ESS Tech, Inc. Q2 FY2025 earnings call

• Secured up to $31 million in new capital, strengthening the balance sheet and operational runway.
• Significantly reduced operating cash burn rate, down approximately 80% in June compared to Q1 average.
• Made a material leap forward with a new material substitution in core ESS stack technology, achieving 12 to 17 hours duration and accelerating the cost and performance roadmap by 18 months.
• Closed the first commercial order for the Energy Base, an 8-megawatt hour project with a U.S. strategic partner expected in 2026.
• Cost of revenue decreased 37% year-over-year, total operating expenses fell by 45%, net loss improved 50%, and adjusted EBITDA improved nearly 60% compared to Q2 of last year.
• Welcomed Jigish Trivedi as new Chief Operating Officer and appointed Kate Suhadolnik as interim Chief Financial Officer.
• Domestic manufacturing benefits from recent legislation with over 98% of components sourced domestically, minimizing exposure to trade restrictions.

In the second quarter of 2025, GAAP revenue was $2.4 million, a 294% increase from Q1 2025, driven by deliveries of Energy Warehouses and Energy Centers to a related party. GAAP cost of revenues were $7.5 million, down 15% versus Q1 2025. GAAP operating expenses were $6.4 million, down 35% quarter-over-quarter. Revenue contribution details weren't explicitly broken down by specific product segments beyond the mention of Energy Base and prior products like Energy Warehouses/ Centers.

• Focused on delivering on customer commitments for Energy Base systems.
• Intends to scale with discipline, deploying capital efficiently, controlling costs, and aligning team/processes around high-impact activities.
• Focused on converting commercial momentum into long-term growth, with anticipation of converting proposals to backlog in the back half of 2025 but no specific revenue guidance for the latter half of the year yet.
• Focused on maximizing proceeds from the Standby Equity Purchase Agreement and extending operational runway by rightsizing the business and controlling costs.

• Known and unknown risks including challenges with raising capital, issues with partnerships, market and economy uncertainties, current geopolitical situation, and development/launch of the Energy Base.

Q: So first, I just wanted to start on the Energy Base. You had mentioned submitting, I think, 1.1 gigawatt hours of proposals for the Energy Base. So wondering if you could just share what kind of traction you're seeing with those proposals. Any early wins or signs of conversion? And then when could you expect to receive meaningful feedback on those proposals?

A: Thanks, Justin. So we have already converted one to a win with the sale of the Energy Base that I mentioned in the remarks. We do expect to be converting some additional proposals to backlog in the back half of this year. So look forward to reporting on that on future calls. I will say if you consider that we launched the Energy Base in February and are already seeing orders and conversion rates that we expect this year, including with utility customers, the pace at which we're able to move from proposal to contracting is something that we're really excited about.

Q: And then just to follow up on that, just thinking through as you transition from the Energy Base and the Energy Warehouse to -- or sorry, Energy Warehouse and Energy Center to the Energy Base, how should we be thinking about the revenue trajectory from here into Q3 and Q4? How might that compare to what we saw in the first half of the year?

A: Yes. Justin, this is Kate. At this stage, we're not providing any guidance around revenue for the latter half of the year. As Kelly mentioned, we're hoping to close on some contracts in the second half here that will provide us with some more clarity on our future revenue runway and look forward to giving some updates on that going forward.

Q: You had recently secured the $31 million in capital, including the Standby Equity Purchase Agreement. So just wondering, in total, how much has been secured? I think there was maybe $2 million on the SEPA so far, but just wanted to check in on how much of the total amount has been accessed. And then just how you're thinking about equity issuance into Q3, Q4, how much might be accessed in the coming quarters there.

A: Yes. Justin, I'll take that one as well. So as we mentioned in the remarks, we ended July with cash and cash equivalents of $7.2 million. So I think that's pretty reflective of what we've been able to bring in so far, including the $2 million we've raised under the SEPA up to this point. Our focus for the upcoming months and quarter will be to maximize on the SEPA proceeds as much as we can. But obviously, it's a little difficult to predict exactly how much that will be. It's dependent upon our stock performance and just our ability to really capitalize on that. But it's something we're focused on, extending our runway as much as we can with the mechanisms we have in place at this point.

Q: And then I guess just on that, I mean, your cash burn did decline pretty meaningfully in June of Q2. So I think it's down 80% from Q1. How do we think about the outlook for the cash burn into Q3, Q4? And I guess what different levers do you have to extend that runway?

A: Yes. We hope to continue to realize those reductions we saw in June, just continuing to focus on rightsizing the business, cost reductions, working with our vendors to secure extended payment terms where we can to really extend our runway. But there's a few variables there to consider, but I do think we've seen meaningful improvement in our cash burn towards the end of the quarter.

A: And I think just to add on that, I mean, I think we've fundamentally shifted our philosophical approach, which is to rightsize the business and the business costs, in particular, to where we are. So we are still out working on a broader capital raise. As we conclude that process, we'll certainly take a look at the company where costs are and, again, rightsize. But I think the important thing for your purpose is really that we intend to continue the disciplined approach sort of regardless of what the actual number is that aligns with the direction and the capacity of the business.