The following discussion and analysis provide information which
Energy Vault'smanagement believes is relevant to an assessment and understanding of Energy Vault'sconsolidated results of operations and financial condition. The discussion should be read together with our unaudited interim condensed consolidated financial statements, the respective notes thereto, and other financial information included elsewhere in this Quarterly Report. The discussion and analysis should also be read together with the audited consolidated financial statements for the year ended December 31, 2021, and the related notes included in Amendment No. 1 to the Current Report on Form 8-K filed by us with the SECon March 31, 2022("Amendment No. 1"). This discussion may contain forward-looking statements based upon Energy Vault'scurrent expectations that involve risks, uncertainties, and assumptions. Energy Vault'sactual 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 Quarterly Report. Energy Vault'shistorical 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 Quarterly Report to "we," "our," "us," "the Company," or Energy Vaultrefer to Energy Vault Holdings, Inc., a Delawarecorporation, and its subsidiaries both prior to the consummation of and following the Merger (as defined below). Our Business Energy Vaultdevelops sustainable, grid-scale energy storage solutions designed to advance the transition to a carbon free, resilient power grid. Energy Vault'smission is to accelerate the decarbonization of the economy through the development of sustainable and economical energy storage technologies. To achieve this, Energy Vaultis developing a proprietary gravity-based energy storage technology. Energy Vaultis also designing proprietary energy management software based on artificial intelligence (AI), advanced optimization algorithms designed to control and optimize entire energy storage systems, and a flexible energy storage integration platform suitable for storage technologies of many durations. Energy Vault'sproduct platform aims to help utilities, independent power producers, and large energy users significantly reduce their levelized cost of energy while maintaining power reliability. Energy Vaultwas founded to address one of the greatest impediments to efficient renewable energy adoption - electricity storage. Renewable energy solutions struggle to replace fossil fuel power due to intermittency of the generation source and the lack of economic and sustainable energy storage solutions. Variable renewable energy sources such as wind and solar only produce energy when the sun is shining, or when the wind is blowing. Cost-effective energy storage is required to increase the amount of electricity that can be delivered to the grid from renewable energy sources in a balanced way that supports grid integration resiliency during low generation and eliminates over-generation and the risk of changes in energy delivery, or ramp rate. Ramp rate is measured as the percentage of change in energy delivered per second. Power plants are designed to operate within a range where the amount of energy delivered to the grid must always equal the amount of energy that is being consumed. Blackouts and other issues can result when the balance is disrupted, when the energy levels fall out of the set range due to low generation periods, or high energy demand periods. The system also may become overloaded because of abrupt changes in renewable energy generation. Energy storage helps to maintain the balance of energy delivery with energy consumed and to mitigate ramp rate to stay within range and avoid blackouts or other grid resiliency problems. Energy Vault'sgravity-based solutions are based on the well-understood physics and mechanical engineering fundamentals of pumped hydroelectric energy storage, but replace water with custom-made composite blocks, or "mobile masses", that can be made from low-cost and locally sourced materials, including local soil, mine tailings, coal combustion residuals (coal ash), and end-of-life decommissioned wind turbine blades. Energy Vault'sgravity-based solutions build upon the core, proven energy storage technology of pumped hydroelectric energy storage and incorporates a simplified building design that is modular, flexible, and not limited by the same geological constraints of pumped hydroelectric energy storage plants. Applying the fundamental principles of gravity and potential energy, Energy Vault'sEVx and Energy Vault Resiliency Center ("EVRC") solutions combine advanced materials science and proprietary machine-vision software to autonomously orchestrate the charge, storage, and discharge of electricity in grid-scale applications. To achieve this, Energy Vaultsynthesized technologies from four established industries: crane/elevators, shipping, motor/generator, and materials science. Combining potential and kinetic energy cycles, Energy Vault'ssystems are automated with advanced computer control and machine vision software to create a gravity energy storage innovation designed to meet the market demand for 2-12 hours of storage duration. Energy Vault'sEVx and EVRC systems are designed to serve economically both higher power/shorter duration applications with ancillary services from 2-4 hours, while scaling to serve medium (4-10 hours) and long duration (ten or more hours) requirements. 24
Our storage, when combined with low-cost wind and photovoltaic solar, is designed to achieve an attractive levelized cost of energy delivered. The EVx and EVRC systems can be deployed as stand-alone storage connected to the grid or alongside any generation source, such as wind or solar farms. The Company is focused on enabling cost-effective renewable power on a global scale at a lower cost than existing, fully-depreciated fossil fuel plants, and with high sustainability standards. The potential energy of the system can be stored with the composite blocks in the raised position for unlimited periods of time and with nearly zero expected loss of the storage capacity over time. Additionally,
Energy Vaultis uniquely positioned to work with traditional fossil fuel companies to help utilities and coal plant operators make a more cost-effective transition to green power by utilizing energy waste materials such as coal ash in the production of the mobile masses that charge our gravity energy storage solutions. The circular economy is a model of production and consumption, which involves sharing, leasing, reusing, repairing, refurbishing, and recycling existing materials and products as long as possible. In this way, the life cycle of products is extended to help minimize waste. Energy Vaulthas a unique approach to the circular economy which involves beneficial reuse of recyclable and energy waste materials into its sustainable production design. In July 2020, Energy Vaultcompleted mechanical construction of a five MW commercial demonstration unit ("CDU") located in Arbedo-Castione, Switzerlandbased on the EV1 Towerdesign. In July 2020, the CDU was connected to the Swiss national electricity grid. Following the successful commercial scale deployment of the CDU, Energy Vaultannounced the new EVx platform in 2021 concurrent with its announcement of an investment in Energy Vaultfrom Saudi Aramco Energy Venturesinvestment. EVx is expected to offer performance enhancements designed to have 80%-85% round trip efficiency, a 35-year life, and a flexible, modular design that is 45% lower in height than the EV1 Towerdesign. Round trip efficiency is the ratio between the amount of energy that is delivered from the charged system and the amount of energy that was used to charge the system, expressed as a percentage. For example, a round trip efficiency of 80% means that a system is able to deliver 80% of the energy that was used to charge the system to the end user. It is important to note that no energy storage system is 100% efficient and that there is always a loss of energy in the storage/delivery process. In November 2021, the Company launched Energy Vault Solutions ("EVS") to provide customers with (i) a technology neutral platform for the integration and delivery of multiple energy storage technologies, in addition to our proprietary gravity storage technology, and (ii) an advanced software energy management system, using artificial intelligence, predictive analytics and software optimization algorithms, to orchestrate the ideal economic dispatching of energy generation and storage assets as well as electrolizers and fuel cells. In this way, EVS is expected to be offered as software as a service, bundled with the sales of energy storage assets, or an energy storage technology license.
February 2022, Energy Vaultannounced a License and Royalty agreement for renewable energy storage with Atlas Renewable LLC("Atlas") and their majority investor China Tianying Inc., an international environmental management and waste remediation corporation engaged in smart urban environmental services, resource recycling and recovery, and zero-carbon clean energy technologies. The agreement supports the deployment of Energy Vault'sproprietary gravity energy storage technology and energy management software platform within mainland Chinaand the Special Administrative Regions ("SAR") of Hong Kongand Macau. In addition, Atlas has agreed to pay $50.0 millionin IP licensing fees, to be paid in 2022, for use and deployment of Energy Vault'sgravity energy storage technology. The Company recognized revenue from this agreement of $42.9 millionduring the three months ended March 31, 2022. In connection with the Company's licensing agreement with Atlas, the Company has committed to make a refundable contribution to Atlas in the amount of $25.0 million. The refundable contribution will be issued to Atlas during the period in which it begins construction on its first gravity energy storage system ("GESS"), and will be refunded to the Company upon Atlas' first GESS reaching substantial completion and meeting certain performance metrics.
Business combinations and public company costs
February 11, 2022, Energy Vault, Inc.("Legacy Energy Vault") completed the previously announced merger with NCCII Merger Corp., with Legacy Energy Vault surviving as a wholly-owned subsidiary of Novus Capital Corporation II ("Novus") (the "Merger"). Immediately following the completion of the Merger, Novus changed its name to Energy Vault Holdings, Inc.On February 14, 2022, the Energy Vault'scommon stock and warrants began trading on the New York Stock Exchangeunder the symbols "NRGV" and "NRGV WS," respectively. 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 25
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 Vaultraised gross proceeds of $235.8 million, including the contribution of $40.8 millionof cash, net of redemptions, held in Novus' trust account from its initial public offering and an aggregate purchase price of $195.0 millionfrom the sale and issuance of shares of common stock in a private placement (" Private Investmentin Public Equity" or "PIPE") at $10.00per share. Energy Vaultand Novus paid $44.8 millionin transaction costs, resulting in total net cash proceeds to Energy Vaultfrom the Merger and PIPE of $191.0 million. See Note 1 and Note 3, in Part I, Item 1. "Financial Statements" for additional information about the Merger. As a result of the Merger, Energy Vaulthas become the successor to a publicly reporting company, which requires the hiring of additional personnel and the implementation of procedures and processes to comply with public company regulatory requirements, including the Exchange Act, and customary practices. We expect to incur additional annual expenses as a public company for, among other things, directors' and officers' liability insurance, director fees, and additional internal and external accounting, legal, and administrative resources, including increased audit and legal fees.
Main factors and trends affecting our business
We believe that our performance and future success depends on several factors that present significant opportunities for us, but also pose risks and challenges, including those discussed below and in Part II, Item 1A. “Risk factors.”
Product development and deployment plan
Our cost projections are heavily dependent upon raw materials (such as steel), equipment (such as motors, inverters, and power electronic devices) and technical and construction service providers (such as engineering, procurement, construction firms). The global supply chain, on which
Energy Vaultrelies, has been significantly impacted by (i) the COVID-19 pandemic, (ii) economic uncertainties, including the war in Ukraine, 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'sperformance from both a deployment and cost perspective. Currently, the only operating energy storage system utilizing Energy Vault'stechnologies is the CDU which the Company continues to use for testing and software improvement. Building on its experience with the CDU, Energy Vaultdesigned its EVx system. The EVx platform is designed to be a scalable, modular product line starting from 40MWh to multi-GWh to address grid resiliency needs in shorter durations while supporting longer duration and power needs in the event of power outages or powering industrial processes over long periods. Using the EVx design as a building block, the EVRC can be custom designed and built out in 10MWh increments that can scale to multi-GW-hour storage capacity to meet the energy storage needs for grid-scale deployment. There are no commercial installations of Energy Vault'sEVx system or EVRC platform at this time.
Energy storage industry
Our future revenue growth will be directly tied to the continued adoption of renewable energy storage systems. As the sector is relatively nascent, we expect the markets for renewable energy storage to increase. Furthermore, our systems rely on an alternative technology to the dominant and accepted storage technologies such as lithium-ion, flow batteries, and thermal storage. Our business depends on the acceptance of our products, including the EVx systems, 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 that are based on technologies other than our gravity-based energy storage technology.
The spread of the COVID-19 has caused an economic downturn on a global scale, as well as significant volatility in the financial markets. Government reactions to the public health crisis with mitigation measures have created significant uncertainties in the
U.S.and global economies. The COVID-19 pandemic had caused delays in the construction of the CDU in Switzerlanddue to government-mandated temporary stay-at-home and quarantine orders; however, it did not significantly impact Energy Vault'sother core functions such as research and development and capital raising. Due to the pandemic related uncertainties in global markets and specific restrictions announced by The Canton Government of Ticino26
in March and
April 2020, Energy Vaultimplemented actions to reduce its operating expense run rate through temporary salary reductions and other discretionary expense reductions. CDU component deliveries into the testing site in Arbedo Castione were also delayed due to the Swiss border being closed and due to the worksite being shut in compliance with the March 2020lockdown. Furthermore, the Canton Health and Safety Department of Ticino, Switzerland ordered the hiring of a Health and Safety Manager in order to resume onsite operations of the CDU. The extent to which the COVID-19 pandemic impacts Energy Vault'sbusiness, operations and financial results will depend on numerous evolving factors that management may not be able to accurately predict. The ultimate outcome of these matters is uncertain and, accordingly, the impact on our financial condition or results of operations is also uncertain.
Components of operating results
January 1, 2022, the Energy Vaulthad not recognized any revenue. During the three months ended March 31, 2022, the Company recognized revenue of $42.9 millionfrom the licensing of its intellectual property to one customer. In the future, we expect to earn revenue from the sale of energy storage solutions, under four complementary sales programs based on customer preferences. Under the first program, Storage Asset Owners, the customer owns both the energy storage system and the service, that the system provides (i.e., the energy storage and dispatch of electricity). Energy Vaultanticipates that this program will constitute the substantial majority of future sales and that utility companies, independent power producers, and industrial customers that consume large amounts of power or are making a transition to 24/7 renewable power may be interested in being Storage Asset Owners. Under the second program, Storage Service Customers, customers such as community choice aggregators, independent power producers, and utility companies would sign long-term power purchase agreements and/or tolling agreements to purchase power on a fixed dollar per kilowatt on a monthly or hourly basis, while Energy Vaultand potentially other equity co-investors would retain an ownership interest in the system. An investment tax credit of up to 26% could be applied against the costs incurred by the Company for U.S.based project installations if Energy Vaultdecides to combine other renewable energy components into a combined storage project. See the section titled "Risks Related to Government Regulations" in Item 1A. Risk Factors for further details.
Under the third program, the customer would enter into a software as a service (“SaaS”) contract with
Under the fourth program, the Company would enter into intellectual property licensing and royalty agreements associated with our energy storage technology.
We intend to finalize our revenue recognition policies for these programs once we have finalized definitive agreements with our future customers.
Sales and marketing expenses
Sales and marketing expenses consist primarily of expenses relating to professional service costs, trade shows, marketing and sales related promotional materials, public relations expenses, website operating and maintenance costs, and stock-based compensation expenses for marketing, sales personnel, and related support teams. We expect that our sales and marketing expenses will increase over time as we continue to hire additional personnel to support the overall growth in our business.
Research and development costs
Research and development 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 the product development, testing and evaluation costs, construction costs including labor and transportation of material, overhead related costs and other direct expenses consisting of stock-based compensation and consulting expenses relating to study of product safety, reliability and development. We expect our research and development costs to increase for the foreseeable future as we continue to invest in these activities to achieve our product design, engineering, and development roadmap.
General and administrative expenses
General and administrative expenses consist of information technology expenses, legal and professional fees, travel cost, 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 depreciation, investor relations costs, insurance 27
costs, rent, office expenses, and maintenance costs. We expect our general and administrative expenses to increase in the foreseeable future as we hire personnel to meet the growth of our business, and as a result of operating as a public company, including compliance with the rules and regulations of the
SEC, legal, audit, additional insurance requirements, investor relations fees, SOX 404 implementation fees, and other administrative and professional services.
Other income (expenses)
Change in fair value of derivative
The gain (loss) on revaluation of embedded derivatives consists of periodic fair value adjustments associated with the Series B Convertible Preferred Share Right Derivative Liability.
Interest expense primarily includes interest related to finance leases.
Change in fair value of warrant liability
The Company's warrants are subject to fair value remeasurement at each balance sheet date. The Company expects to incur incremental income (expense) in the condensed consolidated statements of operations for the fair value change for the outstanding warrant liabilities at the end of each reporting period or through the exercise of such warrants.
Transaction costs include legal, accounting, banking and other costs directly related to the completion of the Merger and the PIPE.
Other income (expenses), net
Other income (expenses), net, mainly includes interest income related to our investments in money market funds as well as gains and losses related to foreign exchange transactions.
Consolidated comparison of the three months ended
The following table sets forth our results of operations for the periods indicated (amounts in thousands, except percentages):
Three months ended March 31, 2022 2021 $ Change % Change Revenue
$ 42,884$ - $ 42,884- % Operating Expenses: Sales and marketing 2,580 85 $ 2,4952,935.3 % Research and development 9,661 1,021 8,640 846.2 % General and administrative 9,806 1,855 7,951 428.6 % Income (loss from operations) 20,837 (2,961) 23,798 (803.7) % Other Income (Expense): Change in fair value of derivative - (24,102) 24,102 (100.0) % Interest expense (1) (4) 3 (75.0) % Change in fair value of warrant liability (20,237) - (20,237) - % Transaction costs (20,586) - (20,586) - % Other income (expenses), net 36 (1,928) 1,964 (101.9) % Net loss before income taxes $ (19,951) $ (28,995) $ 9,044(31.2) % Revenue Revenue for the three months ended March 31, 2022was $42.9 million. compared to no revenue for the three months ended March 31, 2021. The revenue for the three months ended March 31, 2022resulted from a licensing agreement with 28
Atlas Renewable. Revenue was recognized upon the transfer of the intellectual property to the customer. Currently, the Company does not expect to enter into any other licensing agreements.
Sales and Marketing
Sales and marketing expenses increased by
$2.5 millionto $2.6 millionfor the three months ended March 31, 2022, from $0.1 millionfor the three months ended March 31, 2021. The increase resulted primarily from an increase in marketing and public relations costs of $1.2 millionand an increase in personnel-related expenses of $0.9 million. The increase in personnel costs was due to expanded headcount, particularly at the senior levels, and increased stock-based compensation expense. Stock-based compensation expense was $0.5 millionfor the three months ended March 31, 2022, compared to $6 thousandfor the three months ended March 31, 2021. Research and Development Research and development expenses increased by $8.6 millionto $9.7 millionfor the three months ended March 31, 2022, from $1.0 millionfor the three months ended March 31, 2021. The increase resulted primarily from a $5.1 millionincrease in personnel-related expenses, a $1.2 millionincrease in depreciation expense, a $1.0 millionincrease in engineering and development costs, and a $0.8 millionincrease in software expenses. The increase in personnel costs was due to expanded headcount, particularly at the senior levels, and increased stock-based compensation expense. Stock-based compensation expense was $3.8 millionfor the three months ended March 31, 2022, compared to no expense for the three months ended March 31, 2021.
General and administrative
General and administrative expenses increased by
$8.0 millionto $9.8 millionfor the three months ended March 31, 2022from $1.9 millionfor the three months ended March 31, 2021. The increase resulted primarily from a $5.3 millionincrease in personnel-related expenses, a $1.3 millionincrease in legal and professional fees, a $0.4 millionincrease in insurance expenses, and a $0.3 millionincrease in consultant expenses. The increase in personnel costs was due to expanded headcount and an increase in stock-based compensation expense. Stock-based compensation expense was $4.9 millionfor the three months ended March 31, 2022, compared to $1 thousandfor the three months ended March 31, 2021. The increase in legal and professional fees was attributable to external costs such as accounting, finance, tax, compliance, auditing, legal, and other professional fees associated with becoming a public company.
Other income (expenses)
Change in fair value of derivative
Loss on revaluation of fair value adjustments decreased by
$24.1 millionto $0for the three months ended March 31, 2022compared to a $24.1 millionloss for the three months ended March 31, 2021. The derivative liability associated with the Series B Convertible Preferred Stock expired without exercise in June 2021, therefore the derivative was not outstanding during the three months ended March 31, 2022.
Change in fair value of warrant liability
The Company recognized a change in the fair value of its warrant liability of
$20.2 millionfor the three months ended March 31, 2022due to the increase in the fair value of our outstanding warrants since the closing of the Merger. The Company did not have any outstanding warrants during the three month period ending March 31, 2021.
The Company recognized transaction costs of
Other income (expenses), net
Other income (expense), net improved by
$2.0 millionto other income, net of $36 thousandfor the three months ended March 31, 2022compared to other expense, net of $1.9 millionfor the three months ended March 31, 2021. The change resulted primarily from fluctuations in foreign currency transaction gain and losses.
Cash and capital resources
Since our inception, we have financed our operations primarily through the issuance and sale of shares and the proceeds of the merger and the PIPE.
Fusion and PIPE
Short term liquidity
March 31, 2022, we had $303.5 millionof cash and cash equivalents, representing an increase of $198.4 millionfrom cash and cash equivalents of $105.1 millionat December 31, 2021. Management believes that its cash and cash equivalents on hand as of March 31, 2022will be sufficient to fund our operating activities for at least the next twelve months without regard to any cash proceeds we may receive upon the exercise for cash of our warrants. The exercise price for any of our warrants is $11.50per share, subject to certain specified adjustments. To the extent that the price of our common stock exceeds $11.50per share, it is more likely that our warrant holders will exercise their warrants. To the extent that the price of our common stock declines, including a decline below $11.50per share, it is less likely that our warrant holders will exercise their warrants. In addition, should Energy Vaultenter 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 Vaulthas incurred negative operating cash flows and operating losses in the past. We may continue to incur operating losses for the next several years due to its on-going research and development activities. The Company 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.
Our principal commitments as of
March 31, 2022consisted primarily of obligations under operating leases, finance leases, deferred pensions, and a refundable contribution to Atlas. The Company has committed to make a $25.0 millionrefundable contribution that will be issued to Atlas during the period in which it begins construction on its first GESS, and will be refunded to the Company upon Atlas' first GESS reaching substantial completion and meeting certain performance metrics. Except for the commitment to provide the $25.0 millionrefundable contribution to Atlas, our commitments have not materially changed from those disclosed in our financial statements and accompanying notes for the year ended December 31, 2021, which are included in Amendment No. 1.
The following table summarizes cash flows from operating, investing and financing activities for the periods indicated (amounts in thousands):
2022 2021 Net cash used operating activities
$ (16,811) $ (6,004)Net cash provided by (used in) investing activities (83) (3) Net cash provided by financing activities 215,304 14,674 Effects of exchange rate changes on cash (17) 2,061 Net increase (decrease) in cash $ 198,393 $ 10,728Operating Activities During the three months ended March 31, 2022and 2021, cash used in operating activities totaled $16.8 millionand $6.0 million, respectively. During the three months ended March 31, 2022, cash used in operating activities was negatively impacted by a net loss of $20.1 millionand an increase in operating assets of $32.6 million. The change in operating assets was primarily due to a $30 millionincrease in accounts receivable. Operating cash flows were positively impacted by non-cash charges of $30.9 millionand a $5.0 millionincrease in operating liabilities. The non-cash charges primarily consisted of a $20.2 millionchange in fair value of the warrant liability, $9.2 millionin stock-based compensation expense, and $1.2 millionin depreciation and amortization expense. The increase in operating liabilities primarily consisted of a $7.1 millionincrease in deferred revenue and other liabilities, partially offset by a $2.0 milliondecrease in accounts payable and accrued expenses. 30
During the three months ended
March 31, 2021, cash used in operating activities of $6.0 millionwas negatively impacted by a net loss of $29.0 million, a $0.8 milliondecrease in operating liabilities, and a $0.6 millionincrease in operating assets. Operating cash flows were positively impacted by non-cash charges of $24.4 million. Non-cash charges primarily consisted of a $24.1 millionchange in the fair value of the derivative liability and $0.2 millionin non-cash lease expenses. Investing Activities During the three months ended March 31, 2022and 2021, cash used in investing activities totaled $0.1 millionand $3 thousand, respectively. Cash used in investing activities for both periods consisted of purchases of property and equipment. Financing Activities During the three months ended March 31, 2022and 2021, cash provided by financing activities totaled $215.3 millionand $14.7 million, respectively. For the three months ended March 31, 2022, cash provided by financing activities was primarily attributable to $235.9 millionin proceeds from the reverse recapitalization and PIPE financing, net, partially offset by $20.7 millionin transaction cost payments related to the reverse recapitalization.
In the three months ended
Non-GAAP Financial Measure
We use adjusted EBITDA to complement our condensed consolidated statements of operations. Management believes that this non-GAAP financial measure complements our GAAP net loss and such measure is useful to investors. The presentation of this non-GAAP measure 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 non-GAAP adjusted EBITDA to GAAP net loss, the most directly comparable GAAP measure (amounts in thousands): Three Months Ended March 31, 2022 2021 Net loss (GAAP)
$ (20,079) $ (28,995)Non-GAAP Adjustments: Interest income, net (47) (8) Income tax expense 128 - Depreciation and amortization 1,218 17 Stock-based compensation expense 9,202
Change in fair value of warrant liability 20,237
Transaction costs 20,586
Foreign exchange (gains) and losses (11)
Change in fair value of derivative liability - 24,102 Adjusted EBITDA (non-GAAP)
$ 31,234 $ (2,937)We present adjusted EBITDA, which is net income (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 income (loss), or any other performance 31
measures derived in accordance with GAAP or as an alternative to cash flow from operating activities as a measure of our liquidity.
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, our future capital expenditure needs or our contractual commitments;
•it does not reflect changes or cash requirements for our working capital requirements;
•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 condensed consolidated statements of cash flows;
•it does not reflect the impact of income or expense resulting from matters that we believe are not indicative of our ongoing operations;
•it does not reflect the limitations or costs associated with the transfer of profits from our subsidiaries to us; and
•Other companies in our industry may calculate this measure differently than we do, which limits 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.
Off-balance sheet commitments and arrangements
The Company has not entered into any off-balance sheet arrangements, as defined in the rules and regulations of the
Significant Accounting Policies and Use of Estimates
Our consolidated financial statements are prepared in conformity with Generally Accepted Accounting Principles in
the United States("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. Other than the policies described in Note 2 - Summary of Significant Accounting Policies in the Company's unaudited interim condensed consolidated financial statements included elsewhere in this Quarterly Report, there have been no material changes to our critical accounting policies and estimates as compared to those disclosed in the notes to our audited consolidated financial statements as of and for the years ended December 31, 2021and 2020 included in Amendment No. 1.
January 1, 2022, Energy Vault'srevenue recognition policy is a critical policy due to the adoption of the guidance from ASC 606, Revenue from Contracts with Customers. We determine the amount of revenue to be recognized through the application of the following steps:
(1) Identification of the contract(s) with a customer.
(2) Identification of performance obligations in the contract.
(3)Determination of the transaction price.
(4) Allocation of the transaction price to the performance obligations of the contract.
(5) Recognition of revenue when a performance obligation is satisfied.
The Company identifies performance obligations in our contracts with customers, which to date have included licenses and support services. The transaction price is determined based on the amount which the Company expects to be entitled to in exchange for providing the promised goods and services to the customer. The transaction price in the contract is allocated to each distinct performance obligation on a relative standalone selling price basis. Revenue is recognized when performance obligations are satisfied. When a part or all of a transaction price is considered to be variable, an estimate of the constrained transaction price is recognized. Changes in variable consideration may result in an increase or a decrease to revenue. Stock-Based Compensation
Accounting for stock-based compensation requires us to make a number of judgments, estimates and assumptions. If any of the estimates turn out to be inaccurate,
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.
Equity awards that vest solely based on a condition of service are valued based on the estimated fair values of the awards at the grant date using the Black-Scholes option pricing model, which has been influenced by the following assumptions:
•Expected Term - The expected term represents the period that
Energy Vault'sawards granted are expected to be outstanding and is determined based upon the simplified method, as we do not have sufficient historical information to develop reasonable expectations about future exercise patterns and post-vesting employment termination behavior. •Expected Volatility - Since we were privately held and did not have any trading history for our common stock prior to the Merger, the expected volatility was estimated based on the average volatility for comparable publicly traded companies over a period equal to the expected term of the stock award grants.
• Risk-free interest rate – We use the
• Expected dividend –
The grant date fair value of our common stock is determined using valuation methodologies which utilize certain assumptions, including probability weighting of events, volatility, time to liquidation, a risk-free interest rate, and an assumption for a discount for lack of marketability (Level 3 inputs). The fair value of the Company's common stock was estimated because the common stock of Legacy Energy Vault had not yet been publicly traded prior to the Merger.
Defined benefit pension obligation
Energy Vault'swholly owned subsidiary in Switzerlandhas a defined benefit pension obligation covering retirement and other long-term benefits for the local employees. The plan is a statutory requirement in accordance with local regulations which is accounted for and disclosed in accordance with the provisions of GAAP relating to the accounting for pension plans. These GAAP provisions require the use of assumptions, such as the discount rate for liabilities and long-term rate of return on assets, in determining the projected benefit obligation, fair value of plan assets and an underfunded net benefit obligation. Warrant Liability Energy Vault'sfinancial statements reflect the impact of the publicly-traded warrants ("Public Warrants") and private warrants ("Private Warrants") that were assumed upon the closing of the Merger. 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 balance sheet. The warrants are subject to remeasurement at each balance sheet date and any change in fair value is recognized in the Company's statement of operations.
Accounting Election for Emerging Growth Companies
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 2022 and expects 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. 33
Recently Adopted and Issued Accounting Pronouncements
Recently issued and adopted/unadopted accounting pronouncements are described in Note 2 of the unaudited condensed consolidated financial statements included elsewhere in this Quarterly Report.
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