ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis provide information which Energy Vault’s management believes is relevant to an assessment and understanding of Energy Vault’s consolidated results of operations and financial condition as of December 31, 2023 and for the fiscal year ended December 31, 2023. The discussion and analysis should be read together with our audited consolidated financial statements and related notes that are included elsewhere in this Annual report on Form 10-K. This discussion may contain forward-looking statements based upon Energy Vault’s current expectations that involve risks, uncertainties, and assumptions. Energy Vault’s actual results may differ materially from those anticipated in these forward-looking statements. You should review the section titled “Cautionary Note Regarding Forward-Looking Statements” for a discussion of forward-looking statements and the section titled “Risk Factors,” for a discussion of factors that could cause actual results to differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis and elsewhere in this Annual Report. Energy Vault’s historical results are not necessarily indicative of the results that may be expected for any period in the future. Unless the context otherwise requires, all references in this Annual Report to “we,” “our,” “us,” “the Company,” or “Energy Vault” refer to Energy Vault Holdings, Inc., a Delaware corporation, and its subsidiaries both prior to the consummation of and following the Merger (as defined below).
Our Business
Energy Vault develops and deploys utility-scale energy storage solutions designed to aid in the global transition to a clean energy future.
Our Company’s comprehensive offerings include proprietary gravity, battery, and green hydrogen energy storage solutions, supported by our technology-agnostic energy management software solutions. We incorporate a customer-centric, solutions-based approach toward helping utilities, independent power producers, and large industrial energy users reduce their energy costs while maintaining power reliability. As the world transitions to an economy powered by increasingly intermittent renewable energy such as solar and wind, the ability to provide clean and affordable electricity to a growing global population will depend heavily on the ability to store and distribute energy at appropriate times. We are striving to create a world powered by renewable resources so that everyone will have access to clean, sustainable, and affordable energy.
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Our solutions are designed to address the intermittency issues inherent in the predominant sources of renewable energy production by storing energy produced when renewable energy production is active. Once energy is stored in our solutions, it can be discharged to the grid in a controlled and reliable manner at any time, regardless of the then current ability of the renewable sources to generate power. Our energy storage solutions are designed to accommodate a wide variety of renewable power sources and to achieve an attractive levelized cost of energy relative to fossil fuels. Collectively, these abilities greatly broaden the use cases and time duration scenarios that can be addressed by certain sources of renewable power.
Key Factors and Trends Affecting our Business
We believe that our performance and future success depend upon several factors that present significant opportunities for us, but also pose risks and challenges including those discussed below and in Part I, Item 1A. “Risk Factors.”
Product Development and Deployment Plan
We leverage our sustainable and differentiated technologies to provide our customers with economical solutions to meet their short, long, and extended-duration renewable energy storage needs. Our energy storage solutions are designed to accommodate a wide variety of renewable power sources and to achieve an attractive levelized cost of energy relative to fossil fuels.
We anticipate that our market will be characterized by high growth and rapidly evolving use cases and requirements. We believe that the majority of our competitors are primarily focused on the development and marketing of vertically siloed solutions based on a singular energy storage technology. Alternatively, we have strategically chosen to design an agile and agnostic software platform that can orchestrate the management of not just one energy storage technology, but rather one or more of our diverse storage mediums and the underlying power generation assets to harmonize asset operation and drive competitive operational performance. We expect that this will broaden the use cases and time duration scenarios that can be addressed by certain sources of renewable power, and thereby drive a faster transition to more widespread utilization of renewable power.
Our range of energy storage solutions assures our customers have what they need today, as well as what they will need in the future, thereby protecting their investments in our products within this high-growth market and its rapidly evolving use cases and requirements. For these reasons, we believe we are well positioned to compete successfully in the evolving market for energy storage solutions.
We primarily rely on two models for project delivery, which are (i) EPC delivery and (ii) EEQ delivery. Under the EPC model, we generally rely on third-party EPC firms to construct our storage systems, under our supervision with dedicated teams tasked with project management. Under the EEQ model, we are responsible for the delivery and installation of the equipment we provide, as well as resolving issues within our scope of supply.
Our cost projections are heavily dependent upon raw materials (such as steel), equipment (such as motors, batteries, inverters, and power electronic devices) and technical and construction service providers (such as engineering, procurement, construction firms). The global supply chain, on which Energy Vault relies, has been significantly impacted by (i) the COVID-19 pandemic, (ii) economic uncertainties, including the war in Ukraine and the conflict in the Middle East, and (iii) high inflation pressure on project budgeting resulting in potential significant delays and cost fluctuations, particularly with respect to microchips and many other raw materials that are within the motor and power electronic supply chains. These future timing and financial developments may impact Energy Vault’s performance from both a deployment and cost perspective.
Energy Storage Industry
We believe climate change poses a monumental risk to humanity and decreasing human generated GHG emissions is currently among the world’s most pressing challenges. Carbon dioxide is the primary GHG emitted through human activities and, according to the International Energy Agency, the energy sector is estimated to account for more than 75% of global human generated GHG emissions. Burning fossil fuels contributes to climate change by releasing carbon dioxide and nitrous oxide into the atmosphere.
Renewable energy sources present environmental advantages over fossil fuels in terms of finite natural resource usage and GHG emission profile. A major obstacle to transitioning to renewable sources of energy such as wind and solar is the intermittent availability of these types of energy sources. Energy storage solutions are needed to balance the production intermittency of variable renewable energy to support a clean-energy future and a balanced electrical grid infrastructure.
The growth of the energy storage market that we address is primarily driven by the decreasing cost of energy storage technologies and renewable power generation sources, government mandates, financial incentives to reduce GHG
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emissions, and increasing geopolitical pressures driving energy independence goals. These dynamics are driving demand for additional renewable power generation and increased capacity and storage duration in energy storage solutions.
According to the 2H 2023 Energy Storage Market Outlook published by BloombergNEF in October 2023, the energy storage market is expected to grow at a “27% compound annual growth rate through 2030, with annual additions reaching 110 GW/372 GWh, or 2.6 times expected 2023 gigawatt installations.” Both government mandates and companies focused on reducing energy use, cost, and emissions are expected to propel the shift to renewable sources of power..
Our business depends on the acceptance of our energy storage products in the marketplace. Even if renewable energy and energy storage become more widely adopted than they have been to date, potential customers may choose energy storage products from our competitors.
Increasing Deployment of Renewable Energy
Deployment of renewable energy resources has accelerated over the last decade, and solar and wind have become a low cost energy source. Energy storage is critical to reducing the intermittency and volatility of renewable energy generation. However, there is no guarantee that the deployment of renewable energy will occur at the rate that is expected. Inflationary pressures, supply chain disruptions, geopolitical conflicts, government regulations, and other factors could result in fluctuations in demand for and deployment of renewable energy resources, adversely affecting our revenue and ability to generate profits in the future.
Competition
The market for our products is competitive, and we may face increased competition as new and existing competitors introduce energy storage solutions and components. Furthermore, as we expand our services and digital applications in the future, we may face other competitors including software providers and hardware manufacturers that offer software solutions. If our market share declines due to increased competition or if we are not able to compete as we expect, our revenue and ability to generate profits in the future may be adversely affected.
Inflation
In the markets in which we operate, there have been higher rates of inflation in recent years. If inflation continues to increase in our markets, it may increase our expenses that we may not be able to pass through to customers. It may also increase the costs of our products that could negatively impact their competitiveness.
Government Regulation and Compliance
Governments in countries throughout the world have announced and implemented various policies, regulations, and legislation to support the transition from fossil fuels to low-carbon form of energy, including through the use of energy storage solutions. For example, in August 2022, the United States Congress passed the IRA. The IRA provides incentives for the domestic manufacturing of key components of energy storage solutions as well as the construction of standalone energy storage projects. The resulting improved economics are expected to reduce the cost to implement storage within the domestic market and may amplify and accelerate the adoption of energy storage systems for short, long, and extended duration use cases, like those offered by Energy Vault. Such government policies and programs are becoming increasingly instrumental in stimulating adoption of energy storage solutions across different markets through a variety of methods, including by providing financial support, facilitating grid integration, and supporting research and development.
Although we are not regulated as a utility, federal, state, and local government statutes and regulations concerning electricity heavily influence the market for our product and services. These statutes and regulations often relate to electricity pricing, net metering, incentives, taxation, competition with utilities and the interconnection of customer-owned electricity generation. In the United States, governments continuously modify these statutes and regulations. Governments, often acting through state utility or public service commissions, change and adopt different rates for commercial customers on a regular basis. These changes could affect our ability to deliver cost savings to our current and future customers for the purchase of electricity. We believe we are well positioned to capture incentives contained in the IRA and that its enactment is favorable to our business and future operations. However, as this legislation was recently adopted and applicable U.S. Department of Treasury and Internal Revenue Service guidelines were published in the third quarter of 2023, we have not yet seen the impact these IRA incentives may have on our business, operations, and financial performance in the future and cannot guarantee that we will realize the anticipated benefits from the incentives in the IRA.
Business Combination and Public Company Costs
On February 11, 2022, Legacy Energy Vault completed the Merger. Immediately following the completion of the Merger, Novus changed its name to Energy Vault Holdings, Inc. On February 14, 2022, Energy Vault’s common stock and warrants began trading on the New York Stock Exchange under the symbols “NRGV” and “NRGV WS,” respectively.
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The Merger was accounted for as a reverse recapitalization in accordance with United States Generally Accepted Accounting Principles (“GAAP”). Under this method of accounting, Novus was treated as the “acquired” company for financial reporting purposes. Accordingly, for accounting purposes, the financial statements of the combined entity upon consumption of the Merger represented a continuation of the financial statements of Legacy Energy Vault with the Merger being treated as the equivalent of Legacy Energy Vault issuing stock for the net assets of Novus, accompanied by a recapitalization. The net assets of Novus are stated at historical cost, with no goodwill or other intangible assets recorded. Operations prior to the Merger are presented as those of Legacy Energy Vault in future reports of the combined entity. All periods prior to the Merger have been retroactively adjusted using the exchange ratio of 6.7735 (the “Exchange Ratio”) for the equivalent number of shares outstanding immediately after the Merger to effect the reverse recapitalization.
Energy Vault raised gross proceeds of $235.9 million, including the contribution of $40.9 million of cash, net of redemptions, held in Novus’ trust account from its initial public offering and an aggregate purchase price of $195.0 million from the sale and issuance of shares of common stock in a private placement (“Private Investment in Public Equity” or “PIPE”) at $10.00 per share. Energy Vault and Novus paid $44.8 million in transaction costs, resulting in total net cash proceeds to Energy Vault from the Merger and PIPE of $191.1 million. See Note 1 and Note 3, in Part II, Item 8. “Financial Statements and Supplementary Data” for additional information about the Merger.
Recent Developments
In May 2023, the Company signed a technology license option agreement with a company affiliated with a member of Energy Vault’s Board. The agreement permits the customer to exercise options to enter into licensing agreements in certain territories to use the Company’s gravity storage technology for a fee of $0.5 million. The customer exercised its option for one of the territories on June 30, 2023 and paid Energy Vault an additional $0.5 million. The Company recognized $0.7 million in revenue related to the option and licensing arrangements during the year ended December 31, 2023.
In October 2023, the Company entered into a contract with a customer to construct a 400 MWh BESS in Texas. The Company did not recognize any revenue from this contract in 2023 and expects to begin recognizing revenue from this contract in the second half of 2024.
In December 2023, the Company signed a license and royalty agreement that allows the customer to use the Company’s gravity energy storage technology and VaultOS EMS in South Africa. The customer obtained a 10-year exclusive license and a $20.0 million licensing fee is payable annually in installments over 10 years. Royalties of 5.0% will be applied to all gross revenue streams in South Africa. The Company did not recognize any revenue from this contract in 2023 and expects to begin recognizing revenue from this contract in the first half of 2024.
Key Operating Metrics
Bookings
Bookings represents the total MWhs to be delivered and the aggregate contracted value for energy storage systems, tolling arrangements, and intellectual property license agreements, and software service agreements signed during the period. The aggregate contracted value excludes any potential future variable payments or royalties.
The following table presents bookings for the periods indicated ($ in thousands):
Year Ended December 31,
Backlog
Backlog represents the amount of revenue we expect to realize in the future on uncompleted construction contracts, including new contracts under which work has not yet begun, as well as the remaining revenue to be recognized under the Company’s intellectual property licensing agreements. As of December 31, 2023, backlog totaled $144.2 million.
The Company generally expects to recognize approximately 16.0% of the backlog as revenue over the next 12 months and the remainder more than 12 months from December 31, 2023. Timing of revenue for construction and installation projects included in our backlog can be subject to change as a result of customer, regulatory, or other delays or cancellations including from economic or other conditions caused by supply chain disruptions, inflation, weather, and/or other project-related factors. These effects, among others, could cause estimated revenue to be realized in periods later than originally expected, or not at all. Customers may postpone or cancel construction projects due to changes in our customer’s spending plans, market volatility, changes in government permitting, regulatory delays, and/or other factors. There can be no
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assurance as to our customer’s requirements or if actual results will be consistent with our estimates. As a result, our backlog as of any particular date is an uncertain indicator of future revenue and earnings.
Backlog is a common measurement used in our industry. Our methodology for determining backlog may not, however, be comparable to the methodologies used by others. The Company’s backlog agrees with the amount of our remaining performance obligations, which are described in Note 4 - Revenue Recognition.
Key Components of Results of Operations
The following discussion describes certain line items in our Consolidated Statements of Operations and Comprehensive Loss.
Revenue
The Company generates revenue from the sale and licensing of our energy storage solutions. To date, the Company has primarily generated revenue from the sale of our BESSs and from licensing our EVx technology. In addition to these sources of revenue, in the future we expect to generate revenue from the sale of our GESSs, the sale or licensing of the Company’s software solutions, the sale of long-term service agreements to maintain customer owned energy storage systems, and through tolling arrangements in connection with energy storage systems that we intend to own and operate.
When the Company sells a BESS, the Company recognizes revenue over time as we transfer control of our product to the customer. When the Company licenses its intellectual property, revenue is recognized at the point in time at which the customer obtains control of the licensed technology.
Our revenue is affected by changes in the price, volume, and mix of products and services purchased by our customers, which is driven by the demand of our products, geographic mix of our customers, strength of competitor’s product offerings, and the availability of government incentives to the end-users of our products.
Our revenue growth is dependent on continued growth in the amount of energy storage systems constructed each year and our ability to increase our share of demand in the geographic regions where we currently compete and plan to compete in the future. Additionally, our revenue growth is dependent on our ability to continue to develop and commercialize new and innovative products to meet our customer’s energy storage needs.
Cost of Revenue
Cost of revenue primarily consists of product costs, including purchased materials and supplies, as well as costs related to subcontractors, direct labor, and product warranties.
Our cost of revenue is affected by underlying costs of materials such as batteries, inverters, enclosures, transformers, and cables, as well as the cost of subcontractors to provide construction services. We do not currently hedge against changes in the price of raw materials as we do not purchase raw materials. We purchase energy storage system components from our suppliers.
Gross Profit and Gross Profit Margin
Gross profit and gross profit margin may vary from period to period due to the timing of transferring control of significant uninstalled materials to customers under contracts to sell energy storage systems. When control of significant uninstalled materials is transferred to customers, the Company recognizes revenue in an amount equal to the cost of those materials. The profit margin inherent in these materials is deferred until the Company fulfills its obligation to install the materials during construction of the energy storage systems. As a result, gross profit and gross profit margin will vary from period to period depending on the timing of revenue recognition related to uninstalled materials.
Additionally, gross profit and gross profit margin may vary from period to period due to our sales volume, product prices, product costs, product mix, geographical mix, along with the timing of when we perform installation and construction services.
Sales and Marketing (“S&M”) Expenses
S&M expenses consist primarily of internal personnel-related costs for marketing, sales, and related support teams, as well as external costs such as professional service fees, trade shows, marketing and sales-related promotional materials, public relations expenses, website operating and maintenance costs. Personnel-related expenses include salaries, benefits, and stock-based compensation expenses.
Research and Development (“R&D”) Expenses
R&D expenses consist primarily of internal and external expenses incurred in connection with our research activities and development programs that include materials costs directly related to product development, testing and evaluation costs,
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construction costs including labor and transportation of material, overhead related costs and other direct expenses consisting of personnel-related expenses and consulting expenses relating to study of product safety, reliability and development. Personnel-related expenses consist of salaries, benefits, and stock-based compensation expense.
General and Administrative (“G&A”) Expenses
G&A expenses consist of information technology expenses, legal and professional fees, travel costs, and personnel-related expenses for our corporate, executive, finance, and other administrative functions, including expenses for professional and contract services. Personnel-related expenses consist of salaries, benefits, and stock-based compensation expense. To a lesser extent, general and administrative expense includes investor relations costs, insurance costs, rent, office expenses, and maintenance costs.
Depreciation and Amortization Expense
Depreciation and amortization expense consists of costs associated with property and equipment, and amortization of intangibles. We expect to invest in additional property, equipment, and other assets as we construct and own energy storage systems, which will result in additional depreciation expense in the future.
Asset Impairment
Energy Vault began building a prototype of the EV1 in March 2020, resulting in the EV1 CDU, which was connected to the Swiss national grid in July 2020. Thereafter, through design improvements and refinements of its technology, Energy Vault announced the new EVx platform in 2021 and the Company dismantled the EV1 CDU in September 2022. The Company has recognized various impairments related to the EV1 CDU when components have been damaged or become obsolete.
Interest Income
Interest income consists of interest income from investments in funds containing exclusively U.S. Treasury bills and money market funds, customer financing receivable, and convertible note receivable.
Change in Fair Value of Warrant Liability
The Company’s Private Warrants are subject to fair value remeasurement at each balance sheet date. Prior to the redemption of all outstanding Public Warrants on August 1, 2022, the Company’s Public Warrants were subject to fair value remeasurement.
Transaction Costs
Transaction costs consist of legal, accounting, banking fees, and other costs directly related to the consummation of the Merger and the PIPE.
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Results of Operations
Consolidated Comparison of Year Ended December 31, 2023 to Year Ended December 31, 2022
The following table sets forth our results of operations for the periods indicated (amounts in thousands):
Year Ended December 31,
Operating expenses:
Other income (expense):
Interest expense (35) (2) (33)
Change in fair value of warrant liability — 2,330 (2,330)
Revenue
The Company recognized revenue for the product and service categories as follows for the years ended December 31, 2023 and 2022 (amounts in thousands):
Year Ended December 31,
Build and transfer energy storage products $ 339,891 $ 85,636
Licensing of intellectual property 735 58,483
Revenue for the year ended December 31, 2023 increased by $195.7 million to $341.5 million compared to $145.9 million for the year ended December 31, 2022.
Revenue for the year ended December 31, 2023 primarily consisted of $339.9 million attributable to the building and transferring of energy storage products. This revenue related to the Company’s physical advancement on its BESS projects during the year. Revenue from three customers accounted for 64%, 22%, and 13% respectively, of the Company’s total revenue for the year ended December 31, 2023.
Revenue for the year ended December 31, 2022 primarily consisted of $85.6 million attributable to the building and transferring of energy storage products and $58.5 million attributable to licensing the Company’s EVx intellectual property. Revenue from the building and transferring of energy storage products was attributable to the Company’s physical advancement on its BESS projects during the year. Revenue from two customers accounted for 57% and 35%, respectively, of the Company’s total revenue for the year ended December 31, 2022.
Cost of Revenue
Cost of revenue for the year ended December 31, 2023 increased by $237.4 million to $324.0 million compared to $86.6 million for the year ended December 31, 2022.
Cost of revenue for the years ended December 31, 2023 and 2022 primarily consisted of construction costs associated with the sale of the Company’s BESSs. The increase in cost of revenue for the year ended December 31, 2023 compared to the
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year ended December 31, 2022 was primarily due to the increase in revenue from the sale and transfer of energy storage products.
Gross Profit and Gross Profit Margin
Gross profit was $17.5 million and gross profit margin was 5.1% for the year ended December 31, 2023. Gross profit for 2023 was primarily attributable to the sale and transfer of the Company’s BESS projects.
Gross profit was $59.3 million and gross profit margin was 40.6% for the year ended December 31, 2022. Gross profit during 2022 was primarily attributable to the Company’s intellectual property licensing revenue, which did not have any associated cost of revenue.
S&M Expenses
S&M expenses increased by $5.6 million to $18.2 million for the year ended December 31, 2023, compared to $12.6 million for the year ended December 31, 2022. The increase was primarily attributable to an increase in personnel-related expenses of $4.7 million and an increase in consulting costs of $0.7 million. The increase in personnel costs was due to expanded headcount and increased stock-based compensation expense. Stock-based compensation expense was $7.1 million for the year ended December 31, 2023, compared to $5.1 million for the year ended December 31, 2022.
R&D Expenses
R&D expenses decreased by $5.5 million to $37.1 million for the year ended December 31, 2023, compared to $42.6 million for the year ended December 31, 2022. The decrease was primarily attributable to a $2.7 million decrease in engineering and development costs, a $2.0 million decrease in personnel-related expenses, and a $0.8 million decrease in consulting costs. These cost decreases were primarily attributable to a focus on cost controls and a reduction in personnel. Stock-based compensation expense was $10.1 million for the year ended December 31, 2023, compared to $14.8 million for the year ended December 31, 2022. The decrease in stock-based compensation expense in 2023 compared to 2022 was partially due to a reversal of expense for non-vested RSUs that were forfeited upon the reduction in personnel.
G&A Expenses
G&A expenses increased by $11.4 million to $68.1 million for the year ended December 31, 2023, compared to $56.6 million for the year ended December 31, 2022. The increase was primarily attributable to a $9.8 million increase in personnel-related expenses, a $1.4 million increase in software and IT costs, a $1.1 million increase in insurance costs, and a $0.6 million increase in consulting costs. The increase in personnel costs was due to expanded headcount and an increase in stock-based compensation expense. Stock-based compensation expense was $25.9 million for the year ended December 31, 2023, compared to $21.2 million for the year ended December 31, 2022. These cost increases were partially offset by a $1.4 million decrease in legal and professional fees.
Depreciation and Amortization Expense
Depreciation and amortization expense decreased by $6.9 million to $0.9 million for the year ended December 31, 2023, compared to $7.7 million for the year ended December 31, 2022. The decrease was primarily due to the EV1 CDU being decommissioned in 2022, resulting in the asset being fully depreciated during 2022.
Asset Impairment
There was no asset impairment expense for the year ended December 31, 2023, compared to $2.8 million for the year ended December 31, 2022. Asset impairment for the year ended December 31, 2022 related to the EV1 CDU and the brick machines used to manufacture bricks for the EV1 tower design. The Company completed the dismantling of the EV1 CDU during 2022 and recorded the impairment charges when the EV1 CDU was dismantled.
Interest Income
Interest income increased by $4.5 million to $8.2 million for the year ended December 31, 2023, compared to $3.7 million for the year ended December 31, 2022. The increase in interest income was primarily due to higher short-term interest rates in 2023 compared to 2022 on our investments in funds containing exclusively short-dated U.S. Treasury bills and money market funds containing U.S. Treasury bills and U.S. agency paper.
Change in Fair Value of Warrant Liability
There was no change in fair value of the Company’s warrant liability for the year ended December 31, 2023, compared to a change in fair value that resulted in a gain of $2.3 million for the year ended December 31, 2022.
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Transaction costs
There were no transaction costs recognized for the year ended December 31, 2023, compared to $20.6 million for the year ended December 31, 2022. The transaction costs in 2022 related to the consummation of the Merger.
Liquidity and Capital Resources
Sources of Liquidity
Since inception, we have financed our net cash used in operating and investing activities primarily through the issuance and sale of equity, and with the proceeds from the Merger and the PIPE.Our cash equivalents are highly liquid investments purchased with an original or remaining maturities of three months or less. Substantially all of our restricted cash balance is held by banks as collateral for the Company’s letters of credit.
The following tables summarizes our cash, cash equivalents, and restricted cash balances as of December 31, 2023 and 2022 (amounts in thousands):
December 31,
Total cash, cash equivalents, and restricted cash $ 145,555 $ 286,182
Short-Term Liquidity
Management believes that its cash and cash equivalents on hand as of the filing date of this Annual Report will be sufficient to fund our operating activities for at least the next twelve months without regard to any cash proceeds we may receive in the future upon the exercise of our private warrants. As of the filing date of this Annual Report, $34.6 million of the restricted cash balance at December 31, 2023 was released from restrictions and became unrestricted cash.
The exercise price for our private warrants is $11.50 per warrant, subject to certain specified adjustments. To the extent that the price of our common stock exceeds $11.50 per share, it is more likely that our private warrant holders will exercise their warrants. To the extent that the price of our common stock declines, including a decline below $11.50 per share, it is less likely that our private warrant holders will exercise their warrants.
In addition, should Energy Vault enter into definitive collaboration and/or joint venture agreements or engage in business combinations in the future, we may be required to seek additional financing.
Energy Vault has incurred negative operating cash flows and operating losses in the past. We may continue to incur operating losses in the future due to our on-going research and development activities. We may seek additional capital through equity and/or debt financings depending on market conditions. If we are required to raise additional funds by issuing equity securities, dilution to stockholders would result. Any equity securities issued may also provide for rights, preferences or privileges senior to those of holders of our common stock. If we raise funds by issuing debt securities, these debt securities would have rights, preferences and privileges senior to those of holders of common stock. The terms of debt securities or borrowings could impose significant restrictions on our operations. The credit market and financial services industry have in the past, and may in the future, experience periods of uncertainty that could impact the availability and cost of equity and debt financing.
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Licensing Agreements with Extended Payment Terms
The Company has licensed its gravity storage technology and certain of these agreements contain extended payment terms. There is uncertainty as to the collectability of the license payments in certain licensing agreements, and the Company has not yet recognized any revenue related to those license agreements where collectability is uncertain.
Anticipated cash inflows from licensing agreements with extended payment terms as of December 31, 2023 were as follows (amounts in thousands):
Year ended December 31, Amount
Contractual Obligations
Our principal commitments as of December 31, 2023 consisted primarily of obligations under operating leases, finance leases, warranty obligations, deferred pensions, and issued purchase orders. Our non-cancellable purchase obligations as of December 31, 2023 totaled approximately $4.7 million.
Cash Flows
The following table summarizes cash flows from operating, investing, and financing activities for the periods indicated (amounts in thousands):
Year Ended December 31,
Net cash used in operating activities $ (92,655) $ (23,346)
Net cash used in investing activities (42,542) (13,319)
Net cash (used in) provided by financing activities (5,482) 217,771
Effects of exchange rate changes on cash 52 (49)
Operating Activities
During the years ended December 31, 2023 and 2022, cash used in operating activities totaled $92.7 million and $23.3 million, respectively.
During the year ended December 31, 2023, cash used in operating activities was negatively impacted by a net loss of $98.4 million, an increase in contract assets of $57.0 million, and a decrease in contract liabilities of $44.5 million. The change in contract assets and liabilities is due to the physical advancement of the Company’s BESS projects during 2023 and the timing of milestone billing for the related projects. In the early stages of a project, the Company typically collects up-front payments that result in contract liabilities. Toward the completion of a project, the Company typically bills the customer after substantial and final completion, which often results in contract assets until the Company bills the customer for the last milestones that have been completed. Operating cash flows were positively impacted by non-cash charges of $43.0 million, an increase in accounts payable and accrued expenses of $25.5 million, a decrease in advances to suppliers of $22.8 million, a decrease in accounts receivable of $10.2 million, a decrease in inventory of $4.0 million, and a decrease in prepaid and other current assets of $2.9 million. The non-cash charges primarily consisted of $43.1 million in stock-based compensation expense and $0.9 million in depreciation and amortization expense, partially offset by $1.4 million in non-cash interest income. The change in accounts receivable, relates to the timing of billing and the change in accounts payables and accrued expenses relates to the timing of payments. The decrease in advances to suppliers is due to the receipt of energy storage system equipment in 2023 that had been partially paid for as of December 31, 2022.
During the year ended December 31, 2022, cash used in operating activities of $23.3 million was negatively impacted by a net loss of $78.3 million, an increase in accounts receivable of $37.5 million, an increase in contract assets of $29.0 million, an increase in advances to suppliers of $24.3 million, an increase in customer financing receivable of $9.7 million,
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an increase in prepaid and other current assets of $5.3 million, and an increase in inventory of $4.4 million. Operating cash flows were positively impacted by non-cash charges of $49.3 million, an increase in accounts payable and accrued expenses of $67.9 million, and an increase in contract liabilities of $49.4 million. The non-cash charges primarily consisted of $41.1 million in stock-based compensation expense, $7.7 million in depreciation and amortization expense, and $2.8 million in asset impairment charges, partially offset by a $2.3 million gain from a change in the fair value of the Company’s warrant liability.
Investing Activities
During the years ended December 31, 2023 and 2022, cash used in investing activities totaled $42.5 million and $13.3 million, respectively.
Cash used in investing activities for the year ended December 31, 2023 consisted of $30.4 million for the purchase of property and equipment, primarily related to the energy storage systems being constructed in Snyder, Texas and Calistoga, California, $6.1 million for the purchase of property and equipment that the Company expects to resell, and $6.0 million for the purchase of equity securities in KORE.
Cash used in investing activities for the year endedDecember 31, 2022 consisted of $9.0 million for the purchase of equity securities in KORE,$2.3 million for the purchase of property and equipment, and $2.0 million for the purchase of a convertible note.
Financing Activities
During the years ended December 31, 2023 and 2022, cash (used in) provided by financing activities totaled $(5.5) million and $217.8 million, respectively.
For the year ended December 31, 2023, cash used in financing activities was primarily attributable to $6.0 million in tax payments related to the net settlement of equity awards, and $0.9 million in repayments for insurance premium financings. These cash outflows were partially offset by $1.3 million in proceeds from insurance premium financings.
During the year ended December 31, 2022, cash provided by financing activities was primarily attributable to $235.9 million in proceeds from the reverse recapitalization and PIPE financing, net, and $7.9 million in proceeds from the exercise of warrants. Partially offsetting these cash inflows was $20.7 million transaction cost payments related to the reverse recapitalization and $5.5 million in tax payments related to the net settlement of equity awards.
Non-GAAP Financial Measures
To complement our consolidated statements of operations, we use non-GAAP financial measures of adjusted S&M expenses, adjusted R&D expenses, adjusted G&A expenses, and adjusted EBITDA. Management believes that these non-GAAP financial measures complement our GAAP amounts and such measures are useful to securities analysts and investors to evaluate our ongoing results of operations when considered alongside our GAAP measures. The presentation of these non-GAAP measures is not meant to be considered in isolation or as an alternative to net loss as an indicator of our performance.
The following table provides a reconciliation from GAAP S&M expenses to non-GAAP adjusted S&M expenses (amounts in thousands):
Year Ended December 31,
Non-GAAP adjustments:
Stock-based compensation expense 7,143 5,111
Reorganization expenses 84 —
Adjusted S&M expenses (non-GAAP) $ 10,983 $ 7,471
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The following table provides a reconciliation from GAAP R&D expenses to non-GAAP adjusted R&D expenses (amounts in thousands):
Year Ended December 31,
Non-GAAP adjustments:
Reorganization expenses 182 —
The following table provides a reconciliation from GAAP G&A expenses to non-GAAP adjusted G&A expenses (amounts in thousands):
Year Ended December 31,
Non-GAAP adjustments:
Reorganization expenses 318 —
The following table provides a reconciliation from GAAP net loss to non-GAAP adjusted EBITDA, with net loss being the most directly comparable GAAP measure (amounts in thousands):
Year Ended December 31,
Non-GAAP adjustments:
Depreciation and amortization 893 7,743
Reorganization expenses 584 —
Change in fair value of warrant liability — (2,330)
Transaction costs — 20,586
Asset impairment — 2,828
Foreign exchange losses 222 316
We present adjusted EBITDA, which is net loss excluding adjustments that are outlined in the quantitative reconciliation provided above, as a supplemental measure of our performance and because we believe this measure is frequently used by securities analysts, investors, and other interested parties in the evaluation of companies in our industry. The items excluded from adjusted EBITDA are excluded in order to better reflect our continuing operations.
In evaluating adjusted EBITDA, one should be aware that in the future we may incur expenses similar to the adjustments noted above. Our presentation of adjusted EBITDA should not be construed as an inference that our future results will be unaffected by these types of adjustments. Adjusted EBITDA is not a measurement of our financial performance under GAAP and should not be considered as an alternative to net loss, operating loss, or any other performance measures derived in accordance with GAAP or as an alternative to cash flow from operating activities as a measure of our liquidity.
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Our adjusted EBITDA measure has limitations as an analytical tool, and should not be considered in isolation or as a substitute for analysis of our results as reported under GAAP. Some of these limitations are:
•it does not reflect our cash expenditures, future requirements for capital expenditures, or contractual commitments;
•it does not reflect changes in, or cash requirements for, our working capital needs;
•it does not reflect stock-based compensation, which is an ongoing expense;
•although depreciation and amortization are non-cash charges, the assets being depreciated and amortized will often have to be replaced in the future, and our adjusted EBITDA measure does not reflect any cash requirements for such replacements;
•it is not adjusted for all non-cash income or expense items that are reflected in our consolidated statements of cash flows;
•it does not reflect the impact of earnings or charges resulting from matters we consider not to be indicative of our ongoing operations;
•it does not reflect limitations on or costs related to transferring earnings from our subsidiaries to us; and
•other companies in our industry may calculate this measure differently than we do, limiting its usefulness as a comparative measure.
Because of these limitations, adjusted EBITDA should not be considered as a measure of discretionary cash available to us to invest in the growth of our business or as a measure of cash that will be available to use to meet our obligations. You should compensate for these limitations by relying primarily on our GAAP results and using adjusted EBITDA only supplementally.
Critical Accounting Policies and Use of Estimates
Our consolidated financial statements are prepared in conformity with GAAP. In preparing our financial statements, we make assumptions, judgments, and estimates based on historical experience and various other factors that we believe to be reasonable under the circumstances. Actual results could differ materially from these estimates under different assumptions and conditions.
We believe that the following accounting policies involve a high degree of judgment and complexity. Accordingly, these are the policies we believe are the most critical to aid in fully understanding and evaluating our consolidated financial condition and results of operations. For more information on our significant accounting policies, refer to Note 2 - Summary of Significant Accounting Policies of our audited consolidated financial statements included in this Annual Report on Form 10-K.
Revenue
Build and Transfer Energy Storage Projects: The Company enters into contracts with utility companies and independent power producers to build energy storage projects. The Company determines the transaction price based on the consideration expected to be received, which includes estimates of liquidated damages or other variable consideration. Generally, each contract to design and construct an energy storage project contains one performance obligation. Multiple contracts entered into with the same customer and near the same time to construct energy storage projects are combined in accordance with ASC 606. In these situations, the contract prices are aggregated and then allocated to each energy storage project based upon their relative stand-alone selling price.
The Company recognizes revenue over time on these projects as a result of the continuous transfer of control of its products to the customer. The Company utilizes the percentage of completion method based on costs incurred as a percentage of total estimated contract costs to determine the amount of revenue to recognize. Contract costs include all direct materials and labor costs related to contract performance. Since the revenue recognition of these contracts depends on estimates, which are assessed continually during the term of the contract, recognized revenues and profits are subject to revisions as the contract progresses to completion. The cumulative effects of revisions of estimated total contract costs and revenues, together with any contract reserves which may be deemed appropriate, are recorded in the period in which the facts and changes in circumstances become known. Due to uncertainties inherent in the estimation process, it is reasonably possible that these estimates will be revised in a different period.
The Company’s contracts generally provide customers with a right to liquidated damages (“LDs”) against Energy Vault in the event specified milestones are not met on time, or certain performance metrics are not met upon or after the substantial completion date. LDs are accounted for as variable consideration, and the contract price is reduced by the expected penalty
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or LD amount when recognizing revenue. Variable consideration is included in the transaction price only to the extent that it is improbable that a significant reversal in the amount of cumulative revenue recognized will occur when the uncertainty is resolved. Estimating variable consideration requires certain estimates and assumptions, including whether and by how much a project will be delayed and how a project will perform during the performance guarantee period. The existence and measurement of liquidated damages may also be impacted by the Company’s judgment about the probability of favorable outcomes of customer disputes involving whether certain events qualify as force majeure or the reason for the events that caused project delays. Variable consideration for LDs is estimated using the expected value of the consideration to be received.
Licensing of Intellectual Property:The Company enters into licensing agreements of its intellectual property that are within the scope of ASC 606. The terms of such licensing agreements include the license of functional intellectual property, given the functionality of the intellectual property is not expected to change substantially as a result of the licensor’s ongoing activities. The transaction price allocated to the licensing of intellectual property is recognized as revenue at a point in time when the licensed intellectual property is made available for the customer’s use and benefit.
One of the Company’s agreement with a customer includes variable consideration of $25.0 million, which represents a refundable contribution the Company made to the customer during the construction period for their first GESS. The refundable contribution will be returned to Energy Vault upon the customer’s first GESS reaching substantial completion, subject to adjustment for potential liquidated damages if certain performance metrics are not met. The Company has determined that it is probable that the entire $25.0 million will be collected from the customer, and therefore has included that amount in the contract’s transaction price.
Certain licensing agreements contain a significant financing component due to the customer having extended payment terms. The licensing agreements that contain a significant financing component require the Company to recognize revenue as the present value of the future customer payments. The Company determines the present value of the future customer payments using a discounted cash flow analysis and a discount rate that approximates the interest rate the Company would use in a separate financing transaction with the customer. The discount rate used in the discounted cash flow analysis is highly subjective as it is dependent on the Company’s assessment of the customer’s credit risk.
Stock-Based Compensation
The Company’s stock-based compensation arrangements are accounted for in accordance with ASC Topic 718, “Share Based Payments.” Compensation expense is recognized over the requisite service period (usually the vesting period) on a straight-line basis and adjusted for actual forfeitures of unvested awards as they occur.
Accounting for stock-based compensation requires us to make a number of judgments, estimates, and assumptions. If any of the estimates prove to be inaccurate, Energy Vault’s net loss and operating results could be affected adversely.
Stock-based compensation for stock options is estimated on the date of grant using the Black-Scholes option-pricing model. The Black-Scholes model considers volatility in the price of the Company’s stock, the risk-free interest rate, the estimated life of the equity-based award, the closing price of the Company’s stock on the grant date, and the exercise price.
Stock-based compensation for RSUs that vest based solely on a service condition is measured based on the closing fair market value of the Company’s common stock on the date of the grant.
Stock-based compensation for RSUs that vest based on market conditions is estimated on the date of the grant using a Monte Carlo simulation model. The Monte Carlo simulation model requires the input of highly subjective assumptions, including the expected term of the award, the expected volatility of the Company’s common stock, risk-free interest rates, and the expected dividend yield of the Company.
Emerging Growth Company Accounting Election
We are an “emerging growth company” as defined in Section 2(a) of the Securities Act of 1933, as amended, and have irrevocably elected to take advantage of the benefits of this extended transition period for new or revised standard. We are expected to remain an emerging growth company through the end of 2026 and expect to continue to take advantage of the benefits of the extended transition period. This may make it difficult or impossible to compare our financial results with the financial results of another public company that is either not an emerging growth company or is an emerging growth company that has chosen not to take advantage of the extended transition period exemptions for emerging growth companies because of the potential differences in accounting standards used.
Recently Adopted and Issued Accounting Pronouncements
Recently issued and adopted/unadopted accounting pronouncements are described in Note 2 of the consolidated financial statements included elsewhere in this Annual Report.
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ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Market risk represents the risk of loss that may impact our financial position because of adverse changes in financial market prices and rates.
Foreign Currency Risk
The majority of our contracts with customers are denominated in U.S. dollars, and certain of our definitive agreements could be denominated in currencies other than the U.S. dollar, including the Euro, the Swiss franc, the Australian dollar, the South African rand, the Brazilian real, and the Saudi riyal. A strengthening of the U.S. dollar could increase the cost of our solutions to our international customers, which could adversely affect our business and results of operations.
In addition, a portion of our operating expenses are incurred outside the United States and are denominated in foreign currencies, such as the euro and the Swiss franc, and are subject to fluctuations due to changes in foreign currency exchange rates. If we increase our exposure to foreign currencies and are not able to successfully hedge against the risks associated with currency fluctuations, our results of operations could be adversely affected.
Inflation Risk
Our operations could be adversely impacted by inflation, primarily from higher material, labor, and construction costs. While it is difficult to measure the impact of inflation for such estimates accurately, we believe, if our costs are affected due to significant inflationary pressures, we may not be able to fully offset higher costs through price increases or other corrective measures, which may adversely affect our business, financial condition, and results of operations.
Credit Risk
Credit risk refers to the risk that a counterparty may default on its contractual obligations resulting in a loss to us. Our customers include the counterparties for the sale of our energy storage products and solutions and the licensees of our intellectual property. A loss of one or more of our significant customers, their inability to perform under their contracts, or their default in payment could harm our business and negatively impact revenue, results of operations, and cash flows. Credit policies have been approved and implemented to assess our existing and potential customers with the objective of mitigating credit losses. These policies establish guidelines, controls, and credit limits to manage credit risk within approved tolerances by mandating an appropriate evaluation of the financial condition of existing and potential customers, monitoring agency credit ratings, and by implementing credit practices that limit exposure according to the risk profiles of the counterparties. In addition, customers are required to make milestone payments based on their project’s progress. We may also, at times, require letters of credit, parent guarantees, or cash collateral when deemed necessary.
Our overall exposure may be affected positively or negatively by macroeconomic or regulatory changes that may impact our counterparties. Currently, management does not anticipate a material adverse effect in our financial position or results of operations from non-performance of a customer. We continuously monitor the creditworthiness of all our customers.
Commodity Price Risk
We are subject to risk from fluctuating market prices of certain commodity raw materials, including cement, steel, aluminum, and lithium, that are used in the components that we purchase from our suppliers and then as inputs to our products. Prices of these raw materials may be affected by supply restrictions or other logistic costs market factors from time to time. As we are not the direct buyer of these raw materials, we do not enter into hedging arrangements to mitigate commodity risk. Significant price changes for these raw materials could reduce our operating margins if suppliers increase component prices and we are unable to recover such increases from our customers and could harm our business, financial condition, and results of operations.
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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Index of Consolidated Financial Statements for the fiscal years ended December 31, 2023 and 2022.
Contents Page
Consolidated Balance Sheets as of December 31, 2023 and 2022 62
Notes to Consolidated Financial Statements 66
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Report of Independent Registered Public Accounting Firm
Shareholders and Board of Directors
Energy Vault Holdings, Inc.
Westlake Village, California
Opinion on the consolidated Financial Statements
We have audited the accompanying consolidated balance sheets of Energy Vault Holdings, Inc. (the “Company”) as of December 31, 2023 and 2022, the related consolidated statements of operations and comprehensive loss, convertible preferred stock and stockholders’ equity (deficit), and cash flows for each of the two years in the period ended December 31, 2023, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2023 and 2022, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2023, in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.
/s/ BDO USA, P.C.
We have served as the Company's auditor since 2020.
BDO USA, P.C.
Melville, New York
March 12, 2024
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ENERGY VAULT HOLDINGS, INC.
Consolidated Balance Sheets
(In thousands, except par value)
December 31,
Assets
Current Assets
Assets held for sale 6,111 —
Prepaid expenses and other current assets 4,520 7,242
Intangible assets 1,786 —
Operating lease right-of-use assets 1,700 1,442
Liabilities and Stockholders’ Equity
Current Liabilities
Contract liabilities, current portion 4,923 49,434
Lease liabilities, current portion 724 825
Deferred pension obligation 1,491 890
Contract liabilities, long-term portion 1,500 1,500
Commitments and contingencies (Note 19)
Stockholders’ Equity
Preferred stock, $0.0001 par value; 5,000 shares authorized, none issued — —
Accumulated other comprehensive loss (1,421) (888)
Total Liabilities and Stockholders’ Equity $ 340,753 $ 416,713
The accompanying notes are an integral part of these consolidated financial statements.
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ENERGY VAULT HOLDINGS, INC.
Consolidated Statements of Operations and Comprehensive Loss
(In thousands, except per share data)
Year Ended December 31,
Operating expenses:
Depreciation and amortization 893 7,743
Asset impairment — 2,828
Other income (expense):
Interest expense (35) (2)
Change in fair value of warrant liability — 2,330
Transaction costs — (20,586)
Provision (benefit) for income taxes (349) 427
Net loss per share — basic and diluted $ (0.69) $ (0.64)
Weighted average shares outstanding — basic and diluted 142,851 123,241
Other comprehensive loss — net of tax
Actuarial loss on pension $ (519) $ (188)
Foreign currency translation loss (14) (287)
Total other comprehensive loss (533) (475)
The accompanying notes are an integral part of these consolidated financial statements.
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ENERGY VAULT HOLDINGS, INC.
Consolidated Statements of Convertible Preferred Stock and Stockholders’ Equity (Deficit)
(In thousands)
Shares Amount Shares Amount
Actuarial loss on pension — — — — — — (188) (188)
Foreign currency translation loss — — — — — — (287) (287)
Exercise of stock options — — 278 — 224 — — 224
Actuarial loss on pension — — — — — — (519) (519)
Foreign currency translation loss — — — — — — (14) (14)
The accompanying notes are an integral part of these consolidated financial statements.
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ENERGY VAULT HOLDINGS, INC.
Consolidated Statements of Cash Flows
(In thousands)
Year Ended December 31,
Cash Flows From Operating Activities
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization expense 893 7,743
Non-cash interest income (1,410) (365)
Asset impairment — 2,828
Gain on change in fair value of warrant liability — (2,330)
Provision for credit losses 150 —
Foreign exchange gains and losses 222 316
Changes in operating assets and liabilities:
Prepaid expenses and other current assets 2,851 (5,286)
Customer financing receivable — (9,725)
Accounts payable and accrued expenses 25,508 67,861
Other long-term liabilities (444) (386)
Net cash used in operating activities (92,655) (23,346)
Cash Flows From Investing Activities
Purchase of property and equipment (30,431) (2,319)
Purchase of property and equipment held for sale (6,111) —
Purchase of convertible notes — (2,000)
Purchase of equity securities (6,000) (9,000)
Net cash used in investing activities (42,542) (13,319)
Cash Flows From Financing Activities
Proceeds from exercise of stock options 224 171
Proceeds from insurance premium financing 1,250 —
Proceeds from reverse recapitalization and PIPE financing, net — 235,940
Proceeds from exercise of warrants — 7,855
Payment of transaction costs related to reverse recapitalization — (20,651)
Payment of taxes related to net settlement of equity awards (6,017) (5,482)
Repayment of insurance premium financings (892) —
Payment of finance lease obligations (47) (62)
Net cash provided by financing activities (5,482) 217,771
Cash, cash equivalents, and restricted cash – end of the period 145,555 286,182
Less: restricted cash at end of period 35,632 83,145
Cash and cash equivalents - end of period $ 109,923 $ 203,037
ENERGY VAULT HOLDINGS, INC.
Consolidated Statements of Cash Flows (Continued)
(In thousands)
Year Ended December 31,
Supplemental Disclosures of Cash Flow Information:
Income taxes paid 46 3
Cash paid for interest 35 2
Supplemental Disclosures of Non-Cash Investing and Financing Information:
Warrants assumed as part of reverse recapitalization — 19,838
Actuarial loss on pension (519) (188)
Property, plant and equipment financed through accounts payable 5,051 —
Assets acquired on finance lease 108 37
The accompanying notes are an integral part of these consolidated financial statements.
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ENERGY VAULT HOLDINGS, INC.
Notes to Consolidated Financial Statements
NOTE 1. ORGANIZATION AND DESCRIPTION OF BUSINESS
Energy Vault Holdings, Inc., which together with its subsidiaries is referred to herein as “Energy Vault” or the “Company”, develops and deploys utility-scale energy storage solutions designed to aid in the global transition to a clean energy future. The Company’s mission is to provide energy storage solutions to accelerate the global transition to renewable energy.
The Company primarily relies on two models for project delivery, which are (i) EPC delivery and (ii) EEQ delivery. Under the EPC model, we generally rely on third-party EPC firms to construct our storage systems, under our supervision with dedicated teams tasked with project management. Under the EEQ model, we are responsible for the delivery and installation of the equipment we provide, as well as resolving issues within our scope of supply.
Our current business model options include:
•Building, operating, and transferring energy storage projects to potential customers,
•Building, operating, and holding energy storage systems as equity (co-) sponsor that may provide recurring revenue in the future,
•Recurring software revenue through licensing software for asset management and use case applications,
•Recurring service revenue through long term service agreements, and
•Intellectual property licenses and royalties associated with our energy storage technologies that may provide recurring revenues in the future.
Energy Vault was originally incorporated under the name Novus Capital Corporation II as a special purpose acquisition company in the state of Delaware in September 2020 with the purpose of effecting a merger with one or more operating businesses. On September 8, 2021, Novus announced that it had entered into the Merger Agreement with Legacy Energy Vault that would result in the Merger. Upon the closing of the Merger on February 11, 2022 (the “Closing”), Novus was immediately renamed to “Energy Vault Holdings, Inc.” The Merger between Novus and Legacy Energy Vault was accounted for as a reverse recapitalization. See Note 3 - Reverse Capitalization for more information. Energy Vault Holdings, Inc. is headquartered in Los Angeles, California.
Throughout the notes to the consolidated financial statements, unless otherwise noted, the “Company,” “we,” “us,” or “our” and similar terms refer to Legacy Energy Vault and its subsidiaries prior to the consummation of the Merger, and Energy Vault and its subsidiaries after the consummation of the Merger.
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying consolidated financial statements have been prepared on an accrual basis of accounting in accordance with GAAP and applicable rules and regulations of the SEC regarding financial reporting.
Principles of Consolidation
These consolidated financial statements include Energy Vault Holdings, Inc. and its wholly owned subsidiaries. All intercompany balances and transactions have been eliminated in consolidation.
Emerging Growth Company
Section 102(b)(1) of the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”) exempts emerging growth companies from being required to comply with new or revised financial accounting standards until private companies (that is, those that have not had a Securities Act registration statement declared effective or do not have a class of securities registered under the Exchange Act) are required to comply with the new or revised financial accounting standards. The JOBS Act provides that an emerging growth company can elect to opt out of the extended transition period and comply with the requirements that apply to non-emerging growth companies but any such election to opt out is irrevocable. The Company has elected not to opt out of such extended transition period, which means that when a standard is issued or revised, and it has different application dates for public or private companies, the Company, as an emerging growth company, can adopt the new or revised standard at the time private companies adopt the new or revised standard.
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ENERGY VAULT HOLDINGS, INC.
Notes to Consolidated Financial Statements
This may make comparison of the Company’s consolidated financial statement with another public company that is neither an emerging growth company nor an emerging growth company that has opted out of using the extended transition period difficult or impossible because of the potential differences in accounting standards used.
Use of Estimates
The preparation of the consolidated financial statements, in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. The Company evaluates its assumptions on an ongoing basis. The Company’s management believes that the estimates, judgment, and assumptions used are reasonable based upon information available at the time they are made. Significant estimates made by management include, among others, revenue recognition and stock-based compensation. Due to the inherent uncertainty involved in making assumptions and estimates, changes in circumstances could result in actual results differing from those estimates, and such differences could be material to the Company’s consolidated financial condition and results of operations.
Segment Reporting
The Company reports its operating results and financial information in one operating and reportable segment. Our chief operating decision maker, which is our chief executive officer, reviews our operating results on a consolidated basis and uses that consolidated financial information to make operating decisions, assess financial performance, and allocate resources.
Concentration of Credit and Other Risks
Financial instruments that subject the Company to concentrations of credit risk consist primarily of cash and cash equivalents, restricted cash, accounts receivable, and customer financings receivable.
Risks associated with cash and cash equivalents and restricted cash are mitigated by banking with creditworthy institutions. Such balances with any one institution may, at times, be in excess of federally insured amounts.
As of December 31, 2023, one customer accounted for 92% of accounts receivable and as of December 31, 2022, two customers accounted for 78% and 16% of accounts receivable, respectively.
As of December 31, 2023 and December 31, 2022, one customer accounted for 100% of the customer financing receivable.
Revenue from three customers accounted for 64%, 22%, and 13% of total revenue, respectively, for the year ended December 31, 2023 and revenue from two customers accounted for 57% and 35% of total revenue, respectively, for the year ended December 31, 2022.
Foreign Currency
Assets and liabilities denominated in a foreign currency are translated into U.S dollars using the exchange rates in effect at the balance sheet date. Revenue and expense accounts are translated at the average exchange rates during the periods. The impact of exchange rate fluctuations from translation of assets and liabilities is included in accumulated other comprehensive loss, a component of stockholders’ equity. As of December 31, 2023, accumulated other comprehensive loss included a $0.3 million loss related to currency translation adjustments. As of December 31, 2022, accumulated other comprehensive loss included a $0.2 million loss related to currency translation adjustments.
Gains and losses resulting from foreign currency transactions are included in other expense, net in the accompanying consolidated statements of operations.
Fair Value Measurements
ASC 820, Fair Value Measurement (“ASC 820”), establishes a fair value hierarchy for instruments measured at fair value that distinguishes between assumptions based on market data (observable inputs) and the Company’s own assumptions (unobservable inputs). Observable inputs are inputs that market participants would use in pricing the asset or liability based on market data obtained from sources independent of the Company. Unobservable inputs are inputs that reflect the Company’s assumptions about the inputs that market participants would use in pricing the asset or liability and are developed based on the best information available in the circumstances. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability (an exit price) in an orderly transaction between market participants at
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ENERGY VAULT HOLDINGS, INC.
Notes to Consolidated Financial Statements
the reporting date. The accounting guidance establishes a three-tiered hierarchy, which prioritizes the inputs used in the valuation methodologies in measuring fair value as follows:
Level I — Inputs which include quoted prices in active markets for identical assets and liabilities.
Level II — Inputs other than Level I that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.
Level III — Unobservable inputs in which there is little or no market data, which require the reporting entity to develop its own assumptions.
Revenue Recognition
The Company recognizes revenue from contracts with customers in accordance with ASC 606, Revenue from Contracts with Customers (“ASC 606”). Under ASC 606, revenue is recognized when, or as, control of promised goods and services is transferred to customers, and the amount of revenue recognized reflects the consideration to which the Company expects to be entitled in exchange for the goods and services transferred. The Company determines revenue recognition through the following steps:
(1)Identification of the contract, or contracts, with a customer.
(2)Identification of the performance obligations in the contract.
(3)Determination of the transaction price.
(4)Allocation of the transaction price to the performance obligations in the contract.
(5)Recognition of revenue when, or as, a performance obligation is satisfied.
Once a contract is determined to be within the scope of ASC 606, the Company assesses the goods or services promised within each contract and determines those that are performance obligations. Arrangements that include rights to additional goods or services that are exercisable at a customer’s discretion are generally considered options. The Company assesses if these options provide a material right to the customer and if so, they are considered performance obligations. The identification of material rights requires judgments related to the determination of the value of the underlying good or service relative to the option exercise price.
The Company assesses whether each promised good or service is distinct for the purposes of identifying performance obligations in the contract. This assessment involves subjective determination and requires management to make judgments about the individual promised goods or services and whether such are separable from the other aspects of the contractual relationship. Promised goods and services are considered to be distinct provided that: (i) the customer can benefit from the good or service either on its own or together with the other resources that are readily available to the customer (that is, the good or service is capable of being distinct) and (ii) the entity’s promise to transfer the good or service to the customer is separately identifiable from other promises in the contract (that is, the promise to transfer the good or service is distinct within the context of the contract). The Company also considers the intended benefit of the contract in assessing whether a promised good or service is separately identifiable from other promises in the contract. If a promised good or service is not distinct, an entity is required to combine that good or service with other promised goods or services until it identifies a bundle of goods or services that is distinct.
The transaction price is determined and allocated to the identified performance obligations in proportion to their stand-alone selling prices (“SSP”) on a relative SSP basis. SSP is determined at contract inception and is not updated to reflect changes between contract inception and when the performance obligations are satisfied. Determining the SSP for performance obligations requires significant judgment. In developing the SSP for a performance obligation, the Company considers applicable market conditions and relevant entity-specific factors, including factors that were contemplated in negotiating the agreement with the customer and estimated costs.
In determining the transaction price, the Company adjusts consideration for the effects of the time value of money if the timing of payments provides the Company with a significant benefit of financing. When a contract provides the customer with a significant benefit of financing, the Company recognizes a customer financing receivable and recognizes interest income separate from the revenue recognized on the contracts with customers. The Company does not assess whether a
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ENERGY VAULT HOLDINGS, INC.
Notes to Consolidated Financial Statements
contract has a significant financing component if the expectation at contract inception is such that the period between payment and the transfer of the promised goods or services will be one year or less.
The Company recognizes as revenue the amount of the transaction price that is allocated to the respective performance obligation when (or as) each performance obligation is satisfied, either at a point in time or over time. Over time revenue recognition is based on the use of an output or input method.
Build and Transfer Energy Storage Projects: The Company enters into contracts with utility companies and independent power producers to build and transfer energy storage projects. The Company has entered into contracts to build and transfer battery-based energy storage projects and intends to enter into contracts to build and transfer gravity-based energy storage projects in the future. Each storage project is customized depending on the customer’s energy needs. Customer payments are due upon meeting certain milestones that are consistent with contract-specific phases of a project. The Company determines the transaction price based on the consideration expected to be received, which includes estimates of liquidated damages or other variable consideration. Generally, each contract to design and construct an energy storage project contains one performance obligation. Multiple contracts entered into with the same customer and near the same time to construct energy storage projects are combined in accordance with ASC 606. In these situations, the contract prices are aggregated and then allocated to each energy storage project based upon their relative stand-alone selling price.
The Company recognizes revenue over time as a result of the continuous transfer of control of its products to the customer. The continuous transfer of control to the customer is supported by clauses in the contracts that provide enforceable rights to payment of the transaction price associated with work performed to date for products that do not have an alternative use to the Company and/or the project is built on the customer’s land that is under the customer’s control.
Revenue for these performance obligations is recognized using the percentage of completion method based on cost incurred as a percentage of total estimated contract costs. Contract costs include all direct materials and labor costs related to contract performance. Pre-contract costs with no future benefit are expensed in the period in which they are incurred. Since the revenue recognition of these contracts depends on estimates, which are assessed continually during the term of the contract, recognized revenues and profit are subject to revisions as the contract progresses to completion. The cumulative effects of revisions of estimated total contract costs and revenues, together with any contract reserves which may be deemed appropriate, are recorded in the period in which the facts and changes in circumstances become known. Due to uncertainties inherent in the estimation process, it is reasonably possible that these estimates will be revised in a different period. When a loss is forecasted for a contract, the full amount of the anticipated loss is recognized in the period in which it is determined that a loss will incur.
The Company’s contracts generally provide customers the right to liquidated damages (“LDs”) against Energy Vault in the event specified milestones are not met on time, or certain performance metrics are not met upon or after the substantial completion date. LDs are accounted for as variable consideration, and the contract price is reduced by the expected penalty or LD amount when recognizing revenue. Variable consideration is included in the transaction price only to the extent that it is improbable that a significant reversal in the amount of cumulative revenue recognized will occur when the uncertainty is resolved. Estimating variable consideration requires certain estimates and assumptions, including whether and by how much a project will be delayed. The existence and measurement of liquidated damages may also be impacted by the Company’s judgment about the probability of favorable outcomes of customer disputes involving whether certain events qualify as force majeure or the reason for the events that caused project delays. Variable consideration for LDs is estimated using the expected value of the consideration to be received. If Energy Vault has a claim against the customer for an amount not specified in the contract, such claim is recognized as an increase to the contract price when it is legally enforceable, which is usually upon signing a respective change order or equivalent document confirming the claim acceptance by the customer.
The Company offers limited warranties on the Company’s energy storage systems which provide the customer assurance that the energy storage systems will function as the parties intended because it complies with agreed-upon specifications and are free from defects. These assurance-type warranties are not treated as a separate revenue performance obligation and are accounted for as guarantees under GAAP.
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Notes to Consolidated Financial Statements
Operate Energy Storage Projects:To date, the Company has not recognized any revenue related to providing operation services for its energy storage projects. The method of revenue recognition will be determined once the Company finalizes agreements with its future customers.
Energy Management Software as a Service and Long Term Service Arrangements:During 2023, the Company signed its first agreement to provide energy management software as a service. The customer did not receive legal title or ownership of the software as a result of this arrangement. The customer receives access to the software platform and related support services as part of the contract. We consider these to be a series of distinct services that comprise a single performance obligation because they are substantially the same and have the same pattern of transfer. We recognize revenue over time using a straight-line recognition method. During 2023, the Company recognized $38 thousand of revenue related to providing energy management software as a service.
To date, the Company has not recognized any revenue related to providing long term service arrangements. This method of revenue recognition will be determined once the Company finalizes agreements with its future customers.
Licensing of Intellectual Property:The Company enters into licensing agreements of its intellectual property that are within the scope of ASC 606. The terms of such licensing agreements include the license of functional intellectual property, given the functionality of the intellectual property is not expected to change substantially as a result of the licensor’s ongoing activities. The transaction price allocated to the licensing of intellectual property is recognized as revenue at a point in time when the licensed intellectual property is made available for the customer’s use and benefit. Certain licensing agreements contain a significant financing component due to the customer having extended payment terms. The amounts due from customers under extended payment terms are included in the line item, customer financing receivable, on the consolidated balance sheets.
Royalty Revenue:In connection with entering into intellectual property licensing agreements, the Company also enters into royalty agreements whereby the customer agrees to pay the Company a percentage of the customer’s future sales revenue that is generated by using the Company’s intellectual property. The Company has not recognized any royalty revenue to date, but will recognize royalty revenue at the point in time when the customer’s sales occur.
Cash, Cash Equivalents, and Restricted Cash
The Company considers all highly liquid investments purchased with an original or remaining maturity of three months or less to be cash equivalents. At December 31, 2023, the Company maintained investments in money market accounts totaling $98.4 million, including $98.0 million in U.S. government money market funds. At December 31, 2022, the Company maintained money market funds totaling $5.4 million and a cash sweep account invested primarily in U.S. Treasury and other short-term securities totaling $66.5 million.
Restricted cash as of December 31, 2023 and 2022 primarily consisted of cash held by banks as collateral for the Company’s letters of credit.
Accounts Receivable
Accounts receivable represents amounts that have an unconditional right to consideration, have been billed to customers, and do not bear interest. Receivables are carried at the original invoiced amount, less an allowance for any potential uncollectible amounts.
Customer Financing Receivable
Customer financing receivable includes amounts due from a customer related to a licensing agreement under extended payment terms which contains a significant financing component. An interest rate is not stated in this agreement and is imputed using the effective interest method when recognizing interest income. The imputed interest rate on the note is 8.7%. Interest income on the customer financing receivable was $0.9 million and $35 thousand for the years ended December 31, 2023 and 2022, respectively.
The Company evaluates its customer financing receivable on a periodic basis by monitoring the credit quality and financial condition of the guarantor for the customer. The amortized cost basis for the Company’s customer financing receivable was $10.7 million and $9.8 million as of December 31, 2023 and 2022, respectively.
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Notes to Consolidated Financial Statements
Allowance for Credit Losses
The Company estimates expected uncollectible amounts related to its accounts receivable, customer financing receivable, and contract asset balances as of the end of each reporting period, and presents those financial asset balances net of an allowance for expected credit losses in the consolidated balance sheets. The Company utilizes a probability-of-default (“PD”) and loss-given-default (“LGD”) methodology to calculate the allowance for credit losses for each customer by type of financial asset. Due to the Company’s limited operating history and lack of loss history, the Company derived its PD and LGD rates using historical rates for corporate bonds as published by Moody’s. The Company uses PD and LGD rates that correspond to the customer’s credit rating and period of time in which the financial asset is expected to remain outstanding.
Inventory
Inventory consists of equipment and spare parts, which are used in ongoing battery storage projects for sale. Inventory is stated at the lower of cost or net realizable value with cost being determined by the specific identification method. Costs include the cost of purchase and other costs incurred in bringing the inventories to their present location and condition. The Company periodically reviews its inventory for potential obsolescence and write down of its inventory, as appropriate, to net realizable value based on its assessment of market conditions.
Assets held for sale
The Company classifies assets to be disposed of as held for sale in the period in which they are available for sale in their present condition and when the sale is probable and expected to be completed within one year. Assets classified as held for sale are measured at the lower of their carrying amount or fair value less costs to sell. Further, the Company does not record depreciation and amortization expense on assets that are classified as held for sale. The Company has classified property, equipment, and intangible assets that were acquired in December 2023 as held for sale as of December 31, 2023 because the Company purchased the assets with the intent and ability to resell them within one year of acquiring the assets.
Property and Equipment, Net
Property and equipment are stated at cost, net of accumulated depreciation. Depreciation is computed using the straight-line method over the estimated useful lives of the respective assets. Maintenance and repairs are charged to expense as incurred. When assets are retired or sold, the cost and related accumulated depreciation are removed from the consolidated balance sheet and any resulting gain or loss is reflected in operating expenses in the period realized.
Impairment of Long-Lived Assets
The Company reviews long-lived assets, primarily comprised of property and equipment, intangible assets, and operating right-of-use assets, for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability is measured by comparison of the carrying amount to the future undiscounted net cash flows which the assets are expected to generate. If the carrying value of the assets exceeds the sum of the estimated future cash flows, the impairment to be recognized is measured as the amount by which the carrying amount of the assets exceed their fair value.
Intangible Assets
The Company’s intangible assets consist of software development costs related to software to be sold or leased externally. These development costs are capitalized upon the establishment of technological feasibility for a product in accordance with ASC 985-20, Software - Costs of Software to be Sold, Leased, or Marketed. Amortization of capitalized software costs will begin at the time that each software product becomes available for general release to customers. As of December 31, 2023, none of the Company’s software products have been placed in service. Once a software application is available for general release and is placed in service, the Company will amortize the capitalized costs on a product basis by the greater of the straight-line method over the estimated economic life of the product, or the ratio that current gross revenues for a product bear to the total current and anticipated future gross revenues for that product. The useful life of our external-use software development costs is generally expected to be 5 years.
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Notes to Consolidated Financial Statements
Investment in Equity Securities
During 2022 and 2023, the Company made a strategic investment and purchased equity securities in KORE, a U.S. manufacturer of battery cells and modules. The Company’s ownership in KORE does not provide the Company with the ability to exercise significant influence. These equity securities do not have a readily determinable fair value and are recorded at cost, less any impairment, plus or minus adjustments related to observable transactions for the same or similar securities, with unrealized gains and losses included in earnings. As of December 31, 2023 and 2022, the cost basis of these securities was equal to their carrying value. The Company did not recognize any impairments or value changes resulting from observable price changes during the years ended December 31, 2023 and 2022. The carrying value of the Company’s investment in equity securities is included in the line item, investments, in the consolidated balance sheets.
Leases
The Company determines if a contract contains a lease at its inception based on whether or not the Company has the right to control the asset during the contract period and other facts and circumstances. Right-of-use (“ROU”) assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent the Company’s obligation to make lease payments arising from the lease.
ROU assets are classified as either operating or finance leases. Upon commencement of the lease, a ROU asset and corresponding lease liability are recognized for all operating and finance leases. The Company has elected the short-term lease exemption, which does not require a ROU asset or lease liability to be recognized when the lease term is 12 months or less and does not include an option to purchase the underlying asset that the lessee is reasonably certain to exercise. The Company has decided not to elect the policy to not separate lease and non-lease component in arrangements whereby the Company is the lessee.
Upon commencement of the lease, ROU assets are recognized based on the initial measurement of the lease liability and adjusted for any lease payments made before commencement date of the lease, less any lease incentives and including any initial direct costs incurred. Lease liabilities are initially measured at the present value of future minimum lease payments over the lease term.
The discount rate used to determine the present value is the rate implicit in the lease unless that rate cannot be determined, in which case Company’s incremental borrowing rate is used, which is based on the estimated interest rate for collateralized borrowing over a similar term of the lease at commencement date.
Rights to extend or terminate a lease are included in the lease term when there is reasonable certainty the right will be exercised. Factors used to assess reasonable certainty of rights to extend or terminate a lease include current and forecasted lease improvement plans, anticipated changes in development strategies, historical practice in extending similar contracts and current market conditions.
Operating lease ROU assets and liabilities are subsequently measured at the present value of the lease payments not yet paid and discounted at the initial discount rate at commencement of the lease, less any impairments to the ROU asset. Operating lease expense is recognized on a straight-line basis over the lease term. Finance lease ROU assets are amortized on a straight-line basis over the estimated useful life of the asset if the lessee is reasonably certain to exercise a purchase option or ownership of the leased asset transfers at the end of the lease term, otherwise the leased assets are amortized over the lease term. Amortization of finance lease ROU assets is included in depreciation and amortization.
Operating lease ROU assets are recognized on the consolidated balance sheets in the line item, operating lease right-of-use assets, and finance lease ROU assets are recognized on the consolidated balance sheets within the line item, property and equipment, net.
Defined Benefit Pension Obligation
The Company’s wholly owned subsidiary in Switzerland has a defined benefit pension obligation covering retirement and other long-term benefits of the local employees. Accrued pension costs are developed using actuarial principles and assumptions which consider a number of factors, including estimates for the discount rate, expected long-term rate of return on assets and mortality. Changes in these estimates would impact the amounts that the Company records in the consolidated financial statements.
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Notes to Consolidated Financial Statements
Warrants
The Company assumed Public Warrants and Private Warrants upon the Closing. The Company accounts for warrants for shares of the Company’s common stock that are not indexed to its own stock as liabilities at fair value on the consolidated balance sheets. The warrants are subject to remeasurement at each balance sheet date and any change in fair value is recognized in the Company’s consolidated statements of operations. For issued or modified warrants that meet all of the criteria for equity classification, the warrants are required to be recorded as a component of additional paid-in-capital at the time of issuance. For issued or modified warrants that do not meet all the criteria for equity classification, the warrants are required to be recorded as a liability at their initial fair value on the date of issuance, and each balance sheet date thereafter. Changes in the estimated fair value of the warrants are recognized as a non-cash gain or loss in the consolidated statements of operations.
Earn-Out Shares
In connection with the reverse recapitalization and pursuant to the Merger Agreement, eligible Legacy Energy Vault stockholders immediately prior to the Closing, have the contingent right to receive an aggregate of 9.0 million shares of the Company’s common stock (“Earn-Out Shares”) upon the Company achieving each Earn-Out Triggering Event (defined below) during the period beginning on the 90th day following the Closing and ending on the third anniversary of such date. An “Earn-Out Triggering Event” means the date on which the closing price of the Company’s common stock quoted on the NYSE is greater than or equal to certain specified prices for any 20 trading days within a 30 consecutive day trading period.
The Earn-Out Shares were recognized at fair value upon the Closing of the Merger and classified in shareholders’ equity. Because the Merger was accounted for as a reverse recapitalization, the issuance of the Earn-Out Shares was treated as a deemed dividend and since the Company does not have retained earnings, the issuance was recorded within additional-paid-in capital (“APIC”) and has a net nil impact on APIC.
Research and Development Expenses
Research and development costs are expensed as incurred. Research and development costs consist of salaries and other personnel related expenses, engineering expenses, product development costs and facility costs.
Advertising Costs
Advertising costs are expensed as incurred and are reflected in the line item, sales and marketing, in the consolidated statements of operations. Advertising expenses were $0.5 million and $0.3 million for the years ended December 31, 2023 and 2022, respectively.
Stock-Based Compensation
The Company issues stock-based compensation awards to employees, directors, and non-employees in the form of stock options and restricted stock units (“RSUs”). The Company measures and recognizes compensation expense for stock-based awards based on the award’s fair value on the date of the grant. The Company accounts for forfeitures of stock-based awards when they occur. The fair value of RSUs that vest based on service conditions is measured using the fair value of the Company’s common stock on the date of the grant. The fair value of RSUs that vest based on market conditions is measured using a Monte Carlo simulation model on the date of the grant. The fair value of stock options that vest based on service conditions is measured using the Black-Scholes option pricing model on the date of the grant. The Monte Carlo simulation model and the Black-Scholes option pricing model require the input of highly subjective assumptions, including the fair value of the Company’s common stock, the expected term of the award, the expected volatility of the Company’s common stock, risk-free interest rates, and the expected dividend yield of the Company’s common stock. This assumption used to determine the fair value of the awards represent management’s best estimates. These estimates involve inherit uncertainties and the application of management’s judgment.
The fair value of awards is recognized on a straight-line basis over the requisite service period. The fair value of the market-based RSUs is recognized over the requisite service period regardless of whether or not the RSUs ultimately vest and convert to common stock.
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Notes to Consolidated Financial Statements
Transaction Costs
Transaction costs consist of direct legal, accounting, and other fees related to the consummation of the Merger. These costs were initially capitalized as incurred in prepaid assets and other current assets in the consolidated balance sheet. Upon the Closing, transaction costs related to the issuance of shares were recognized in stockholders’ deficit while costs associated with the public and private warrants liabilities were expensed in the consolidated statements of operations and comprehensive loss. The Company and Novus incurred in aggregate $44.8 million in transaction costs during the year ended December 31, 2022, consisting of underwriting, legal, and other professional fees, of which $24.2 million was recorded to additional paid-in-capital as a reduction of proceeds and the remaining $20.6 million was expensed immediately upon the Closing.
Income Taxes
The Company accounts for income taxes in accordance with ASC 740, Income Taxes (“ASC 740”). ASC 740 prescribes the use of the liability method, whereby deferred tax asset and liability account balances are determined based on differences between financial reporting and tax bases of assets and liabilities and are measured using the enacted tax rates that will be in effect when the differences are expected to reverse.
Deferred income tax balances reflect the effects of temporary differences between the carrying amounts of assets and liabilities and their tax bases and are stated at enacted tax rates expected to be in effect when taxes are actually paid or recovered. Deferred tax assets are evaluated for future realization and reduced by a valuation allowance to the extent the Company believes they will not be realized.
Net Loss Per Share
Basic net loss per share of common stock is calculated by dividing net loss by the weighted average number of common shares outstanding for the applicable period. Diluted net loss is computed based on the weighted average number of common shares outstanding increased by the number of additional shares that would have been outstanding had the potentially dilutive common shares been issued, including any dilutive effect from convertible preferred stock, outstanding stock options, or unvested RSUs, and reduced by the number of shares the Company could have repurchased with the proceeds from the issuance of the potentially dilutive shares. Potentially dilutive instruments are excluded from the per share calculation because the Company is in a net loss position and they would therefore be anti-dilutive.
Recently Adopted Accounting Pronouncements
In June 2016, the FASB issued ASU 2016-13, Financial Instruments — Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. ASU 2016-13 amends the impairment model to improve financial reporting by requiring earlier recognition of credit losses on certain financial assets. This standard replaces the previous incurred loss impairment model that recognized losses when a probable threshold was met, with a requirement to recognize lifetime expected credit losses immediately when a financial asset is acquired or purchased. The Company adopted the standard on January 1, 2023 using the modified retrospective method, which required a cumulative effect adjustment to accumulated deficit of $2.4 million, driven by the Company’s accounts receivables, contract assets, and customer financing receivable.
NOTE 3. REVERSE RECAPITALIZATION
On February 11, 2022, in connection with the Merger, the Company raised gross proceeds of $235.9 million, including the contribution of $40.9 million of cash, net of redemptions, held in Novus’ trust account from its initial public offering and an aggregate purchase price of $195.0 million from the sale and issuance of common shares in a PIPE at $10.00 per share. The Company and Novus incurred in aggregate approximately $44.8 million in transaction costs, consisting of underwriting, legal, and other professional fees, of which $24.2 million was recorded to additional paid-in-capital as a reduction of proceeds and the remaining $20.6 million was expensed immediately upon the Closing. The aggregate consideration paid to Legacy Energy Vault stockholders in connection with the Merger (excluding any potential Earn-Out Shares), was 106.2 million shares of the Company’s common stock, par value $0.0001 after giving effect to the exchange ratio of 6.7735 (the “Exchange Ratio”). The total net cash proceeds to the Company were $191.1 million.
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ENERGY VAULT HOLDINGS, INC.
Notes to Consolidated Financial Statements
The following transactions were completed as part of the Merger:
•All of the issued and outstanding shares of Legacy Energy Vault convertible preferred stock were canceled and converted into a total of 85.7 million shares of Energy Vault common stock;
•Each issued and outstanding share of Legacy Energy Vault common stock was canceled and converted into a total of 20.4 million shares of Energy Vault common stock;
•Each outstanding vested and unvested Legacy Energy Vault common stock option was converted into options exercisable for shares of Energy Vault common stock with the same terms except for the number of shares exercisable and the exercise price, each of which was adjusted by the Exchange Ratio;
•Each outstanding and unvested Legacy Energy Vault restricted stock unit (“RSU”) was converted into RSUs for shares of Energy Vault common stock with the same terms except for the number of shares, each of which was adjusted by the Exchange Ratio; and
•Each outstanding vested and unvested Legacy Energy Vault restricted stock award (“RSA”) was converted into RSAs for shares of Energy Vault common stock with the same terms except for the number of shares, each of which was adjusted by the Exchange Ratio.
The Merger was accounted for as a reverse recapitalization in accordance with GAAP. Under this method of accounting, Novus was treated as the acquired company for financial reporting purposes. The reverse recapitalization accounting treatment was primarily determined based on the shareholders of Legacy Energy Vault having a relative majority of the voting power of Energy Vault and having the ability to nominate the majority of the members of the Energy Vault Board, senior management of Legacy Energy Vault comprise the senior management of Energy Vault, and the operations of Legacy Energy Vault prior to the Merger comprise the ongoing operations of Energy Vault. Accordingly, for accounting purposes, the financial statements of the combined entity upon consummation of the Merger represent a continuation of the financial statements of Legacy Energy Vault with the Merger being treated as the equivalent of Legacy Energy Vault issuing shares for the net assets of Novus, accompanied by a recapitalization. The net assets of Novus were recognized at historical cost, with no goodwill or other intangible assets recorded. Operations prior to the Merger are presented as those of Legacy Energy Vault and the accumulated deficit of Legacy Energy Vault has been carried forward after Closing.
All periods prior to the Merger have been retroactively adjusted using the Exchange Ratio for the equivalent number of shares outstanding immediately after the Closing to effect the reverse recapitalization.
The number of shares of common stock issued following the consummation of the Merger was as follows (amounts in thousands):
Shares
Legacy Energy Vault stock converted as part of Merger (1) 106,172
Novus public shares (2) 4,079
Novus sponsor shares (3) 3,975
Total shares of Energy Vault common stock issued as part of the Merger 133,726
__________________
(1) Excludes 9.0 million common shares issuable in earn-out arrangements as they are not issuable until 90 days after the Closing and are contingently issuable based upon the Company’s share price meeting certain thresholds.
(2) Excludes 14.7 million warrants issued and outstanding as of the Closing of the Merger which includes 9.6 million public warrants and 5.2 million private warrants held by the Novus Sponsor.
(3) Includes 1.6 million common shares that have transfer restrictions based on the Company’s share price meeting certain thresholds. These 1.6 million common shares are held in escrow and are subject to potential forfeiture.
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ENERGY VAULT HOLDINGS, INC.
Notes to Consolidated Financial Statements
NOTE 4. REVENUE RECOGNITION
The Company recognized revenue for the product and service categories as follows for the years ended December 31, 2023 and 2022 (amounts in thousands):
Year Ended December 31,
Build and transfer energy storage products (1) $ 339,891 $ 85,636
Licensing of intellectual property (2) 735 58,483
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(1) Represents revenue recognized over time
(2) Represents revenue recognized at a point-in-time.
(3) For the year ended December 31, 2023, revenue recognized over time was $0.5 million and revenue recognized at a point-in-time was $0.4 million. For the year ended December 31, 2022, the entire amount was recognized over time.
The following table summarizes the Company’s revenue disaggregated by geographic region, which is determined based on the customer’s location, for the years ended December 31, 2023 and 2022 (amounts in thousands):
Year Ended December 31,
Remaining Performance Obligations
Remaining performance obligations represent the amount of unearned transaction prices under contracts for which work is wholly or partially unperformed. As of December 31, 2023, the amount of the Company’s remaining performance obligations was $144.2 million. The Company generally expects to recognize approximately 16.0% of the remaining performance obligations as revenue over the next 12 months and the remainder more than 12 months from December 31, 2023.
Contract Balances
The following table provides information about contract assets and contract liabilities from contracts with customers (amounts in thousands):
December 31,
Less allowance for credit losses (1,113) —
Contract assets, net of allowance for credit losses $ 84,873 $ 28,978
Contract liabilities, current portion $ 4,923 $ 49,434
Contract liabilities, long-term portion 1,500 1,500
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ENERGY VAULT HOLDINGS, INC.
Notes to Consolidated Financial Statements
Contract assets consist of a refundable contribution, unbilled receivables, and retainage. Refundable contribution represents the contribution the Company made to a company to be used during the construction of its first GESS, which will be refunded to the Company upon the customer’s first GESS obtaining substantial completion, subject to adjustments for potential liquidated damages if certain performance metrics are not met. Unbilled receivables represent the estimated value of unbilled work for projects with performance obligations recognized over time. Retainage represents a portion of the contract amount that has been billed, but for which the contract allows the customer to retain a portion of the billed amount until final contract settlement. Retainage is not considered to be a significant financing component because the intent is to protect the customer.
Contract liabilities consist of deferred revenue. Under certain contracts, the Company may be entitled to invoice the customer and receive payments in advance of performing the related contract work. In those instances, the Company recognizes a liability for advance billings in excess of revenue recognized, which is referred to as deferred revenue. Deferred revenue is not considered to be a significant financing component because it is generally used to meet working capital demands that can be higher in the early stages of a contract. For the years ended December 31, 2023 and 2022, the Company recognized revenue of $46.0 million and $— million, respectively, related to amounts that were included in deferred revenue as of the beginning of their respective years.
NOTE 5. ALLOWANCE FOR CREDIT LOSSES
Activity in the allowance for credit losses was as follows for the year ended December 31, 2023 (amounts in thousands):
Accounts Receivable Contract Assets Customer Financing Receivable Total
Allowance for credit losses, beginning of period $ — $ — $ — $ —
Provision (benefit) for credit losses (12) 50 112 150
Allowance for credit losses, end of period $ 69 $ 1,113 $ 1,332 $ 2,514
The Company did not have an allowance or provision for credit losses as of and for the year ended December 31, 2022.
NOTE 6. FAIR VALUE MEASUREMENTS
Carrying amounts of certain financial instruments, including cash, accounts payable, and accrued liabilities approximate their fair value due to their relatively short maturities and market interest rates, if applicable.
The Company categorizes assets and liabilities recorded or disclosed at fair value on the consolidated balance sheet based upon the level of judgment associated with inputs used to measure their fair value. The categories are as follows:
•Level 1—Inputs which included quoted prices in active markets for identical assets and liabilities.