ESS Tech, Inc. Q1 FY2025 earnings call

• Strategic shift from Energy Warehouse and Energy Center products to focus on energy based product for longer duration storage. Secured a 50 megawatt hour, five megawatt pilot project in Arizona from an Arizona public power utility. Proposal activity for energy base has increased substantially. Portland General Energy Center systems are operating and running daily cycling. Plan to deploy extended duration stacks in an on-site system in Q2 to demonstrate twelve hour duration. Close partnership with Honeywell across multiple fronts. Legislative efforts support domestic manufacturing, positioning ESS well.

First quarter revenue was $600,000, with roughly 65% tied to equipment and 35% tied to site preparation. The energy based product has seen significant proposal activity, totaling approximately 1.2 gigawatt hours and $400 million in the last two quarters, with over 70% representing the energy base. The Portland General Energy Center systems are continuing grid operation and running daily cycling, having transacted another 158 megawatt hours.

• Q2 sales might be similar to Q1, with a ramp in the second half. Need additional capital to support ramping production and orders. Expect to transition to EBITDA and cash flow positive in the next few years as energy based production and sales ramp in 2026 and beyond. Actively reallocating resources to accelerate energy base cost out, performance, and durability initiatives.

• Challenges with raising capital. Uncertainty and unpredictability in business, partnership issues, market, economy, and geopolitical situation. Tariff landscape remains significant and volatile, with potential increases and legislative changes impacting the business.

Q: First, wanted to just ask about the outlook to make sure I heard correctly. It sounds like Q2 sales might be similar to Q1 and then you could see a ramp in the second half. So I wanted to just check-in, make sure I heard that correctly. And then just wanted to see is the second half ramp contingent upon a successful capital raise? Do we need to see that first before you could kind of unlock the production at your facilities and ramp sales up?

A: Yeah. Thanks for the question, Justin. Yeah, that's accurate, Justin. We do continue to moderate our spend in production until we can access the additional capital to support ramping production and orders.

Q: Just wondering if you could speak to how long your cash runway might be here? How many quarters of operations can you support at the current burn rate? And then also considering the other levers that you might have at your disposal to extend that cash runway? I think you did mention some intermediate steps that you might take here. If you could just share a little bit more about how you're thinking about it that would be great.

A: Yeah, sure, Justin. I mean, I think if you look at the last several quarters of cash burn, that's an indicator for you in terms of what our cash burn rates typically have been. Our go forward cash burn will be lower than what we've seen in the past couple of quarters because a big part of what we went through in the fourth quarter and part of the first quarter was tied to the Florida utility project and the energy centers. And right now, we're not producing significant volumes of product. So I think if you look at it from that standpoint and our cash balance at the end of the quarter, I think you can gauge in terms of where that runway would get us to. And then in terms of interim things that we're working on, we did launch our ATM at the end of the first quarter. And we'll go to market with that at the appropriate time. And then there's other interim capital available to us that we also will evaluate to draw on at the appropriate time. Like the Exim loan that we have in place, and then there's a few other things that we've been exploring as well. But, obviously, critical for us to access additional capital to extend that runway.

Q: Maybe the first one since we were speaking on the kind of the cash position. For customers that move forward for maybe booked order, like what is deposit ranges of percentage that you get split down in kind of the early innings of a project?

A: The ranges that we've seen historically are anywhere from 5% up to about 20%. And as we move forward on future contracts, our expectation is that we'll be looking to push that to the higher end of that range and have additional interim milestones to ensure that from a working capital perspective, we'll be at least cash neutral.

Q: Just thinking through kind of forward demand for the energy base. Are there opportunities with customers that you've identified maybe that are not ready to move forward just because of the current manufacturing capability where a second facility or additional capacity would unlock that where a lot of customers don't want to be say 50% of your overall capabilities. I'm just wondering how you think about what you're seeing?

A: Yeah, I guess, no, we're not seeing that. In general, in this sort of cuts both ways, we've had contracts with customers, SoftBank Energy [ph], Honeywell among them that tend to have pretty significant order volumes. So we're happy and we haven't heard concerns from customers about being at the level of scaling. One of the things that's relatively straightforward for us to do too is we have pretty significant additional manufacturing capacity at our facility in the sense of being able to deploy additional lines. Additional lines are relatively inexpensive from a CapEx perspective and also pretty quick to deploy. So we have the ability to extend manufacturing capacity and diversify, but we haven't heard from customers concerned about being sort of more robust as far as our manufacturing capacity at the moment.

Q: Just wanted to get maybe you had mentioned this, I missed it, but was there a status update on any of the delays associated with the customer in Australia? I wasn't sure where we were there?

A: Yeah. No, I didn't. Good question. So our understanding is that the government funding for that project still has not come through. So we don't have any further update or visibility on timing for that project at this time.

Q: Just on sources of cash, can you talk about any discussions with strategic partners, Honeywell in the past and SoftBank [ph] in the past as well, but you've had those or how do you think that could be an option?

A: Yes. We are having a lot of ongoing discussions across multiple fronts with Honeywell and other existing investors. And we continue to have that dialogue and they continue to be productive conversations. So, I think that's ongoing for us and we'll continue to work with our existing investors as well as having multiple conversations with other parties around our strategic capital raise.

Q: And just a follow-up, just because of the tariffs and uncertainty with IRA that you guys called out, have you seen that change your inquiry level from prospective customers? Just being like as an alternative to lithium ion battery?

A: Yes. I would say to the positive, I think there's two things happening. I think there's the tariff impact and uncertainty around the availability of imported batteries. I think the other thing is the significant drive in electrification growth that people are seeing. There's really kind of a space for all. So I think between hyperscalers and then parties looking to lithium ion alternatives either in the near term or the short term that sorry, near term or long term that has definitely driven inquiries in recent weeks.