Prepared remarks
Good day, and welcome to the Energy Vault Second Quarter 2025 Earnings Call. Please be advised today's program is being recorded. It is now my pleasure to turn the program over to Michael Beer, Chief Financial Officer for Energy Vault.
Thank you. Hello, and welcome to Energy Vault's Second Quarter 2025 Financial Results Conference Call. As a reminder, Energy Vault's earnings press release and presentation are now available on our investor website, and we'll be referring to these presentations during the call. I believe there was a slight delay on Business Wire, so please access those on our website if you were unable to get that email. A replay of this call will be available later today on the Investor Relations portion of our website. This call is now being recorded. If you object in any way, please disconnect now. Please note that Energy Vault's earnings release and this call contain forward-looking statements that are subject to risks and uncertainties. These forward-looking statements are only estimates and may differ materially from the actual figures or events or results due to a variety of factors. Please refer to our most recent 10-K or 10-Q filing for a list of factors that cause our results to differ from those anticipated in any forward-looking statement.
We undertake no obligation to publicly update or revise any forward-looking statements, except as required by law. In addition, please note that we will be presenting and discussing certain non-GAAP information. Please refer to the safe harbor disclaimer and non-GAAP financial measures presented in our earnings release for more details, including a reconciliation to comparable GAAP measures. Joining me on the call today is Robert Piconi, our Chairman and Chief Executive Officer. At this time, I'd like to hand the call over to Robert.
Michael, and thanks to all of you joining the call. Before jumping into the Q2 financial results as normal here, I thought I would kick off highlighting one of the significant announcements made this morning before the market opened. As all of you know, a little over a year ago at our May 2024 Investor Day, we outlined a bold strategy to leverage our significant technology and operational expertise in designing, building and monitoring storage systems to also developing, owning and operating energy storage systems, given the significant benefits of having less lumpy and more predictable revenue streams that are highly profitable, recurring and supported by long-term offtake agreements. This strategy was focused on getting more portfolio exposure to a much higher profit pool segment within the energy ecosystem and really fundamentally creating more long-term value for our shareholders. We proceeded to execute on getting our first two owned projects in Texas and California placed in service as expected this year and recently announced and also completed the project financings for both of them as recently announced and have been putting cash, therefore, back on the balance sheet.
While the first two projects were funded from our balance sheet, the announcement this morning now answers what's been on investors' minds about how Energy Vault will fund the execution of our growing project development portfolio with a $300 million preferred equity investment to fund the development, construction and operation of our storage IPP Own and Operate projects, which we call Asset Vault. I want to go over a little bit about what this means as highlighted from the announcement. The $300 million equity will enable over $1 billion in CapEx and project financing toward constructing and operating the new storage IPP projects. While the funds are targeted at an initial 1.5 gigawatt of projects already progressing in mid- to later-stage development, it also funds earlier-stage development or development expenses of our total 3 gigawatt development pipeline of projects in the U.S., Australia and Europe.
In addition to the first two projects recently placed in service in the U.S. and now a part of Asset Vault, the next projects coming online in the next two to three years will create annual EBITDA cash streams of over $100 million, predictable and recurring. Just as critical in funding the projects is that this investment of the $300 million preferred equity is nondilutive to common shareholders. And we have built mechanisms for milestone-based equity participation that aligns us as partners along the way. This is critical given many of the convertible type financings done have been highly dilutive to existing shareholders, but that is not the case here. Important to also note that EBITDA streams from Asset Vault are in addition and complement Energy Vault's synergistic Energy Storage Solutions business to third-party, global utilities, independent power producers and other high-demand energy users.
Additionally, as was the case with the first two energy assets already in service in the U.S. and Texas and California, the Asset Vault subsidiary will contract to Energy Vault all of the product design, construction, commissioning and long-term service agreements, thereby providing additional cash flow streams and liquidity back to the parent company. We're going to be having a virtual Investor Day post-close of the transaction that we'll schedule to go over more details of the transaction and also some of the language around this part of the business. You're going to hear us talking more and using megawatts, for example, instead of megawatt hours as that's what we're being contracted to deliver. And we'll be going over some KPIs related to multiples of those megawatts to come up with the relevant financial statistics. Just a few thoughts here before jumping back to the results. I'm sure it's not lost on everyone how important the timing is of this investment and the transformation that an investment like this will enable in our forward financials.
As a company, we have been good at positioning and structuring something like this as we've remained without debt at the corporate level since becoming a public company. Given project timing, we initially used our balance sheet to get the first two projects underway here in the U.S. But what really excites me about this, and I want to highlight to investors as a final point here, is this now becomes about execution. Having run a few public and private companies in my career, focus is so important to successful execution. One of the things that Energy Vault has quickly built is a strong reputation in the market, which we have demonstrated in spades with our customers and our partners. We are excellent at execution. We deliver. That's managing supply chains, building, commissioning, reliably and safely executing projects, and monitoring and operating assets. You can imagine the diligence a company like ours undergoes, especially these days and in these markets as a newer growth company, whether that be the banks that did the two project financings that we recently completed, infrastructure funds like we just announced this morning, government-owned entities like we have contracted with in Australia last year, and even public utilities who are not in the business of taking any risk.
Generally, here, bankability is fundamental. As part of their due diligence, all of these groups have talked to our prior customers or partners where we have executed projects, and I think the results now speak for themselves as we expand the business and these agreements.
Thanks, Rob. Turning to our latest backlog and developed pipeline. As we've highlighted, the company currently maintains a revenue backlog of $954 million, up 47% versus this time last quarter and 120% year-to-date, driven by new third-party projects and service agreements as well as long-term offtake agreements in both the U.S. and Australia. Notably, this includes our contracts with Consumers Energy, a new long-term service agreement with an existing customer and our largest project in Australia to date, the recently acquired 125-megawatt Stoney Creek project in New South Wales, which is supported by a 14-year offtake agreement discussed previously. These figures compare to the $550 million plus in recognized revenue or 1.1 gigawatt hours in executed projects to date as depicted on Slide 5 in the earnings presentation. Meanwhile, our total developed pipeline for our advanced projects, either third party and/or those that we would look to own and operate is around $2.4 billion or roughly 6 gigawatt hours, which we expect to be strengthened by the launch of Asset Vault, Energy Vault's build, own and operate arm detailed in today's announcement and outlined in the last slide of our earnings presentation, which I'll discuss further later on.
Turning to Q2 results. On the revenue side, we delivered Q2 revenue of $8.5 million, up 126% year-over-year, driven by activity across our Australian project portfolio in the first month of commercial operations at Cross Trails in Texas. GAAP gross margin of 29.6% was up from 27.8% a year ago, reflecting a stronger regional and business revenue mix. Our adjusted operating expense was $16.2 million, improving by 2% year-over-year despite the increased revenue and gross margin, demonstrating continued cost discipline. We implemented an additional $6.5 million in annualized savings during June and July as the company continues to refine its long-term strategy, offset by strategic investments in Australia to support that growth. On adjusted EBITDA, excluding stock-based compensation and other one-time items outlined on Slide 8 of the earnings presentation, adjusted EBITDA improved 11% year-over-year to a loss of $13.7 million compared to a loss of $15.4 million in Q2 2024, driven by increased revenue and gross margin as well as a slight decline in operating expenses.
From a cash and project financing perspective, we ended Q2 with $58.1 million in cash, up 23% sequentially and at the upper end of our guidance range. Now turning to our business outlook. Reflecting the timing of U.S. battery deliveries associated with the Consumers Energy projects and other project timelines in Australia, we're estimating full-year 2025 revenue of between $200 million and $250 million within the prior guidance range. From a cash and project financing perspective, we are estimating between $60 million and $75 million in total cash at the end of the third quarter, unchanged versus prior guidance and including the Cross Trails project financing of $18 million, which was completed in July with another $27 million in total net ITC proceeds anticipated in September, offset by quarterly operating expenses, working capital and other capital expenditures. Introducing Asset Vault.
Earlier today, Energy Vault announced that it had entered into an exclusive agreement for a $300 million preferred equity investment, subject to customary regulatory and closing conditions estimated in the next 30 to 60 days. By partnering with a leading multibillion-dollar infrastructure fund, we expect to enable over $1 billion in CapEx spending for about 1.5 gigawatts of projects under development in the U.S., Australia and Europe. The project portfolio is prioritized with a clear monetization strategy, supported by long-term offtake agreements with bankable partners and/or in attractive merchant markets. Further, by leveraging Energy Vault's existing EPC capabilities as well as a host of other services we provide today to our third-party customers, we can unlock notable synergies across the business, including larger volume commitments with suppliers and so forth, adding incremental cash flows and liquidity to the parent company.
As part of this strategy, as outlined in our May 2024 Analyst and Investor Day, we've officially placed both the Calistoga Resiliency Center in California and the Cross Trails project in Texas into service and have also completed their respective project financings. These two assets are expected to generate nearly $10 million in recurring annual EBITDA going forward. Further, the recently announced Stoney Creek project serves as a major milestone, resulting in nearly 1.4 gigawatt hours of total capacity under management once that project is complete in 2027, with construction expected to commence in Q1 2026. Once operational, that project is expected to generate roughly $20 million in annual recurring EBITDA, further accelerating our path to a goal of $100 million in recurring EBITDA over the next 3 to 4 years. In conjunction with the close of the $300 million preferred equity investment, again, subject to customary regulatory and closing conditions, Energy Vault intends to host a Virtual Investor Day to provide a comprehensive overview of the Asset Vault portfolio, its project pipeline, financial projections and accounting treatments surrounding the consolidated subsidiary as well as the long-term strategic vision. Additional details will be provided upon closing.
Michael, thank you. And before I open up for questions, I again want to thank all the employees of Energy Vault that have been working diligently across the globe, progressing a lot of the things we've discussed today and I think not a small milestone for us in progressing now toward a commitment related to $300 million to take our project portfolio now forward and really highlight and emphasize, I think, from an investor perspective, a very strong focus of the company now on executing those projects, which I think we've done a very good job of across the world. So with that, operator, we'll turn it back to you for any questions.
Questions and answers
We can take our first question from Justin Clare with ROTH Capital Partners.
Congratulations on the preferred equity transaction. I guess I first wanted to start on the preferred. I just wanted to see if you'd be able to share any more details at this point on the return structure, what the preferred dividend yield might look like or any milestones that are tied to the equity participation in Energy Vault Holdings or do we need to wait until the conference call coming up for that?
Yeah. Thanks, Justin. Yeah, we purposefully are scheduling this virtual call with investors just post the close of that, where we're going to be stepping through and walking through all that. For regulatory and compliance purposes, we aren't going to get into that detail right now. But we're looking forward to walking people through all of those things at the investor call that we're going to be hosting just after the close.
I think one way to sort of think about it, and there's a slide in the deck, Slide 14 that sort of talks about the broader portfolio. Obviously, these projects and their sort of intended levered IRRs would adequately support any project financing and/or distributions associated with the preferred equity.
Yeah, Justin, there's some good content in there where you'll be able to make some assumptions based on the levered IRRs that are included and assumptions around the financing.
Okay. Got it. I guess maybe at this point, not specifically on the preferred equity, but you had talked about $1 billion of CapEx. Maybe you could speak to more broadly what the financing strategy there is in terms of project level debt versus tax equity versus the potential equity contribution from Energy Vault.
Yeah. No, certainly. So we would expect that much of the portfolio will be in the U.S. We haven't necessarily articulated what the split will be, but it will be U.S.-centric. As a result, there will be pretty notable ITC-related benefits. We obviously now have some comfort around recent guidance that was given around those sort of storage investment tax credits. But the way I would think about it on a, let's call it, $100 million project, one could assume virtually half of that would be covered through normal course project financing. You should assume anywhere between $30 million to $40 million, 30% to 40% of that would be covered via the ITC mechanism. Obviously, there are sort of costs in transferring those ITCs, but you could use a 30% type figure. And then of that remaining 20% related to the equity contribution required, there would be some split between common equity and sort of the preferred element. So hopefully, directionally, that gives you a sense. And quite frankly, this is the same sort of split that we had for, say, the Cross Trails project and even that with Calistoga. So having just gone through this process, constructing, financing, and making sure that we have a really optimized capital stack post-COD, it's a playbook that we know well now.
One thing just to add in terms of also use of the fund, and this was mentioned in the announcement, but the other purpose of the fund is to invest in development expenses or some of the earlier development phases you go through when you're getting projects through different phases from the permitting phases, design approvals and things. So that's the other use of the fund. We also have flexibility to take minority interest in projects, for example, where we're providing storage solutions, and to work a little more closely with our customers in that regard as partners. So it really gives us a lot of flexibility in how we look to grow all pieces of the business.
Okay. Got it. That's helpful. And then maybe if I could just sneak one more in here. I'm just looking at Slide 14, where you have kind of the COD dates for projects in the pipeline here. It looks like close to 1 gigawatt of projects potentially in 2027 are planned for completion. So just wondering if you could share a little bit more detail on where those are in the development process. Like have you secured permits? Has interconnection been secured? Are the projects already contracted? Any additional detail there would be helpful.
Yeah, sure. I think just for some visibility, and we had provided a chart online that showed actually some of the projects and where they were in their development phases. Stoney Creek, of course, is one of the larger ones that we announced, and the timelines are included in that announcement there in 2027. There's a few projects in Australia that are progressing through, let's say, mid-development and some at the later development stages shortly this year. There are also a few in the U.S. that are in mid-development stages. There's one to two in Europe as well that we're progressing. Primarily, I'd say a lot of these projects are going to be 4 and in some cases, some of them are 8-hour durations, which is getting a little more common in Australia, for example. I think the U.S. and Europe are closer to more the average of the 4 hours. They're all set in their development. As we look at funding and moving them through, we're looking at having a lot of them come online in 2027.
And we can move next to Noel Parks with Tuohy Brothers.
Congratulations on the deal. I totally understand that you want to be judicious in what you disclose at this point. But I was wondering if you could just talk in the broadest terms about maybe what isn't implied in the exclusivity of the arrangement with the new preferred financing. And I mean, you mentioned, for example, actually, sorry, that's a separate topic. But I was just curious about that.
I'd say we have an agreement that's been executed. It also includes exclusivity at this stage, hence, the reason we were comfortable and also the partner is comfortable making the announcement that we did. Subject to the customary types of procedural and closing conditions at this point, there’s really not much more to add. The exclusivity is just that around this specific Asset Vault and the preferred equity toward funding these projects.
Great. Is that kind of exactly what I was wondering about whether it implied a similar relationship to other projects or parent company operations? And I was pretty excited to hear that the transaction was accomplished with an infrastructure fund. I feel like one question I've certainly been asking over the quarters is what were the nature of the types of parties you've been talking to for additional funding. And I have been sort of wondering how well or slowly those discussions have been going on. So I just wonder if you could again, talk just very generally about what was involved in sort of landing the plane getting to this deal, and just a rough idea of how long you've been in talks or in the works with this particular party. I'm thinking of that as kind of a bit of a to give a bit of a flavor for what subsequent types of deals might how they might transpire.
Well, look, I think I'll point to some things publicly we announced. Late last year, we made an announcement because we had retained Jefferies to support us a bit in looking at the Own and Operate segment in the energy ecosystem around energy storage and we really started to think in earlier this year about going to market and looking at the types of infrastructure players and partners that would fit what we're doing. We've obviously been in the middle of also delivering two projects. Folks were looking at us as we were looking to close on projects that we had committed like Cross Trails in Texas, which actually we delivered a bit early and was up and running at 100% availability in July. It came up as planned end of May into June. Everything is performing well. I think those funds saw us getting into owning and operating, and I think them seeing progress on how we're executing those projects probably influenced some timing, although it coincided with when we really started targeting certain infrastructure funds that would be good partners with us. That timing coincided with the fact that we just had the Calistoga ribbon-cutting in Northern California last week for the PG&E system. Our ability to execute all projects and progression on financing, including cash that's coming in, all these factors were net positives as people did their type of diligence.
And we can move to our next questioner, who is Michael Renoff with Scoggin Capital.
Rob, congrats on the announcement today. Could you explain how the Asset Vault business relates to the current business and how the $100 million of EBITDA on the Asset Vault portfolio fits in? You mentioned additional cash flow streams accruing to the holding company. Can you just walk through that for us given that the market cap is still well below $300 million? You're talking about $100 million of EBITDA. Can you just talk about additional revenue and margin to you guys?
Sure. Yeah, you were breaking up a little bit, but I think I got the gist of it. By the way, it's a great question. The $100 million of EBITDA we mentioned is specifically to the projects in development that this $300 million is targeted at delivering. That's specific to Asset Vault and our Own and Operate portfolio. So that is a piece of Energy Vault's business. That $100 million in this first set of projects getting funded is in addition to what would continue to be our synergistic Energy Storage Solutions business. So that's number one. I think the other question you asked, as I understood it, is how does that relate back into Energy Vault? How does the Asset Vault business relate back into the parent? Incremental cash and margin streams go back into the parent. That's related to the fact that Asset Vault will contract to Energy Vault. Energy Vault will be building these projects, and while there's a revenue elimination there because it becomes intercompany on the revenue side, there are obviously margins associated with building the project.
So the EPC agreement to go and build the project has margins associated, as do the long-term service agreements. There's also a piece that's just related to the management fee and expenses in around managing that portfolio that Energy Vault is doing. Those additional streams enhance the cash flow and the liquidity streams at the parent level.
Yeah. No, that's super helpful. On Stoney Creek, I saw the announcement on completing there. I know it was expected, but formalized. That part is bigger than the others. Can you just talk about the timeline to get that built and in operation? And what other things do you have going on in Australia?
Sure. Yeah, Stoney Creek, as mentioned, is set to be our largest in the portfolio now going in. In this close, what we have going forward is the next step and real large milestone is what's called the DA or the Design Approval. That essentially is focused on the final land permitting process. There’s already been environmental studies and reports, so all major items clearing out any risks around the sites we've chosen and environmental aspects are essentially done into this DA approval. We expect that sometime by the end of the year or into Q1. While we're doing that, we'll also begin the project financing process. Just to remind you, we have a Long-Term Energy Service Agreement issued through AEMO and the New South Wales government. That should give confidence around financing. Much of all this will come together in Q1 next year, achieving what's called ready-to-build status. We will have also done the EPC contract back into Energy Vault with Asset Vault in these next few months, meaning we'll be ready for construction. We're expecting construction orders to begin in 2026, with operations for the project expected in early 2027.
And this does conclude the Q&A session of today's program. I'd now like to turn the program back over to Robert Piconi for any closing remarks.
Okay. Operator, thank you. I want to thank everyone who joined the call here. We encourage everybody to go to the announcement, but also we included a presentation on the website under the Investors section that includes some of the details and answers to some of the questions here that hopefully will be useful to everyone. In closing, as you get the sense, we're really excited as a company to have access to what is just being announced this morning regarding the preferred equity to get that closed and to start putting that capital to work toward our development portfolio, really focusing on executing now without being involved in capital raise processes. That's a very good position to be in, which I think reduces a lot of the risk that people may have had in their minds, and we're expecting to see a lot of the benefits come forward as we start putting the capital to work. Thank you, everyone, and have a good evening and afternoon, wherever you may be.
Thank you for your participation. This does conclude today's program. You may disconnect at any time.