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ENERGY VAULT HOLDINGS, INC.

(NRGV)
  Report
End-of-day quote Nyse  -  2022-10-03
6.300 USD   -3.08%
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ENERGY VAULT HOLDINGS, INC. Management's Discussion and Analysis of Financial Condition and Results of Operations (form 10-Q)

08/08/2022 | 07:27am EDT
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. 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 SEC on March 31, 2022 ("Amendment No. 1"). 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 Quarterly 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 Quarterly 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 sustainable, grid-scale energy storage solutions designed
to advance the transition to a carbon free, resilient power grid. Energy Vault's
mission is to accelerate the decarbonization of the economy through the
development of sustainable and economical energy storage technologies. To
achieve this, Energy Vault is developing a proprietary gravity-based energy
storage technology. Energy Vault is 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's product platform aims to help utilities, independent
power producers, and large energy users significantly reduce their levelized
cost of energy while maintaining power reliability.

Energy Vault was 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's gravity-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's gravity-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's EVx 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 Vault synthesized technologies
from four established industries: crane/elevators, shipping, motor/generator,
and materials science. Combining potential and kinetic energy cycles, Energy
Vault's systems 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's EVx 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.

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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. Energy Vault 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 Vault is 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 Vault has 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 Vault completed mechanical construction of a five MW
commercial demonstration unit ("CDU") located in Arbedo-Castione, Switzerland
based on the EV1 Tower design. In July 2020, the CDU was connected to the Swiss
national electricity grid. Following the successful commercial scale deployment
of the CDU, Energy Vault announced the new EVx platform in 2021 concurrent with
its announcement of an investment in Energy Vault from Saudi Aramco Energy
Ventures investment. 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 Tower design. 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.

Recent Developments


In February 2022, Energy Vault announced a License and Royalty agreement for
renewable energy storage with Atlas Renewable LLC ("Atlas") and its 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's proprietary gravity energy
storage technology and energy management software platform within mainland China
and the Special Administrative Regions ("SAR") of Hong Kong and Macau. Atlas
agreed to pay $50.0 million in IP licensing fees, for use and deployment of
Energy Vault's gravity energy storage technology. The Company has collected
$45.0 million of the $50.0 million and expects to collect the remaining
$5.0 million before the end of 2022. The Company recognized revenue related to
this agreement of $1.0 million and $43.9 million during the three and six months
ended June 30, 2022, respectively.

In connection with the Company's licensing agreement with Atlas, the Company
agreed to make a refundable contribution to Atlas in the amount up to
$25.0 million during the period in which Atlas constructs its first gravity
energy storage system ("GESS"). The Company contributed $22.5 million during the
second quarter of 2022 and the amount will be refunded to the Company upon
Atlas' first GESS reaching substantial completion and meeting certain
performance metrics.

In April 2022, the Company purchased a $2.0 million convertible promissory note
from DG Fuels, LLC ("DG Fuels"). The maturity date of the note is the earlier of
(i) 30 days after a demand for payment is made by the Company at any time after
the two year anniversary of the date of issuance of the note; (ii) the four year
anniversary of the date of issuance of the note; (iii) five days following a
Financial Close ("Financial Close" means a project finance style closing by DG
Fuels or its subsidiary of debt and equity capital to finance the construction
of that certain biofuel facility currently under development by DG Fuels), or
(iv) upon an event of default determined at the discretion of the Company. The
note has an annual interest rate of 10.0%. The Company intends to hold and
convert the DG Fuels Note into the equity securities issued by DG Fuels in their
next equity financing round that is greater than $20.0 million at a 20% discount
to the issuance price. The principal

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balance and unpaid accrued interest on the DG Fuels Note will, at the option of
the Company, convert into equity securities upon the closing of such next equity
financing round.

On July 1, 2022, Energy Vault delivered a notice of redemption for all of its
outstanding public warrants to purchase shares of Energy Vault common stock. On
August 2, 2022, Energy Vault announced 8.6 million public warrants were
exercised on a cashless basis in exchange for 2.2 million shares of common
stock. The remaining 0.3 million unexercised and outstanding Public Warrants as
of 5:00 p.m., August 1, 2022 were redeemed at a price of $0.10 per public
warrant and, as a result, no public warrants remained outstanding thereafter.
Following the redemption, the Company's public warrants were delisted from the
New York Stock Exchange.

Business Combination and Public Company Costs


On February 11, 2022, Energy Vault, Inc. ("Legacy Energy Vault") completed the
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, Energy Vault's common
stock and warrants began trading on the New York Stock Exchange under 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
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 $235.8 million, including the contribution
of $40.8 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 $191.0 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 Vault has become the successor to a publicly
reporting company, which has required 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
have begun to incur and expect to continue 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.

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 II, Item 1A. "Risk Factors."

Product Development and Deployment Plan

Energy Vault intends to leverage its technology, competitive strengths, and remediation opportunity to establish its EVx and EVRC systems as viable solutions for short, medium and long-term renewable energy storage solutions.


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 Vault relies, 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's performance
from both a deployment and cost perspective.

Currently, the only operating energy storage system utilizing Energy Vault's
technologies is the CDU which Energy Vault continues to use for testing and
software improvement. Building on its experience with the CDU, Energy Vault
designed its EVx system. The EVx platform is designed to be a scalable, modular
product line starting from 40MWh to multi-GWh to

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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's EVx 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.

COVID-19


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 extent to which the COVID-19
pandemic impacts Energy Vault's business, 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 Results of Operations

Revenue


Prior to January 1, 2022, Energy Vault had not recognized any revenue. During
the three and six months ended June 30, 2022, Energy Vault recognized revenue of
$1.0 million and $43.9 million, respectively, related to an intellectual
property licensing agreement with Atlas.

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 Vault anticipates 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
Vault and 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 Vault decides 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") agreement with Energy Vault, and would be granted access to Energy Vault's Energy Management System that helps the economic dispatching of its energy storage and generation assets.

Under the fourth program, the Company would enter into intellectual property license and royalty agreements associated with our energy storage technology.

We intend to finalize our revenue recognition policies relating to these programs once we finalize definitive agreements with our future customers.

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Operating expenses

Cost of revenue

Cost of revenue consists primarily of personnel-related costs and consulting expenses associated with providing construction support services.

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 expenses


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 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.

Inventory write-down


Energy Vault began building a prototype of the EV1 in March 2020, resulting in
the CDU, an EV1 Tower, 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. The inventory write-down
reported for the three and six months ended June 30, 2021 was attributable to
losses incurred due to a damaged component related to the CDU. Additionally,
other components, which were not previously installed and were included in
prepaid expenses and other current assets, were adjusted downward to their
estimated net realizable value.

Other income (expense)

Change in fair value of derivative

The gain (loss) on revaluation of embedded derivatives consists or periodic fair value adjustments associated with the Series B Convertible Preferred Stock issuance right derivative liability.

Interest expense

Interest expense consists primarily of interest related to finance leases.

Change in fair value of warrants 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. With the completion of the redemption of
Energy Vault's public warrants on August 1, 2022, Energy Vault currently expects
to incur incremental income (expense) in its consolidated statements of
operations for the fair value change for outstanding warrant liabilities at the
end of each reporting period in respect of outstanding private warrants.

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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Other income (expense), net

Other income (expense), net consists primarily of interest income relating to our investment in money market funds as well as gains and losses related to foreign exchange transactions.

Results of operations

Consolidated Comparison of Three and Six Months Ended June 30, 2022 to June 30, 2021

The following table sets forth our results of operations for the periods indicated (amounts in thousands, except percentages):


                                                  Three months ended June 30,                       Six Months Ended June 30,
                                           2022               2021             $ Change                   2022               2021             $ Change
Revenue                                $      977          $      -          $     977                $  43,861          $       -          $  43,861
Operating Expenses:
Cost of revenue                               571                 -                571                      571                  -                571
Sales and marketing                         1,949               189              1,760                    4,529                274              4,255
Research and development                    9,763             2,202              7,561                   19,424              3,223             16,201
General and administrative                 10,668             3,006              7,662                   20,474              4,861             15,613
Inventory write-down                            -             2,744             (2,744)                       -              2,744             (2,744)
Loss from operations                      (21,974)           (8,141)           (13,833)                  (1,137)           (11,102)             9,965
Other Income (Expense):
Change in fair value of derivative              -            24,102            (24,102)                       -                  -                  -
Interest expense                                -                (3)                 3                       (1)                (7)                 6
Change in fair value of warrant
liability                                  15,592                 -             15,592                   (4,645)                 -             (4,645)
Transaction costs                               -                 -                  -                  (20,586)                 -            (20,586)
Other income (expenses), net                  249               611               (362)                     285             (1,317)             1,602

Net income (loss) before income taxes $ (6,133) $ 16,569

 $ (22,702)               $ (26,084)         $ (12,426)         $ (13,658)


Revenue

Revenue for the three months ended June 30, 2022 was $1.0 million compared to no
revenue for the three months ended June 30, 2021. Revenue for the three months
ended June 30, 2022 was entirely from one customer, which related to Energy
Vault's intellectual property licensing agreement with Atlas. Revenue for the
three months ended June 30, 2022 of $1.0 million consisted of $0.4 million in
revenue from the amortization of deferred revenue related to Energy Vault's
obligation to provide Atlas construction support services and $0.6 million in
cost reimbursements related to providing construction support services to Atlas.

Revenue for the six months ended June 30, 2022 was $43.9 million compared to no
revenue for the six months ended June 30, 2021. Revenue for the six months ended
June 30, 2022 was entirely from one customer, which related to Energy Vault's
intellectual property licensing agreement with Atlas. Revenue for the six months
ended June 30, 2022 of $43.9 million consisted of $42.9 million in revenue from
the transfer of intellectual property to Atlas, $0.4 million in revenue from the
amortization of deferred revenue related to the Company's obligation to provide
Atlas construction support services, and $0.6 million in cost reimbursements
related to providing construction support services to Atlas.

Currently, Energy Vault does not expect to enter into many other intellectual property licensing agreements.

Operating expenses

Cost of revenue


Cost of revenue was $0.6 million for both the three and six months ended
June 30, 2022 and consisted of personnel costs and consulting expenses related
to providing construction support services to Atlas. The Company did not incur
any cost of revenue in 2021.

Sales and Marketing

Sales and marketing expenses increased by $1.7 million to $1.9 million for the
three months ended June 30, 2022, compared to $0.2 million for the three months
ended June 30, 2021. The increase resulted primarily from an increase in
personnel-related expenses of $1.0 million and an increase in marketing and
public relation costs of $0.5 million. The increase in personnel costs was due
to expanded headcount, particularly at the senior levels, and increased
stock-based

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compensation expense. Stock-based compensation expense was $0.4 million for the
three months ended June 30, 2022, compared to no expense for the three months
ended June 30, 2021.

Sales and marketing expenses increased by $4.2 million to $4.5 million for the
six months ended June 30, 2022, compared to $0.3 million for the six months
ended June 30, 2021. The increase resulted primarily from an increase in
personnel-related expenses of $1.9 million and an increase in marketing and
public relations costs of $1.7 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
$0.9 million for the six months ended June 30, 2022, compared to $0.1 million
for the six months ended June 30, 2021.

Research and Development


Research and development expenses increased by $7.6 million to $9.8 million for
the three months ended June 30, 2022, compared to $2.2 million for the three
months ended June 30, 2021. The increase resulted primarily from a $4.2 million
increase in personnel-related expenses, a $1.1 million increase in depreciation
expense, a $1.1 million increase in engineering and development costs, and a
$0.8 million increase in software costs. 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
$3.0 million for the three months ended June 30, 2022, compared to $0.2 million
for the three months ended June 30, 2021.

Research and development expenses increased by $16.2 million to $19.4 million
for the six months ended June 30, 2022, compared to $3.2 million for the six
months ended June 30, 2021. The increase resulted primarily from a $9.3 million
increase in personnel-related expenses, a $2.3 million increase in depreciation
expense, a $2.3 million increase in engineering and development costs, and a
$1.5 million increase 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 $6.8
million for the six months ended June 30, 2022, compared to $0.2 million for the
six months ended June 30, 2021.

General and Administrative


General and administrative expenses increased by $7.7 million to $10.7 million
for the three months ended June 30, 2022 compared to $3.0 million for the three
months ended June 30, 2021. The increase resulted primarily from a $4.4 million
increase in personnel-related expenses, a $1.0 million increase in legal and
professional fees, a $0.6 million increase in consultant expenses, a $0.5
million increase in travel expenses, a $0.4 million increase in insurance costs,
and a $0.4 million increase in employee recruiting costs. The increase in
personnel costs was due to expanded headcount and an increase in stock-based
compensation expense. Stock-based compensation expense was $3.2 million for the
three months ended June 30, 2022, compared to $44 thousand for the three months
ended June 30, 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.

General and administrative expenses increased by $15.6 million to $20.5 million
for the six months ended June 30, 2022, compared to $4.9 million for the six
months ended June 30, 2021. The increase resulted primarily from a $9.7 million
increase in personnel-related expenses, a $2.2 million increase in legal and
professional fees, a $0.9 million increase in consultant expenses, a $0.8
million increase in insurance costs, a $0.8 million in travel expenses, a $0.5
million increase in software expenses, and a $0.4 million increase in employee
recruiting costs. The increase in personnel costs was due to expanded headcount
and an increase in stock-based compensation expense. Stock-based compensation
expense was $8.2 million for the six months ended June 30, 2022, compared to
$45 thousand for the six months ended June 30, 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.

Inventory write-down


There was no inventory write-down for the three and six months ended June 30,
2022, compared to a write-down of $2.7 million for both the three and six months
ended June 30, 2021. The inventory write-down in 2021 related to components of
the CDU that were damaged. This write-off and other related costs were partially
offset by an insurance claim received by the Company. Additionally, other
components, which were not previously installed, were reclassified into prepaid
expenses and other current asset at their estimated net realizable value during
the three and six months ended June 30, 2021.

Other Income (Expense)

Change in fair value of derivative


There was no gain or loss on the change in fair value of derivatives for the
three and six months ended June 30, 2022, compared to gain of $24.1 million for
the three months ended June 30, 2021 and no gain or loss for the six months
ended

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June 30, 2021. The gain on the change in fair value of derivative liability for
the three months ended June 30, 2021 was associated with Legacy Energy Vault's
Series B Convertible Preferred Stock, which expired without exercise in June
2021 and thus the liability was derecognized at that time.

Change in fair value of warrant liability


The Company recognized a gain of $15.6 million related to the change in the fair
value of the Company's warrant liability for the three months ended June 30,
2022 due to a decrease in the fair value of our outstanding warrants as of
June 30, 2022 compared to the fair value as of March 31, 2022. The Company
recognized a loss of $4.6 million related to the change in the fair value of the
Company's warrant liability for the six months ended June 30, 2022 due to an
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
and six month periods ending June 30, 2021.

Transaction costs


The Company did not recognize any transaction costs during the three months
ended June 30, 2022. The Company recognized transaction costs of $20.6 million
related to the consummation of the Merger during the six months ended June 30,
2022. The Company did not recognize any transaction costs during 2021.

Other income (expense), net


Other income, net decreased by $0.4 million to $0.2 million for the three months
ended June 30, 2022 compared to $0.6 million for the three months ended June 30,
2021. The decrease resulted primarily from fluctuations in foreign currency
transaction gain and losses, partially offset by an increase in interest income.

Other income (expense), net improved by $1.6 million to other income, net of
$0.3 million for the six months ended June 30, 2022 compared to other expense,
net of $1.3 million for the six months ended June 30, 2021. The change resulted
primarily from fluctuations in foreign currency transaction gains and losses and
an increase in interest income.

Liquidity and Capital Resources

Since inception, we have financed our operations primarily through the issuance and sale of equity and the proceeds from the Merger and the PIPE.

Merger and PIPE

Energy Vault completed the Merger and PIPE on February 11, 2022, pursuant to which we received net proceeds of $191.0 million.

Short-Term Liquidity


As of June 30, 2022, we had $299.1 million of cash and cash equivalents,
representing an increase of $193.9 million from cash and cash equivalents of
$105.1 million at December 31, 2021. Management believes that its cash and cash
equivalents on hand as of June 30, 2022 will be sufficient to fund our operating
activities for at least the next twelve months without regard to any cash
proceeds we received or may in the future receive upon the exercise for cash of
our warrants. The exercise price for any of our warrants is $11.50 per share,
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 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 warrant holders will exercise their warrants. Subsequent to June 30,
2022, on July 1, 2022, Energy Vault delivered a notice of redemption for all of
its outstanding public warrants to purchase shares of Energy Vault common stock.
The redemption was completed on August 1, 2022, and as of the date of this
Quarterly Report, no public warrants remain outstanding.

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 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.

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Contractual Obligations


Our principal commitments as of June 30, 2022 consisted primarily of obligations
under operating leases, finance leases, deferred pensions, and a refundable
contribution to Atlas. The Company committed to make a $25.0 million refundable
contribution to Atlas during the period in which it constructs its first GESS,
and will be refunded to the Company upon Atlas' first GESS reaching substantial
completion and meeting certain performance metrics. As of June 30, 2022, the
Company has remitted to Atlas $22.5 million of the $25.0 million.

Except for the refundable 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.


Cash Flows

The following table summarizes cash flows from operating, investing, and financing activities for the periods indicated (amounts in thousands):


                                                                       Six 

Months Ended June 30,

                                                                       2022                  2021
Net cash used operating activities                               $      (26,854)         $   (8,942)
Net cash provided by (used in) investing activities                      (2,333)                (73)
Net cash provided by financing activities                               223,160              15,072
Effects of exchange rate changes on cash                                    (35)              1,522
Net increase (decrease) in cash                                  $      193,938          $    7,579


Operating Activities

During the six months ended June 30, 2022 and 2021, cash used in operating
activities totaled $26.9 million and $8.9 million, respectively. During the six
months ended June 30, 2022, cash used in operating activities was negatively
impacted by a net loss of $26.3 million and an increase in operating assets of
$30.5 million. The change in operating assets was primarily due to a
$22.5 million increase in contract assets and a $5.6 million increase in
accounts receivable. Operating cash flows were positively impacted by non-cash
charges of $23.2 million and a $6.7 million increase in operating liabilities.
The non-cash charges primarily consisted of $15.9 million in stock-based
compensation expense, a $4.6 million loss from the change in the fair value of
the warrant liability, and $2.4 million in depreciation and amortization
expense. The increase in operating liabilities primarily consisted of a $9.7
million increase in deferred revenue, partially offset by a $2.7 million
decrease in accounts payable and accrued expenses.

During the six months ended June 30, 2021, cash used in operating activities of
$8.9 million was negatively impacted by a net loss of $12.4 million and a $1.1
million decrease in operating liabilities. The decrease in operating liabilities
resulted from a decrease in accounts payable and accrued expenses. Operating
cash flows were positively impacted by non-cash charges of $4.2 million and a
$0.3 million increase in operating assets. Non-cash charges primarily consisted
of a $0.4 million in depreciation and amortization, $0.3 million in non-cash
lease expenses, and $0.3 million in stock-based compensation expense.

Investing Activities


During the six months ended June 30, 2022 and 2021, cash used in investing
activities totaled $2.3 million and $73 thousand, respectively. Cash used in
investing activities for the six months ended June 30, 2022 consisted of $2.0
million for the purchase of a convertible note and $0.3 million for the purchase
of property and equipment.

Cash used in investing activities for the six months ended June 30, 2021 consisted of purchases of property and equipment.

Financing Activities


During the six months ended June 30, 2022 and 2021, cash provided by financing
activities totaled $223.2 million and $15.1 million, respectively. For the six
months ended June 30, 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 in transaction cost
payments related to the reverse recapitalization.

During the six months ended June 30, 2021, cash provided by financing activities
was primarily attributable to $15.3 million in proceeds from the issuance of
Series B-1 preferred stock, net of issuance costs.

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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 income (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 income (loss) as an indicator of our performance.

The following table provides a reconciliation from non-GAAP adjusted EBITDA to
GAAP net income (loss), the most directly comparable GAAP measure (amounts in
thousands):

                                               Three Months Ended June 30,                 Six Months Ended June 30,
                                                 2022                  2021                 2022                  2021
Net income (loss) (GAAP)                  $        (6,178)         $  16,569          $      (26,257)         $ (12,426)
Non-GAAP Adjustments:
Interest income, net                                 (284)                (7)                   (331)               (15)
Income tax expense                                     45                  -                     173                  -
Depreciation and amortization                       1,186                430                   2,404                447
Stock-based compensation expense                    6,661                243                  15,863                250
Change in fair value of warrant liability         (15,592)                 -                   4,645                  -
Transaction costs                                       -                  -                  20,586                  -
Foreign exchange (gains) and losses                   (45)              (601)                    (56)             1,339
Change in fair value of derivative
liability                                               -            (24,102)                      -                  -
Adjusted EBITDA (non-GAAP)                $       (14,207)         $  

(7,468) $ 17,027 $ (10,405)



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

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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, 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 condensed 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.

Off-Balance Sheet Commitments and Arrangements

The Company has not entered into off-balance sheet arrangements, as defined in the rules and regulations of the SEC as of June 30, 2022.

Critical 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, 2021 and 2020 included in Amendment No. 1.

Revenue


Effective January 1, 2022, Energy Vault's revenue 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, 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.

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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 prove to be inaccurate, Energy Vault's net loss and operating results could be affected adversely.


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.

Stock awards that vest solely based on a service condition are measured based on the estimated fair values of the awards as of the grant date using the Black-Scholes option-pricing model, which was impacted by the following assumptions:


•Expected Term - The expected term represents the period that Energy Vault's
awards 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 U.S. Treasury yield for our risk-free interest rate that corresponds with the expected term.

•Expected Dividend - Energy Vault has never paid dividends on its common stock and has no plans to pay dividends in the foreseeable future. Therefore, an expected dividend yield of zero was used.


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's wholly owned subsidiary in Switzerland has 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's financial 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. With the completion of the
redemption of Energy Vault's public warrants on August 1, 2022, Energy Vault
currently expects to incur incremental income (expense) in its condensed
consolidated statements of operations for the fair value change for outstanding
warrant liabilities at the end of each reporting period only in respect of its
private warrants.

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 2022 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

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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 unaudited condensed consolidated financial statements included
elsewhere in this Quarterly Report.

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