Q1 2021 Eos Energy Enterprises Inc Earnings Call

[music].

Greetings and welcome to Eos Energy Enterprises first quarter, 2020 one earnings call. At this time, all participants are in a listen only mode.

Western and answer session will follow the formal presentation, if anyone should require operator assistance during the conference. Please press star zero on your telephone keypad.

Please note. This conference is being recorded I will now turn the conference over to Jarrett and.

Eos energy. Thank you you may begin.

Yeah.

Thank you.

Everyone and thank you for joining us for.

Financial results conference call for the first quarter ended March 31, 2020 one.

On the call today.

CEO, Joe mobster, Angela and CFO Saga Corrado before we begin allow me to provide a disclaimer regarding forward looking statements.

This call, including the Q&A portion of the call May include forward looking statements related to the expected future results for our company.

Which are subject to certain risks uncertainties and assumptions.

Should any of these risks materialize or should our assumptions prove to be incorrect on.

Our actual results may differ materially from our projections or those implied by these forward looking statements.

The risks and uncertainties. The forward looking statements are subject to are described on our earnings release and other SEC filings.

Our remarks during todays discussion should be considered to incorporate this information by reference.

Are we looking statements represent our beliefs and assumptions only as of the date such statements are made.

We undertake no obligation to update any forward looking statements made during this call to reflect events or circumstances after today.

Or to reflect new information or the occurrence of unanticipated events.

Except as required by law.

Today's remarks will also include references to non-GAAP financial measures additional information, including reconciliation between non-GAAP financial information to the GAAP financial information is provided in the press release.

Non-GAAP information should be considered as supplemental in nature and is not meant to be considered and isolation or as a substitute for the related financial information prepared in accordance with U S. GAAP.

In addition, our non-GAAP financial measures and not be the same as or comparable to similar non-GAAP measures presented by other companies.

This conference call will be available for replay via webcast through <unk> Investor Relations website at investors E O S E Dot com.

Joe and Saga will walk you through the Companys highlights.

Financial results and business priorities before we proceed with Q&A.

And with that I'll turn the call over to Joe.

Thanks, Jared and welcome everyone to our one Q.

2021 financial results call I would like to thank everybody for joining us today and.

And jump in on page three to walk through some operating highlights. This page I think is the snapshot that we like to use to track how we're progressing on building the company I think it all starts on the upper left hand side of our page, where we look at discharge energy and that's how the product and the technology is operating out on the field and how it.

Performing and our test facility in Edison, New Jersey since our last earnings call. We've added 20% to the discharge energy and we're now over 2 million cycles of operation. So this technology, that's proving itself not only in the lab, but also out in the field at the same time, we're very proud of being able to report that we are at 33 million.

And if orders with a $51 million of order backlog and I think what's critical here. When you look at those two numbers is that already and the first.

Five months of the year, we booked a <unk>.

33% more orders than we did and prior year. So we're starting to really see the traction gaining as we build out our commercial team and really get out and sell the product and the marketplace and in fact, the same time when you look at the lower left hand side of the page our opportunity pipeline now stands at $3 9 billion, which is up a half a billion since our since our last call. It represents.

One three gigawatt hours of storage opportunities.

Same time in order to do this we've got to continue to build out our capacity and develop our technology and Sarah will walk through and a moment.

And how we've been investing our cash, but I think it's critical to note that we spent $9 million and building out capacity and developing our technology and we'll walk through both of those items as we get further into the presentation and lastly, and importantly is just how those five things feed into the most important thing which is generating revenue and yeah. We shipped.

Or containers, and Nigeria, and I'll give an update on that later in the presentation to generate 200 $200000 of revenue, but more importantly, the metrics that I talked about earlier and we will talk about where we are from a factory capacity build out we will see that number go up as we ramp up to our target of $50 million of <unk>.

<unk> and 2021.

So today's agenda will focus around the six priorities that we have as a leadership team and as a company and 2021 gave a quick update on where we are vs order bookings. So far this year importantly is that those strategic LOI that we've been talking about since we went public are now transitioning from LOI into firm orders.

We've got six projects booked with.

And with $13 million on future revenue associated with them on the overall revenue side, we're at $900000 of revenue booked to date and our backlog covers 50% of our 2021 revenue target on the UL certification front, we're proud to say that we've achieved are you all $95 40 a certification.

Haitian and I'll walk through some details on that and a moment and we're finalizing the UL and $19 73 or the overall system certification by the end of June.

Continue to March to our build out of capacity will go through where we are and what we've been able to accomplish on this but very proud of what Jodi of our capital is coming in as our Chief operating officer and the team have been able to accomplish here in the first quarter and looking forward to our projects team now led by David religion, Who's come from us from Black and <unk>.

Beach as he starts on the installation and commissioning a roadmap that we have the same time, we're making good progress on our Gen. Three product launch will talk about the results of our first prototype and what that means to our customers, but right. Now we're tracking ahead of schedule for that launch here in the fourth quarter of this year, whereas on.

Our original plan was for the second half of 2022, and we continue to build a great team. We closed the acquisition of the 51% share and our high power and manufacturing joint venture and out of the hires that we've done on 71% of those are going into engineering technology, R&D and manufacturing and we've actually doubled the <unk>.

<unk> of our manufacturing team and our facility and Pittsburgh, Pennsylvania. So we're truly building and operating company and we're proud of the results that we haven't realized that we've got more work to do but we're well on the way of achieving our goals and objectives for 2021 with that I'll turn it over to saga who'll walk us through the financials and the growth and revenue profile for the company.

Thanks, Joe Good morning, everyone over the next two pages and I'll be discussing a summary of our first quarter 2021, and reported financials and detailed financial statement and relevant management discussion.

And our 10-Q and supplemental disclosures page five is the summary of our first quarter income statement.

We reached an important milestone and the quarter as we recognized revenue on 164000 from our first container ship down and a high power micro grid storage solution in Nigeria powered by <unk> and the Shell Foundation.

Our concert sales in the first quarter with $1 million was favorably impacted by the reversal of $1 6 million reserve for losses on firm purchase commitments and that we had recorded in Q4 2020.

And we reversed that accrual because the batteries might be acquired under the from purchase commitment in Q1 were ultimately used for R&D purposes, and therefore, we expense these costs with R&D in the first quarter.

This reversal largely was offset by the cost of appeal of one 7 million net are included within this position.

We recorded 5 million in R&D expenses for the quarter R&D expenses increased mainly for two reasons first we.

We incurred $2 2 million higher battery testing costs.

And then prior year due to our UL certification process, partially offset by the accrual reversal and cost of sales I discussed earlier.

And.

And we are continuing our investment and new technologies, specifically, our gen three or <unk> three program, we increased our investment in R&D head count and.

We incurred $5 million on higher payroll and personnel costs.

We also recorded G&A for $16 6 million in <unk> 2021.

General and administrative expenses included 7.8 million expense that is non recurring in nature incurred in connection with the agreement that we entered into with <unk> to acquire their 51% interest and our JV and high power.

And does that agreement, we were obligated to pay the whole tank from a contribution they made into the JV over the past years.

In addition to this we incurred $2 9 million in higher fees for professional services.

These fees were incurred in the first quarter and were partially still related to our merger in the fourth quarter of 2020 and are on so non recurring in nature.

Lastly, we incurred higher stock compensation expense of $2 5 million and increased payroll costs from one 4 million due to higher head count and larger footprint as a public company.

Moving on to page six.

And of 331, we have 101 million and cash and cash equivalents.

Cynthia and our investing activity included $4 million and capital expenditure for future capacity expansion as we ramp up and manufacturing and production.

The first quarter.

Ported for development and project financing with select customers $3 million and investments and.

Additionally, our operating activity included $5 million and cost of sales.

$5 million and research and development and UL testing $3 million in general and administrative expenses $1 million and expanding our commercial team and $1 million in transaction costs.

In the next section I will be reviewing our progress on commercial pipeline and booked orders to deliver on our 2021 financial commitments.

Page eight is a snapshot of our commercial activity as of May four 2021. This.

And this is a page you announced and many of them and from previous presentations are.

Our customer engagement and start with the lead generation process, when we work with our customers to materialize and ideas and and that's where feasibility regulations crunchy line and economics. We today have $2 4 billion or 14 gigawatt hours in review within lead generation. This segment.

And since fourth quarter of 2020 earnings call in February increased by approximately $600 million.

Our commercial pipeline is $3 9 billion on 23 gigawatt hours.

And this kind of sticky.

And <unk> segments active proposals of $3 3 billion and customers with whom we have formed commitment on <unk> 6 billion.

Active proposal since fourth quarter of 2020 have increased by approximately 500 million and.

As a reminder, only a customer on a project with a clear Mandy on project requirement technical specification and only a use case.

<unk> yields specification will be included in our pipeline.

And the date, we actively present, our commercial and technical proposals to customers our experience indicate 30% of our pipeline over the long run translates into booked orders.

And specific clinical instances, where we have reached an agreement on commercial terms.

So net customers.

And have agreed to terms with a letter of intent and supported by clearly define next steps and that require action on partner and our customers. We categorize these project.

Other y or firm commitment our experience indicates on average 60% within this category translates into booked orders.

In 2021, we have converted $13 million or <unk> 47 megawatt hours.

From six projects to booked orders, we continue to work with our customers on material developments within this category.

As the 432021.

We have 33 million and booked orders to date weakened.

Reconsidered and project booked order when there is an agreement from yields to procure material manufacture and deliver on storage solution commitments, we see strong momentum in demand for the rest of 2021 booked orders have increased $31 million since our fourth quarter.

Earnings call in February.

On page nine let me review a few financing strategies that enable our ability to partner with customers delivering energy and storage solutions. Firstly, we're engaged and development financing for early stage clean energy initiatives with select customers, where we currently have firm committee.

And then.

We have committed to 5 million and capital to partner with independent power producers determined site scale and market potential in the United States. One potential partners off takers are established yields will have exclusive rights to deliver storage solution.

And expected economic value creation from the sale of yield storage solution is not currently included in the committed capital.

Rehab to date funded 600000 off such commitments progress on these projects has resulted and successfully securing land rights for projects in consideration and with interconnection approvals and cute.

Second we have partnered to deliver project financing for select customers and support development of comprehensive micro grid renewable energy solution.

We have committed to $9 8 million and capital to partner with these customers who have successfully received interconnection.

Permitting required for the project.

We offer financing solutions tailored to cover project costs, such as engineering pre development sonar and construction the expected economic value creation from yield storage solution is not currently included in debt committed capital and we have to date funded $2 6 million of such commitments.

Lastly, we have strategically agreed to partner and asset leasing arrangements with select customers for yields equipment.

On a lease to own beat.

This financing is offered at competitive rates and secured and collateral from storage asset Commission on ground.

We have $10 1 million of asset leasing commitments. This specific segment of strategic investment is included in our booked orders these projects and customers satisfy the criteria for booked orders highlighted on page eight.

In our $3 9 billion pipeline, we have more than $100 million and additional opportunities with select customers ranging from development and financing to project financing and act with anything on.

On page 10, I'd like to offer you more specific details on the $33 million and year to date booked orders we reviewed when discussing commercial activity on page eight.

Our current booked orders constitute nine projects with eight customers and 141 megawatt hours.

$18 5 million are cash sales of used equipment, representing 104 megawatt hours $8 2 million of accurately thing represent 37 megawatt hours and four projects, we discussed that with the thing and context up our overall financing strategy on page nine.

These two categories delivered $26 7 million and equipment orders and Additionally, our booked orders and institute of $6 3 million and recurring services from monitoring and maintenance obligation, but typically beginning in year three and range from five to 18 years. We currently have eight.

And of nine projects with contractual and recurring revenue among our year to date booked orders.

Development and financing and project financing from page nine are not booked orders, we expect the momentum on booked orders to continue in 2021 to deliver our forecasted commitment.

I'd also like to expand on page 11 on the details.

Our orders and backlog, which is now a reflection of our 2021 year to date booked orders plus 2020 year end backlog mining and he shipment to meet customer commitments.

This backlog comprises of 25 project with 19 customers and 204 megawatt hours on February 25, 2021, and our full Q earnings presentation, we reported orders and backlog of $21 2 million since then vivek.

And at 34 million, new booked order activity as reflected on page 10.

Through today, we have successfully shipped six containers, the motor oil renew and shell and <unk>, which subtract the backlog by <unk> 9 million, resulting in a total of 55 million and outstanding customer commitments.

Delivery on these commitments is expected in 2021 and 'twenty two with approximately 25 million contracted for 2021, and then an additional $17 million in 2022.

Expected delivery in 2021 will be primarily ready to ship in the second half 'twenty. One and will include a combination of Gen. Three point, though or a rebrand and the three system and our current technology and production Gen. Two three.

Our progress on backlog is more than two times our earnings call from 100 days ago. We expect this positive momentum to continue as we lean forward to invest further in our commercial team manufacturing capacity and create market awareness of our competitive advantages.

To elaborate on all of these advantages and topics.

And I'll hand, the conversation back over to Joe on page 12.

Thank you.

Thanks Saga and no let's focus on.

For a second on UL certification, which is critical to deliver on those growth numbers that saga just talked about so moving on to page 13, you know there's two UL certification that we go after one of them is on the battery module itself, which is the $95 40 day, which is.

Safety for thermal runaway or the risk of fire and explosion and we've completely past that testing and I'll walk through some results on that testing and the moment. The second is and the overall storage system, which as you all 19, and 73, which we have.

Gone through the testing.

And for that certification and are now just qualifying the material the plastics that we use and our frames for the Archie I or relative temperature index of 80 degrees C. We're halfway through that testing as we speak and we anticipate that we'll be able to close out the <unk> 1973 certification by the end of June.

June tremendous.

Results by the team a lot of this was done virtually and over zoom and Microsoft teams. So really great work by the team to get us to this point and this period of time if.

If we flip quickly to page 14, just wanted to talk quickly about the results of our $95 48 tests, we like to say is that our battery is inherently fireproof and that it will not catch on fire or explode and does not need ancillary systems like HVAC cooling.

Our software to manage the risk of thermal runaway if you look at the four main test here. The first one is over discharge.

Over discharge the batteries and beyond a day.

On the zero voltage you don't see any degradation and the battery itself. There's no loss of capacity performance and you can rest of battery and get it back to continued operations, so you're not going to damage or destroy the battery in and of itself doing this test. The second one is shooting a two and a half inch now into the battery again nothing.

It happens to these tests were relatively boring because you'd watched and they'll go in the temperature will go up a little bit, but there's no claim theres no explosion and there's no thermal runaway and the chew on the right hand side, which are really critical is overcharging. The battery two times its normal capacity the battery it gets up to now.

And the degree C again, no flame no explosion and Theres, a little bit of electrolyte and steam release I'm.

From the battery and which we managed through a capture system.

To be able to to knowing that this does happen if and the unlikely event that should happen and the second one is on a battery short circuit test, where we're short circuiting the battery and into itself and again you see the thermal dynamics take over the temperature rises to 80 degrees C. When you look at these.

And two tests and the curves that come out and it's just two tests and you lay them over and what you would see from a lithium ion battery. The curves look exactly the same but there is one important difference our battery doesn't go above 100 degree C, but lithium ion when you separate it out it's temperature will rise.

To seven or 800 degrees Celsius, So we see and our battery is a battery that's inherently safe and fireproof and allows you to operate and the harshest conditions with the simplest ancillary systems and the least amount of parasitic load or low day.

You need to use and to protect the safety of your product to keep it operating out in the field. So it's something that we see as a competitive advantage and we see as something that our customers can rely upon us to provide reliable energy storage and any environment.

Moving forward on shifting gears to our manufacturing capacity. So if we go to page 16 and theirs.

Four key things that we want to talk about today. The first one is the facility or a factory ourselves itself. We are fully repurpose the factory and 11 months and we'll show what that looks like today and what we've been able to do our equipment today, our yields coming off the line or above 90% tremendous amount of work done by the team to both ramp.

Up production and improve the quality of our product and the third one is a material availability and product cost we've been able to take 40% of our battery cost out and the last five months and secure multiple sources of supply to keep the factor is slowing and the last one which is it.

Which is actually the most important one is bringing and great people and as I talked about earlier and the presentation, we've been able to double the size of our team over the last five months and we're proud of the work that they're doing and we'll continue to recruit hire and train the best to deliver our product to the marketplace. We go to page 17.

And when you look at the page the left hand side of the page with the facility looked like 11 months ago. The right hand side of the page our screenshots from various parts of our factory what the team's been able to do is wrap up production on our electrode line and improve the yields and quality to single digit.

Single digit scrap rates on how we produce this critical component of our battery, we've ramped up with new technology, and how we built the mechanical or and.

Closure of the battery and using infrared welders and continue to expand that production to increase throughput and the factory and we're optimizing the processes of of quality control and filling our battery with electrolyte and are now working out of lean lean manufacturing roadmap across the factory from not only manufacturing batteries, but getting there.

Batteries into the container and getting and Tainer shipped to customers. So really a great amount of work a ton of progress here and 11 short months from going from an empty facility into a factory that shipping product out to the field. When we look at page 18.

What is always been a strength of our system is that we have.

Abundant raw materials that can be locally sourced at a lower cost point than other technologies and wanted to show you how our four key.

Raw materials that go into our batteries when you look at what they are where else they're used in the world and more importantly, if we focus on the bottom.

<unk> portions of the right hand graph, if you look at the percent of the global demand for those raw materials, if were producing a gigawatt of production out of our factory you can see that we have a de minimis demand on the overall global supply chain for each one of our raw materials, but we don't just sit back and and rely upon.

The team continues to work to be able to look at how we're doing <unk> and sourced and mixing process to both reduce cost and accelerate cycle time on titanium, although we're a very small percentage of the global demand. We do look at this as a key component and the aerospace industry and is aerospace comes back to be able to mitigate any.

And any supply chain risk and we have we are looking at alternate materials to titanium to be able to put into the battery on graphite felt we're testing new materials specifications to be able to open ourselves up to new sources of supply to be able to reduce debt four 5% down lower as we grow the business and on plastics. It was critical for.

Here was not so much the supply of the raw material the actual plastic itself, but it was to make sure that we have multiple boulders to be able to ramp up our production as we move forward to truly keep the supply chain slowing and although were at a ramp up period and production as we think and plan. The factory. We're planning it is low we're at scale.

And making sure that we're mitigating those risks to get to scale on our production process. If we move forward.

To page 19. This is a critical page that talks about her.

Now we're ramping up production.

Today, and when you look at where we are we're getting up to 50% capacity on our existing factory, we're optimizing the electrical load.

On electrode line, we're expanding capacity on our IR welding and we're doing increased product testing and we're running at a lower utilization rate to make sure that the product going out into the field is of high quality.

Now as we think about the next couple of months, we're going to continue to add resources and the factory and higher workers to work. The line, we're going to add more capacity and continuing to streamline processes to get by mid summer to 70% output and then from there. It's working from July to September to get up to a 100% by continuing to.

Optimize the process of how we built rebuilt and.

And integrate batteries into containers, bringing our factory automation on line and really driving lean manufacturing across the facility. This September date gets us to 100% capacity on the equipment that we have today and then starting in October and November December we start bringing on line the additional capacity that we're in.

Developing as we bring our new generation three product to the marketplace to get to the 800 megawatt hours that is our target for 2021 at the same time, if we move to page 20.

And as critical to think about the cost entitlement and how we're delivering a product that will become profitable today. When you look at where we are we've already secured two thirds of our 2021 cost out plan. If by the end of the first half of 2020. One when you look at the actions that we're doing these are really big.

And a strategic agreements with suppliers and optimizing our equipment and manufacturing processes and delivering additional volume discounts as we continue to grow our backlog and wrap up our revenue and then we continue to look for supplier diversity diversification with drives not only quality, but also cost out and taking.

Cycle time out of the factory to improve throughput and the final 20%. There that you see that gets us down to our target at the end of 2020, one really ties into what we're doing and should start blending the cost of the gen. Three and the Gen 2.3 product line and getting to the net.

<unk> tier of pricing discounts as we hit a higher volume rates and truly delivering on the investment that we're making and automation and capacity of the factor as we move forward.

Transition from a look at the work that the team has been doing on cost out and start looking at where we are on the development of our nexgen products. So if we go to page 22.

We called the Z, three and battery and how that changes the performance of our Eos Cube, our 20 foot container, which is our primary product to the market. We have prototypes on test right. Now if you look at the lower left hand side of page 22, you see and the middle there.

Z three battery sitting on its left is a gen. Two battery and sitting on its rate is a gen 2.3 battery and although you may not be able to see and the picture. The one third smaller size you have to remember that that battery that you see there is smaller and dimensions and instead of 40 cells. It has 28.

And those 28 cells are delivering 15% higher energy discharge out of the battery what does that mean for our customers with one third of the size was 15% higher energy out of a smaller footprint, we're delivering 40% more power out of a.

Aigner, which reduces the footprint required to deliver and doing all of that with the same safety aspects of having and inherently fireproof battery at the same time, because you have fewer cells and <unk>.

We've changed the aspect ratio, we are operating the system at lower voltage with the same voltage curves as the zenith 2.3 battery what does that mean it means a lower temperature footprint coming out of the battery and that's the chart that you see on the far right hand side, what does that lower temperature mean to a customer.

It means 25% lower level is cost of storage for an ecosystem that 25% is driven by the fact that we have lower temperatures, which simplifies our system configurations and allows us to deliver performance with a much simpler and more robust and inherently safe system.

So we're early days and the testing of the product, but we like what we see so far there should be more prototypes going on to test here over the next few weeks, we'll come back and our next call coming out of two and should give you an update on where we stand on not only the product, but also ramping up and developing the manufacturing process, but really.

Great start by the team to bring this product from the drawing board to the test. So we can see the reality of how it is going to perform.

And if it goes to the next page on page 23, I'd like to just focus for a moment.

And a couple of key customer deals and this is where everything that we talk about this is where we deliver for customers. The first of all I like to talk about is a project that we book, we signed with with Hecate and this is providing location capacity for the aircraft market and Texas. It's a great project for US first off it's an LOI.

And two on the order and we've got another 47 megawatt hours of of opportunities that look like this hecate project here, but this will be one that will be delivering here as we go through into 2022, the middle one that shows the shipment on the first four containers to motor oil and grease.

This is building a safe.

Lower cost energy for oil refinery operations and Greece, There's another 250 megawatt hours of opportunities similar to the motor oil project and we're gonna be starting up.

The commissioning of those containers share the next week and look to get that project on line here as we get into the early summer last one if you look at the picture and the background. There that's the yields container sitting in Nigeria for the shelf day old project and when you look at this I think the picture tells a thousand words and that sometimes if you want on.

Operating and bring reliable power to remote locations and a microgrid application you can have complex systems around it and you've got to deliver something that's simple and safe and you could see the containers sitting there ready to be commission, which will be completing here over the next 30 days and there's another 100 megawatt hours of projects that look.

And that shell Mayo projects are three examples of our recently signed deal and recently shipped deal at a project debt is gonna be going live here and the next 60 days. So things that we're proud of is we really look at delivering and continuing to build upon those operating hours that I talked about and the beginning of the presentation.

Lastly, just as a wrap up and we're going to continue to execute on the same six priorities and when you look at booked orders and we've got to expand continue to expand the global pipeline coverage, we're working to obtain a green bond rating because we feel like that'll be a competitive advantage for our customers as they look for financing of their.

<unk>, we're on track to get to the $50 million and revenue, we're gonna be commissioning and tank containers and we're gonna be shipping 10 million of sales in the next five months as we ramp up going back to that page and talked about earlier are wrapping up the factory and you all will close out the 1973 certification and start our <unk>.

And Mark certification for the European market will come back on the 800 megawatt hours of capacity and will give you an update on where we are on a raw material sources and then talk about the lean improvements that we're making and the factory on the G. III product launch will be able to show you on the performance of other configurations and walk through where we are as far as.

Ramping up production and what that will look like over time, and we'll continue to invest and the best people and build a great culture, where and a build out and start our European sales team and we're going to expand our software and systems engineering team to be able to bring multiple configurations to the marketplace, but what I'd leave you with is that all the work that we're doing and the way that we.

We're investing our cash is to strengthen the company to deliver for the long term and to be able to capture the growth that we see and the energy storage market. So with that I'll turn it back over to the operator and and open up for some Q&A here. This morning, thanks for listening.

Hey, Yeah, if he would like to ask a question. Please press star one on your telephone keypad and.

And confirmation tone will indicate your line is and the question Kim You May Press Star two if you.

Remove your question from the queue and from participants using speaker equipment may be necessary to pick up on your handset before pressing the star and he's our first question is from Chris.

Other net.

B Riley. Please proceed.

Hey, guys. Thanks for taking my question here.

And based on the slide deck here and we're looking at about $10 million and sales over the next five months I'm. Just curious are all of those gen. Two three products and then you know any sense on the split between second and third quarter recognition and.

Should we assume the rest of the $50 million and revenue that we're targeting.

There will be no that'd be three coming in the fourth quarter.

Okay, great and good morning.

And so so the $10 million and we're talking about here and really into the fourth quarter and also theres going to be a mix of.

And then 2.3 product and that'll be shipping throughout the year, so theres going to be it's not going to be a hard stop theres going to be a transition depending on customer requirements.

Soccer and I'll, let you talked a little bit about the split.

Over the next five months, but as we ramp up the rent page, Chris that we had earlier and the presentation is all gen. Two three product.

Hey, Chris Good morning Hope on.

Okay, and getting complete put the baby and everything so.

With that said.

Look.

To answer your first question.

The deliveries that we have over the next five months, we'll all be 2.3 and.

At this point, we are not giving any additional quarterly guidance. So so and as the shipments go along we'll be sure to keep you posted.

And they will fall into the quarter that day Boe.

The rest of the year after that I E I E. The fourth quarter.

There will be a combination to Joe's point of $2, three and and three point, though and to the extent that.

Clint I'm concerned every day it'll be determined both by the customers needs wants and and expectation plus our delivery schedule, but we intend to be fully functional on both the product and that's about.

But the level of visibility there been and golf for right now.

Okay got it and makes a lot of sense, so what you're seeing from that product progress here on a building and the order book you know, 50% of the 2020, one and targeted orders are booked at this point can you talk about how much of the balance that you're looking to close for revenue this year.

That is either late stage or LOI or firm commitment you know how how should we think about kind of the coverage there.

Yeah look I mean, the debt there are indicators that we can talk about and as we talked about on Patriot and there were $3 9 billion of our pipeline.

And the L O I's and firm commitments on our $600 million as we discussed 13 million and all of that <unk> 6 billion has been converted so there'll be a portion of that that will continue to and.

Turning to booked orders over the course of the next few months and we feel we feel good about that.

And secondly, the remaining portion of it will come through from our active pipeline that we are discussing there are a variety of projects and different stages.

But but you know how transactions go they need to take the right time for both economic benefits to both customer on and ourselves as well as to make sure that Oh redo.

We do the right thing for yields and totality so.

I would say that by the end and soccer the one.

Yes, but the one point I would add soccer you know, Chris the way that we build the model as you know we assume we assume on a 20% to 30%.

<unk> right from from pipeline into order and so when you think about the $50 million, we have more than enough opportunities to be able to close that has a soccer.

Was discussing I think we just have to work through the.

Timing of how projects close where customers are and and closing out their financing and other things and we will continue to work that but we have enough in front of us to get to that $50 million 50 million revenue target.

Got it okay. No. That's very helpful and I was just kind of curious on any customers waiting on.

Full system UL before putting in orders and that kind of a gating factor or is it mostly kind of just typical stuff that's going to be on on the customer and to hit the $50 million and 300 million and targets.

Yeah look you all testing is expected to be complete a hit here and the second quarter.

Prior to the close and now all booked orders are or are subject to you you all testing and certification so and <unk>.

And as a part of our overall operating rhythm and from a commercial perspective today.

Okay that makes sense and as the.

Pipeline continues to expand for some of those earlier stage opportunities.

How many customers do those upticks and lead generation non binding quotes represent or is it would you say it's more about.

I think our customers already and that pipeline.

Just coming back with other potential projects.

Yes. There are there are a few repeat customers off our booked orders, we have new customers, which is predominantly what's driving the improvement and backlog by two time between in the last hundred day, but that said you know.

Our pipeline today, it is more than 90% and the U S and to Joe's point will be focusing on expanding that globally and and our customers our growth from the meter behind the meter utilities micro grids and and they are evenly distribute it and now some of them on larger projects will take a little bit of time here.

And to turn them into booked orders, but not trip and nature of the court.

Having initiated commercial activity and the last are less than one year and and we are on our way to having a very balanced portfolio going forward.

Yeah, and I would just add Chris on your question I do think we are seeing a good uptake and repeat customers coming back in with with other projects as they work with us on the on the on the orders that we close what I'd like to see US do here over the next few months.

We continue to expand and add more customers to soccer said, we have some traction but I do think we can do more particularly like and I think what we always try to balance as we look good against ourselves. So we're growing the opportunity pipeline versus where we were the last time, we talked we really have to focus on is where's the market and how do we grow that pipe.

Line vis vis the available market and that's why we're expanding the commercial.

Yeah.

Okay and.

And I have looked at you know obviously, there's been a lot of discussion and the market about lithium ion and shortage issues I'm curious is that causing any incremental near and mid term opportunities for you guys and how it's impacting the pricing you're going out to the market with and you know also you highlighted the wide availability of your materials are there any come on linear.

And the supply chain issues, you're seeing within the market that might provide you know concerns for you guys or is it pretty clean.

Yes.

On the last part Oh go ahead I'm sorry go ahead.

I was going to Pedro the pricing side of it look or our pricing hold steady and firm to what our guidance has been in the past and any improvements we see here low come through as we discuss more about pricing over the course of this year.

With that said I'm, Joe on on that how do you talk about the lithium financing.

Yes, so Chris.

Chris and I was going to focus on was on our supply chain. So we don't we don't see any shortages today and and and and.

And the material inside of inside of our product line.

Trying to balance and keeping an eye out for is just around the power electronics that we have and in the product and be able to run our battery management system, but right now we're okay with this with sourcing and supply on that on the lithium side and we are seeing more and more near term projects that are out there that have commitments coming.

To get quotations from us and that's one of the things that's been driving up the pipeline.

And as you know and we do our process nervousness Theres, an education process, we have to go through of explaining how we're different and where the value is and we're working through that with these new customers that are coming to understand how the technology works.

Okay, and that's very helpful and just on maybe on a JV buyout impact and can you talk a little bit about how that changes the path toward a positive margins and you know where where do you see the gross margin breakeven point and from a revenue run rate or utilization rate.

And based on the cost reduction effort and and bringing that production in house.

Yeah, So Jamie as you know we purchased the remaining 51%.

So the theory from payments here or over the course of the next five years 15.002 million 21 between paying back the contribution of $10 million plus 5 million.

Upcoming here in May and then and then 5 million thereafter from them for another four years.

And as far as that as far as that impacting I think a large majority of the impact has been positive on on having our.

Light chain being vertically integrated and having.

And having our focus on both the cost out that Joe spoke about and and and the production of gold two three and three point go batteries.

Thankful for the investment and the and the focus on.

It is put into the company up to that point.

With that said.

As far as financial go we continue to remain with our guidance on what the what the expected margins are from from my full year projection perspective and offered earlier in AR at the end of last year as we have improved guidance for 2022 on later in the year on the or closer to the fourth quarter.

And we'll be sure to come back to your day.

From a from a cash flow perspective look I think we have always reported income from J P. E. B below the line now and and just be a matter of geography, where to the extent up and guidance remains the same and Italy.

And that will be reflected above the line and and and you know a lot of the cost out is going to be where the margins are going to expand here in 2022 and 'twenty three.

Okay and then just the last one maybe you can walk through the Capex cadence and the rest of year and.

So maybe the expected cash burn for 2020, one between a low losses during the ramp up you know capex and and the project financing just kind of bringing that together for us and the last one yeah. Yeah of course of course, so we have committed capital on project on a on on the customer so I'll put it in three parts right and I'm talking about.

Customers its worst and and then and then talk about the rents from from a customer's perspective as we discussed on page nine we have development financing and project financing along with that but anything on the committed capital between development and project financing, it's close to about $15 million will continue to meet our customer.

Demands and expectations here, but with respect to that and we are actively looking for what's the right financing strategy would be to syndicate that off our balance sheet and ensure that we continue to remain to our core competencies.

Battery and and and storage facility.

But that said, we will be applying similar financing strategies on the asset leasing side, we have been continuously evaluating our strategic partner and not rush into it now.

Big part of what Joe talked about our focus being on Green bond reading, but also substantiate a lot of the financing here. So that's on the customer side of things on the Capex line up at the last time, we spoke we talked about we talked about it about $40 million to expand our investments and in the.

And in the manufacturing capacity, we continue to hold to that guidance now given that leaves me.

Well, probably there's a little bit of background noise.

But.

Given that are we have we have purchased the high power facility from old Tech there'll be some level of incremental investment will have to make a call called on somewhere between $15 million or so for the portion of the JV that they would've invested and that along with the <unk>.

Capital contribution that'd be repatriated back is is on a two and a happy on payback and very much in line with our capital allocation and return on investment strategy. So that's on the Capex side of it but the investment and capacity continues to be a focus area for them.

And and then the rest of it is really operating cash flow and to the point I made on page six with our cash our G&A per se on a run rate basis, and there's about $3 million burn rate.

On a quarter over quarter basis.

Call, it even 4 million, but our commercial team and.

And there the rest of the rest of our cash burn is really discretionary to either on the capex, we need to spend the kind of thing we need to do and and to the cost of sales, but we need to incur to produce the revenue and and to commercialize the business as we are and and that will continue to remain steady state from and operating.

Operator ability point of view is and how that impacts our overall cash strategy, which the board continues to evaluate on a periodic basis.

And be sure to come back to you and the broader group on on what that means going forward.

Excellent and I appreciate all the color there guys I'll hop in the queue.

Yeah.

Yeah. Thanks, Chris Good luck with the base Chris.

Our next question is from sea bass Shandra with Northland Securities. Please proceed.

Yeah. Good morning, guys. So just to understand the revenue there.

And cruise the service revenue and so I guess, the 50 million or so should we consider say 42 of that you know kind of a hard code and the and the revenue line.

And then the balance of it you.

You know spread quarterly over the timeframe. So saga and then could you you referenced.

Yes look great great Great question Sebastian So so all bar off our booked orders and call it called out the $50 million and backlog and order to 33 million ear to be off the 50 million about eight and a half million dollars and service revenue and off for 30 363 million net service revenue back back on.

Revenue is not contemplated to be accreted on our balance on our P&L from a reported earnings basis, and three and beyond so that's really on a on that.

And that's really building to the longevity of appeal and that's a value proposition and and the margins on that will obviously be much more accretive than equipment sales has he as you can expect.

But that said that's not contemplated in our current and 50 million protection and now as we come closer to the end of the year here and look.

The service revenue will become an important part of our value proposition and our strategy and we'll be sure to discuss how would that impact the debt.

But Tom and locked up $50 million from from the rest of beer, a reporting perspective, but even in our projections. We never consider it would be service revenue to be accretive to current year recordings and beam continue to hold to that guidance at this point.

And two Bucks remember on the way the way the service model works is it won't kick in until until year three.

After shipment. So there was always debt. This was always a year, where revenue would be 100% product shipments.

Okay.

And just to clarify again, so that is $50 million of product shipments.

Yeah.

For 2020 one yes.

Okay.

And as opposed to me when I was out there. Okay. Thanks, thanks for pointing it out.

Yeah, and I could the gross margin question, just just put another way should we consider that are being in the and the positive category. You know you know from.

And I understandably it wasn't if it does.

First quarter.

But if it's on.

Not positive when do you see gross margins.

You know flipping to positive this year yet.

Good question, so back in 2021, and we do not expect gross margin to be positive in line with our guidance in 2022 in the fourth quarter on a quarter basis is when we expect to see gross margin positive and that'll that'll habits, and natural reflection on and year to day basis and 2023 years.

And we expect the run rate of gross margin to continue to yield positive results.

Okay that is that is exactly in line with our guidance and we are not offering and just to be clear any revised guidance from that from from what we had projected at that point.

Okay.

Hum.

Yep.

And then on it and titanium alternatives you know you're talking about.

How you've been looking for it and now you're sort of referencing is there a competitive element there that you want to and.

But previously was there and a cost element or you know.

That this could have a meaningful impact on your on your battery costs.

Uh huh.

Yeah.

So suraj the thing the thing on on the titanium alternative you know we've got some things on tests that we have to work through and we're proving out that it works and the battery, but you know when you start thinking through like once you get the material to work then you've got a good source of supply you're going to get the quality you've got to get the manufacturing process. So we're working.

Through with that transition plan looks like and tying that into where our capex model. It is a cost out opportunity for us and the long term, but given the ramp that we have of adding capacity and bringing the factory up we're trying to come up with the best integrated plan and hit that target, but the ability if we.

Half the flip a switch if something happens to accelerate that if we need if need be.

Okay, so okay and so.

When you think of cost.

Cost out and the long term sort of stay busy three kicks up.

When do you think that transition happen does that sort of a you know.

'twenty three events when you think that it can have.

And impact on our manufacturing line.

You mean, you mean, the titanium question or sorry, yeah, the substitution effect and yes, if you.

Yeah, Joe if it's okay I'll take the share.

Yeah look it's about material substitution will always continue to remain a part of our sales strategy and frankly, it's part of our optimization on on on manufacturing process that drives all of it right. So from a from a if you take a step back and then as a technology company and always looking to put.

The best product out there.

And we'll be looking at a variety of different.

Material that replace and substitute for all five of our own.

Our abundant and materials at this point titanium and the ultimate materials and there's one such one on one such category at this point, we have not really contemplated when we would go line with with with the Gen four or the next version of our battery our focus today is to get the debt.

Manufacture ability on Gen, three point, though and or the Z three product out in the marketplace successfully have our customers continue to appreciate that value proposition and that cost out all of that is included in the 40 per se and targets that are that Joe spoke about.

On on that.

And the page here on cost I believe it was page 20, and and and titanium growth are the substitute material will have any impact on incremental to what's on page 20 and.

And that's our core value proposition for the company it really come through sometime when we are ready to deploy it and will be short and let you guys and what the timing looks like there's one here.

And I think too much that's too much. The one thing I would say is there is no concern with titanium today for us from a supply standpoint, it's readily available on our our what we're planning for and planning ahead on is if aerospace takes off you could see price inflation are you could see tightness on.

Supply, but theres no urgency to be able to do that switch, but what I want to make sure everyone understands and different than when you talk about other battery technologies as we have readily available abundant raw materials and we're building optionality on the supply chain to mitigate risks that we see and the future so not something and the short term, but something that we're preparing for it.

And there's changes and the market. So we don't get caught out.

Right Okay understood.

And then finally on the certifications just Oh, Yeah is there anything additional first and you know the New York, Florida Department, which you've been working with.

Do they is there additional certification because they were gonna player for you know urban and placement of these batteries.

Or does this get you over all of those homes.

So there are additional certifications both with the fire Department and the building Department and New York City of which we're working through those processes as we you know right.

Right now what we want to do from a communication standpoint, and we're focused on getting UL because that ties to the orders backlog and the pipeline we have in front of us, but we will give an update as we switch off to that to doing the CE, marking for Europe and then also talk about where we are in the in the.

On the urban storage qualification process well underway.

Okay got you.

Great detail guys and thank you.

Thanks, so much thanks, so much.

We have reached the end of our question and answer session I would like to turn the conference back over to Joe for closing comments.

Thanks, Dan and thanks, everybody for listening in today and thanks to buzzard, Christopher the great questions and we're excited about the company that we're building and the opportunity in front of us and we'll keep everyone posted on the progress that we make and look forward to talking here at the end of the second quarter. Thanks for the times a day.

Thank you. This does conclude today's conference you may disconnect. Your lines at this time and thank you for your participation.

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Greetings and welcome to Eos Energy Enterprises first quarter, 2020 one earnings call. At this time all participants are in a listen only mode. A question and answer session will follow the formal presentation and.

If anyone should require operator assistance during the conference. Please press star zero on your telephone keypad. Please.

Please note. This conference is being recorded I will now turn the conference over to Jared and and.

Yes energy and thank you you may begin.

Thank you.

Everyone and thank you for joining us for <unk> financial results Conference call for the first quarter ended March 31 2021.

On the call today, we have CEO, Joe Master, Angela and CFO soccer Corona before we begin allow me to provide a disclaimer regarding forward looking statements.

This call, including the Q&A portion of the call May include forward looking statements related to the expected future results for our company.

Which are subject to certain risks uncertainties and assumptions.

And any of these risks materialize or should our assumptions prove to be incorrect. Our actual results may differ materially from our projections or those implied by these forward looking statements.

The risks and uncertainties. The forward looking statements are subject to are described in our earnings release and other SEC filings.

Remarks during todays discussion should be considered to incorporate this information by reference.

Forward looking statements represent our beliefs and assumptions only as of the date such statements are made.

We undertake no obligation to update any forward looking statements made during this call to reflect events or circumstances after today.

Or to reflect new information or the occurrence of unanticipated events, except as required by law.

Today's remarks will also include references to non-GAAP financial measures additional information, including reconciliation between non-GAAP financial information to the GAAP financial information.

Provided and the press release.

Non-GAAP information should be considered supplemental in nature and is not meant to be considered and isolation or as a substitute for the related financial information prepared in accordance with U S. GAAP.

In addition, our non-GAAP financial measures may not be the same as or comparable to similar non-GAAP measures presented by other companies.

This conference call will be available for replay via webcast through Eos as investor.

Relations website at investors day.

S E Dot com.

Joe and Saga will walk you through the company's highlights.

Financial results and business priorities before we proceed with Q&A and.

With that I'll turn the call over to Joe.

Thanks, Jared and welcome everyone to our one Q.

2021 financial results call I'd like to thank everybody for joining us today and jump in on page three to walk through some operating highlights. This page I think it's the snapshot that we like to use to track how we're progressing on building the company I think it all starts on the upper left hand side of page, where we look at discharge energy and <unk>.

That's how the product and the technology is operating on the field and how it's performing and our test facility in Edison New Jersey since our last earnings call. We've added 20% to the discharge energy and we're now over 2 million cycles of operations and this technology, that's proving itself not only in the lab.

But also out in the field at the same time, we're very proud of being able to report that we're at $33 million of orders with a $51 million of order backlog and I think what's critical here. When you look at those two numbers is that already and the first.

And five months of the year, we've booked.

33% more orders than we did and prior year. So we're starting to really see the traction gaining as we build out our commercial team and really get out and sell the product and the marketplace and in fact, the same time when you look at the lower left hand side of the page our opportunity pipeline now stands at $3 9 billion, which is up a half a billion since our since our last call. It.

And that's 23 gigawatt hours of storage opportunities at the same time in order to do this we've got to continue to build out our capacity and develop our technology and Sarah will walk through and a moment, how we've been investing our cash but I think it's critical to note that we spent a net.

$9 million and building out capacity and developing our technology and we'll walk through both of those items as we get further into the presentation and lastly, and importantly is just how those five things feed into the most important thing which is generating revenue and yeah. We shipped.

Our our containers and Nigeria, and I'll give an update on that later in the presentation to generate 200 $200000 of revenue, but more importantly, the metrics that I talked about earlier and we'll talk about where we are from a factory capacity build out we will see that number go up as we ramp up to our target of $50 million of revenue.

And 2021.

So today's agenda will focus around the six priorities that we have as a leadership team and as a company in 2020. One gave a quick update on where we are vs order bookings. So far this year importantly is that those strategic LOI that we've been talking about since we went public on now transitioning from LOI into firm orders and <unk>.

Got six projects booked with.

And with $13 million on future revenue associated with that on the overall revenue side, we're at $900000 of revenue booked to date and our backlog covers 50% of our 2021 revenue target on the UL certification and front. We're proud to say that we've achieved are you all $95 40 a certification.

Cash and I'll walk through some details on that and a moment and we're finalizing the you all 1973 or the overall system certification by the end of June.

Continue to March to our build out of capacity will go through where we are and what we've been able to accomplish on this but very proud of what Jody markopolos coming in as our our chief operating officer and the team have been able to accomplish here in the first quarter and looking forward to our projects team now led by David religion, Who's come from us from Black and <unk>.

Beach as he starts on the installation and commissioning a roadmap that we have the same time, we're making good progress on our Gen. Three product launch will talk about the results of our first prototype and what that means to our customers, but right. Now we're tracking ahead of schedule for that launch here in the fourth quarter of this year, whereas on.

Our original plan was for the second half of 2022, and we continue to build a great team. We closed the acquisition of a 51% share and our high power and manufacturing joint venture and out of the hires that we've done and 71% of those are going into engineering technology, R&D and manufacturing and we've actually doubled the <unk>.

<unk> of our manufacturing team and our facility in Pittsburgh, Pennsylvania, So we're truly building and operating company and we're proud of the results that we haven't realized that we've got more work to do but we're well on the way of achieving our goals and objectives for 2021 with that I'll turn it over to saga who'll walk us through the financials and the growth and revenue profile for the company.

Thanks, Joe Good morning, everyone over the next two pages and I'll be discussing a summary of our first quarter 2021 Republic financials, and detailed financial statement and relevant management discussion are available in our 10-Q and supplemental disclosures page five is the summary of our first quarter and.

And the statement.

We reached an important milestone and the quarter as we recognize revenue on 164000 and from our first container ship down and high power.

Grow grid storage solution in Nigeria powered by <unk> and the Shell Foundation.

Our cost of sales and the first quarter with $21 million was favorably impacted by the reversal of one 6 million reserve for losses on firm purchase commitments.

Had recorded in Q4 of 2020.

We reversed the accrual because the batteries that we acquired under the current merchant commitment in Q1 were ultimately used for R&D purposes, and therefore, we expense these costs with R&D in the first quarter.

Debt to reverse so largely offset by cost of sales of $1 7 million that are included within this position.

We recorded $5 million in R&D and clearances for the quarter.

R&D expenses increased mainly for two reasons first we incurred $2 2 million higher battery testing costs.

And then prior year due to our UL certification process, partially offset by the accrual reversal and cost of sales I discussed earlier.

Second.

And we are continuing our investment and new technologies, specifically, our gen III or Z three program, we increased our investment in R&D head count and incurred <unk> 5 million of higher payroll and personnel costs.

We also recorded G&A for $16 6 million in <unk> 2021.

General and administrative expenses included $7 8 million expense.

And that is non recurring in nature incurred in connection with the agreement that we entered into with <unk> to acquire their 51% interest and our JV high power.

And does that agreement, we were obligated to pay the whole tank from a contribution they've made to the JV over the past years.

In addition to this we incurred $2 9 million in higher fees for professional services.

These fees were incurred in the first quarter and were partially still related to our stock merger in the fourth quarter of 2020 and are also nonrecurring in nature.

And lastly, we incurred higher stock compensation expense on two 5 million and increased payroll costs from one 4 million due to higher and head count and larger footprint as the public company.

Moving on to page six.

And of 331, we have 101 million in cash and cash equivalents.

Cynthia and our investing activity included $4 million and capital expenditure for future capacity expansion as we ramp up manufacturing and production.

The first quarter, we have supported for development and project financing with select customers $3 million and investments.

Additionally, our operating activity included $5 million and cost of Vale <unk>.

$5 million and research and development and UL testing $3 million and general administrative expenses $1 million and expanding our commercial team and 1 million and transaction costs.

In the next section and will be reviewing our progress on commercial pipeline and booked orders to deliver on our 2021 financial commitments page eight is a snapshot of our commercial activity as of May four 2021.

This is a page you announce many of them and from previous presentations, our customer engagement and start with lead generation profit, where we work with our customers to materialize ideas and and that's where feasibility regulations project plans and economics vs.

And they have $2 4 billion or 14 gigawatt hours in review within lead generation.

This segment has since fourth quarter of 2020 earnings call in February and increased by approximately 600 net.

Our commercial pipeline is $3 9 billion on 23 gigawatt hours.

This constitute.

Two key segments active proposals of $3 3 billion and customers with whom we have firm commitment on <unk> 6 billion.

Active proposal since fourth quarter of 2020 have increased by approximately $500 million.

As a reminder, only a customer on a project with a clear mandate on project requirement technical specification and only a use case that pattern.

Flight yields specification will be included in our pipeline.

And the date, we actively present, our commercial and technical proposals to customers our experience indicates 30% of our pipeline over the long run translate into booked orders.

And specific circumstances, where we have reached an agreement on commercial terms with select customers and have agreed to terms with a letter of intent and supported by clearly defining next debt that require action on part of our customers. We categorize these projects as an LOI or.

From a commitment our experience indicates on average 60% within this category translates into booked orders.

In 2021, we have converted $13 million or <unk> 47 megawatt hours.

From six projects to booked orders and we continue to work with our customers on material developments within this category.

And the $4 32021.

We have $33 million and booked orders to date.

And we consider project a booked order when there is an agreement for yields to procure material and manufacture and deliver on storage solution commitments, we see strong momentum in demand for the rest of 2021 booked orders have increased $31 million since our fourth quarter.

Earnings call in February.

On page nine let me review a few financing strategies that enable our ability to partner with customers delivering energy and storage solutions. Firstly, we are engaged and development financing for early stage clean energy initiatives with select customers, where do we current D have firm.

And.

We have committed to $5 million in capital to partner with independent power producers determined site scale and market potential in the United States. One potential partners off takers are established yields will have exclusive rights to deliver storage solution.

Expected economic value creation from the sale of yield storage solution is not currently included in the committed capital.

We have to date funded 600000, all such commitment.

Progress on these projects has resulted and successfully securing land rights for projects in consideration and with interconnection approvals and Q.

Second we have partnered to deliver project financing for select customers and support development of comprehensive micro grid renewable energy solution.

We have committed to $9 8 million and capital to partner with these customers who have successfully received interconnection.

Being required for the project.

We offer financing solutions tailored to cover project costs, such as engineering pre development solar and construction and the expected economic value creation from yield storage solution is not currently included in debt committed capital. We have to date funded $2 6 million of such commitments.

And lastly, we have strategically agreed to partner and asset leasing arrangements with select customers for Eos equipment.

On a lease to own basis. This financing is offered at competitive rates and secured and collateral from storage assets commissioned on ground.

We have $10 1 million of asset leasing commitments. This specific.

Segment of strategic investment is included in our booked orders these projects and customers and satisfy the criteria for booked orders highlighted on page eight.

In our $3 9 billion pipeline, we have more than 100 million and additional opportunities with select customers ranging from development financing to project financing and accurately.

On page 10.

Like to offer you more specific details on the $33 million and year to date booked orders we reviewed when discussing commercial activity on page eight our.

Our current booked orders constitute nine projects with eight customers and 141 megawatt hours <unk>.

$18 5 million are cash sales of used equipment, representing 104 megawatt hours $8 2 million of asset leasing represents 37 megawatt hours and four projects, we discussed that with the thing and context up our overall financing strategy on page nine.

These two categories delivered $26 7 million and equipment orders and.

Additionally, our booked orders and constitute a $6 3 million and recurring services from monitoring and maintenance obligation, but typically beginning in year three and range from five to 18 years. We currently have eight or nine projects with contractual and recurring revenue.

And on our year to date booked orders.

Development and financing and project financing from page nine are not booked orders, we expect the momentum on booked orders to continue in 2021 to deliver our forecasted commitment.

I'd also like to expand on page 11 on the detail.

Our orders backlog, which is now a reflection of our 2021 year to date booked orders plus 2020 yearend backlog mining and he shipment to meet customer commitments.

This backlog comprises of 25 project with 19 customers and 204 megawatt hours on February 25, 2021 in our <unk>.

<unk> earnings presentation, we reported orders and backlog of $21 2 million. Since then we have recorded 34 million new booked order activity as reflected on page 10.

Through today, we have successfully shipped fixed containers, the motor oil renew and shell and <unk>, which subtract the backlog by <unk> 9 million, resulting in a total of $55 million and outstanding customer commitment dilemma.

Free on these commitments is expected in 2021 and 'twenty two with approximately 25 million contracted for 2021, and then an additional $17 million in 2022.

Expected delivery in 2021 will be primarily ready to ship in the second half 'twenty. One and will include a combination of Gen. Three point, though or our rebranded <unk> system and our current technology and production Gen. Two three.

Our progress on backlog and is more than two times our earnings call from 100 days ago. We expect this positive momentum to continue as we lean forward to invest further in our commercial team manufacturing capacity and create market awareness of our competitive advantage.

And.

To elaborate on all of these advantages and topics I will hand, the conversation back over to Joe on page 12.

Thank you.

Thanks Saga and now let's focus.

For a second on UL certification, which is critical to deliver on those growth numbers that <unk> just talked about so moving on to page 13, you know there's two UL certifications that we go after one of them is on the battery module itself, which is the $95 40 day, which is safe.

And for thermal runaway or the risk of fire and explosion and we've completely past that testing and I'll walk through some results on that testing and a moment. The second is the overall storage system, which as you all 1973, which we have.

<unk> gone through the testing.

And for that certification and are now just qualifying the material the plastics that we use and our frames for the RTI or relative temperature index of 80 degrees C. We're halfway through that testing as we speak and we anticipate that we'll be able to close out the UL 1973 certification by the end of.

June tremendous.

Results by the team a lot of this was done virtually and over zoom and Microsoft teams. So really great work by the team to get us to this point and this period of time if.

If we flip quickly to page 14, just wanted to talk quickly about the results of our $95 48 tests, we like to say is that our battery is inherently fireproof and that it will not catch up fire or explode and does not meet ancillary systems like HVAC cooling.

Our software to manage the risk of thermal runaway if you look at the four main test here. The first one is over discharge.

Over discharge the batteries and beyond.

Down to zero voltage and don't see any degradation and the battery itself. There's no loss of capacity performance and you can rest of battery and get it back to continued operations, so you're not going to damage or destroy the battery in and of itself doing this test. The second one is shooting a two and a half inch and now into the battery again.

Nothing happens these tests were relatively boring because you'd watched and they'll go in the temperature would go up a little bit, but there's no way and Theres no explosion and there's no thermal runaway then the two on the right hand side, which are really critical is overcharging. The battery two times its normal capacity the battery gets up to.

Ah 90 degrees C again, no flame no explosion and theres, a little bit of electrolyte and steam release.

From the battery, which we manage through a capture system.

To be able to to knowing that this does happen if and the unlikely event that should happen and the second one is on a battery short circuit test, where we're short circuiting the battery and into itself and again you see the several that Alex take over the temperature rises to 80 degrees C and when you look at these.

And two tests and the curves that come out and it's just to test and you laid them over what you would see from a lithium ion battery. The curves look exactly the same but there is one important difference our battery doesn't go above 100 degree C, but lithium ion when you separate it out it's temperature will rise.

And to seven or 800 degrees Celsius, So what we see and our battery is a battery that's inherently safe and fireproof and allows you to operate and the harshest conditions with the simplest ancillary systems and the least amount of parasitic load or low day.

You need to use to protect the safety of your product to keep it operating out in the field. So it's something that we see as a competitive advantage and we see as something that our customers can rely upon us to provide reliable energy storage and any environment.

Moving forward on shifting gears to our manufacturing capacity. So if we go to page 16 and theirs.

Four key things that we want to talk about today. The first one is the facility or a factory ourselves itself. We are fully repurpose the factory and 11 months and we'll show what that looks like today and what we've been able to do our equipment today, our yields coming off the line or above 90% tremendous amount of work done by the team to both ramp.

Up production and improve the quality of our product. The third one is a material availability and product cost we've been able to take 40% of our battery cost out and the last five months and secure multiple sources of supply to keep the factor is slowing and the last one which is which.

And which is actually the most important one is bringing and great people and as I talked about earlier and the presentation, we've been able to double the size of our team over the last five months and we're proud of the work that they're doing and we'll continue to recruit hire and train and the best to deliver our product to the marketplace. We go to page 17.

And when you look at the page the left hand side of the pages with the facility looked like 11 months ago. The right hand side of the page our screenshots from various parts of our factory what the team's been able to do is wrap up production on our electrode line and improve the yields and quality to single digit.

Single digit scrap rates on how we produce this critical component of our battery, we've ramped up with new technology, and how we built the mechanical or and.

Closure of the battery using infrared welders and continue to expand that production to increase throughput and the factory and we're optimizing the processes of of quality control and filling our battery with electrolyte and are now working out of lean a lean manufacturing roadmap across the factory from not only manufacturing batteries, but getting back.

The other is into the container and getting and tainer shipped to customers. So really a great amount of work a ton of progress here and 11 short months from going from an empty facility into a factory that shipping product out to the field. When we look at page 18.

What is always been a strength of our system is that we have.

Bundle and raw materials that can be locally sourced at a lower cost point than other technologies and I wanted to show you how our four key.

Raw materials that go into our battery when you look at what they are where else they're used in the world and more importantly, if we focus on the bottom.

<unk> portions of the right hand graph, if you look at the percent of the global demand for those raw materials, if were producing a gigawatt of production out of our factory you can see that we have a de minimis demand on the overall global supply chain for each one of our raw materials, but we don't just sit back and and rely upon.

That the team continues to work to be able to look at how we're doing <unk> and sourced and mixing process to both reduce cost and accelerate cycle time, and taking them. Although were a very small percentage of the global demand and we do look at this as a key component and the aerospace industry and that's aerospace comes back to be able to mitigate any.

And any supply chain risk and we have we are looking at alternate materials to titanium to be able to put into the battery on graph I felt were testing new materials specifications to be able to open ourselves up to new sources of supply to be able to reduce debt four 5% down lower as we grow the business and on plastics was critical.

Here was not so much the supply of the raw material the actual plastic itself, but it was to make sure that we have multiple boulders to be able to ramp up our production as we move forward to truly keep the supply chain slowing and although were at a ramp up period and production as we think and plan. The factory we're planning it as though we're at scale.

And making sure that we're mitigating those risks to get to scale on our production process. If we move forward.

To page 19. This is a critical page that talks about her.

Now we're ramping up production.

Today, when you look at where we are we're getting up to 50% capacity on our existing factory, we're optimizing the electrical load.

And electrode line, we're expanding capacity on our IR welding and we're doing increased product testing and we're running at a lower utilization rate to make sure that the product going out into the field is of high quality.

Now as we think about the next couple of months, we're going to continue to add resources and the factory and higher workers to work. The line, we're going to add more capacity and continuing to streamline processes to get by mid summer to 70% output and then from there. It's working from July to September to get up to a 100% by continuing to.

And optimize the process of how we built rebuilt and.

And integrate batteries into containers, bringing our factory automation on line and really driving lean manufacturing across the facility. This September day gets us to 100% capacity on the equipment that we have today and then starting in October and November December we start bringing on line the additional capacity that we're.

Developing as we bring our new generation three product to the marketplace to get to the 800 megawatt hours that is our target for 2021 at the same time, if we move to page 20.

And as critical to think about the cost entitlement and how we're delivering a product that will become profitable today. When you look at where we are we've already secured two thirds of our 2020 one cost out plan if by the end of the first half of 2021. When you look at the actions that we're doing these are really big.

And a strategic agreements with suppliers and optimizing our equipment and manufacturing processes and delivering additional volume discounts as we continue to grow our backlog and wrap up our revenue and then we continue to look for supplier diversity and diversification, which drives not only quality, but also cost out and taking.

Cycle time out of the factory to improve throughput.

And final 20% there that you see that gets us down to our target at the end of 2020, one really ties into what we're doing as you start blending the cost of the Gen. Three and the Gen. Two <unk> three product line and getting to the next tier of pricing discounts as we hit a higher volume.

Rates and truly delivering on the investment that we're making and automation and capacity of the factor as we move forward.

Transition from a look at the work that the team has been doing on cost out and start looking at where we are on the development of our nexgen products. So if we go to page 22.

We call disease, III battery and how that changes the performance of our Eos cube, our 20 foot container, which is our primary product to the market. We have prototypes on test right. Now if you look at the lower left hand side of page 22, you see in the middle there.

Z three batteries sitting on its left is a gen. Two battery and sitting on its rate is jet and $2 three battery and although you may not be able to see and the picture. The one third smaller size you have to remember that that battery that you see there is smaller and dimensions and instead of 40 cells. It has 28 cells.

Those 28 cells are delivering 15% higher energy discharge out of the battery what does that mean for our customers with one third of the size was 15% higher energy out of a smaller footprint, we're delivering 40% more power out of a container.

Which reduces the footprint required to deliver and doing all of that with the same safety aspects of having and inherently fireproof battery at the same time, because you have fewer cells and <unk>.

We've changed the aspect ratio, we are operating the system at lower voltage with the same voltage curves as the zenith 2.3 battery what does that mean it means a lower temperature footprint coming out of the battery and that's the chart that you see on the far right hand side, what does that lower temperature means to a customer.

It means 25% lower level is cost of storage for an ecosystem that 25% is driven by the fact that we have lower temperatures, which simplifies our system configurations and allows us to deliver performance with a much simpler and more robust and inherently safe system.

So we're early days and the testing of the product, but we like what we see so far theres going to be more prototypes going on to test here over the next few weeks, we'll come back and our next call coming out of two and should give you an update on where we stand on not only the product, but also ramping up and developing the manufacturing process, but really.

Great start by the team.

To bring this product from the drawing board to the test. So we can see the reality of how it is going to perform.

If we go to the next page on page 23, I'd like to just focus for a moment.

And a couple of key customer deals and this is where everything that we talk about this is where we deliver for customers. The first of all I like to talk about is a project that we book, we signed with with Heck of Te and this is providing vocational capacity for the aircraft market and Texas. It's a great project for US first off it's an LOI.

And two on order and we've got another 47 megawatt hours of of opportunities that look like this hecate project here, but this will be one that will be delivering here as we go through into 2022, the middle one that shows the shipment of our first four containers to motor oil and grease.

This is building a safe.

Lower cost energy for oil refinery operations and Greece, There's another 250 megawatt hours of opportunities similar to the motor oil project and we're gonna be starting the.

And the commissioning of those containers share the next week and look to get that project online here as we get into the early summer last one if you look at the picture and the background. There that's the yields container sitting in Nigeria for the shelf <unk> project and when you look at this I think the picture tells a thousand words and that sometimes if you want on.

Operating and bring reliable power to remote locations and a microgrid application you can have complex systems around it and you've got to deliver something that's simple and safe and you could see the container sitting there ready to be low commission, which will be completing here over the next 30 days and there's another 100 megawatt hours of projects that look like.

<unk> debt shelf <unk> project. So three examples of our recently signed deal and recently shipped deal and a project debt is gonna be going live here and the next 60 days. So things that we're proud of is we really look at delivering and continuing to build upon those operating hours that I talked about and the beginning of the presentation.

Lastly, just as a wrap up and we're going to continue to execute on the same six priorities. You know when you look at booked orders and we've got to expand continue to expand the global pipeline coverage, we're working to obtain a green bond rating because we feel like that'll be a competitive advantage for our customers as they look for financing of their prop.

<unk>, we're on track to get to the $50 million and revenue, we're gonna be commissioning and tank containers and we're gonna be shipping 10 million of sales and the next five months as we ramp up going back debt paid you talked about earlier are wrapping up the factory and you all will close out the 1973 certification and start our <unk>.

And Mark certification for the European market will come back on the 800 megawatt hours of capacity and will give you an update on where we are on a raw material sources and then talk about the lean improvements that we're making and the factory on the G. III product launch will be able to show you on the performance of other configurations and walk through where we are as far as.

Ramping up production and what that will look like over time, and we'll continue to invest and the best people and build a great culture, we're going to build out and start our European sales team and we're going to expand our software and systems engineering team to be able to bring multiple configurations to the marketplace, but what I'd leave you with is that all the work that we're doing and the way that we are.

Investing our cash is to strengthen the company to deliver for the long term and to be able to capture the growth that we see and the energy storage market with that I'll turn it back over to the operator and and open up for some Q&A here. This morning, thanks for listening.

Thank you and if he would like to ask a question. Please press star one on your telephone keypad and.

Confirmation tone will indicate your line is and the question queue. You May press star two if he would like to.

Free move your question from the queue and.

For participants using speaker equipment may be necessary to pick up on your handset before pressing the star keys. Our first question is from Chris Souther with B Riley. Please proceed.

Hey, guys. Thanks for taking my question here.

Based on the slide deck here and we're looking at about $10 million and sales over the next five months and I'm. Just curious are all of those gen. Two and three products and then you know any sense on the split between second and third quarter recognition and.

Should we assume the rest of the $50 million and revenue that we're targeting and this year.

And there will be that vs three coming in the fourth quarter.

Okay, great and good morning.

So so the $10 million and we talk about here and really into the fourth quarter and also theres going to be a mix of.

Gen 2.3 product that'll be shipping throughout the year, so theres going to be it's not going to be a hard stop theres going to be a transition depending on customer requirements.

Saga and I'll, let you talked a little bit about the split.

Over the next five months, but as we ramp up the ramp page Chris that we had earlier and the presentation is all gen. Two three product.

Hey, Chris Good morning Hope.

Okay, and getting complete put the baby and everything so.

With that said.

Look.

To answer your first question.

The deliveries that we have over the next five months, we'll all be two three and.

At this point, we are not giving any additional quarterly guidance. So so as as the shipments go along and we'll be sure to keep you posted.

And they will fall into the quarter that day.

And the rest of the year after that I E I E. The fourth quarter.

It will be a combination to Joe's point of $2, three and and three point, though and to the extent that.

That commitment and concerned and it'll be determined both by the customers needs wants and and expectations our delivery schedule, but we intend to be fully functional on both the product and talks about the.

But the level of visibility, there, but and golf were right.

Okay got it that makes a lot of sense. So you're seeing some nice product progress here on are still there and the order book you know, 50% of the 2020, one targeted and orders are booked at this point can you talk about how much of the balance that you're looking to close for revenue this year.

And that is either late stage or LOI or firm commitment how how should we think about kind of on the coverage there.

Yeah look I mean, there are indicators.

The indicators that we can talk about and as we talked about on page eight the $3 $9 billion pipeline of which the.

The low eyes and firm commitments on our $600 million.

As we discussed 13 million off of that point 6 billion has been converted so there'll be a portion of that and we continue to.

Turning to booked orders over the course of the next few months and we feel we feel good about that.

Secondly, the remaining portion of it will come through from our active pipeline that we are discussing there are a variety of projects and different stages.

But but you know how transactions go they need to take the right time for both economic benefits to both customer on and ourselves as well as to ensure that a redo.

We do the right thing for yields and totality so.

<unk>.

I would say that by the end and saga and the one.

Yeah. The one the one point I would add saga, Chris the way that we build the model as you know we assume we assume on a 20% to 30%.

Transition rate from from pipeline into order. So when you think about the 50 billion and we have more than enough opportunities to be able to close that has a soccer.

And I was discussing I think we just have to work through.

The timing of how projects close where customers are and closing out their financing and other things and we will continue to work that but we have enough in front of us to get to that $50 million.

10 million revenue target.

Got it okay. No. That's very helpful and I was just kind of curious are any customers waiting on our focus from UL before putting in orders is that kind of a gating factor or is it mostly kind of just typical stuff that's going to be on on the customer and.

And <unk>.

<unk> million dollars and 300 million and targets.

Yeah look UL testing is expected to be complete a hit here and the second quarter.

To the close and now all booked orders are.

Our subject to UL testing and certification so.

And just as a part of our overall operating rhythm and from a commercial perspective today.

Okay that makes sense and.

As the pipeline because we need to expand for some of those earlier stage opportunities.

And how many customers do those upticks and lead generation non binding quotes represent or is it would you say, it's more about having customers already and that pipeline.

Just coming back with other potential projects.

Yes. There are there are a few repeat customers off our booked orders, we have new customers, which is predominantly what's driving the improvement and backlog by two time between in the last hundred day, but that said you know.

Our pipeline today.

More than 90% and the U S and control at this point, we'll be focusing on expanding that globally and and our customers are growth front of the meter behind the meter utilities micro grids and theyre evenly distribute it and now some of the larger projects will take a little bit tightened here or two to turn them into booked orders.

And that's the nature of the course.

Having initiated commercial activity in the last Ah well less than one year and and we are on our way to having a very balanced portfolio going forward.

Yeah, and I would just add Chris on your question I do think we are seeing a good uptake and repeat customers coming back in with with other projects as they work with us on the on the on the orders that we've closed what other.

Like to see US do here over the next few months.

We continue to expand that and add more customers to soccer said, we have some traction but I do think we can do more particularly like and I think what we always try to balance as we look good against ourselves. So we're growing the opportunity pipeline versus where we were the last time, we bought well we really have to focus on is where's the market and how do we grow that pipe.

Line vis vis the available market and that's why we're expanding the commercial team.

Okay.

And we're looking at obviously, there's been a lot of discussion and the market about lithium ion and shortage issues I'm curious is that causing any incremental near and mid term opportunities for you guys and how it's impacting the pricing and youre going out to the market with and also you highlighted the wide availability of your materials are there any commodity or <unk>.

Poland and supply chain issues, you're seeing within the market that might provide concerns for you guys or is it pretty clean.

Yes.

On the last part Oh go ahead I'm sorry go ahead.

No.

I was going to Pedro the pricing side of it look on our pricing hold steady and firm to what our guidance has been and the pact and any improvement we see here low come through as we discuss more about pricing over the course of this year.

With that debt.

Joe and I'll, let you talk about the lithium financing.

Yes so.

Chris and I was going to focus on was on our supply chain. So we don't we don't see any shortages.

Day in and what and.

And the material inside of inside of our product, we're trying to balance and keeping an eye out for is just around the power electronics that we have and in the product and be able to run our battery management system, but right now we're on.

K with us with sourcing supply on that on the lithium side, we are seeing.

More and more near term projects that are out there that have commitments coming.

To get quotations from us and that's one other things thats been driving up the pipeline, but as you know and we do our process nervousness. There is an education process. We have to go through of explaining how we're different and where the value is and we're working through that with these new customers that are coming to understand how the technology works.

Okay, and that's very helpful and just on maybe on a JV buyout impact and can you talk a little bit about how that changes the path toward a positive margins and.

Or do you see the gross margin breakeven point and from a revenue run rate or utilization rate based.

And based on the cost reduction effort and and.

And bringing that production in house.

Yeah, So Jamie as you know we purchased the remaining 51%.

The theory of payments here or over the course of the next five years 15.002 million 21 between paying back the contribution of $10 million plus $5 million.

And here upcoming here in May and then and then the $5 million thereafter for them for another four years.

As far as that as far as that impacting I think a large majority of the impact has been positive on on having our <unk>.

Supply chain being vertically integrated and having.

And having our focus on both the cost out that Joe spoke about and and and the production of both two three and three point of batteries.

Very thankful for the investment and the and the focus on.

Teck is put into the company up to that point.

With that said.

As far as financials go we continue to remain with our guidance on what the what the expected margins are from from our full year projection perspective that we had offered earlier and at the end of last year as we have improved guidance for 2022 on.

And later in the year on.

And or closer to the fourth quarter, we'll be sure to come back to your day.

From a from a cash flow perspective look I think we have always reported income from JV would be below the line now and it's just the.

And matter of geography, where to the extent that the guidance remains the same.

And that will be reflected above the line.

And and.

A lot of the cost out is going to be where the margins are going to expand here in 2022 and 'twenty three.

Okay, and then just the last one maybe you could walk through the Capex cadence and the rest of the year and also maybe and expected cash burn for 2020 one between a low.

And the losses during the ramp up Capex and.

Project financing, just kind of bringing that together for us and the last one here Yeah of course of course, so we have committed capital on project on on debt.

So on 103 parts right and then talking about customer support and.

And then and there.

And talk about the rest from from a customer's perspective as we discussed on page nine we have development financing and project financing along with that the leasing of the committed capital between development and project financing at close to about $15 million will continue to meet our customer demands and expectations here, but.

Respect to that and we are actively looking for what's the right financing strategy would be to syndicate that off our balance sheet and ensure that we continue to remain to our core competencies.

Battery and storage facility.

But that said, we will be applying similar financing strategies on the asset leasing side, we have been continuously evaluating through our strategic partner, but we will not rush into it now.

Big part of what Joe talked about our focus being on Green Bond rating will also substantiate a lot of the financing here. So that's on the customer side of thing on the Capex side of it. The last time, we spoke look we talked about we talked about about $40 million to expand our investments and in.

In the manufacturing capacity, we continue to hold to that guidance now given that leaves.

And well, probably there's a little bit of background noise.

But.

Given that we have we have.

Purchase the high power facility from whole tech there'll be some level of incremental investment will have to make a call that somewhere between $15 million or so for the portion of the JV that they would've invested and die.

That along with the capital contribution that could be repatriated back is on a two and a happy our payback and very much in line with our capital allocation and return on investment strategy. So that's on the Capex side of it but the investment and capacity continues to be a focus area for us.

And then.

The rest of it is really operating cash flow and to the point I made on page six with our cash our G&A per se on a run rate basis is about $3 million burn rate.

On a quarter over quarter basis.

Call it even 4 million, but the commercial team.

And there the rest of the rest of our cash burn is really discretionary to either on the capex, we need to spend the first thing we need to do and to the cost of sales, but we need to incur to produce the revenue and to commercialize the business as we are and.

And that will continue to remain steady state from an operating operating ability point of view as and how that impacts our overall cash strategy, which the board continues to evaluate on a periodic basis, we'll be sure to come back to you and the broader group on on what that means going forward.

Excellent and I appreciate all the color there guys I'll hop in the queue.

Thanks, Chris Good luck with the base Chris.

Our next question is from Sebastian Chandra with Northland Securities. Please proceed.

Yes, good morning, guys. So just to understand the.

The revenue there.

And cruise the service revenue, so I guess the.

And $50 million or so.

And should we consider say 42 of that you know kind of a hard code and and the revenue line.

And then the balance of it.

Spread quarterly over the timeframe, so saga and then.

You referenced.

Yes look great great Great question, Sebastian So all far off our booked orders and call it called out the $50 million and backlog and order to 33 million year to be off the $50 million about $8 $5 million of service revenue and after 33, $6 3 million net service revenue backlog.

Revenue is not contemplated to be accreted on our balance on our P&L from a reported earnings basis until year three.

<unk> and beyond so that's really on a.

That's really building to the longevity of deal that's a value proposition and and the margins on that will obviously be much more accretive than equipment sales as the as you can expect.

But that said that's not contemplated in our current and $50 million projection now as we come closer to the end of the year on year look.

The service revenue will become an important part of our value proposition and our strategy and we'll be sure to discuss how would that impact the the debt.

Tom and locked up $50 million from from the rest of beer reporting perspective, but even in our projections. We never considered the service revenue to be accretive to current year recordings and we've continued to hold to that guidance at this point.

And so but if you remember on the way the way the service model works is it won't kick in until until year three.

After shipment. So there was always debt. This was always a year, where revenue would be 100% product shipments.

Okay.

And just to clarify again, so that is $50 million of product shipments.

Yeah.

For 2020 one yes.

Okay Gotcha.

And what I was asking okay. Thanks. Thanks.

Yes.

Yeah.

The gross margin question, just just to put it another way should we consider that.

Being in the and the positive category.

Yeah, you know from understandably it wasn't if it does.

First quarter.

But.

If it's not positive when do you see gross margins.

Flipping to positive this year.

Good question, so back in 2021, and we do not expect gross margin to be positive in line with our guidance in 2022 in the fourth quarter on a quarter basis is when we expect to see gross margin positive and that'll habits and that's from a reflection on and year to date basis and 2023 as well.

We expect the run rate of gross margin to continue to yield positive results.

Okay that is that is exactly in line with our guidance and we are not offering just to be clear any revised guidance from that from from what we had projected at that point.

Okay.

Net.

Right.

And then on the titanium alternatives and you talk about.

How are you.

<unk> been looking for it and.

Now you're sort of referencing is there.

Impella development, there that you want to and.

Dissipate, but.

Previously was there and a cost element or you know that.

That this could have a meaningful impact on your on your battery costs.

Yeah.

Yeah.

So too much the thing the thing on on the titanium alternative you know we've got some things.

And on tests that we have to work through and we're proving out that it works and the battery, but you know when you start thinking through like once you get the material to work then you've got to get our source of supply you're going to get the quality has got to get the manufacturing process. So we're working through what that transition plan looks like and tying that into our Capex model. It is a cost out.

And for Us and the long term.

And given the ramp that we have of adding capacity and bringing the factory up and we're trying to come up with the best integrated plan.

And that target, but the ability if we have to flip a switch if something happens to accelerate that if we need if need be.

Okay.

So and so.

Uh huh.

When you think of a.

Cost out and the long term sort of state and ZIP III kicks up.

When do you think that transition happen does that sort of a you know.

'twenty three events when do you think that it can have.

And impact on manufacturing costs.

You mean, you mean, the titanium question or sorry, yeah, the substitution effect, saying, yes.

Yeah, Joe if it's okay I'll take the share.

Yeah look it's about <unk>.

Material substitution will always continue to remain a part of our cost out strategy and frankly.

And it's part of our optimization on.

On manufacturing process that drives all of it right. So from a from a if you take a step back as and as the technology.

Energy company and always looking to put the best product out there.

We'll be looking at a variety of different.

Materials that replace and substitute for all five of our own.

Our abundant materials at this point titanium and the ultimate materials is one such one on one such category at this point, we have not really contemplated when we would go live with that.

And for or the next version of our battery our focus today is to get the get the manufacture ability of Gen three point, though and or the <unk> III product out in the marketplace successfully and have our customers continue to appreciate that value proposition and that cost out.

All of that is included in the 40% target that.

Joe spoke about on.

On the page here on cost I believe it was page 20 and.

And.

And and titanium growth are the substitute material will have any impact on incremental to what's on page 20.

And that's the core value proposition for the company it really come through sometime when we are ready to deploy it and will be short and let you guys and on what the timing looks like his line.

And I think that's too much. The one thing I would say is there is no concern with titanium today and for us from a supply standpoint, it's readily available or what we're planning for and planning ahead on is if aerospace takes off you could see price inflation are you could see.

Tightness on supply, but theres no urgency to be able to do that switch, but what I want to make sure everyone understands and different than when you talk about other battery technologies as we have readily available abundant raw materials and we're building optionality on the supply chain to mitigate risks that we see and the future so not something and the short term, but something that we're preparing for.

In case, there's changes and the market. So we don't get caught out.

Right Okay understood.

And then finally on debt certifications just.

Is there anything additional for instance.

The New York Fire Department, which you've been working with.

Do they is there additional certifications and they would require for you know urban placed into these batteries.

Or does this get you over all of those homes.

So there are additional certifications both with the fire Department and the building Department and New York City of which we're working through those processes as we.

And right now what we want to do from a communication standpoint, and we're focused on getting UL because that ties to the orders backlog and the pipeline we have in front of us, but we will give an update as we switch off to that to doing the CE, marking for Europe and then also talk about where we are in the in the.

On the urban storage qualification process, which is well underway.

Okay got you.

Great detail guys and thank you.

Thanks, so much thanks, so much.

We have reached the end of our question and answer session I would like to turn the conference back over to Joe for closing comments.

Thanks, and thanks, everybody for listening in today and thanks to boss you Chris for the great questions and we're excited about the company that we're building and the opportunity in front of us and we'll keep everyone posted on the progress that we make and look forward to talking here at the end of the second quarter. Thanks for the times a day.

Yeah.

Thank you. This does conclude today's conference you may disconnect. Your lines at this time and thank you for your participation.