Energy Vault(US:NRGV)2022-05-16 20:19Cautionary Note Regarding Forward-Looking Statements This report contains forward-looking statements regarding future operations, financial condition, business strategy, and plans, which are subject to known and unknown risks and uncertainties - This report contains forward-looking statements regarding future operations, financial condition, business strategy, and plans, which are subject to known and unknown risks and uncertainties that may cause actual results to differ materially1011 - Key areas covered include expected benefits of the Merger, changes in strategy, expansion plans, customer opportunities, future financial position, projected costs, market acceptance, brand development, competitive landscape, impact of health epidemics, intellectual property protection, emerging growth company status, future capital requirements, and business opportunities1013 Part I - Financial Information Item 1. Financial Statements This section presents the unaudited condensed consolidated financial statements for Energy Vault Holdings, Inc., including balance sheets, statements of operations and comprehensive loss, statements of convertible preferred stock and stockholders' deficit, and statements of cash flows, along with detailed notes explaining the company's organization, significant accounting policies, and specific financial items Condensed Consolidated Balance Sheets This section details the company's financial position, highlighting significant changes in cash, total assets, liabilities, and stockholders' equity over the period Condensed Consolidated Balance Sheets (In thousands) | (In thousands) | March 31, 2022 | December 31, 2021 | | :--- | :--- | :--- | | Assets | | | | Cash and cash equivalents | $303,518 | $105,125 | | Accounts receivable | $30,002 | — | | Total current assets | $338,061 | $110,663 | | Total Assets | $351,534 | $125,294 | | Liabilities, Convertible Preferred Stock, and Stockholders' Equity (Deficit) | | | | Accounts payable | $3,516 | $1,979 | | Accrued expenses | $1,305 | $4,704 | | Total current liabilities | $5,486 | $7,343 | | Deferred revenue | $8,616 | $1,500 | | Warrant liability | $40,075 | — | | Total liabilities | $56,299 | $11,251 | | Convertible preferred stock (Dec 31, 2021) | — | $182,709 | | Convertible preferred stock (Mar 31, 2022) | $675 | — | | Total stockholders' equity (deficit) | $295,235 | $(68,666) | | Total Liabilities, Convertible Preferred Stock, and Stockholders' Equity (Deficit) | $351,534 | $125,294 | - Cash and cash equivalents increased significantly by $198,393 thousand from December 31, 2021, to March 31, 202215 - Total assets increased by $226,240 thousand, driven primarily by the increase in cash and the recognition of accounts receivable15 - Total liabilities increased by $45,048 thousand, largely due to the new warrant liability of $40,075 thousand and an increase in deferred revenue15 - Stockholders' equity shifted from a deficit of $(68,666) thousand to a positive equity of $295,235 thousand, reflecting the impact of the reverse recapitalization and PIPE financing15 Condensed Consolidated Statements of Operations and Comprehensive Loss This section outlines the company's financial performance, including revenue, operating expenses, and net loss, for the specified periods Condensed Consolidated Statements of Operations and Comprehensive Loss (In thousands, except per share data) | (In thousands except per share data) | Three Months Ended March 31, 2022 | Three Months Ended March 31, 2021 | | :--- | :--- | :--- | | Revenue | $42,884 | $— | | Sales and marketing | $2,580 | $85 | | Research and development | $9,661 | $1,021 | | General and administrative | $9,806 | $1,855 | | Income (loss) from operations | $20,837 | $(2,961) | | Change in fair value of derivative | $— | $(24,102) | | Change in fair value of warrant liability | $(20,237) | $— | | Transaction costs | $(20,586) | $— | | Net loss | $(20,079) | $(28,995) | | Net loss per share of common stock — basic and diluted | $(0.25) | $(2.67) | | Weighted average shares of common stock — basic and diluted | 80,806 | 10,861 | | Total comprehensive loss | $(19,895) | $(27,579) | - The company recognized $42.9 million in revenue for the three months ended March 31, 2022, compared to no revenue in the prior year period17 - Operating expenses increased significantly across all categories year-over-year, with sales and marketing up 2,935.3%, R&D up 846.2%, and G&A up 428.6%17168 - Net loss improved to $(20.1) million in Q1 2022 from $(29.0) million in Q1 2021, despite new expenses related to warrant liability changes and transaction costs, due to revenue generation and the absence of derivative fair value changes17 Condensed Consolidated Statements of Convertible Preferred Stock and Stockholders' Deficit This section details changes in the company's convertible preferred stock and stockholders' deficit, reflecting the impact of the reverse recapitalization and PIPE financing - The balance of convertible preferred stock at December 31, 2021, was $182,709 thousand, which was largely converted into common stock and additional paid-in capital during Q1 2022 due to the reverse recapitalization20 - Additional paid-in capital increased substantially from $713 thousand at December 31, 2021, to $383,821 thousand at March 31, 2022, reflecting the impact of the reverse recapitalization and PIPE financing20 - Accumulated deficit increased from $(68,966) thousand to $(89,045) thousand, primarily due to the net loss incurred during the three months ended March 31, 202220 Condensed Consolidated Statements of Cash Flows This section presents the company's cash inflows and outflows from operating, investing, and financing activities, showing the overall change in cash and cash equivalents Condensed Consolidated Statements of Cash Flows (In thousands) | (In thousands) | Three Months Ended March 31, 2022 | Three Months Ended March 31, 2021 | | :--- | :--- | :--- | | Net cash used in operating activities | $(16,811) | $(6,004) | | Net cash used in investing activities | $(83) | $(3) | | Net cash provided by financing activities | $215,304 | $14,674 | | Net increase in cash | $198,393 | $10,728 | | Cash and cash equivalents – end of the period | $303,518 | $20,779 | - Net cash used in operating activities increased to $(16.8) million in Q1 2022 from $(6.0) million in Q1 2021, primarily due to a net loss and an increase in operating assets (accounts receivable)22185 - Net cash provided by financing activities significantly increased to $215.3 million in Q1 2022, driven by $235.9 million from the reverse recapitalization and PIPE financing, partially offset by $20.7 million in transaction costs22188 - The company experienced a net increase in cash of $198.4 million in Q1 2022, resulting in an ending cash balance of $303.5 million22 Notes to Condensed Consolidated Financial Statements This section provides detailed explanations of the company's organization, significant accounting policies, and specific financial items supporting the consolidated financial statements - Energy Vault develops sustainable, grid-scale energy storage solutions, focusing on proprietary gravity-based technology and energy management software, aiming to accelerate decarbonization24134 - The company completed a reverse recapitalization on February 11, 2022, through a merger with Novus Capital Corporation II, resulting in Energy Vault Holdings, Inc. becoming a public company2666144 - In Q1 2022, the company recognized $42.9 million in intellectual property licensing revenue from Atlas Renewable LLC, an investor in its PIPE financing5557169 - The company assumed 9.6 million Public Warrants and 5.2 million Private Warrants upon the Merger closing, which are classified as liabilities and remeasured at fair value each period, resulting in a $20.2 million change in fair value expense in Q1 2022100112175 - Total stock-based compensation expense for Q1 2022 was $9.2 million, a significant increase from $7 thousand in Q1 2021, including $7.1 million recognized upon the Merger closing126 - The company has committed to a $25.0 million refundable contribution to Atlas Renewable LLC during the construction of its first gravity energy storage system, which will be refunded upon substantial completion and performance metric achievement132182 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's perspective on Energy Vault's financial performance, including a business overview, recent developments, key factors influencing the business, a detailed comparison of operating results for the three months ended March 31, 2022 and 2021, and an analysis of liquidity and capital resources - Energy Vault's core business involves developing gravity-based energy storage technology (EVx and EVRC systems) and AI-driven energy management software to address renewable energy intermittency and grid reliability134135137 - The company completed a License and Royalty agreement with Atlas Renewable LLC in February 2022, generating $42.9 million in IP licensing fees in Q1 2022 for deployment in mainland China and SARs142169 - The Merger with Novus Capital Corporation II on February 11, 2022, resulted in $191.0 million in net cash proceeds and a reverse recapitalization accounting treatment, making Energy Vault a public company144145147 - Key factors affecting the business include product development and deployment challenges (e.g., supply chain impacts, design finalization), the nascent and competitive energy storage industry, and the ongoing uncertainties from the COVID-19 pandemic149150151152153154 Consolidated Comparison of Three Months Ended March 31, 2022 to March 31, 2021 (In thousands, except percentages) | | Three months ended March 31, 2022 | Three months ended March 31, 2021 | $ Change | % Change | | :--- | :--- | :--- | :--- | :--- | | Revenue | $42,884 | $— | $42,884 | — % | | Sales and marketing | $2,580 | $85 | $2,495 | 2,935.3 % | | Research and development | $9,661 | $1,021 | $8,640 | 846.2 % | | General and administrative | $9,806 | $1,855 | $7,951 | 428.6 % | | Income (loss from operations) | $20,837 | $(2,961) | $23,798 | (803.7)% | | Change in fair value of derivative | $— | $(24,102) | $24,102 | (100.0) % | | Change in fair value of warrant liability | $(20,237) | $— | $(20,237) | — % | | Transaction costs | $(20,586) | $— | $(20,586) | — % | | Net loss before income taxes | $(19,951) | $(28,995) | $9,044 | (31.2)% | - The company's cash and cash equivalents increased to $303.5 million as of March 31, 2022, from $105.1 million at December 31, 2021, primarily due to the net proceeds from the Merger and PIPE financing180 - Management believes current cash and cash equivalents are sufficient to fund operating activities for at least the next twelve months, but additional financing may be sought for future growth or business combinations180181 Adjusted EBITDA Reconciliation (In thousands) | | Three Months Ended March 31, 2022 | Three Months Ended March 31, 2021 | | :--- | :--- | :--- | | Net loss (GAAP) | $(20,079) | $(28,995) | | Non-GAAP Adjustments: | | | | Interest income, net | $(47) | $(8) | | Income tax expense | $128 | $— | | Depreciation and amortization | $1,218 | $17 | | Stock-based compensation expense | $9,202 | $7 | | Change in fair value of warrant liability | $20,237 | $— | | Transaction costs | $20,586 | $— | | Foreign exchange (gains) and losses | $(11) | $1,940 | | Change in fair value of derivative liability | $— | $24,102 | | Adjusted EBITDA (non-GAAP) | $31,234 | $(2,937) | - Adjusted EBITDA improved significantly to $31.2 million in Q1 2022 from $(2.9) million in Q1 2021, reflecting the impact of revenue generation and non-cash adjustments190 - Critical accounting policies include revenue recognition (ASC 606), stock-based compensation, defined benefit pension obligation, and warrant liability valuation195196199202203 Item 3. Quantitative and Qualitative Disclosures About Market Risk This section outlines the company's exposure to market risks, specifically foreign currency fluctuations and inflation, and their potential impact on financial performance - The company faces foreign currency risk as certain agreements may be denominated in non-U.S. dollar currencies (Euro, AUD, BRL, SAR), and a strengthening U.S. dollar could increase solution costs for international customers207289 - A growing portion of operating expenses is incurred in foreign currencies (Euro, Swiss franc), making the company susceptible to exchange rate fluctuations207289 - Inflation risk primarily stems from potential higher material, labor, and construction costs, which may not be fully offset by price increases, adversely affecting business and financial results208 Item 4. Controls and Procedures This section details the evaluation of the company's disclosure controls and procedures, addresses previously identified material weaknesses in internal control over financial reporting, and outlines the ongoing remediation efforts - Management concluded that the company's disclosure controls and procedures were effective as of March 31, 2022210 - Previously reported 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 redemption211212 - Remediation plans include hiring additional finance and accounting personnel, developing formal policies and procedures, and adopting new technological solutions, though full remediation is still ongoing213 Part II - Other Information Item 1. Legal Proceedings The company is involved in legal proceedings that arise in the ordinary course of business, but the outcomes are not expected to have a material adverse effect on its business, financial condition, or results of operations - Energy Vault is involved in ordinary course legal proceedings217 - The outcome of these proceedings is not expected to have a material adverse effect on the company's business, financial condition, or results of operations217 Item 1A. Risk Factors This section details a comprehensive list of risk factors that could materially and adversely affect Energy Vault's business, financial condition, results of operations, and prospects, spanning across the company's business and industry, government regulation, intellectual property, and ownership of its securities Risk Factor Summary This section provides a high-level overview of the primary risks facing the company, including its early-stage nature, operational challenges, supply chain dependencies, and potential stock price impacts - The company is an early-stage company with a history of losses and expects continued losses, making future profitability uncertain220228 - Challenges include continuous refinement of system engineering, uncertainty of non-binding agreements leading to sales, customer hesitation towards novel technology, potential defects in complex software/hardware systems, and lengthy sales/installation cycles221222223224225 - Supply chain failures for necessary components or raw materials could cause installation delays and reputational damage226 - The sale of securities by selling security holders may negatively impact the market price of common stock227 Risks Related to Energy Vault's Business and Industry This section details risks inherent to the company's business and the energy storage industry, covering operational history, technology adoption, system defects, financing dependencies, international expansion, and pandemic impacts - The company has a limited operating history and has not yet deployed commercial EVx or EVRC systems, making future revenue and expense predictions difficult230231232233 - Ability to utilize net operating loss (NOL) carryforwards may be limited due to ownership changes, potentially increasing future tax obligations234235 - Customer adoption of the company's novel gravity-based energy storage technology is uncertain, especially against established alternatives like lithium-ion batteries236237268269 - The company faces risks from potential defects in complex software and technology systems, which could harm reputation, lead to lost revenue, and incur significant warranty expenses238239242245 - Significant upfront costs of EVx systems mean customer purchases often depend on third-party financing, which may not always be available on attractive terms277278279280 - International expansion exposes the company to risks such as conformity with local customs, lack of government incentives, currency fluctuations, and compliance with diverse laws and regulations285286289 - The ongoing COVID-19 pandemic has adversely affected global economic activity, causing construction delays and increased costs, and its future impact remains uncertain330331333 Risks Related to Government Regulation This section outlines risks associated with government regulations, including reliance on incentives, environmental liabilities, local restrictions, compliance costs, and evolving data protection laws - The business relies on government rebates, tax credits, and financial incentives, which if reduced or eliminated, could decrease demand and harm financial results341342343 - The company could be liable for environmental damage from operations, leading to cleanup costs, fines, and reputational harm, especially given customers' high sustainability standards344 - Local government and resident actions to restrict construction or use of systems (e.g., zoning, height restrictions) could substantially harm business and financial results345 - Compliance with numerous federal, state, and local laws and regulations, including licensing and operational requirements, incurs substantial costs, and failure to comply could lead to legal penalties347348349 - Evolving laws and regulations related to privacy, information security, and data protection (e.g., GDPR) could increase costs and adversely affect business opportunities352 Risks Related to Intellectual Property This section addresses risks concerning the company's intellectual property, including challenges in protection, enforcement, and potential infringement claims from third parties - The company may be unable to protect, defend, maintain, or enforce its intellectual property (patents, trade secrets, trademarks) against competitors, potentially leading to similar products and hindering growth353354355 - Pending patent applications may not result in issued patents or provide adequate protection, and foreign patent enforcement can be less effective than in the U.S356 - The company may face third-party claims of infringement or misappropriation of intellectual property, which could be costly to defend and result in substantial liability, including damages or injunctions358359 Risks Related to Ownership of Energy Vault's Securities This section covers risks related to owning the company's securities, such as concentrated ownership, warrant accounting volatility, internal control weaknesses, disclosure exemptions, management experience, dividend policy, and stock price volatility - Concentrated ownership by executive officers, directors, and affiliates (approximately 38.5% as of April 1, 2022) may limit new investors' influence on significant corporate decisions361 - The accounting treatment of warrants as liabilities requires quarterly fair value remeasurement, which could materially impact financial position and operating results due to volatility362 - Previously identified material weaknesses in internal control over financial reporting (warrant valuation, Class A common stock classification) could lead to litigation and negatively impact investor confidence363364365 - As an 'emerging growth company' and 'smaller reporting company,' the company takes advantage of disclosure exemptions, which may make its securities less attractive to investors and its performance harder to compare368369370 - The company's management has limited experience operating a public company, potentially leading to increased time devoted to regulatory compliance and higher operating costs371 - The company has no current plans to pay cash dividends, meaning investors may only receive a return on investment by selling common stock at a higher price373 - Issuance of additional common stock or equity securities (e.g., from warrants, incentive plans) could dilute existing ownership interests and depress the market price374375 - The market price of the company's stock may be volatile due to various factors unrelated to operating performance, leading to potential investment losses378379 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds This section refers to information regarding unregistered sales of equity securities and the use of proceeds, which is detailed in the company's Current Report on Form 8-K filed on February 14, 2022, and subsequently amended - Information on unregistered sales of equity securities and use of proceeds is contained in the Current Report on Form 8-K filed on February 14, 2022, and amended on March 31, 2022385 Item 3. Defaults Upon Senior Securities The company reports that there have been no defaults upon senior securities during the period - There are no defaults upon senior securities386 Item 4. Mine Safety Disclosures This item is not applicable to Energy Vault Holdings, Inc - Mine Safety Disclosures are not applicable to the company387 Item 5. Other Information This section provides an update on the Energy Storage System Agreement with DG Fuels LLC, detailing a planned expansion of the Louisiana project and an increase in total energy storage capacity - The Energy Storage System Agreement with DG Fuels LLC was amended on May 10, 2022388 - The Louisiana project is planned to expand to up to 1,168 MWh in storage capacity388 - Energy Vault has agreed to provide up to 2.2 GWh of energy storage for all projects associated with the DG Fuels Agreement388 Item 6. Exhibits This section lists all documents filed as exhibits to the Form 10-Q, including corporate governance documents, key agreements, and certifications - Key exhibits include Amended and Restated Bylaws and Certificate of Incorporation, Amended and Restated Registration Rights Agreement, 2022 Equity Incentive Plan, and an Amendment to the Energy Storage System Agreement with DG Fuels LLC390 - Certifications from the Principal Executive Officer and Chief Financial Officer are included, as required by the Securities Exchange Act and Sarbanes-Oxley Act390 Signatures This section formally certifies the accuracy and completeness of the report by the principal executive and financial officers - The report is signed by Robert Piconi, Chief Executive Officer, and David Hitchcock, Interim Chief Financial Officer, on May 16, 2022398