk)[108](index=108&type=chunk) - The company's maximum exposure to loss related to DG Fuels, a variable interest entity, is limited to its **$3.0 million investment**[108](index=108&type=chunk) [NOTE 8. PROPERTY AND EQUIPMENT, NET](index=23&type=section&id=NOTE%208.%20PROPERTY%20AND%20EQUIPMENT,%20NET) This note provides a breakdown of property and equipment, including depreciation and impairment charges | Item | September 30, 2022 (in thousands) | December 31, 2021 (in thousands) | | :-------------------------------- | :-------------------------------- | :-------------------------------- | | Brick machines | $ 1,108 | $ 2,515 | | Demonstration & test equipment | $ 8,881 | $ 11,218 | | Total property and equipment | $ 11,091 | $ 14,263 | | Less: accumulated depreciation | $ (9,514) | $ (2,395) | | **Property and equipment, net** | **$ 1,577** | **$ 11,868** | - Depreciation and amortization related to property and equipment increased to **$7.6 million** for the nine months ended September 30, 2022, from $1.0 million in the prior year period[111](index=111&type=chunk) - The company recognized impairment charges of **$2.8 million** for both the three and nine months ended September 30, 2022, related to demonstration and test equipment and brick machines, due to the dismantling of the Commercial Demonstration Unit (CDU)[112](index=112&type=chunk) [NOTE 9. STOCKHOLDERS' EQUITY](index=24&type=section&id=NOTE%209.%20STOCKHOLDERS'%20EQUITY) This note describes the changes in stockholders' equity, including the conversion of preferred stock - Upon the closing of the Merger on February 11, 2022, **85.6 million shares** of redeemable convertible preferred stock were converted into 85.6 million shares of Energy Vault common stock, reclassifying **$182.0 million** from preferred stock to common stock and additional paid-in-capital[113](index=113&type=chunk) - Prior to the Merger, preferred stock holders were entitled to non-cumulative dividends at **8% per annum** (if declared), had conversion options to common stock, and specific liquidation preferences[115](index=115&type=chunk)[116](index=116&type=chunk)[120](index=120&type=chunk) - In connection with the reverse recapitalization, the company effectively issued **27.6 million new shares** of common stock and converted Legacy Energy Vault's common and preferred stock into **106.1 million new common shares**[123](index=123&type=chunk) [NOTE 10. WARRANTS](index=25&type=section&id=NOTE%2010.%20WARRANTS) This note details the status of public and private warrants, including redemption and fair value changes - Upon the Merger closing, the company assumed **9.6 million Public Warrants** and **5.2 million Private Warrants**, each exercisable for one common stock share at $11.50[124](index=124&type=chunk) - All outstanding Public Warrants were redeemed on August 1, 2022, for $0.10 per warrant or through cashless exercise, resulting in **no Public Warrants outstanding** as of September 30, 2022[128](index=128&type=chunk)[129](index=129&type=chunk) - Private Warrants (**5.167 million outstanding**) are exercisable on a cash or cashless basis and are not redeemable by the company if held by Novus or permitted transferees[130](index=130&type=chunk)[131](index=131&type=chunk) - The fair value measurement of Private Warrants transferred from Level 2 to **Level 3** after Public Warrant trading ceased, valued at **$0.05 per warrant** as of September 30, 2022, using a Black Scholes model[131](index=131&type=chunk) | Item | Nine Months Ended September 30, 2022 (in thousands) | | :--------------------------------------- | :-------------------------------------- | | Warrant liability assumed upon the Closing of the Merger | $ 19,838 | | Warrants exercised | $ (17,483) | | Warrants redeemed | $ (23) | | Change in fair value | $ (2,061) | | **End of period** | **$ 271** | [NOTE 11. STOCK-BASED COMPENSATION](index=27&type=section&id=NOTE%2011.%20STOCK-BASED%20COMPENSATION) This note outlines the company's equity incentive plans and associated compensation expenses - The company adopted the 2022 Equity Incentive Plan, reserving approximately **15.5 million shares**, plus up to 8.3 million shares from prior plans, with annual increases[140](index=140&type=chunk) | Stock Option Activity | Number of Options (in thousands) | Weighted Average Exercise Price Per Share | | :--------------------------------------- | :------------------------------- | :--------------------------------------- | | Balance as of December 31, 2021 | 1,345 | $ 0.79 | | Stock options exercised | (162) | $ 0.80 | | Stock options forfeited, canceled, or expired | (40) | $ 0.80 | | **Balance as of September 30, 2022** | **1,143** | **$ 0.79** | | RSU Activity | Share (in thousands) | Weighted Average Grant Date Fair Value per Share | | :--------------------------------------- | :------------------- | :----------------------------------------------- | | Nonvested balance as of December 31, 2021 | 6,170 | $ 2.11 | | RSUs granted | 13,281 | $ 9.08 | | RSUs forfeited | (516) | $ 5.58 | | RSUs vested | (4,450) | $ 1.06 | | **Nonvested balance as of September 30, 2022** | **14,485** | **$ 8.02** | | Stock-Based Compensation Expense (in thousands) | Three Months Ended Sep 30, 2022 | Three Months Ended Sep 30, 2021 | | :---------------------------------------------- | :------------------------------ | :------------------------------ | | Sales and marketing | $ 2,146 | $ 9 | | Research and development | $ 4,219 | $ 184 | | General and administrative | $ 4,529 | $ 9 | | **Total stock-based compensation expense** | **$ 10,894** | **$ 202** | | Stock-Based Compensation Expense (in thousands) | Nine Months Ended Sep 30, 2022 | Nine Months Ended Sep 30, 2021 | | :---------------------------------------------- | :----------------------------- | :----------------------------- | | Sales and marketing | $ 3,038 | $ 59 | | Research and development | $ 11,011 | $ 339 | | General and administrative | $ 12,708 | $ 54 | | **Total stock-based compensation expense** | **$ 26,757** | **$ 452** | - Total stock-based compensation expense for the nine months ended September 30, 2022, includes **$7.1 million** recognized upon the closing of the Merger[150](index=150&type=chunk) [NOTE 12. INCOME TAXES](index=30&type=section&id=NOTE%2012.%20INCOME%20TAXES) This note explains the company's income tax provision and the status of its deferred tax assets - The company recorded a tax provision of **$0.2 million** and **$0.4 million** for the three and nine months ended September 30, 2022, respectively, compared to no tax provision in the prior year periods[151](index=151&type=chunk) - A **valuation allowance** has been recorded against substantially all of the company's net deferred tax assets due to its history of losses, indicating it is not more likely than not that these assets will be realized[151](index=151&type=chunk) [NOTE 13. NET LOSS PER SHARE OF COMMON STOCK](index=30&type=section&id=NOTE%2013.%20NET%20LOSS%20PER%20SHARE%20OF%20COMMON%20STOCK) This note presents the calculation of net loss per share and details anti-dilutive securities | Net Loss Per Share | Three Months Ended Sep 30, 2022 | Three Months Ended Sep 30, 2021 | Nine Months Ended Sep 30, 2022 | Nine Months Ended Sep 30, 2021 | | :--------------------------------------- | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Net loss (in thousands) | $ (28,765) | $ (6,163) | $ (55,022) | $ (18,589) | | Weighted-average shares outstanding – basic and diluted | 140,302 | 13,598 | 118,560 | 12,094 | | Net loss per share – basic and diluted | $ (0.21) | $ (0.45) | $ (0.46) | $ (1.54) | - Basic and diluted net loss per share were the same for all periods presented due to net losses, which made the effect of potentially dilutive securities **anti-dilutive**[153](index=153&type=chunk) | Anti-Dilutive Common Share Equivalent Securities (in thousands) | Three Months Ended Sep 30, 2022 | Three Months Ended Sep 30, 2021 | Nine Months Ended Sep 30, 2022 | Nine Months Ended Sep 30, 2021 | | :-------------------------------------------------------------- | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Private Warrants | 5,167 | — | 5,167 | — | | Stock options | 1,143 | 1,199 | 1,143 | 1,199 | | Convertible preferred stock | — | 85,741 | — | 85,741 | | RSUs | 14,485 | — | 14,485 | — | | Unvested Common Stock | — | 675 | — | 675 | | **Total** | **20,795** | **87,615** | **20,795** | **87,615** | [NOTE 14. COMMITMENTS AND CONTINGENCIES](index=31&type=section&id=NOTE%2014.%20COMMITMENTS%20AND%20CONTINGENCIES) This note discloses the company's significant financial commitments and potential contingent liabilities - The company committed to a **$25.0 million** refundable contribution to Atlas Renewable LLC for the construction of its first Gravity Energy Storage System (GESS), with **$22.5 million** remitted as of September 30, 2022[156](index=156&type=chunk) - As of September 30, 2022, there was **$24.9 million** in letters of credit issued under the company's credit facilities, held by banks as collateral[157](index=157&type=chunk) - The company's non-cancellable purchase obligations totaled approximately **$23.9 million** as of September 30, 2022[233](index=233&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=32&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 and results of operations [Our Business](index=32&type=section&id=Our%20Business) The company develops and deploys grid-scale energy storage solutions, including gravity and battery systems - Energy Vault develops sustainable, grid-scale energy storage solutions, including Gravity Energy Storage Systems (GESS), Battery Energy Storage Systems (BESS), and Energy Management Software (EMS), to facilitate the transition to a carbon-free power grid[160](index=160&type=chunk)[162](index=162&type=chunk) - The company's gravity-based solutions (EVx) offer long-duration energy storage (4-12 hours) with **over 80% round-trip efficiency**, utilizing custom composite blocks made from low-cost, locally sourced materials[162](index=162&type=chunk)[163](index=163&type=chunk)[166](index=166&type=chunk) - Energy Vault's BESSs provide short-duration energy storage (1-4 hours) with expected lives of 10-20 years, featuring a purpose-built AC block system and modular inverters[167](index=167&type=chunk) - The Energy Management Software (EVS) platform uses artificial intelligence and predictive analytics to optimize the economic dispatching of energy generation and storage assets, offered as SaaS or bundled with storage assets[168](index=168&type=chunk) [Recent Developments](index=33&type=section&id=Recent%20Developments) This section highlights key recent events, including major contracts, financing, and warrant redemption - In February 2022, Energy Vault announced a **$50.0 million IP licensing agreement** with Atlas Renewable LLC for gravity energy storage technology deployment in China, with **$45.0 million** collected as of September 30, 2022[169](index=169&type=chunk) - The company purchased a **$2.0 million convertible promissory note** from DG Fuels, LLC in April 2022, bearing an annual interest rate of 10.0%[172](index=172&type=chunk) - All outstanding public warrants were redeemed on August 1, 2022, resulting in **no public warrants remaining outstanding** as of September 30, 2022[173](index=173&type=chunk) - In August and September 2022, Energy Vault secured contracts with Jupiter Power and Wellhead Electric Company for battery energy storage projects totaling **385.2 MWh**, with expected completion in 2023[174](index=174&type=chunk)[175](index=175&type=chunk) [Business Combination and Public Company Costs](index=34&type=section&id=Business%20Combination%20and%20Public%20Company%20Costs) This section discusses the financial impact of the merger and the increased costs of being a public entity - The Merger with Novus Capital Corporation II on February 11, 2022, was accounted for as a **reverse recapitalization**, making Energy Vault a publicly reporting company trading on the NYSE under 'NRGV'[176](index=176&type=chunk)[177](index=177&type=chunk) - The company raised **$235.8 million in gross proceeds** from the Merger and PIPE financing, resulting in **$191.0 million in net cash proceeds** after $44.8 million in transaction costs[178](index=178&type=chunk)[179](index=179&type=chunk) - As a public company, Energy Vault expects to incur additional annual expenses for directors' and officers' liability insurance, director fees, and increased internal and external accounting, legal, and administrative resources[180](index=180&type=chunk) [Key Factors and Trends Affecting our Business](index=35&type=section&id=Key%20Factors%20and%20Trends%20Affecting%20our%20Business) This section discusses market trends and key factors influencing business performance and costs - The company's cost projections are highly dependent on raw materials (e.g., steel), equipment (e.g., motors, inverters), and technical/construction service providers, which are significantly impacted by **global supply chain disruptions**, economic uncertainties, and high inflation[182](index=182&type=chunk) - To date, only the Commercial Demonstration Unit (CDU) has operated; there are **no commercial installations** of the EVx system, and the EVx and EVRC platform designs are not yet finalized[183](index=183&type=chunk) - Future revenue growth is tied to the adoption of renewable energy storage systems, and the business depends on the **market acceptance** of its gravity-based technology against dominant alternatives like lithium-ion batteries[184](index=184&type=chunk) - The COVID-19 pandemic has caused economic uncertainty and delays in CDU construction, and its evolving factors may continue to impact the company's business, operations, and financial results[185](index=185&type=chunk) [Components of Results of Operations](index=35&type=section&id=Components%20of%20Results%20of%20Operations) This section breaks down the key components of the company's revenue and expense streams - Revenue is expected from four programs: Storage Asset Owners (customer owns system), Storage Service Customers (company retains ownership, sells power), Software as a Service (EMS), and Intellectual Property License and Royalty Agreements[187](index=187&type=chunk)[188](index=188&type=chunk)[189](index=189&type=chunk)[190](index=190&type=chunk) - Cost of revenue primarily includes subcontractor costs, direct labor, and consulting expenses for constructing energy storage systems and providing construction support services[191](index=191&type=chunk) - Sales and marketing, research and development, and general and administrative expenses are expected to increase due to expanded headcount, public company operating costs, and continued investment in product development[192](index=192&type=chunk)[193](index=193&type=chunk)[194](index=194&type=chunk) - Asset impairment charges in 2022 relate to the dismantling of the Commercial Demonstration Unit (CDU) and production equipment for the EV1 Tower[195](index=195&type=chunk)[196](index=196&type=chunk) - Other income (expense) includes interest expense, changes in the fair value of warrant liability (primarily for private warrants after public warrant redemption), transaction costs related to the Merger, and net other income/expense from interest and foreign exchange[197](index=197&type=chunk)[198](index=198&type=chunk)[199](index=199&type=chunk)[200](index=200&type=chunk) [Key Operating Metrics](index=37&type=section&id=Key%20Operating%20Metrics) This section presents key performance indicators, including bookings and backlog, for the business | Metric | Three Months Ended Sep 30, 2022 | Three Months Ended Sep 30, 2021 | $ Change (3 Months) | Nine Months Ended Sep 30, 2022 | Nine Months Ended Sep 30, 2021 | $ Change (9 Months) | | :---------------- | :------------------------------ | :------------------------------ | :------------------ | :----------------------------- | :----------------------------- | :------------------ | | Bookings [MWh] | 495 | — | 495 | 495 | — | 495 | | Bookings [$] | $ 206,794 | $ — | $ 206,794 | $ 256,794 | $ — | $ 256,794 | - Backlog, representing expected future revenue from uncompleted contracts and IP licensing, totaled **$211.5 million** as of September 30, 2022, with the majority expected to be realized within the next twelve months[202](index=202&type=chunk)[203](index=203&type=chunk) - The timing of revenue for construction projects in backlog is subject to change due to customer, regulatory, or other delays (e.g., supply chain, inflation, COVID-19), making backlog an **uncertain indicator** of future revenue and earnings[203](index=203&type=chunk) [Results of operations](index=38&type=section&id=Results%20of%20operations) This section provides a comparative analysis of the company's operational results over recent periods [Consolidated Comparison of Three and Nine Months Ended September 30, 2022 to September 30, 2021](index=38&type=section&id=Consolidated%20Comparison%20of%20Three%20and%20Nine%20Months%20Ended%20September%2030,%202022%20to%20September%2030,%202021) This section provides a detailed table comparing financial results for the three and nine-month periods | Item | 3 Months Ended Sep 30, 2022 (in thousands) | 3 Months Ended Sep 30, 2021 (in thousands) | $ Change (3 Months) | 9 Months Ended Sep 30, 2022 (in thousands) | 9 Months Ended Sep 30, 2021 (in thousands) | $ Change (9 Months) | | :--------------------------------------- | :--------------------------------------- | :--------------------------------------- | :------------------ | :--------------------------------------- | :--------------------------------------- | :------------------ | | Revenue | $ 1,694 | $ — | $ 1,694 | $ 45,555 | $ — | $ 45,555 | | Cost of revenue | $ 1,623 | $ — | $ 1,623 | $ 2,194 | $ — | $ 2,194 | | Sales and marketing | $ 3,758 | $ 169 | $ 3,589 | $ 8,287 | $ 443 | $ 7,844 | | Research and development | $ 16,731 | $ 1,697 | $ 15,034 | $ 36,155 | $ 4,920 | $ 31,235 | | General and administrative | $ 12,960 | $ 3,759 | $ 9,201 | $ 33,434 | $ 8,620 | $ 24,814 | | Asset impairment | $ 2,828 | $ (11) | $ 2,839 | $ 2,828 | $ 2,733 | $ 95 | | **Loss from operations** | **$ (36,206)** | **$ (5,614)** | **$ (30,592)** | **$ (37,343)** | **$ (16,716)** | **$ (20,627)** | | Change in fair value of warrant liability | $ 6,706 | $ — | $ 6,706 | $ 2,061 | $ — | $ 2,061 | | Transaction costs | $ — | $ — | $ — | $ (20,586) | $ — | $ (20,586) | | Other income (expenses), net | $ 920 | $ (549) | $ 1,469 | $ 1,205 | $ (1,866) | $ 3,071 | | **Loss before income taxes** | **$ (28,580)** | **$ (6,163)** | **$ (22,417)** | **$ (54,664)** | **$ (18,589)** | **$ (36,075)** | [Revenue](index=38&type=section&id=Revenue) This section details the sources of revenue for the reported three and nine-month periods - Revenue for the three months ended September 30, 2022, was **$1.7 million**, primarily from building and transferring energy storage products for Jupiter (68%) and construction support services for Atlas (32%)[207](index=207&type=chunk) - Revenue for the nine months ended September 30, 2022, was **$45.6 million**, primarily from **$42.9 million** related to the transfer of intellectual property to Atlas (97% of total revenue)[209](index=209&type=chunk)[210](index=210&type=chunk) [Operating expenses](index=39&type=section&id=Operating%20expenses) This section analyzes the changes and drivers for various operating expense categories - Cost of revenue was **$1.6 million** (Q3 2022) and **$2.2 million** (9M 2022), primarily from subcontractor and direct labor costs on battery storage projects with Jupiter and construction support services for Atlas[211](index=211&type=chunk)[212](index=212&type=chunk) - Sales and marketing expenses increased by **$3.6 million** (Q3) and **$7.9 million** (9M) in 2022, mainly due to increased personnel-related expenses and marketing/public relations costs[213](index=213&type=chunk)[214](index=214&type=chunk) - Research and development expenses increased by **$15.0 million** (Q3) and **$31.3 million** (9M) in 2022, driven by personnel costs, depreciation (CDU), engineering, and software expenses[215](index=215&type=chunk)[216](index=216&type=chunk) - General and administrative expenses increased by **$9.2 million** (Q3) and **$24.8 million** (9M) in 2022, primarily due to increased personnel-related expenses, legal/professional fees (public company costs), and insurance[217](index=217&type=chunk)[219](index=219&type=chunk) - Asset impairment was **$2.8 million** for both the three and nine months ended September 30, 2022, related to the dismantling of the CDU and brick machines[220](index=220&type=chunk) [Other Income (Expense)](index=40&type=section&id=Other%20Income%20(Expense)) This section explains non-operating income and expenses, including warrant value changes and transaction costs - The company recognized a gain of **$6.7 million** (Q3 2022) and **$2.1 million** (9M 2022) related to the change in fair value of warrant liability due to a decrease in the fair value of outstanding warrants[222](index=222&type=chunk) - Transaction costs of **$20.6 million** related to the consummation of the Merger were recognized during the nine months ended September 30, 2022[223](index=223&type=chunk) - Other income (expense), net, improved by **$1.4 million** (Q3) and **$3.1 million** (9M) in 2022, primarily due to an increase in interest income and positive fluctuations in foreign currency transactions[224](index=224&type=chunk)[225](index=225&type=chunk) [Liquidity and Capital Resources](index=40&type=section&id=Liquidity%20and%20Capital%20Resources) This section assesses the company's liquidity, capital sources, and contractual obligations [Merger and PIPE](index=41&type=section&id=Merger%20and%20PIPE) This section specifies the net proceeds received from the business combination and PIPE financing - The Merger and PIPE financing completed on February 11, 2022, provided net proceeds of **$191.0 million**[227](index=227&type=chunk) [Short-Term Liquidity](index=41&type=section&id=Short-Term%20Liquidity) This section evaluates the company's ability to meet its short-term financial obligations | Item | September 30, 2022 (in thousands) | December 31, 2021 (in thousands) | | :--------------------------------------- | :-------------------------------- | :-------------------------------- | | Cash, cash equivalents, and restricted cash | $ 274,735 | $ 105,125 | | Restricted cash | $ 25,086 | $ — | | **Cash and cash equivalents - end of period** | **$ 249,649** | **$ 105,125** | - Management believes its cash, cash equivalents, and restricted cash on hand as of September 30, 2022, will be **sufficient to fund operating activities** for at least the next twelve months[229](index=229&type=chunk) - The company may seek additional capital through equity and/or debt financings for future growth, which could result in dilution to stockholders or impose significant restrictions on operations[231](index=231&type=chunk) [Contractual Obligations](index=41&type=section&id=Contractual%20Obligations) This section summarizes the company's principal financial commitments and purchase obligations - Principal commitments as of September 30, 2022, include obligations under operating leases, finance leases, deferred pensions, a **$25.0 million** refundable contribution to Atlas (with $22.5 million remitted), and approximately **$23.9 million** in non-cancellable purchase obligations[232](index=232&type=chunk)[233](index=233&type=chunk) [Cash Flows](index=41&type=section&id=Cash%20Flows) This section analyzes the cash flows from operating, investing, and financing activities [Operating Activities](index=41&type=section&id=Operating%20Activities) This section details the cash used in the company's principal revenue-producing activities - Net cash used in operating activities totaled **$47.8 million** for the nine months ended September 30, 2022, negatively impacted by a net loss of $55.0 million and a $55.2 million increase in operating assets (contract assets, accounts receivable, prepaid expenses)[235](index=235&type=chunk) - Operating cash flows were positively impacted by **$35.5 million in non-cash charges** (stock-based compensation, depreciation, asset impairments) and a **$27.0 million increase in operating liabilities** (contract liabilities)[236](index=236&type=chunk) [Investing Activities](index=42&type=section&id=Investing%20Activities) This section details cash flows related to the acquisition of long-term assets and other investments - Net cash used in investing activities totaled **$2.7 million** for the nine months ended September 30, 2022, primarily for the purchase of a convertible note ($2.0 million) and property and equipment ($0.7 million)[238](index=238&type=chunk) [Financing Activities](index=42&type=section&id=Financing%20Activities) This section details cash flows from transactions with owners and creditors, including the merger proceeds - Net cash provided by financing activities totaled **$220.2 million** for the nine months ended September 30, 2022, mainly from proceeds from the reverse recapitalization and PIPE financing ($235.9 million) and warrant exercises ($7.9 million)[239](index=239&type=chunk) - These inflows were partially offset by **$20.7 million** in transaction cost payments related to the reverse recapitalization and **$3.0 million** in tax payments for equity awards[239](index=239&type=chunk) [Non-GAAP Financial Measure](index=42&type=section&id=Non-GAAP%20Financial%20Measure) This section presents and reconciles Adjusted EBITDA, a non-GAAP metric, to the GAAP net loss | Item | Three Months Ended Sep 30, 2022 (in thousands) | Three Months Ended Sep 30, 2021 (in thousands) | Nine Months Ended Sep 30, 2022 (in thousands) | Nine Months Ended Sep 30, 2021 (in thousands) | | :--------------------------------------- | :--------------------------------------- | :--------------------------------------- | :-------------------------------------- | :-------------------------------------- | | Net loss (GAAP) | $ (28,765) | $ (6,163) | $ (55,022) | $ (18,589) | | Interest income, net | $ (1,024) | $ (21) | $ (1,355) | $ (36) | | Income tax expense | $ 185 | $ — | $ 358 | $ — | | Depreciation and amortization | $ 5,158 | $ 529 | $ 7,562 | $ 976 | | Stock-based compensation expense | $ 10,894 | $ 202 | $ 26,757 | $ 452 | | Change in fair value of warrant liability | $ (6,706) | $ — | $ (2,061) | $ — | | Transaction costs | $ — | $ — | $ 20,586 | $ — | | Asset impairment | $ 2,828 | $ (11) | $ 2,828 | $ 2,733 | | Foreign exchange (gains) and losses | $ 219 | $ 550 | $ 163 | $ 1,889 | | **Adjusted EBITDA (non-GAAP)** | **$ (17,211)** | **$ (4,914)** | **$ (184)** | **$ (12,575)** | - **Adjusted EBITDA** is presented as a supplemental measure to GAAP net loss, excluding items like interest, taxes, depreciation, stock-based compensation, warrant liability changes, transaction costs, asset impairment, and foreign exchange gains/losses to better reflect continuing operations[243](index=243&type=chunk) - Adjusted EBITDA has limitations as an analytical tool and should not be considered in isolation or as a substitute for GAAP measures, as it does not reflect cash expenditures, working capital needs, or all non-cash items[245](index=245&type=chunk) [Off-Balance Sheet Commitments and Arrangements](index=44&type=section&id=Off-Balance%20Sheet%20Commitments%20and%20Arrangements) This section confirms the absence of any off-balance sheet arrangements - The company has not entered into off-balance sheet arrangements as defined by SEC rules and regulations as of September 30, 2022[246](index=246&type=chunk) [Critical Accounting Policies and Use of Estimates](index=44&type=section&id=Critical%20Accounting%20Policies%20and%20Use%20of%20Estimates) This section highlights accounting policies that require significant management judgment and estimation - Key critical accounting policies include **revenue recognition (ASC 606)**, stock-based compensation, defined benefit pension obligation, and warrant liability, all requiring significant management judgments, estimates, and assumptions[247](index=247&type=chunk)[249](index=249&type=chunk)[256](index=256&type=chunk)[259](index=259&type=chunk)[260](index=260&type=chunk) - Revenue recognition for building energy storage projects uses the **percentage of completion method**, with estimates for variable consideration like liquidated damages[252](index=252&type=chunk)[254](index=254&type=chunk) - Stock-based compensation expense is measured based on estimated fair values using the **Black-Scholes option-pricing model**, with assumptions for expected term, volatility, risk-free interest rate, and dividend yield[258](index=258&type=chunk)[259](index=259&type=chunk) [Recently Adopted and Issued Accounting Pronouncements](index=46&type=section&id=Recently%20Adopted%20and%20Issued%20Accounting%20Pronouncements) This section discusses the impact of recently adopted and pending accounting standards - The company adopted ASU 2020-06 (simplifying accounting for convertible instruments) and ASU 2019-12 (simplifying income taxes) on January 1, 2022, with **no material impact** on its condensed consolidated financial statements[76](index=76&type=chunk)[77](index=77&type=chunk) - ASU 2016-13 (credit losses) will be effective for the fiscal year beginning January 1, 2023, and is **not expected to have a material impact**[75](index=75&type=chunk) - As an 'emerging growth company,' Energy Vault has elected to take advantage of the **extended transition period** for new or revised accounting standards[261](index=261&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=46&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) This section outlines the company's exposure to foreign currency and inflation risks - **Foreign currency risk** arises from international operations and definitive agreements denominated in currencies other than the U.S. dollar (e.g., Euro, Australian dollar, Brazilian real, Saudi riyal), where a strengthening U.S. dollar could increase solution costs for international customers[264](index=264&type=chunk) - **Inflation risk** primarily stems from higher material, labor, and construction costs, which, if not offset by price increases or other measures, could adversely affect the company's business, financial condition, and results of operations[265](index=265&type=chunk) [Item 4. Controls and Procedures](index=46&type=section&id=Item%204.%20Controls%20and%20Procedures) This section details the evaluation of disclosure controls and ongoing remediation of material weaknesses - Management concluded that the company's disclosure controls and procedures were **effective** as of September 30, 2022, ensuring timely and accurate reporting of required information[267](index=267&type=chunk) - Previously identified **material weaknesses** in internal control over financial reporting related to the accounting treatment of warrants and the classification of Class A common stock subject to possible redemption[269](index=269&type=chunk)[270](index=270&type=chunk) - Remediation plans are underway, including hiring additional finance and accounting personnel, developing formal policies, and implementing new technological solutions, but these efforts are **not yet complete**[271](index=271&type=chunk) - The effectiveness of control systems is subject to inherent limitations, providing **reasonable assurance**, not absolute assurance, of achieving control objectives[273](index=273&type=chunk) [Part II - Other Information](index=48&type=section&id=Part%20II%20-%20Other%20Information) This part contains other required information, including legal proceedings, risk factors, and exhibits [Item 1. Legal Proceedings](index=48&type=section&id=Item%201.%20Legal%20Proceedings) The company is involved in ordinary course legal proceedings not expected to have a material adverse effect - Energy Vault is involved in legal proceedings arising in the ordinary course of business, which are **not expected to have a material adverse effect** on its business, financial condition, and results of operations[275](index=275&type=chunk) [Item 1A. Risk Factors](index=48&type=section&id=Item%201A.%20Risk%20Factors) This section details various factors that could materially and adversely affect the company's business [Risk Factor Summary](index=48&type=section&id=Risk%20Factor%20Summary) This section summarizes the most significant risks facing the company's business and operations - The company is an early-stage entity with a **history of losses**, expecting significant expenses and continuing losses, with no guarantee of future profitability[278](index=278&type=chunk)[280](index=280&type=chunk) - **Limited operating history** and a rapidly evolving industry make it difficult to evaluate the business, risks, and future prospects[278](index=278&type=chunk)[283](index=283&type=chunk) - Systems are in continuous refinement, with **no assurance of successful implementation** of improvements on schedule or that complex software/technology will perform as expected without defects[278](index=278&type=chunk)[285](index=285&type=chunk)[291](index=291&type=chunk) - Reliance on non-binding letters of intent, lengthy sales and installation cycles, and potential customer hesitancy towards novel technology could harm the business and lead to significant expenses without offsetting revenues[278](index=278&type=chunk)[289](index=289&type=chunk)[306](index=306&type=chunk)[347](index=347&type=chunk) - Dependence on suppliers for components and raw materials exposes the company to risks of delays, cancellations, and penalties due to **supply chain disruptions**[278](index=278&type=chunk)[319](index=319&type=chunk) [Risks Related to Energy Vault's Business and Industry](index=49&type=section&id=Risks%20Related%20to%20Energy%20Vault's%20Business%20and%20Industry) This section details operational, financial, and market risks inherent to the company's business - The company has incurred significant net losses since inception (accumulated deficit of **$124.0 million** as of Sep 30, 2022) and expects to continue incurring losses due to investments in manufacturing, sales, marketing, R&D, and infrastructure[280](index=280&type=chunk) - Ability to utilize net operating loss (NOL) carryforwards and other tax attributes may be **limited by ownership changes** under Sections 382 and 383 of the Internal Revenue Code, potentially increasing future tax liabilities[286](index=286&type=chunk)[287](index=287&type=chunk)[288](index=288&type=chunk) - Customers may be hesitant to adopt the company's novel gravity-based energy storage technology over established alternatives like lithium-ion batteries, and there is **no assurance that complex systems will perform as expected** without defects[289](index=289&type=chunk)[290](index=290&type=chunk)[291](index=291&type=chunk)[292](index=292&type=chunk) - The capital-intensive business requires additional funding, and if adequate capital is not available on attractive terms, it could create substantial doubt about the company's ability to achieve profitability or **continue as a going concern**[303](index=303&type=chunk)[305](index=305&type=chunk) - **Lengthy sales and installation cycles** (18-36 months or more) for energy storage systems lead to significant expenses without guaranteed revenue and potential quarterly operating result fluctuations due to timing, cancellations, and external factors[306](index=306&type=chunk)[309](index=309&type=chunk)[310](index=310&type=chunk)[311](index=311&type=chunk) - Reliance on a limited number of third-party suppliers for raw materials and components (e.g., steel, microchips) exposes the company to **supply chain disruptions**, quality issues, and cost volatility, which could lead to installation delays, cancellations, and reputational damage[319](index=319&type=chunk)[320](index=320&type=chunk) - The company operates in **highly competitive energy markets** with larger, more resourced competitors, and its growth depends on maintaining relationships with third-party EPC firms and strategic partners, which may not be based on enforceable agreements or meet expectations[355](index=355&type=chunk)[360](index=360&type=chunk)[361](index=361&type=chunk)[362](index=362&type=chunk) - Changes in business, economic, or political conditions (e.g., cyclical downturns, global uncertainties like the war in Ukraine, inflation) are beyond the company's control and could impact demand for offerings, leading to lower revenues and adverse effects on operating results[379](index=379&type=chunk)[381](index=381&type=chunk)[382](index=382&type=chunk) - The **COVID-19 pandemic** has adversely affected operations, causing delays and increased costs, and its future impact remains uncertain; facilities and systems are also vulnerable to damage from other disasters[383](index=383&type=chunk)[385](index=385&type=chunk)[386](index=386&type=chunk)[388](index=388&type=chunk) - Future acquisitions are subject to risks like diversion of management resources, failure to generate expected financial results, and potential dilution; as a public company, significant increased expenses and administrative burdens are expected, and failure to maintain effective internal control over financial reporting could impair financial reporting and investor confidence[389](index=389&type=chunk)[390](index=390&type=chunk)[391](index=391&type=chunk)[392](index=392&type=chunk)[394](index=394&type=chunk)[395](index=395&type=chunk) [Risks Related to Government Regulation](index=68&type=section&id=Risks%20Related%20to%20Government%20Regulation) This section outlines risks associated with government regulations, incentives, and environmental compliance - The business relies heavily on government rebates, tax credits (e.g., **26% Investment Tax Credit** for combined storage projects), and other financial incentives, which are subject to reduction or elimination, potentially reducing demand for EVx systems[396](index=396&type=chunk)[397](index=397&type=chunk) - The company could be liable for **environmental damage** from its operations, impacting its reputation and financial results, especially given customers' high sustainability standards[398](index=398&type=chunk) - Actions by governmental authorities and local residents to restrict construction or use of systems (due to zoning, permitting, land use) could harm the business, causing delays and increased costs[399](index=399&type=chunk) - Changes in energy and environmental regulation, or enforcement policies, could adversely impact profitability, limit business activities, or expose the company to additional costs; licensing and operational requirements incur substantial compliance costs[400](index=400&type=chunk)[401](index=401&type=chunk)[402](index=402&type=chunk) - Litigation, regulatory actions, and compliance issues, including those related to privacy, information security, and data protection (e.g., GDPR), could lead to significant fines, penalties, and negative publicity[404](index=404&type=chunk)[405](index=405&type=chunk)[406](index=406&type=chunk) [Risks Related to Intellectual Property](index=70&type=section&id=Risks%20Related%20to%20Intellectual%20Property) This section discusses risks related to protecting and defending the company's intellectual property - The company may be unable to protect, defend, maintain, or enforce its intellectual property (patents, trade secrets) against competitors, potentially leading to similar products, increased costs, or substantial liability from **third-party infringement claims**[407](index=407&type=chunk)[408](index=408&type=chunk)[412](index=412&type=chunk) - Pending patent applications may not result in issued patents or provide adequate protection, and **foreign patent enforcement can be less effective**, hindering the ability to prevent competitors from selling similar products[410](index=410&type=chunk) - Third-party claims of infringement, misappropriation, or other IP violations could be time-consuming and costly to defend, potentially requiring the company to cease selling products, pay damages, obtain licenses, or redesign products[412](index=412&type=chunk) [Risks Related to Ownership of Energy Vault's Securities](index=72&type=section&id=Risks%20Related%20to%20Ownership%20of%20Energy%20Vault's%20Securities) This section details risks for investors, including ownership concentration and potential stock price volatility - **Concentration of ownership** among executive officers, directors, and their affiliates (approximately **41.5%** as of Sep 30, 2022) may prevent new investors from influencing significant corporate decisions and could delay or prevent a change of control[414](index=414&type=chunk) - The company accounts for outstanding warrants as a **warrant liability**, requiring quarterly fair value determination, which could materially impact financial position and operating results and potentially affect the market price of common stock[415](index=415&type=chunk) - **Material weaknesses in internal control** over financial reporting (inherited from Novus) related to warrant accounting and stock classification could lead to litigation, loss of investor confidence, and a decline in stock price[416](index=416&type=chunk)[417](index=417&type=chunk)[418](index=418&type=chunk) - **Anti-takeover provisions** in the company's certificate of incorporation, bylaws, and Delaware law could make an acquisition more difficult and prevent attempts by stockholders to replace or remove current management[431](index=431&type=chunk)[433](index=433&type=chunk) - The exercise of outstanding warrants (**5,166,666 private warrants** as of Aug 2, 2022) would increase the number of shares eligible for future resale, resulting in **dilution to stockholders** and potentially adversely affecting the market price[434](index=434&type=chunk) - The company has **no current plans to pay cash dividends** on its common stock for the foreseeable future, meaning investors may not receive any return on investment unless they sell shares for a price greater than paid[425](index=425&type=chunk) - The issuance of additional shares of common stock or other equity securities (e.g., from the 2022 Equity Incentive Plan) would **dilute existing ownership interests** and may depress the market price of common stock[426](index=426&type=chunk)[427](index=427&type=chunk) - The sale or possibility of sale of additional securities by selling security holders (e.g., Novus's Founders, Legacy Energy Vault stockholders) at prices significantly less than $10.00 per share may negatively impact the market price of common stock[427](index=427&type=chunk)[428](index=428&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=76&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) Information regarding unregistered sales of equity securities is incorporated by reference from Form 8-K - Information required by Item 2 is contained in the company's Current Report on Form 8-K, originally filed on February 14, 2022, and amended on March 31, 2022[435](index=435&type=chunk) [Item 3. Defaults Upon Senior Securities](index=76&type=section&id=Item%203.%20Defaults%20Upon%20Senior%20Securities) The company reported no defaults upon senior securities for the period - No defaults upon senior securities were reported[436](index=436&type=chunk) [Item 4. Mine Safety Disclosures](index=76&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) This item is not applicable to the company - Item 4. Mine Safety Disclosures is not applicable to the company[437](index=437&type=chunk) [Item 5. Other Information](index=76&type=section&id=Item%205.%20Other%20Information) This section details the adoption of an inducement award plan and new executive employment agreements - The company adopted the 2022 Employment Inducement Award Plan, reserving **8,000,000 shares** of common stock for issuance to newly hired or rehired employees as a material inducement[438](index=438&type=chunk) - Robert Piconi (President and CEO) entered a new employment agreement with an annual base salary of **$690,000**, a target annual discretionary bonus of 100% of base salary, and annual equity awards at least four times the sum of his base salary and target bonus[440](index=440&type=chunk) - Jan Kees Van Gaalen (CFO, effective Nov 16, 2022) has an annual base salary of **$375,000**, a target annual cash bonus of 100% of base salary, and RSU awards covering 250,000 shares (time-based) and 350,000 shares (performance-based)[444](index=444&type=chunk)[445](index=445&type=chunk) - Marco Terruzzin (Chief Commercial and Product Officer) entered a new employment agreement with an annual base salary of **$375,000** and a target annual cash bonus of 50% of base salary[449](index=449&type=chunk) - Executive employment agreements include severance provisions for qualifying terminations, with enhanced benefits (e.g., accelerated vesting, increased cash payments) if termination occurs within 18 months following a change in control[441](index=441&type=chunk)[442](index=442&type=chunk)[446](index=446&type=chunk)[450](index=450&type=chunk) [Item 6. Exhibits](index=79&type=section&id=Item%206.%20Exhibits) This section provides a comprehensive list of all exhibits filed with the Quarterly Report on Form 10-Q - Exhibits include offer letters for Robert Piconi, Jan Kees Van Gaalen, and Marco Terruzzin, detailing their employment terms[453](index=453&type=chunk) - The 2022 Employment Inducement Award Plan and related stock option/RSU grant notices and agreements are filed as exhibits[453](index=453&type=chunk) - Certifications of the Principal Executive Officer and Chief Financial Officer, required under SEC rules and the Sarbanes-Oxley Act, are included as Exhibits 31.1, 31.2, 32.1, and 32.2[453](index=453&type=chunk) [SIGNATURES](index=81&type=section&id=SIGNATURES) This section contains the official signatures of the company's certifying officers - The report is duly signed on behalf of Energy Vault Holdings, Inc. by Robert Piconi, Chief Executive Officer, and David Hitchcock, Interim Chief Financial Officer, on November 14, 2022[459](index=459&type=chunk)