Q2 2021 Eos Energy Enterprises Inc Earnings Call

August 11, 2021

[music].

Greetings and welcome to the Eos Energy Enterprises second quarter 2021 conference call.

At this time all participants are in a listen only mode.

A question 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. As a reminder, this conference is being reported today.

It's now my pleasure to introduce your host Garrett aim.

Investor Relations for Eos energy. Thank you Jared you may begin.

Thank you good morning, everyone and thank you for joining us for Eos, whose financial results conference call for the second quarter ending June 30th 2021 on.

On the call today, we have CEO, Joe muster Angelo 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. Our actual results may differ materially from our projections or those implied by these forward looking statements.

The risks and uncertainties that forward looking statements are subject to are described in our earnings release and other SEC filings our 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 is provided in the press release.

Non-GAAP information should be considered as supplemental in nature and is not meant to be considered in 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 to Eos as Investor Relations website at investors Dot OSB Dot com.

<unk> will walk you through the company highlights financial results and business priorities before we proceed to Q&A with that I'll now turn the call over to Joe.

Thanks, Jared and thanks, everybody for joining US here. This morning, I want to start off with our normal operating highlight page the top half of the page talks about the progress that we're making commercially you can see our pipeline is now approaching $4 billion with 18 gigawatt hours of opportunity from the pipeline and reminding everybody of saga talks about this.

Moving forward to get into the pipeline, we need to have a use case to be able to model. Our orders backlog is above $95 million getting close to a $100 million of getting close to 400 megawatt hours of orders and backlog. The commercial team is doing a great job of going out finding opportunities for us to win in the marketplace and adding to our backlog.

And you can see year to date, we're approaching $80 million in orders and backlog. So really we're seeing a great uptick commercially and how the team is executing what we are delivering on the bottom. This is operational highlights where we're approaching 300 megawatt hours of discharge energy either out in the field.

Our in our test facility, we shipped $2 million of shipments year to date, it's at Greif, Nigeria, India on California, and right now we have $175 million of cash on hand that includes the recent $100 million investment from Coke, which I'll talk about in a moment, but as you can see another quarter, where we continue to build momentum.

And improve the company and deliver out in the marketplace. We go to the next page on today's agenda, just up against are fixed.

Six priorities for 2021, I talked about where we are versus the $300 million of booked orders what I would say is we're starting to see some great conversion on our letters of intent on our commercial model, which we'll talk about later on you know $55 million of the orders we book to come from those LOI and at the same time as we look at the remaining amount that we need to close to hit the <unk>.

For this year, we've got $455 million in core opportunities that we believe can help us fulfill the 220 orders that we have to go which is to act.

On the opportunity pipeline versus the orders that we need to deliver with deliveries in the second half of next year and into 2023 on our revenue target our backlog today and when you look at the projects. When we closed. These these opportunities we covered 100% of our 2021 revenue target, but as many of the.

Industry have seen and as the world opens up coming out of.

The Covid pandemic, we're starting to see some of our delivery shift to the right and move out of the year, whether that be for permitting and.

And grid connections and US closing our UL certification, we're looking at a revenue target that would be more around in the range of $5 million for.

For 2021, basically because we've seen the projects go out into 2022 as far as shipments are concerned.

All our full UL certification, we've achieved both the $95.48, and the UL 1973 systems certification, we're now going through a certification of our manufacturing sites and this will allow us to start shipping you all certified product here in the third quarter on building our capacity we are optimizing our gen. Two three capacity to deliver.

<unk> on our current backlog I'll talk later on in the presentation about how we're seeing the gen. Two three product.

That demand out in the marketplace and how we're focusing our factory in Pittsburgh to deliver on that demand and then also focusing on how we spend money on capex to automate and increase production.

We are investing in the facility and also on our people that are leading our supply chain and working on the factory floor on a new product launch we continue to learn on the Gen. Two three and are implementing those learnings into.

On the Gen three product and how we develop that industrialize that we're finalizing the system design and the prototypes that we have on tests are performing as we discussed on our last quarterly call and then lastly on the people and culture, which is last on the list with first.

And our importance of our success I'm going to talk at the end of the presentation about how we're aligning the goals and objectives.

The compensation of everyone in the company to shareholder success, which has been a key goal of assets of the team on the board as we thought about how we want to position. This company for the future. So we'll go through each one of these a little bit more detail on that and talk about what we're going to deliver in the third quarter. Just quickly two big things that happened on the next page two big things that happened.

Last quarter, you know, we did get an investment from Coke strategic platform, which is a which is a great validation of our company and how we want to deliver into the marketplace. This is on top of a $50 million equity investment that they made previously we really like partnering with the team there like what they bring.

Not only from an investment standpoint, but also opportunity to grow the company and leverage the entire coach network to help us improve the company on many facets so more to come here, but something that we're proud of being able to close here in June and at the same time right. After that where we are very proud to host the second shot of the secretary.

Energy Jennifer Granholm.

At our facility in Edison, New Jersey was a great day for us along with Congressman Frank Polone to host them and walk them through and show them. The great work that our team is doing when you look at these two things together strategic investment in the future and then looking at what the Doe is looking for as they think about North America, which is the largest storage market, we love how we fit into the overall vision.

Of what Theyre trying to drive that low cost high durability long duration storage, which is exactly what eos delivers to the market. So with that I'll turn it over to saga who'll walk through the financials.

Thanks, Joe Good morning, everyone. In the next few pages I will talk you through the second quarter of an actual let's start here are at page six we delivered $600000 in revenue from the quarter as you know motor oil because one of our first commercial orders. This revenue accounts from the partial shipment with a second shipment recognizable here and there.

Third quarter, our cost of sales from the quarter were $12.4 million. They included.

$5 million of expense due to fair market value adjustments on future booked orders.

$3 million in costs related to improved current manufacturing yield $1.7 million in base costs as we bring the factory up to capacity and entitlement.

$7 million and onetime transportation costs.

Our R&D expenses were $2.2 million lower versus Q1, as we finalized our UL testing, which were partially offset by our continued investment in new technology, specifically, our phase III product.

General and administrative expenses included <unk> six.

6 million in one time transaction fees and $3 million and stock compensation expenses.

$22.5 million loss on preexisting agreement reflect fair market value of acquisition.

Of the remaining 51% in high power partnership we described.

At the last quarter earnings call. We also recorded $2.2 million from the sale of New Jersey State tax credits and $6 million gain on fair market value of our private warrants the ladder.

Flex the mark to market valuation, which we will continue to have on our warrants from the improved guidance recently issued by the SEC earlier this year.

To move on to the next page and talk you through our current cash balance.

As of 630 on a pro forma basis, we have $175 million in cash balance as Joe mentioned earlier, we finalized a strategic investment from Koch industries, resulting in $100 million of cash inflow. We also received $17 million from warrants that came due in may.

And youre exercised by select investors from business operations specific T be expended $43 million this quarter, which included two onetime transaction items less of the business operations the transaction items are.

$15 million of one time spend on the high power acquisition and $2 million additional and transaction expenses.

Of the $17 million or business operations were about $26 million the $26 million continue to up 15 million net cost of sales on working capital both for current and future manufacturing needs $3 million on capital expenditure $4 million in R&D related to the $3.2 million.

In commercial operations and $3 million.

For general administrative expenses.

Let's move on to the next section will review our progress on the commercial pipeline and booked orders per delivery spoke in 2021 and beyond from a financial commitment perspective.

Page nine is a reflection of our commercial activity as of July.

This is a page for you are now familiar with from previous presentations. The chocolate lead generation, we worked with our customers to materialize ideas and assets, where feasibility regulation project plans on economics, we today have $2.9 billion or 17 gigawatt hours and review, but then lead generation.

Our commercial pipeline is $3.9 billion or 23 gigawatt hours. This constitutes two key segments really active proposal of $3.4 billion and customers with whom we have firm commitment per LOI of another <unk> 5 billion like we have discussed previously only a customer or a pro.

With a clear mandate on project requirements technical specification and only a use case that satisfy iOS.

Specifications will be included in our pipeline in this stage, we actively present, our commercial and technical proposals to customers. Our experience indicates that about 30% of our pipeline over the long run will translate into booked orders.

In specific circumstances, where we have reached an agreement on commercial terms with select customers and have an agreement on a letter of intent supported by clearly defining the next debt that.

That required actions on behalf of the customer be categorized as LOI are firm commitments. Our experience indicates that on average 60% within this category translates into a book tour in 2021, we have converted at about $55 million or 194 megawatt.

Hours from 13 projects to booked orders from this bucket.

We have more details on that in the upcoming pages.

So as of July 2021, we have $79 million in booked orders year to date, we consider project a booked order when there is an agreement for yields to procure material manufacture and deliver our storage solution.

We see strong momentum from the rest of the year and booked orders have increased $46 million since <unk> earnings call.

Moving on to page 10, let me review a few financing strategies that enable our ability to partner with customers. Firstly, we are engaged in development financing, but select customers, where we currently already have an LOI or a firm commitment.

Have committed to $5 million in cash.

Loans to partner and determine by scale and market potential for select projects. Once the project potential is determined yields will have the exclusive rights to delivered storage solution.

To date have funded $1.1 million of such commitments as a result.

We have successfully helped secure land rights and interconnections for projects that are in consideration.

Second we have partnered to deliver a project financing for an additional select set of customers and projects here.

Here, we have committed to approximately $17 million in capital.

And funded $34 million of such commitment lap.

Lastly, we have strategically agreed to participate in asset leasing agreements with select customers on a lease to own basis. This financing is offered at competitive rates and secured and collateral from the storage assets commissioned on ground.

We have $52 million.

Leasing commitments.

On this particular segment is included in our book donors.

$3.9 billion pipeline, let me discussed on the previous page, we have more than $500 million in additional opportunities on select customer ranging from development financing for project financing and asset leasing.

We are currently working on multiple opportunities to expand our project financing partnerships in the second half of 2021, net and more to come over the course of this year.

On page 11 discussing booked orders for the year, Let me give you a few more specific details on the $79 million in.

In year to date booked orders on.

Our current book daughters constitute 18 projects with nine customers on 302009 megawatt hours two.

20 million are cash sales of yields like what equipment, representing about 104 megawatt hours and additional $49.9 million of assets leasing represent 225 megawatt hours.

These two projects deliver approximately $17 million in it.

With my daughters.

Additionally, our booked orders constitute about $9.3 million in recurring service from monitoring and maintenance obligation that typically big in Europe.

Free and range from 5% to 18 years.

We expect the momentum on our booked orders to continue into the second half of 2021 development financing and project financing as you know from previous pages are not included in our book daughters.

Let's now move on to page 12.

Here's a snapshot of our orders backlog, which is now a reflection of our 2021 year to date booked orders plus 2020 year end backlog minus <unk>.

Shipments we have made to meet customer commitments. This backlog comprises up 32 projects with 18 customers on 389 megawatt hours.

And our first quarter earnings presentation, we reported orders in backlog of 55 months. Since then we have recorded an additional $46.2 million new booked orders.

We have also successfully shipped one 1 million, resulting in a total backlog of $95.6 million.

Deliveries on these commitments is expected to be both in 2021 and 2022.

Equipment sales constitute about $84 million of that backlog and an additional $11 million in long term service revenue.

Now I will hand, the conversation back to Joe on page 13.

Thanks Tiger just a quick drill down on something that we've talked about since we've gone public and that is.

Taking projects proving the value proposition on the technology getting our customers to commit to the technology select the technology and then signing a letter of intent, which allows us to close out.

Projects and bring them to commercial success for ourselves and for our customers and we're starting to see a lot of traction over the last couple of months.

In that bucket.

Opportunities that we've been working on here for the last nine months and really the last three months and acceleration of those projects starting to close starting off with IP projects and Eric Todd. We're very proud of getting two projects that are about 100 megawatt hours of opportunities with IEP, having them fully financed and starting to work with them now through the permitting process.

Assets to really start to start looking at deliveries probably in 2022 on enter smart. We've closed eight projects. This has become a really strong strategic partnership for us and we love working with that team and this is working on the queso, California market across various different operating sites, where we're delivering some projects at the end of next year on the majority of the projects.

The 2022 Z global another another operator in the case of California market, where we've won two projects with them for 18 megawatt hours is starting to work with them on execution and implementation and grid connection to start looking at delivering those projects and then have to pay which we have a large.

We have a large.

LOI with them and we closed our first project in the aircraft market is small projects a four megawatt hours, but really allows us to start working together on execution and delivering and connect and getting the grid connection and get into power on to the grid. So we're starting to see this strategy that we have worked and delivering orders and very proud of what the team has been able to do here.

How our partners have worked with us to bring these projects to successful closure now if we jump to the next page and really start thinking about how.

Our pipeline mix looks like and what our current order backlog looks like so when you think about.

Where we're selling 335 megawatt.

Megawatt hours are front of the meter projects projects that move faster with customers that are able.

And willing to work with us on.

On creating value propositions were behind the meter is 54 megawatts, but theres a large opportunity pipeline that we need to continue to work as we think about the future from a use case standpoint.

A lot of people talk about the technology being for solar integration and we do have a large chunk of our backlog in solar but at the same time, we're doing a lot of.

Grid deferral locational capacity, we're four plus hour duration discharged becomes very important to the customer and the flexibility and same thing that we offer in our technology allows these customers to secure a return on their investment over over the next 15 to 20 years and you're starting to see our project size grew.

ROE as we as we work through these projects from going from one megawatt less than one megawatt projects into larger projects that we're now starting to work with customers and develop and really starting to get the operating capability of the company to be able to deliver these projects under David diligence leadership on our project operations organization as we go.

Two.

The next page on page 15, you are starting to see that we're concentrated while were concentrated in the U S. We are starting to plant seeds around the world because there is a demand for this type of product in many markets that we've talked about this before I talked about the <unk> market in California, and our ability to safely deliver non.

On flammable technology to that marketplace, the Texas, Eric Hart, where you need operating flexibility to go from a couple of hours up to more than 10 hours, depending on your use case and in the northeastern United States, which really integrate solar plus storage and co ops up and down the east coast and then around the world. We're starting to look at industrial applications, we've talked about.

Motor oil.

For an oil refinery we've done around the clock on electricity.

With a couple of developers with Azure powered renew which we're proud to partner with them on for four megawatt hours in India and then in Africa, We're working with the Shell Foundation.

To be able to deliver two projects to one customer for three megawatt hours. So we're starting to not only build up our ability to execute on the in the United States, but also building up the network to be able to execute around the world because when you look at our technology. The benefit of this technology is while it's safe to use in urban areas. It's also easy to use where you can.

You use it in a remote area. So when we look at how the technology works from the flexibility that it brings is the technology that that works in multiple use cases and allows us to deliver from the marketplace was that we'll move to the next section and talk about manufacturing capacity and delivering our product.

So moving to page 17, I want to walk through the construction of our current revenue profile for 2021, and 2022 from the perspective of orders and backlog.

So start on paid on start on the left hand side of this page, where we look at the backlog of orders that we have today we had.

The $50 million of revenue secured in the backlog you see there was $48 million to go we've already shipped 2 million, which brings us to the $50 million target that we had with an additional.

36 million net was to be shipped in 2022 and these.

Date that I'm, giving there tied to the original purchase order signed with the customer now as we've opened back up.

Across the United States.

Starting to see some delays in transportation delays in getting permits delays in getting the site ready and doing and doing construction, which have caused us to shift out.

Deliveries from 2021 into 2022 at the same time, we've worked through some challenges in our.

On the on our.

Our controllable actions the first one being our UL certification coming in two months delayed versus our initial schedule, which caused some of the applications for permits to be delayed on the customer side, and then ramping up of our manufacturing, which I'll talk about on the next page, which really has been a challenge for us, but things that we're working through.

We see improvement every day out of the team that we have in Pittsburgh, but when you look at where we started the year $45 million of the $50 million that had an original contractual delivery date from 2021 are now shifting into 2022. So when you look at the <unk>.

Far right hand side of this page you see debt.

Forecasting $3 million in revenue for $5 million total for 2021 with the remaining amount of our shipments going out into 2022 for the Gen. Two three product beyond that this $53 million, we continue to see demand for the Gen. Two three products. So this will be something that we'll have to keep.

Focusing on.

There is not going to be as fast of a drop off in that product is what we initially anticipated. So we'll continue to build that product out of our facility in Pittsburgh and at the same time, we're growing backlog on our new product the <unk> product, which we thought we would have some initial shipments.

Actually going out at the end of this year, which now looks to be happening more towards the first second quarter of next year as far as being able to test the product and start shipping the product in a lot of that has to do with the lessons learned on the ramp up of the Gen. Two three product to allow us to do a more seamless.

Supply chain ramp as we look to 2022 and beyond if we go to page 18 and talk about this gen. Two three.

Product optimization.

You look at our yields by.

We've always talked about having really four main manufacturing processes.

That being welding and assembling our electrode welding our battery together assembling the battery both on filling it with electrolyte closing it and testing it and then into the container and testing we've had when you look at this our yields have not lived up to the targets that we've had we've worked through multi.

The pole items to be able to improve those and believe we will close in on our targeted yields here over the next four months, but our current yields are below with expectations on what the biggest challenge being around infrared frame welding, which is 10 points lower than what we had initially anticipated and that has been multiple challenges with.

The site the facility that we're working on in the power quality that we had with working through the design in the mold of our frames and how we will do those but the team has come up with the formula to be able to deliver on that 90% and we're seeing good product come off of.

I'm off on the factory the line when we have the new production frames for our manufacturing processes, where when I look and think about this as we're moving forward. We've gone through this learning curve, it's been exacerbated by not being able to get people in one place because of Covid and really solve problems, but the team has done a great.

<unk> and working through these and having a path to being successful in everything we learned on Gen. Two three will be applied to the Gen. Three point on product as we move into production on that product next year now.

I move to the next section on the people and culture section really want to focus on one page where.

Two things I'd bring out here, we've grown the company head count is up 147%.

Total this year, bringing in a lot of great people into the organization. We've done our first employee survey with an 86%.

Highly favorable employee engagement.

We've got a team that comes in every day wanting to change the way the world powers itself and that is very exciting to lead this team and to and to work through the challenges and also the opportunities that we have to building a great company on the right hand side of this page I just want to spend a moment to talk about how we thought about the compensation for the entire company and really what we've done is we've.

Gotten to peer groups who've looked at peer groups of companies that are around the same market cap as we are today and high growth company peer group to think about how we want to position the company for the long term when you think about how we compensate everyone from me down to the factory floor, we talk about base.

We're looking to be at the median or lower as far as how we compensate on core cash out the door or bonus which are tied to the to the six objectives that you've seen.

We talked about on every earnings.

Every earnings call. If we hit those six are bonus goes to above average and then the biggest thing for me is making sure that equity is outsized from cash so that if you're successful as a shareholder of the entire company is successful and everybody is rewarded for that success. So every employee in our company.

<unk> equity and that will be the case as we move forward and we're going to reward the top performers and as we deliver and grow the company there'll be rewarded as you're rewarded so we want to have a one to one alignment for when you're successful on how were successful as employees. If we go to page 21 last page, we are going to continue to grow our pipe.

In line, we have to increase our front of the meter orders and develop a clear behind the meter strategy of getting qualified with large customers and also will come back and talk about our project financing strategy of what we're going to do going forward to be able to grow our order book and hit our $300 million target on revenue we need to.

Hit the deliveries that we've laid out today, we're going to work through on site readiness with customers and focus on building, our 2022, plus orders backlog, which become which then be converted into sales, we're going to close out our UL product testing, where we're beginning our CE mark testing for Europe, and getting full ISO certification for our facility.

And getting total system UL 90, 540 certification, which is very important for.

For projects for the future on the 800 megawatt hours of capacity, we've got to reduce the waste continue to work on and optimize our material sourcing stabilized operations and we'll come back with our capital investment plan and how we're going to finance, our equipment and where we're going to locate that capacity as we move forward and we'll come back with a more detailed production.

On planned launch on the <unk> III product and we're going to continue to expand and grow our engineering software and systems development team and we're going to.

To really look at how we continue to keep the people on the culture.

Tied to how you win in the marketplace.

We've learned a lot this past quarter, we've delivering continued to deliver strong results from the team will continue to be focusing on building a great company and delivering returns to you as our shareholders with that I'll turn it back over to the operator, and we'll open up for questions.

Thanks, Bill, we'll now be conducting a question and answer session. If you would like to ask a question. Please press star one on your telephone keypad, a confirmation tone will indicate your line is on the question queue you may per.

Start to if he would like to remove your question from the queue for participants using speaker equipment. It may be necessary to pick up your handset before pressing the start day one.

One moment please call for questions.

<unk>.

Yes.

Yeah.

Thank you. Our first question comes from Chris <unk> with B Riley. Please proceed with your question.

Hey, guys. Thanks for taking my question here, maybe just on the project delays from 2021 to 2022 last call you seemed fairly confident in about 10 million 10 million.

It over through the end of the third quarter, maybe you could talk about those projects in particular, what the delays where you have now so it seems like it's more customer and at this point or delays that were resulting in the UL delay or their permitting issues.

All other components in the supply chain that they need for the projects that are pushing things back into 2022, now and what's the cadence of these delayed projects.

The timing now or the bulk of them going to be first quarter of 'twenty to some pushed out further than that.

Hey, Chris Thanks, and good morning, Yes, So a couple a couple of components there in your question. So.

We're seeing.

On the on the project delays, we had out of the out of the 45.

You could directly link about $5 million of it to the delay in UL certification the good news on <unk>.

Late last night, we got approval for our manufacturing facility so as of today.

That comes out of the factory will be marked with you well. So so it's a big milestone for the team.

When you look at when you look at.

Other delays that are happening you know these are not that the project will move forward delays. These are more just getting approval for permits on construction getting the actual civil works on so that we can install equipment on site.

We've got we've got now containers in Pittsburgh waiting to waiting to ship out and.

Final you you've got to work through the grid interconnection to getting everything lined up to do that we've seen from some we've seen I think these are systemic across the industry that you've heard from other companies that they've gone through their earnings estimate.

On the on the when Theyre going to fall I'll, let soccer give some more color here, but what I would say is that you're really looking at them falling out in the first half of next year shipments I don't think you'll see all of them go in first quarter, but I think you'll see them go over the first six months of 2022 I don't know if you have anything you want to add to that.

Yes, Thanks, Joe Hi, Chris Yeah, I agree with everything you said.

As we get more clarity, we'll be sure to come back to you, but we are actively working with our customers to match their expectations on our timelines in the first half next year.

Okay.

And so more than more than half the backlog here is in T&D deferral locational capacity do you get a sense.

They are going to wait for Standalone ITC.

It seems like you've had good dialogue going with.

Some folks in the federal government here Congress people and Secretary Grant home how are you on customers handicapping, some kind of a standalone ITC, but by the year end.

And what is the dialogue like there I'd love to hear about that.

Yeah, Chris I think there is a.

There is a line of progress being made particularly over the last couple of days here around the infrastructure building on where where the ITC for standalone storage reside so we're pretty hopeful here.

As you know everybody on Washington works through this that we will have something I do think you have some people.

I think there is some.

People waiting to see ITC come through before making decisions on projects and as we see that we just see the opportunity pipeline to continue to grow for us as people look at wanting to have safe reliable power with longer duration longer duration and flexible discharge times, we just have more and more people coming to us with their project opportunities, which.

On this kind of timeframe of waiting to see what's happening on the ITC. It gives us a lot of time to get on with sell the value proposition and that's why you see the backlog growing the way that you do and also why you see the opportunity pipeline going up the way you do.

Got it and then looking at kind of the targeted backlog $3.8 million by year end, what's the expected split there between 2022 projects 2023 projects or even beyond that and I'm just kind of curious how you guys think thats looking to shape out at this point.

Sorry, do you want to do you want to start off on them I can jump in.

Yeah, absolutely look our focus right now is continuing to deliver we have about $455 million in core opportunities that we're working on with expectations currently from our customers from second half 'twenty, two and 'twenty three.

That's about the pipeline that we'd like to focus on to meet the $300 million target.

In the short term okay.

Okay got it thanks, I'll hop in the queue here.

Thank you. Our next question comes from Sebastian <unk> with Northland Securities. Please proceed with your question.

Hey, Joe Good morning.

I just wanted to make.

Get an understanding of.

So $5 million was the UL certification and then how does the rest of it sort of linked to slide 18.

Where you have those Matt.

Manufacturing objectives that youre working towards.

Is there a number you can kind of.

Put to the sales deferral that was related to your your your manufacturing issues.

Yes.

So this is much going back to.

Christmas question, you know when you look at the 45 million $5 million of it.

Was directly related to the <unk>.

Timing on the UL.

The remaining amount was all tied to permitting delays and grid connection so things out of our control. So I wouldn't say that any of the debt. When you win when you look at how we're profiling revenue we didn't push out revenue because of.

Challenges were having on the manufacturing side. It was more systemic with that being said we need to work on page 18, and really get the yield up particularly on infrared welding and we're using this time period here to take what we've learned and improve upon what we have and we will be able to come back and show everybody. What we've done to make the factory better and get and get better.

Output as we move forward.

Okay got it.

And then on slide 15.

Can you discuss maybe some of the new names on this list.

From what you might have talked about.

In the prior LOI slides.

It seems to be a couple of new ones that may be on on new customer engagement any other color there.

Sure do you want to start and I can jump in yeah for sure so much from Chesapeake.

Slide 15, correct.

Correct, yes.

On this page this is more more than just LOI that says all our booked orders plus some of our customers that we have delivered two so as you know as far as the LOI is our concern hecate on IEP are two prominent names along with energy smart, but you would have seen us talk about as otherwise the rest of them are.

Booked orders that just matched organically came out of our pipeline directly into book builders.

Okay got it and then we're in then.

Yes, I'm sorry.

Yeah, what I would say just on names you see here.

Winning winning the project, which we announced this morning with animal in Spain was a big one for US just working through that working through and getting the technology qualified walking through the use case showing on the revenue stack. We gained with the flexibility was a big one charge listen global working on the case so the region.

And I think this is a big area for us when you look at what's in what's in our pipeline sort of prove out again, the use case with with those customers is very important.

And renew in Azure power.

That's just been working with them as they are.

As they develop their business plans and building off of really what we did on our first pilot project in India two years ago, showing those operating results on the field showing the improvements we made to the product and now having launched projects with them, which will lead to <unk>.

Future larger projects as we move forward here in the future we're pretty excited about.

But the names that we have on this page on the work that we're doing with them.

And so <unk> was also refinery related use case no.

Net.

Emily.

He is a streets storage project in Spain.

But our second Big project, our second Big project in Europe, along with Motorola.

Gotcha, Okay, and then final one for me.

Slide 23 sand market value adjustment.

Assume that has nothing to do with the high power.

Reversal, but.

If that's true and then if you can characterize that charge for that.

Yes, I hear you on startup there yeah.

Yeah. Thanks so.

<unk> five three you are correct. It has less to do with high power from from an accounting treatment perspective.

The way I would think about it is it's an accounting treatment on lost contracts for the expected value of what we are purchasing as inventory and vice versa.

The expected selling price on it as you know we continue to work towards having a breakeven on our financials by the end of next year on on up on.

On a pro forma basis, because high power was on acquisition.

<unk> is more recent in our history. This at fair market value adjustment is now recorded on our books versus the joint venture books.

She would not have had we would not have had transparency too because we only previously on 49%.

Okay, I think I got it okay, and one final accounting issue as well so.

What do you think cash run rate G&A is at this point and what do you think it.

It will be.

Give or take in 'twenty two.

Yes.

Business has felt towards having a minimal structural costs. So the fixed structural costs for the company on.

Our round about $10 million a quarter the rest of variables on what the managing volume and how that non volume ramps up with our customer deliveries so that.

We have $175 million of cash today on the balance sheet and we expect to manage it very prudently on both the fixed on the variable cost too.

Two.

On a cash flow.

Okay.

Thanks, everybody.

Thanks, so much.

Thank you on our next question comes from Tom Curran with Seaport Research Partners. Please proceed with your question.

Good morning.

Good morning, Tom.

So just wanted to call the $41.7 million of orders you've booked under asset leasing agreements have taken assets leasing's portion of backlog from from 20% at the last call. It 54% today could you speak to why asset leasing surged to 90% of this period's orders and tell us what percentage it should represent.

Of this year's remaining expected bookings of $200 million.

Looking.

I'll take that one yeah go ahead sorry.

Look on that.

From what I would expect us in the long run that number should be about 25% on a recurring basis of our total backlog.

From period to period that number may vary plus or minus in this particular case, we have a larger transaction that is currently in our asset leasing on as we finalize our financing strategy from the second half of the year. You you will see that you will see that number transferred from a risk perspective and hover.

<unk> continued to hover.

As 25% for ongoing future bookings.

Okay, and then within that balance of 200 million on orders you expect to book over the rest of the year. What is the single largest project as measured in megawatt hours and the nature of that project.

Yes.

Happy to look we have today projects that range from less than one megawatt hour to 10 megawatt hour project side reference to page 14, and pay off the 389 megawatt hours, we have in book daughters.

340 gigabit, it's 10 plus megawatt hours as we continue to evolve as a business that that's segmentation, but then.

Steer more towards that 10 plus megawatt hours.

455 of core opportunities, we are working on have a wide variety and range, but the median would be somewhere between 10 and 15.

Yes.

Tom, but we are working.

Our larger projects in the pipeline.

I don't anticipate those closing here in over the course of this year and we'll be looking at larger projects happening probably beginning into 2022. So I think youll see a mix of continued mix like we have today with a mix up to getting towards that 50 megawatt hours of cyber discussed.

But would you expect say the average project size for the remaining $200 million.

To be closer to that 10 megawatt hour.

Or just you know.

A bigger a bigger average project within the $200 million.

The $95 million to date, yes, yes.

Yes, Tom I think what you see in the opportunity pipeline.

The size of the projects that we're working with customers on skewing up probably I don't know exactly where the number get where the number of winds up but if you. If you were to plot out quarter by quarter. It is growing as we as we continue to show and prove out the technology and people, becoming comfortable with using us as their partner.

Great and then last one from me turning to the supply chain and labor pool.

Could you speak just update us on how youre positioned for sourcing or five main battery inputs and then hiring have you encountered or do you anticipate any bottlenecks inflationary spikes or other challenges.

Yeah.

Yes.

Inflationary spikes.

What I would say we're working through now.

The team is.

We're not we're not getting the cost out as fast as we anticipated. So so you know part of that is due to the ramp and part of that is just due to the inflationary pressure that you see.

In the marketplace from.

Constraints on the supply chain to getting material.

I don't anticipate.

Any any concerns there I mean, we've worked through and have secured.

The ability to source product from from our suppliers and we have and we're adding sources of supply as the as as.

As we wrap up on that in the organization matures and then from a labor from a labor pool standpoint, we've designed the factory right now in Turtle Creek. The team has designed.

It's a flexible workforce. So we can shift people around between different operations and then at the same time hiring and bringing in the right level of operators to be able to operating equipment.

It is.

In the environment that we're on right now there are challenges you have to work through just from what we're seeing happening with the Delta variant, but the team has managed through this over the last year and we'll just have to continue to manage that as we move forward I don't know if you want to add anything.

All good.

Great. Thanks for taking my questions.

Thanks, Tom.

Thank you there are no further questions at this time I would like to turn the floor back over to Joe Ms. Angela for any closing comments.

Okay.

Thanks.

Just just to close out today.

<unk> team is continuing to work to work through the challenges of growing and building the company.

Proud of the work that everyone is doing particularly pleased with how the traction we see commercially we've got our work cut out for us and I think we are prepared to deliver on the execution side as we move forward and just look forward to keeping everybody updated on.

On how we progress from where the company continues to grow for the future. So thanks for the time this morning, and look forward to talking to everybody in the future.

This concludes today's conference you may disconnect. Your lines at this time. Thank you for your participation have a wonderful day.

Yeah.

[music].

Greetings and welcome to the Eos Energy Enterprises second quarter 2021 conference call. At this time all participants are in a listen only mode. A brief question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference. Please press star.

<unk> on your telephone keypad as a reminder, this conference is being reported it is now my pleasure to introduce your host Karen <unk>.

Investor Relations for Eos energy. Thank you Jared you may begin.

Thank you good morning, everyone and thank you for joining us for Eos <unk> financial results conference call for the second quarter ending June 32021.

On the call today, we have CEO, Joe muster Angelo 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.

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.

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

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 to be also.

<unk> Investor Relations website at investors Dot E O S.

Dot com.

Joe in Saga will walk you through the company highlights financial results and business priorities before we proceed to Q&A with that I'll now turn the call over to Jeff.

Thanks, Jared and thanks, everybody for joining US here. This morning, I want to start off with our normal operating highlight page the top half of the page talks about the progress that we're making commercially you can see our pipeline is now approaching $4 billion with 18 gigawatt hours of opportunities on the pipeline and reminding everybody of soccer talks about this.

In our test facility, we shipped $2 million of shipments year to date, it's at Greif, Nigeria, India, and California, and right now we have $175 million of cash on hand that includes the recent $100 million investments from Coke, which I'll talk about in a moment, but as you can see another quarter, where we continue to build momentum.

And improve the company and deliver out in the marketplace. We go to the next page on today's agenda just up against are.

Six priorities for 2021, I talked about where we are versus the $300 million of booked orders what I would say is we're starting to see some great conversion on our letters of intent on our commercial model, which we'll talk about later on in a $55 million of the orders we booked that come from those LOI and at the same time as we look at the remaining amount that we need to close to hit the <unk>.

For this year, we've got $455 million in core opportunities that we believe can help us fulfill the 220 orders that we have to go which is to act.

The opportunity pipeline versus the orders that we need to deliver with deliveries in the second half of next year and into 2023 on our revenue target our backlog today and when you look at the projects. When we closed. These these opportunities we covered 100% of our 2021 revenue target, but as many of the industry.

We have seen and as the world opens up coming out of.

The Covid pandemic, we're starting to see some of our delivery shift to the right and move out of the year whether that be for permitting.

And grid connections and.

In us closing our UL certification, we're looking at a revenue target that would be more around in the range of $5 million.

For 2021, basically because we've seen the projects go out into 2022 as far as shipments are concerned.

Our full UL certification, we've achieved both the $95.48, and the UL 1973 systems certification, we're now going through a certification of our manufacturing sites and so allow us to start shipping you all certified product here in the third quarter on building our capacity, where we're optimizing our gen. Two three capacity to deliver.

<unk> on our current backlog I'll talk later on in the presentation about how we're seeing the gen. Two three product.

The Gen three product and how we develop that industrialize that we're finalizing the system design and the prototypes that we have on tests are performing as we discussed on our last quarterly call and then lastly on the people and culture, which is last on the list with first.

In our importance of our success I'm going to talk at the end of the presentation about how we're aligning the goals and objectives.

The compensation of everyone in the company to shareholder success, which has been a key goal of assets of the team on the board as we thought about how we want to position. This company for the future. So we'll go through each one of these a little bit more detail on the talk about what we're going to deliver in the third quarter just quickly two big things that happened on the next page two big things that happened.

Last quarter, you know, we did get an investment from Coke strategic platform, which is the which is a great validation of our company and how we want to deliver into the marketplace that this is on top of a $50 million equity investment that they made previously we really like partnering with the team there and like what they bring.

Energy Jennifer Granholm at.

Of what Theyre trying to drive that low cost high durability long duration storage, which is exactly what eos delivers to the market. So with that I'll turn it over to saga will walk through the financials.

Thanks, Joe Good morning, everyone. In the next two pages I'll talk you through the second quarter of an actual let's start here with page six we delivered $600000 in revenue from the quarter as you know motor oil was one of our first commercial orders. This revenue accounts on the partial shipment with a second shipment recognizable here and there.

Third quarter, our cost of sales in the quarter were $12.4 million that included <unk>.

$5 million of expense due to fair market value adjustments on future book donors $3 million in costs related to improved current manufacturing yield $1.7 million in base costs as we bring the factory up to capacity and the entitlement seven.

$7 million and onetime transportation costs.

Our R&D expenses were $2.2 million lower versus Q1, as we finalized our UL testing, which were partially offset by our continued investment in new technology, specifically RSP three product.

General and administrative expenses included <unk> 6 million in one time transaction fees and $3 million and stock compensation expenses.

$22.5 million loss on preexisting agreement reflect fair market value of acquisition.

The remaining 51% in high power partnership we described.

At the last quarter earnings call. We also recorded $2.2 million from the sale of New Jersey State tax credits and $6 million gain on fair market value of our private more on the latter reflects the mark to market valuation, which we will continue to have on our warrants from the improved <unk>.

<unk> recently issued by the SEC earlier this year.

I'd like to move on to the next page and talk you through our current cash balance.

And you are exercised by select investors from business operations specific T spend.

Spending $43 million this quarter, which included two onetime transaction items less of the business operations the transaction items are <unk>.

$15 million of one time spend on the high power acquisition and $2 million additional and transaction expenses.

Minus of the $17 million or business operations were about $26 million the $26 million continued up $15 million on cost of sales on working capital both for current and future manufacturing needs.

$3 million on capital expenditure $4 million in R&D related to the three $2 million in commercial operations and 3 million.

For general and administrative expenses.

Let's move on to the next section will review our progress on the commercial pipeline and booked orders for delivery, both in 2021 and beyond from a financial commitment perspective.

Page nine is a reflection of our commercial activity as of July.

This is a page you are now familiar with from previous presentation, let's chocolate lead generation, we worked with our customers to materialize ideas and assets, where feasibility regulation project plans on economics, we today have $2.9 billion or 17 gigawatt hours and review, but then lead generation.

Our commercial pipeline is $3.9 billion or 23 gigawatt hours. This constitutes two key segments really act on proposal of $3.4 billion and customers with whom we have firm commitment per LOI of another <unk> 5 billion like we have discussed previously only a customer our approach.

With a clear mandate on project requirements technical specification and only a use case that satisfied iOS.

Specifications will be included in our pipeline in this stage, we actively present, our commercial and technical proposals to customers our experience indicate that about 30% of our pipeline over the long run will translate into booked orders.

In specific circumstances, where we have reached an agreement on commercial terms with select customers and have an agreement on a letter of intent supported by clearly defining next debt that require actions on behalf of the customer re categorized as LOI are firm commitments are experienced syndicate.

On average 60% within this category translates into a book tour in 2021, we have converted at about $55 million or 194 megawatt hours from 13 projects to booked orders from this bucket.

We have more details on this in the upcoming pages.

So as of July 2021, we had $79 million in booked orders year to date, we considered on a project that booked order. When there is an agreement for yields to procure material manufacture and deliver our storage solution.

<unk> strong momentum for the rest of the year and booked orders have increased $46 million since <unk> earnings call.

We have committed to $5 million capital loans to partner and determined by scale and market potential of our select project.

Once the project per chip potential is determined.

We will have the exclusive rights to deliver storage solution.

We to date have funded $1.1 million of such commitments as a result.

We have successfully helped secure land rights and interconnections for projects that are in consideration.

Second we have partnered to deliver a project financing for an additional select set of customers and projects here.

Here, we have committed to approximately $17 million in capital.

And funded $3.4 million of such commitment.

We have $52 million in apathy and commitment.

On this particular segment is included in our book donors.

Three 9 billion pipeline, let me discussed on the previous page, we have more than $500 million in additional opportunities on select customers ranging from development financing for project financing and asset leasing.

We are currently working on multiple opportunities to expand our project financing partnerships in the second half of 2021, net and more to come over the course of this year.

On page 11 discussing booked orders for the year, Let me give you a few more specific details on the $79 million in.

In year to date booked orders on.

Our current book daughters constitute 18 projects with nine customers on 302009 megawatt hours two.

<unk> are cash sales of yields like what equipment, representing about 104 megawatt hours and additional $49.90 medimmune on.

Active leasing represent 225 megawatt hours.

These two projects deliver approximately $17 million.

With my daughters.

Additionally, our booked orders constitute about $9.3 million in recurring service from monitoring and maintenance obligation that typically begin.

Free and range from 5% to 18 years, we expect the momentum on our booked orders to continue into the second half of 2021 development financing and project financing as you know from previous pages are not included in our book donors.

Let's now move on to page 12.

Here's a snapshot of our orders backlog, which is now a reflection of our 2021 year to date booked orders plus 2020 year end backlog minus.

Shipments we have made to meet customer commitments. This backlog comprises up 32 projects with 18 customers on 389 megawatt hours at our first quarter earnings presentation. We reported orders in backlog of 55 and since then we have recorded an additional 46.

2 million new booked orders.

We have also successfully shipped one 1 million, resulting in a total backlog of $95.6 million.

Deliveries on these commitments is expected to be both in 2021 and 2022 <unk>.

Equipment sales constitute about $84 million of that backlog and an additional $11 million in long term service revenue.

Now I will hand, the conversation back to Joe on page 13.

Thanks Tiger just a quick drill down on something that we've talked about since we've gone public and that is.

Taking projects proving the value proposition on the technology getting our customers to commit to the technologies like the technology and then signing a letter of intent, which allows us to close out.

Projects and bring them to commercial success for ourselves and for our customers and we're starting to see a lot of traction over the last couple of months.

In that bucket.

Opportunities that we've been working on here for the lab.

Nine months in really the last three months and acceleration of those projects starting to close starting off with IP projects and Eric Todd. We're very proud of getting two projects that are about 100 megawatt hours of opportunities with IEP, having them fully financed and starting to work with them now through the permitting process to really start to start looking at deliveries.

In 2022 on enter smart we've closed eight projects. This has become a really strong strategic partnership for us to be loved working on that team and this is working on the queso, California market across various different operating sites, where we're delivering some projects at the end of next year on the majority of the projects into 2022 Z global another another.

Operator in the case of California market, where we we've won two projects with them for 18 megawatt hours is starting to work with them on execution and implementation and grid connection to start looking at delivering those projects and then have to pay which we have a large we.

We have a large.

With that but we closed our first project in the aircraft market is small projects a four megawatt hours, but really allows us to start working together on execution and delivering and connect and getting the grid connection and get into power on to the grid. So we're starting to see the strategy that we have worked and delivering quarters.

I'm very proud of what the team has been able to do here on how our partners have worked with us to bring these projects to successful closure now if we jump to the next page and really start thinking about how.

Our pipeline mix looks like and what our current order backlog looks like so when you think about.

Where we're selling 335 megawatt hours are front of the meter projects.

Move faster with customers that are able.

And willing to work with us on.

On creating value propositions were behind the meter 54 megawatts, but theres a large opportunity pipeline that we need to continue to work as we think about the future from a use case standpoint.

A lot of people talk about the technology being for solar integration and we do have a large chunk of our backlog in solar but at the same time, we're doing a lot of grid.

Grid deferral locational capacity, we're four plus hour duration discharged becomes very important to the customer and the flexibility and safety that we offer in our technology allows these customers to secure a return on their investment over over the next 15 to 20 years and you're starting to see our project size grow.

As we as we work through these projects from going from one megawatt less than one megawatt projects into larger projects that we're now starting to work with customers and develop and really starting to get the operating capability of the company to be able to deliver these projects under David diligence leadership on our project operations organization.

Though too.

Non flammable technology to that marketplace, the Texas, Eric part, where you need operating flexibility to go from a couple of hours up to more than 10 hours, depending on your use case and in the northeastern United States, which really integrate solar plus storage and co ops up and down the east coast and then around the world. We're starting to look at industrial applications.

It's about motor oil.

For an oil refinery we've done around the clock electricity.

A couple of developers with Azure powered renew which we're proud to partner with them on for four megawatt hours in India and then in Africa, We're working with the Shell Foundation to.

To be able to deliver two projects to one customers from three megawatt hours. So we're starting to not only build up our ability to execute in the United States, but also building up the network to be able to execute around the world because when you look at our technology. The benefit of this technology is while it's safe to use in urban areas. It's also easy to use where you can.

Using the remote areas. So when we look at how the technology works from the flexibility that it brings it's a technology that works in multiple use cases and allows us to deliver for the marketplace with that we'll move to the next section and talk about manufacturing capacity and delivering on our product.

So moving to page 17, I want to walk through the construction of our current revenue profile for 2021, and 2022 from the perspective of orders and backlog.

To start on page on start on the left hand side of this page, where we look at the backlog of orders that we have today we had.

A $50 million of revenue secured in the backlog do you see there was $48 million to go we've already shipped 2 million, which brings us to the $50 million target that we had with an additional.

36 million net was to be shipped in 2022 and these.

Date that im, giving there tied to the original purchase order signed with the customer now as we've opened back up.

Across the United States.

Starting to see some delays in transportation delays in getting permits delays in getting the site ready and doing and doing construction, which have caused us to shift out <unk>.

Deliveries from 2021 into 2022 at the same time, we've worked through some challenges and are on.

On the on our controllable actions the first one being our UL certification coming in two months delayed versus our initial schedule, which caused some of the applications for permits to be delayed on the customer side, and then ramping up of our manufacturing, which I'll talk about on the next page, which really has been a challenge for us but.

Things that we're working through we see improvement every day out of the team that we have in Pittsburgh, but when you look at where we started the year $45 million of the $50 million that had the original contractual delivery dates of 2021 are now shifting into 2022. So when you look at the <unk>.

Far right hand side of this page you see that we are forecasting $3 million in revenue for $5 million total for 2021 with the remaining amount of our shipments going out into 2022 for the Gen. Two three product beyond the $53 million, we continue to see demand.

For the Gen. Two three products. So this will be something that we'll have to keep focusing on.

Supply chain ramp as we look to 2022 and beyond we go to page 18 and talk about this gen. Two three.

Product optimization, when you look at our yields by.

We've always talked about having really four main manufacturing processes.

That being welding and assembling our electrode welding our battery together assembling the battery bolt on filling it with electrolyte closing it and testing it and then into the container on testing we've had when you look at this our yields have not lived up to the targets that we've had we've worked through multi.

Pole items to be able to improve those and believe we will close in on our targeted yields here over the next.

For months, but our current yields are below with expectations on what the biggest challenge being around infrared frame welding, which is 10 points lower than what we had initially anticipated and that has been multiple challenges with the site. The facility that we're working on in the power quality that we had with working through the design and the molds of our free.

<unk> and how we will do those but the team has come up with the formula to be able to deliver on that 90% and we're seeing good product come off of.

Job and working through these and having a path to being successful in everything we learned on Gen. Two three will be applied to the Gen. Three point on product as we move into production on that product next year now.

When I move to the next section on the people and culture section really want to focus on one page where.

Two things I'd bring out here, we've grown the company head count is up 147%.

Total this year, bringing in a lot of great people into the organization. We've done our first employee survey with an 86%.

Highly favorable employee engagement.

Two peer groups who've looked at peer groups of companies that are around the same market cap as we are today and high growth company peer group to think about how we want to position the company for the long term when you think about how we compensate everyone from me down to the factory floor, we talk about base.

Salary, we're looking to be at the median or lower as far as how we compensate on core cash out the door or bonus which are tied to the to the six objectives that you've seen we talked about on every earnings.

Earnings call. If we hit those six are bonus goes to above average and then the biggest thing for me is making sure that equity is outsized from cash so that if you're successful as a shareholder of the entire company is successful and everybody is rewarded for that success. So every employee in our company has.

And that will be the case as we move forward and we're going to reward the top performers and as we deliver and grow the company there'll be rewarded as you're rewarded so we want to have a one to one alignment for when you're successful on how were successful as employees. If we go to page 21 last page, we are going to continue to grow our pipeline.

We have to increase our front of the meter orders and develop a clear behind the meter strategy of getting qualified with large customers and also will come back and talk about our project financing strategy on what we're going to do going forward to be able to grow our order book and hit our $300 million target on revenue, we need to hit them.

Deliveries that we've laid out today, we're going to work through on site readiness with customers and focus on building, our 2022, plus orders backlog, which become which then be converted into sales, we're going to close out our UL.

<unk> testing, where we're beginning our CE mark testing for Europe, and getting full ISO certification for our facility and getting total system. You. All 90, 540 certification, which is very important.

Projects for the future on the 800 megawatt hours of capacity, we've got to reduce the waste continue to work on and optimize our material sourcing stabilized operations and we will come back with our capital investment plan and how we're going to finance, our equipment and where we're going to locate that capacity as we move forward and we will come back with a more detailed production.

Planned launch on disease free product and we're going to continue to expand and grow our engineering software and systems development team and we're going to to really look at how we continue to keep the people on the culture.

Tied to how you win in the marketplace I think we've learned a lot. This past quarter. We've delivering continued to deliver strong result from the team will continue to be focusing on building a great company and delivering returns to you as our shareholders with that I'll turn it back over to the operator, and we'll open up for questions.

Thank you we will now be conducting a question and answer session. If you would like to ask a question. Please press star one on your telephone keypad, a confirmation tone will indicate your line is on the question queue. You May press star two if he would like to remove your question from the queue.

Participants using speaker equipment, it may be necessary to pick up your handset before pressing the star.

One moment please call for questions.

Yes.

Uh huh.

Thank you. Our first question comes from Chris Sullivan with B Riley. Please proceed with your question.

Hey, guys. Thanks for taking my question here, maybe just on the project delays from 2021 to 2022.

Last call you seemed fairly confident in about 10 million 10 million expected over through the end of the third quarter, maybe you could talk about those projects in particular, what the delays where you have now so it seems like it's more customer and at this point or delays that were resulting in the UL delay or their permitting.

Issues.

All other components in the supply chain that they need for the projects that are pushing things back into 2022, now and what's the cadence of these delayed projects.

The timing now or the bulk of them going to be first quarter of 'twenty to some pushed out further than that thanks.

Hey, Chris Thanks, and good morning.

So a couple a couple of components there in your question so.

We are seeing.

On the on the project delays, we had added on.

Out of the 45.

You could directly link about $5 million of it to the delayed UL certification the good news on UL as lately.

Late last night, we got approval for our manufacturing facility so as of today.

Product that comes out of the factory will be marked with you well. So so it's a big milestone for the team.

When you look at when you look at.

Net other delays that are happening you know these are not that the project will move forward delays. These are more just getting approval for permits on construction getting the actual civil works done so that we can install equipment on site.

We've got we've got now containers in Pittsburgh waiting waiting to ship out and final you you've got to work through the grid interconnection to getting everything lined up to do that and we've seen some some we've seen I think these are systemic across the industry that you've heard from other companies that they've gone through their earnings estimate.

On the on the when Theyre going to fall I'll, let soccer give some more color here, but what I would say is that you're really looking at them falling out in the first half of next year shipments I don't think Youll see all of them go in first quarter, but I think you'll see them go over the first six months of 2022 I don't know if <unk>. If you have anything you want to add to that.

Yes, Thanks, Joe Hi, Chris Yeah, I agree with everything you said.

As we get more clarity, we'll be sure to come back to you, but we are actively working with our customers to match their expectations on our timelines in the first half next year.

Okay.

So more than more than half the backlog here is in T&D deferral locational capacity.

Project Theyre going to wait for Standalone ITC in.

It seems like you've had good dialogue going with.

Some folks in the federal government here Congress people and Secretary Grant home how are you on customers handicapping, some kind of a standalone ITC, but by the year end.

And what is the dialogue like there I'd love to hear about that.

Yeah, Chris I think there is.

As everybody on Washington works through this that we will have something that you think you have some people.

I think there is some people waiting to see ITC come through before making decisions on projects and as we see that we just see the opportunity pipeline to continue to grow for us as people look at wanting to have safe reliable power with longer duration longer duration and flexible discharge times, we just have more and more people coming to us with their project.

Opportunities, which.

In this kind of timeframe of waiting to see what's happening on the ITC. It gives us a lot of time to be able to sell the value proposition and that's why you see the backlog growing the way that you do and also why you see the opportunity pipeline going up the way you do.

Got it and then looking at kind of the targeted backlog $300 million by year end, what's the expected split there between 2022 projects 2023 projects or even beyond that I'm just kind of curious how you guys think thats looking to shape out at this point.

Sorry, do you want to do you want to start off and then Mike can jump in.

Yes, absolutely.

Our focus right now is continuing to deliver we have about $455 million in opportunities that we are working on with expectations currently from our customers from second half 'twenty, two and 'twenty three.

That's about the pipeline that wed like to focus on to meet the 300 million target.

In the short term okay.

Okay got it thanks, I'll hop in the queue here.

Thank you. Our next question comes from Tobias <unk> with Northland.

Northland Securities. Please proceed with your question.

Hey, Joe Good morning.

I just wanted to make.

Get an understanding of.

So $5 million was the UL.

Patients and then how does the rest of it sort of linked to slide 18, where you have those.

Manufacturing objectives that youre working towards.

Is there a number you can kind of.

Put to the sales deferral that was related to your your your manufacturing issues.

Yes. So go go.

So too much going back to.

Christmas question, you know when you look at the 45 million $5 million of it.

Was directly related to <unk>.

Timing on the UL.

Challenges were having on the manufacturing side it was more systemic.

That being said, we need to work on page 18, and really get the yield up particularly on infrared welding and we're using this time period here to take what we've learned and improve upon what we have and we will be able to come back and show everybody. What we've done to make the factory better and get and get better output as we move forward.

Okay got it.

And then on slide 15.

Can you discuss maybe some of the new names on this list.

From what you might have talked about.

In the prior LOI slides.

It seems to be a couple of new ones that may be on on new customer engagement any other color there.

Sure do you want to start and I can jump in yeah for sure so much from Chesapeake.

Slide 15, correct.

Correct, yes.

On this page this is more more than just LOI. This is all our booked orders plus some of our customers that we have delivered two so as you know and as far as the LOI is our concern hecate on IEP are two prominent names along with energy smart, but you would have seen us talk about as otherwise the rest of them are.

Booked orders that just matched organically came out of our pipeline directly into book builders.

Okay got it and then we're in then.

Yeah, sorry.

Yeah, what I would say just on names you see here.

Winning winning the project in which we're announcing this morning with Emel and Spain was a big one for US just working through that working through on getting the technology qualified walking through the use case showing them. The revenue stack. We gained with the flexibility was a big one charge with the global working on the case so the region.

I think this is a big area for us when you look at what's in what's in our pipeline sort of prove out again, the use case with with those customers is very important.

And renew in Azure power.

That's just been working with them as they are.

As they develop their business plans and building off of really what we did on our first pilot projects in India two years ago, showing those operating results on the field showing the improvements we've made to the product and now having launched projects with them, which will lead to.

Future larger projects as we move forward here in the future we're pretty excited about.

But the names that we have on this page on the work that we're doing with them.

And so <unk> was also refinery related use case no.

Net.

Emily.

As a as a streets storage project in Spain.

But our second Big project, our second Big project in Europe, along with Motorola.

Gotcha, Okay, and then final one for me the slide 23 sand market value adjustment.

Assume that has nothing to do with the high power.

On a reversal but.

If that's true and then if you can characterize debt charge further.

Yes, yes, I hear you on start up there.

Yeah. Thanks, Joe so much lean five three you are correct. It has less to do with high power from from an accounting treatment perspective.

The way I would think about it is it's an accounting treatment on lost contracts for the expected value of what we are purchasing as inventory and vice versa.

They expected selling price on it as you know we continue to work towards having a breakeven on our financials by the end of next year on on a on a pro forma basis, because high power was on acquisition.

That is more recent in our history. This at fair market value adjustment is now recorded on our books versus the joint venture books.

Which you would not have had we would not have had transparency too because we only previously on 49%.

Okay.

I got it okay, and one final accounting issue as well so.

What do you think cash run rate G&A is at this point and what do you think it.

It will be.

Give or take in 'twenty two.

Yes, the business has felt towards having a minimal structural costs. So the fixed structural costs for the company are around about $10 million a quarter.

Those variables on what the managing volume and how that non volume ramps up with our customer deliveries so that.

We have $175 million of cash today on the balance sheet and we expect to manage it very prudently on both the fixed on the variable cost.

Two.

On a cash flow.

Okay.

Thanks, everybody.

Thanks, so much.

Thank you on our next question comes from Tom Curran with Seaport Research Partners. Please proceed with your question.

Good morning.

Good morning, Tom.

So just want you to call the $41.7 million of orders you've booked under asset leasing agreements have taken assets leasing portion of backlog from from 20% at the last call it 54% today.

Could you speak to why asset leasing surged to 90% of this period's orders and tell us what percentage it should represent of this year's remaining expected bookings of $200 million.

Looking.

I'll take that one yes.

Yes go ahead sorry.

Yes look on that Tom.

What I would expect us in the long run that number should be about 25% on a recurring basis of our total backlog.

From period to period that number may vary plus or minus in this particular case, we have a larger transaction that is currently in our asset leasing on as we finalize our financing strategy from the second half of the year you will see that you will see that number transferred from a risk perspective and hover.

Continue to hover.

25% for ongoing future bookings.

Okay.

And then within that balance of 200 million on orders you expect to book over the rest of the year. What is the single largest project as measured in megawatt hours and the nature of that project.

Yes.

Happy to look we have today projects that range from less than one megawatt hour to 10 megawatt hour project side referenced on the page 14 in say off the 389 megawatt hours, we haven't booked orders of $340. Its 10, plus megawatt hours as we continue to evolve as a business that.

That segmentation.

<unk> more towards that 10 plus megawatt hours.

455 of core opportunities, we are working on have a wide variety and range, but the median would be somewhere between 10 and 15.

Yes, Tom.

We are working.

Larger projects in the pipeline.

I don't anticipate those closing here.

And over the course of this year and we'll be looking at larger projects happening probably beginning into 2022. So I think youll see a mix of continued mix like we have today with a mix up to getting towards the 50 megawatt hours of cyber discussed.

But would you expect say the average project size for the remaining $200 million.

To be closer to that 10 megawatt hour.

<unk>.

Or just.

A bigger a bigger average project within the $200 million then.

The $95 million to date, yes, yes.

Yes, Tom I think what you see in the opportunity pipeline.

On the size of the projects that we're working with customers on skewing up probably I don't know exactly where the number get where the number of winds up but if you were to plot out quarter by quarter. It is growing as we as we continue to show and prove out the technology and people, becoming comfortable with using us as their partner.

Great and then last one from me turning to the supply chain and labor pool.

Yeah.

Yes.

Inflationary spikes.

What I would say we're working through now.

The team is.

We're not we're not getting the cost out as fast as we anticipated. So so part of that is due to the ramp and part of that is just due to the inflationary pressure that you see.

In the marketplace from.

Constraints on the supply chain to getting material.

I don't anticipate.

Any any concerns there I mean, we've worked through and have secured.

The ability to source product from from our suppliers and we have and we're adding sources of supply as the as as.

As we wrap up in the organization matures and then from a labor from a labor pool standpoint, we've designed the factory right now and Turtle Creek. The team has designed.

The flexible work force that we can shift people around between different operations and then at the same time hiring and bringing in the right level of operators to be able to operating equipment.

It is.

In the environment that we're in right now there are challenges you have to work through just from what we're seeing happening with the Delta variant, but the team has managed through this over the last year and we'll just have to continue to manage that as we move forward I don't know if you want to add anything.

All good.

Great. Thanks for taking my questions.

Thanks, Tom.

Thank you there are no further questions at this time I would like to turn the floor back over to Joe Ms. Angela for any closing comments.

Okay.

Thanks.

Just just to close out today.

<unk> team is continuing to work to work through the challenges of growing and building the company.

On how we progress on where the company continues to grow for the future. So thanks for the time this morning, and look forward to talking to everybody in the future.

This concludes today's conference you may disconnect. Your lines at this time. Thank you for your participation and have a wonderful day.

Q2 2021 Eos Energy Enterprises Inc Earnings Call

Request a DemoDemo

EOSE

Eos Energy

Earnings