10-Q: ESS Tech Q3 2025: Losses Persist, New COO, Capital Raises

ESS Tech, Inc. reported continued operating losses in Q3 2025, alongside a new COO appointment and significant capital raising activities to address liquidity concerns.

Summary

• Net loss for the three months ended September 30, 2025, was $10.4 million, an improvement from $22.5 million in the same period of 2024.
• Net loss for the nine months ended September 30, 2025, was $39.5 million, compared to $62.7 million for the nine months ended September 30, 2024.
• Total revenue for Q3 2025 decreased by 40% to $0.2 million from $0.4 million in Q3 2024.
• Total revenue for the nine months ended September 30, 2025, decreased by 8% to $3.2 million from $3.4 million in the prior year period.
• Cash and cash equivalents stood at $3.5 million as of September 30, 2025, down from $13.3 million at December 31, 2024.
• The company used $36.4 million in cash from operating activities during the nine months ended September 30, 2025.
• An accumulated deficit of $821.8 million was reported as of September 30, 2025.
• Jigish Trivedi was appointed as Chief Operating Officer, effective August 18, 2025.
• A Standby Equity Purchase Agreement (SEPA) with YA II PN, LTD. was completed, raising $25 million through the sale of 6,458,634 shares.
• An unsecured promissory note for up to $40 million was entered into with YA II PN, LTD. on October 14, 2025, with $15 million already repaid.
• Substantial doubt exists regarding the company's ability to continue as a going concern for the next 12 months.
• Cost reduction and cash conservation measures, including employee furloughs, have been implemented.

Sentiment

Score: 2

Explanation: The company faces severe liquidity challenges, explicitly stating 'substantial doubt' about its ability to continue as a going concern. It has a history of significant operating losses, declining revenue, and a rapidly diminishing cash balance. While capital has been raised, it appears insufficient to fully address the deep-seated financial issues. The NYSE non-compliance notice and the recent cybersecurity incident further compound the risks. The long-term viability is highly questionable, making it a high-risk investment with a strong likelihood of further capital erosion.

Positives

• Net loss decreased significantly for both the three months ($10.4 million vs. $22.5 million) and nine months ($39.5 million vs. $62.7 million) ended September 30, 2025, compared to the same periods in 2024.
• Gross loss decreased for both the three months ($4.7 million vs. $12.4 million) and nine months ($18.0 million vs. $32.2 million) ended September 30, 2025, indicating improved cost of revenue relative to sales.
• Operating expenses were substantially reduced across Research and Development (R&D), Sales and Marketing, and General and Administrative (G&A) functions for both periods.
• Successfully raised $25 million through a Standby Equity Purchase Agreement (SEPA) and secured a $40 million promissory note, providing much-needed capital.
• The appointment of Jigish Trivedi as Chief Operating Officer is a positive step for management leadership.
• The company's domestic manufacturing and supply chain structure is expected to benefit from the One Big Beautiful Bill Act's (OBBB) foreign entity of concern limitations.
• Production Tax Credits (PTC) under the Inflation Reduction Act (IRA) Section 45X are anticipated to positively impact gross margins in the future.

Negatives

• The company has a history of operating losses and negative cash flows from operations since its inception, with an accumulated deficit of $821.8 million as of September 30, 2025.
• Substantial doubt exists about the company's ability to continue as a going concern for the next 12 months, indicating severe liquidity challenges.
• Unrestricted cash and cash equivalents significantly decreased to $3.5 million as of September 30, 2025, from $13.3 million at December 31, 2024.
• Total revenue declined by 40% for the three months ended September 30, 2025, and by 8% for the nine months ended September 30, 2025, compared to the prior year periods.
• Employee furloughs were implemented as a cash conservation measure, which may lead to unintended consequences such as attrition and reduced productivity.
• Interest expense increased significantly due to the sale-leaseback financing obligation, contributing to overall losses.
• A cybersecurity incident was identified on November 1, 2025, causing system non-availability and data disruption, with the full impact still under assessment.
• The company received a NYSE notice of non-compliance on March 24, 2025, for failing to meet the Minimum Market Capitalization Standard and stockholders' equity requirements, risking delisting.

Risks

• Significant barriers exist in producing energy storage products at commercial scale, with certain products still under development, potentially leading to business failure.
• The company is in the early stage of commercialization, and certain aspects of its technology have not been fully field tested, posing risks to market acceptance and warranty obligations.
• Dependence on third-party suppliers for key raw materials and components, and vendors for shipping, could lead to quality issues, delays, and increased costs.
• Past and potential future delays, disruptions, or quality control problems in manufacturing operations could adversely affect production and delivery.
• Inability to adequately control costs and reduce the cost structure, especially with increasing raw material prices, may impair the ability to achieve profitability.
• Reliance on complex machinery for operations carries risks of unexpected malfunctions, delays in scaling production, and additional costs.
• Future success depends on increasing production capacity, which involves challenges in constructing new facilities, managing international expansion, and attracting/retaining skilled personnel.
• Potential for product recalls or component replacements due to defects could result in adverse publicity, financial costs, and reputational damage.
• Incorrect maintenance or higher-than-expected maintenance requirements could adversely affect reputation, business, and financial results.
• Expectations for future operating and financial results rely on assumptions that may prove incorrect, leading to actual results differing materially from anticipated.
• Substantial doubt about the ability to continue as a going concern, with potential for liquidation if additional financing is not secured.
• No assurance that nonbinding pre-orders or framework agreements will convert into binding orders or be completed, impacting revenue and cash flows.
• Warranty insurance provided by Munich Re is critical; inability to maintain this relationship could significantly reduce demand for products.
• Failure to deliver the benefits offered by the technology, or the emergence of improvements to competing technologies, could reduce demand.
• Plans are dependent on the development of market acceptance for products and long-duration energy storage technology, which is an emerging market.
• Future growth and success depend on the ability to sell effectively to large customers, which involves longer sales cycles and increased customer leverage.
• Operating in highly competitive energy industries with competitors having substantially greater financial, marketing, and personnel resources.
• Project awards and sales pipeline may not convert to contracts or may be delayed due to various conditions or contingencies outside of the company's control.
• Contracted sales are subject to termination by the contracting party, including for convenience, which could adversely impact revenues.
• Inability to accurately estimate future supply and demand for products and services could result in inefficiencies, additional costs, or delays.
• Failure to manage growth effectively could strain management, operational, and financial infrastructure, impacting business execution and customer service.
• Significant dependence on a limited number of products, primarily the newly launched Energy Base, makes the business vulnerable if these products are not well-received.
• Planned expansion into new geographic markets or product lines (e.g., 12-24 hour storage for AI/data centers) could expose the company to additional business, financial, and competitive risks.
• Business and operations may be adversely affected by outbreaks of contagious diseases and other adverse public health developments.
• Past identification of material weaknesses in internal control over financial reporting, with potential for future weaknesses, could impact financial reporting accuracy and timeliness.
• Exposure to product liability claims, even those without merit, could harm business, financial condition, and results of operations.
• Third parties might attempt to gain unauthorized access to networks or compromise products and services, leading to data theft, system interruptions, and reputational damage.
• The failure or breach of IT systems, including the recent cybersecurity incident, could affect sales and operations.
• Inability to identify or complete transactions with attractive acquisition candidates, or significant transaction expenses and costs from future acquisitions.
• Facilities or operations could be damaged or adversely affected as a result of natural disasters and other catastrophic events, with potential for insufficient insurance coverage.
• Changes in the global trade environment, including the imposition or escalation of import tariffs, could adversely affect revenues, results of operations, or cash flows.
• Exposure to foreign exchange risk due to international sales being denominated in U.S. dollars could impact competitiveness.
• Potential for write-downs or write-offs, restructuring, and impairment or other charges that could have a significant negative effect on financial condition and stock price.
• Results of operations could vary as a result of changes to accounting policies or the methods, estimates, and judgments used in applying accounting policies.
• The requirements of being a public company may strain resources and divert management's attention.
• Transactions with related parties present possible conflicts of interest that could have an adverse effect on the company.
• Relationships with related parties, SBE and Honeywell, are subject to various risks, including no obligation for them to place orders.
• The execution of the strategy to expand into new markets through strategic partnerships, joint ventures, and licensing arrangements is in a very early stage and subject to various risks.
• Review of commercial and strategic transactions may be disruptive to the business and may not be successful.
• Regulatory challenges or limitations on the ability to sell products directly in certain markets, and risks associated with expanding operations internationally.
• Customers may be required to obtain environmental, health, and safety or other certifications to install products, impacting revenue if not obtained.
• Subject to multiple U.S. federal, state, local, and other applicable regulations; changes or non-compliance can increase costs and have other negative impacts.
• Subject to requirements relating to environmental and safety regulations and environmental remediation matters, which could adversely affect business and reputation.
• Exposure to delays, limitations, and risks related to environmental permits and other operating permits required to operate products.
• Collection and processing of certain information about customers and individuals is subject to various laws and regulations relating to privacy, data protection, and cybersecurity.
• Could be subject to penalties and other adverse consequences for any violations of the FCPA and other foreign anti-bribery and anti-corruption laws.
• Subject to governmental export and import controls and economic sanctions programs that could impair the ability to compete in international markets or subject the company to liability.
• Exposure to various risks related to legal proceedings or claims that could adversely affect operating results, potentially exceeding insurance coverage.
• Subject to certain restrictions and obligations on the business as a result of grants and/or loans received under certain governmental programs.
• The reduction, elimination, or expiration of government tax credits, subsidies, and economic incentives related to renewable energy solutions could reduce demand for technology.
• Changes in tax laws or in their implementation or interpretation may adversely affect business and financial condition.
• Ability to utilize net operating loss carryforwards and certain other tax attributes may be limited due to ownership changes.
• Emerging growth company and smaller reporting company status may make securities less attractive to investors and comparison with other public companies difficult.
• Failure to protect, or incurring significant costs in defending, intellectual property and other proprietary rights could materially harm the business.
• Third parties may assert infringement upon their intellectual property rights, diverting management's attention and incurring significant costs.
• Patent applications may not result in issued patents or patent rights may be contested, circumvented, invalidated, or limited in scope.
• Products contain third-party open-source software components, and failure to comply with licenses could restrict sales or require disclosure of proprietary software.
• Significant costs and expenses could outpace cash reserves, and unfavorable conditions in capital and credit markets may adversely impact business conditions and credit availability.
• Need to raise additional capital in the near future, and it may not be available on acceptable terms, if at all.
• Debt service obligations may adversely affect financial condition and cash flows from operations.
• The price of common stock may be volatile due to various market and industry factors.
• A sale of a significant portion of total outstanding shares into the market may cause the market price of common stock to drop significantly.
• Warrants outstanding are exercisable for common stock, which, if exercised, would increase the number of shares eligible for future resale and result in dilution to stockholders.
• The terms of warrants may be amended from time to time, potentially adversely affecting holders.
• The company may redeem unexpired warrants prior to their exercise at a time that is disadvantageous to holders, making them worthless.
• No dividends are expected to be declared in the foreseeable future, requiring investors to rely on stock price appreciation for gains.
• There is no assurance that the company will be able to continue to satisfy the continued listing standards of the NYSE, risking delisting.
• Reports published by analysts, including projections that differ from actual results, could adversely affect the price and trading volume of common stock.
• Subject to short selling strategies that may drive down the market price of common stock.
• Provisions in the amended and restated certificate of incorporation, bylaws, and Delaware law might discourage, delay, or prevent a change in control or changes in management.
• Exclusive forum provisions in amended and restated bylaws could limit stockholders' ability to obtain a favorable judicial forum for disputes.
• Claims for indemnification by directors and officers may reduce available funds to satisfy successful third-party claims.

Future Outlook

The company anticipates continued operating losses in the near term and is actively evaluating various strategies to obtain additional funding, including equity offerings, debt issuance, or other capital sources. Management expects revenue and cost of revenue to increase as the business scales and products are delivered, with significant reductions in cost of goods projected through design optimization, strategic supply chain initiatives, and manufacturing automation. Indirect costs and operating expenses are expected to rise with increased manufacturing and sales activities. The Inflation Reduction Act (IRA) is believed to increase demand for services due to tax credit extensions, and Production Tax Credits (PTC) are expected to positively impact gross margins. The company intends to file a replacement shelf registration statement on Form S-3 and expects to remain an emerging growth company until December 31, 2025.

Management Comments

• Management is evaluating various strategies to obtain additional funding, which may include additional offerings of equity, issuance of debt, or other capital sources.
• We believe we have the opportunity to establish attractive margin unit economics if we are able to continue to reduce production costs and scale our operations.
• We anticipate significant reduction in our cost of goods through our cost reduction initiatives, including design optimization from value engineering, strategic supply chain projects, and further automation of our manufacturing processes.
• We expect our indirect cost of revenue and operating expenses to increase when we ramp up our manufacturing and sales activities.
• We believe some or all of these negative trends [macroeconomic conditions] may continue during the remainder of 2025.
• We expect these credits [Section 45X PTC] will have a positive impact on our gross margins in the future.
• We have expanded certain cost reduction and cash conservation measures, including ongoing evaluation of workforce staffing requirements and essential business functions, and the implementation of a furlough for a substantial number of our employees as of May 30, 2025 to better align organizational costs with business continuity, further reduction of material purchases by continuing to minimize spending until firm orders are received, refining our focus on R&D and engineering project efforts towards highest priority, greatest return projects and additional reduction in outside vendor spending.

Industry Context

ESS Tech operates in the rapidly evolving long-duration energy storage market, specializing in iron flow battery technology. This sector is highly competitive, with established players offering lithium-ion batteries and other emerging technologies like vanadium, zinc bromine, sodium sulfur, compressed air, hydrogen, fuel cell, and pumped-storage hydropower. The industry is driven by a global regulatory push for lower-carbon energy sources. Recent U.S. legislation, such as the Inflation Reduction Act (IRA) and the One Big Beautiful Bill Act (OBBB), significantly impacts tax credits and incentives for energy storage, potentially favoring U.S.-manufactured components. The company faces the challenge of gaining market acceptance for its iron flow battery technology against the widespread adoption of lithium-ion solutions. Macroeconomic factors, including global supply chain disruptions, inflation, interest rate fluctuations, and geopolitical tensions, continue to influence the business and the broader energy storage industry.

Comparison to Industry Standards

• The company's iron flow battery technology is positioned as comparing favorably to lithium-ion batteries in terms of energy delivery, duration, and cycle-life, with a 25-year product design life and over 20,000 cycles without capacity fade (based on lab-scale results).
• Key advantages highlighted over lithium-ion include the use of widely available, low-cost materials with no rare mineral components, substantial recyclability/reusability at end-of-life, and a wide thermal operating range that reduces the need for fire suppression and HVAC equipment.
• Acknowledges that traditional lithium-ion batteries generally offer higher power density and round-trip efficiency, which are factors customers may prioritize.
• The company's first-generation units experienced failures in cycling reliably, leading to recalls, indicating past performance issues compared to expected industry reliability standards.
• No specific comparable companies, projects, or numerical benchmarks from competitors are provided for a direct assessment of performance against industry standards.

Management Changes

Corporate Governance

Legal Proceedings

• The company is not currently a party to any material legal proceedings, nor is any material legal proceeding threatened against it as of the date of issuance of these condensed financial statements.

Related Party Transactions

• Recognized revenue of $25 thousand for the three months and $2.4 million for the nine months ended September 30, 2025, from sales of energy storage systems, core technology components, reimbursable expenses, and extended warranty services provided to related parties.
• As of September 30, 2025, had $203 thousand of deferred revenue for extended warranty services and equipment purchases to related parties.
• Recorded a non-refundable deposit for future equipment purchases by Honeywell of $5.3 million within non-current deferred revenue as of September 30, 2025.
• Entered into a Sale and Leaseback Agreement with UOP LLC (an affiliate of Honeywell) on July 10, 2025, for $10.5 million, involving the purchase of a stack assembly line and its leaseback.
• Acquired patent rights valued at $5.0 million in September 2023 under a Patent License Agreement with UOP LLC, an affiliate of Honeywell.
• Entered into a Joint Development Agreement (JDA) with UOP LLC in September 2023, agreeing to reimburse UOP a minimum of $8.0 million for R&D expenses through December 31, 2028 ($0.1 million incurred in the nine months ended September 30, 2025).
• Issued Honeywell Warrants (Investment Warrant, IP Warrant, Performance Warrants) to Honeywell ACS Ventures LLC and UOP LLC.
• Signed a framework agreement with SBE (an affiliate of SoftBank Group Corp.) in April 2021 to supply energy storage products, but no firm orders have been placed to date under this agreement.

Stakeholder Impact

• Shareholders face significant dilution from recent and potential future equity raises (SEPA, Promissory Note Warrant, ATM offerings). There is a high risk of losing all or a significant portion of their investment due to the 'going concern' doubt and potential NYSE delisting. Stock price volatility is expected to continue.
• Employees have been impacted by furloughs implemented as of May 30, 2025, which could lead to reduced morale, productivity, and increased attrition. The appointment of a new COO may bring strategic shifts.
• Customers may experience delays in product delivery and installation due to ongoing supply chain issues and site readiness challenges. There is a risk of order cancellations if performance specifications are not met, and potential for warranty claims or product recalls.
• Suppliers and creditors face risks related to the company's liquidity challenges, including potential delays in payments. The secured loan facility with EXIM and the promissory note with YA II PN, LTD. indicate reliance on external financing.
• Regulatory bodies, particularly the NYSE, are monitoring the company's compliance with listing standards. The company is also navigating the complex implications of the IRA and OBBB legislation.

Next Steps

• Continue evaluating strategies to obtain additional funding, including equity offerings, debt issuance, or other capital sources.
• Continue implementing cost reduction and cash conservation measures, including ongoing evaluation of workforce staffing requirements and minimizing material purchases.
• Refine focus on R&D and engineering project efforts towards highest priority, greatest return projects.
• Address NYSE listing requirements to regain compliance with the Minimum Market Capitalization Standard and stockholders' equity within 18 months of March 24, 2025.
• File a replacement shelf registration statement on Form S-3 to facilitate future capital raising.
• Continue the investigation and remediation of the cybersecurity incident identified on November 1, 2025.
• Begin monthly payments on the Promissory Note on December 15, 2025.
• Continue efforts to increase production capacity and reduce manufacturing and development costs for products.
• Pursue expansion into new geographic markets and new product lines, such as 12-24 hour long duration storage for AI/data center driven load needs.

Key Dates

Recommendation

The company faces severe financial distress, explicitly stating 'substantial doubt' about its ability to continue as a going concern. It has a history of significant operating losses, declining revenue, and a rapidly diminishing cash balance. While capital has been raised, it appears insufficient to fully address the deep-seated financial issues. The NYSE non-compliance notice and the recent cybersecurity incident further compound the risks. The long-term viability is highly questionable, making it a high-risk investment with a strong likelihood of further capital erosion.

Keywords

Iron flow battery, Energy storage, Long-duration energy storage, ESS Tech, GWH, SEC filing, 10-Q, Financial results, Net loss, Revenue, Capital raise, Promissory note, SEPA, COO appointment, Corporate governance, Risk factors, Liquidity, Going concern, Supply chain, Manufacturing, Intellectual property, Tax credits, IRA, OBBB, Cybersecurity, NYSE listing