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ESS Tech Inc (GWHWS) (Q1 2024) Earnings Call Transcript Highlights: Strategic Advances Amid ...

GuruFocus Research
·4-min read

  • Revenue: $2.7 million in Q1.

  • Cost of Revenue: $11.1 million in Q1.

  • Non-GAAP Operating Expenses: $9 million in Q1.

  • Non-GAAP R&D Expenses: $2.9 million in Q1.

  • Adjusted EBITDA: Negative $15.4 million in Q1.

  • Cash and Short-term Investments: Ended Q1 with $89.6 million.

Release Date: May 07, 2024

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

  • ESS Tech Inc (NYSE:GWHWS) announced a new partnership with Intel A-Power, a leading Nigerian energy company, to deploy eight megawatt hours of storage, with future phases including 50 megawatts of battery storage.

  • The company has made significant progress in automation, with the first fully automated line reducing labor hours, cycle time, and costs, and a second line expected to increase capacity by 40% and reduce CapEx by 50%.

  • ESS Tech Inc (NYSE:GWHWS) has achieved the highest level of IEEE 693 certification for its Energy Center product, enabling deployment in seismically active areas.

  • The company reported a 60% reduction in the cost to build an Energy Warehouse in the previous year, with an additional 40% reduction targeted for this year.

  • ESS Tech Inc (NYSE:GWHWS) remains well-positioned for revenue growth, expecting to triple or quadruple revenue compared to the previous year.

Negative Points

  • The cost of revenue reported was significantly higher than the revenue, with $11.1 million against a revenue of $2.7 million, indicating current inefficiencies in cost management.

  • The company reported a negative adjusted EBITDA of $15.4 million, although it marked an improvement, it still indicates ongoing financial losses.

  • Despite cost reduction efforts, the financial statements currently do not fully reflect these benefits, complicating the assessment of real progress.

  • The reliance on non-GAAP financial measures can obscure the true financial health of the company, as these measures exclude certain costs that are deemed non-indicative of core operating results.

  • The company's cash burn rate and the need for ongoing optimization of working capital and CapEx spend highlight potential liquidity risks if not managed effectively.

Q & A Highlights

Q: Could you talk a little bit about where you're seeing the real manufacturing efficiency on? A: Eric Dresselhuys, CEO of ESS Technology Inc, highlighted that the most significant efficiency improvements are in stack manufacturing due to the fully automated line. He also noted significant cost reductions in the electrolyte mixing process and system-side optimizations, particularly in the factory's flow to eliminate waste.

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Q: How fast can we do online? A: Tony Rabb, CFO of ESS Technology Inc, mentioned that the second automated line incorporates design improvements for higher throughput, enhancing stack manufacturing capacity significantly.

Q: Now that you've got a number of units in the field and a significantly higher volume of data around performance, can you talk a little bit about what sort of debt financing your customers are looking at or comfort level incremental diligence that lenders are doing around the technology that may support incremental sales operations? A: Eric Dresselhuys explained that as the market for energy storage grows, lenders are increasingly interested in the sector. He emphasized the importance of performance data and product guarantees, like their partnership with Munich Re, in building lender confidence and supporting customer financing.

Q: So you got a new contract in a different region in Africa, I believe. Can you talk about some, maybe you know, if you have a region of focus, though, if you have any geographic that you won, that you would prefer to focus maybe in the next 12 to 36 months? A: Eric Dresselhuys stated that while ESS Tech Inc is exploring opportunities globally, the primary focus will remain on core markets such as the U.S., Australia, and Europe. He noted that any region moving towards green baseload power would present opportunities for long-duration storage solutions.

Q: Could you provide an update on your power module automation capacity? A: Eric Dresselhuys shared that the first fully automated line has significantly reduced labor hours, cycle time, and costs. The second line, expected to be operational early next year, will further increase capacity and reduce capital expenditures per megawatt hour by about 50%.

Q: Can you discuss the financial performance and outlook for the coming quarters? A: Tony Rabb reported a Q1 revenue of $2.7 million with a cost of revenue at $11.1 million. He highlighted ongoing cost reduction initiatives and expects non-GAAP gross margin profitability on the energy warehouse by year-end. The company aims to triple or quadruple its revenue compared to the previous year.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

This article first appeared on GuruFocus.