Q4 2021 Eos Energy Enterprises Inc Earnings Call

Good morning, and welcome to the Ehealth Energy enterprises fourth quarter and full year 2021 conference call. As a reminder, today's call is being recorded and your participation implies consent to such recording at this time all participants are in a listen only mode. A brief question and answer session.

Will follow the formal presentation.

Tell me what should require operator assistance during the conference.

Press Star Zero on your telephone keypad with that I would like to turn the call over to Laura I'll, let the VP of Investor Relations. Thank you you may begin.

Thank you good morning, everyone and thank you for joining us.

Financial results conference call for the fourth quarter and full year ended December 31 2021.

The call today, we have <unk> CEO , Joe Mr. Angelo and CFO , Randy Gonzales before we begin allow me to provide a disclaimer regarding forward looking statements this call, including the Q&A portion of the call.

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.

<unk> during todays discussion should be considered to incorporate this information by reference.

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

<unk> remarks will also include references to non-GAAP financial measures additional information, including reconciliation between non-GAAP financial information a U S. 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 room.

Latest financial information prepared in accordance with GAAP. In addition, our non-GAAP financial measures may not be the same as or comparable to similar non-GAAP measures presented by other company.

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

Laura and welcome everyone Great to walk you through our <unk> in 2021 operating results if we move to page three.

I'm going to start where we always do and thats with how much energy, we discharge out of our systems. Since the last time, we were together at the end of <unk>, we've discharged nearly 100 megawatt hours of energy from our systems, both either on the field test. We're now over 400 megawatt hours and just continues to show the robustness and the proven nature of the tech.

Knowledge that we have out in the market marketplace.

For me personally the journey here over the last year or so it's really fantastic to be sitting here thinking about having nearly 600 megawatt hours of orders and backlog.

Most totaling $150 million, but the lion's share of the work that the team has done over the past few months is really beefing up our opportunity pipeline.

We've gone out and proven the technology and show them the value. Our pipeline is now 25 gigawatt hours of opportunities at over $4 billion that bodes well as we walk through here today. When we think we can do as we as we go through 2022.

Lastly, when you when you think about the operations of the company, we were able to recognize $4 $6 million of revenue. The team had a really good fourth quarter, which Randy will walk you through a little bit more details on that but I think when you summarize this page you're really starting to see the company now transitioning from an R&D company to a full fledge operator.

The company and if we move to the next page you can see we show some of the core operating highlights for the quarter for the company.

Our on a rapid growth trajectory as a company when you look at growing our operational scale, which is really positioning us for the future, we signed and announced earlier this week the doubling of our manufacturing footprint and Turtle Creek, Pennsylvania to be able to build our 800 megawatt hour a year capacity. The same time, we are pile.

<unk> manufacturing lines here in Edison New Jersey.

For our new <unk> product that product has been on test and we've produced our first units I think one of the more important things, which you may think of as the soft thing, but it's very important out in the market is the fact that we received ISO 9001 certification for our manufacturing facility in Turtle Creek. This is critical for US as we go out and show customers the.

<unk> that we have and the maturity that we're starting to gain in our manufacturing process. When you look at those manufacturing process. We had a very strong quarter, we had a 68% increase in output versus the first half of 2021, our first pass yields at towards the end of the year, we're approaching 90%.

And we're consistently going above that as you look at the first few days here in 2022, and we've reduced our cycle time by nearly 75% and that's shown in the financial results that we're delivering today, we have shipped more than 50 containers out in the field, which is really great performance by the entire operating team you talked.

On the commercial side sales volume is up four times versus the third quarter, we signed $176 million of new customer LOI and firm commitments that when you think about our business model, which I'll talk about in the next section that's a leading indicator for orders that are going to come in the near term as customers.

Close out their contracts and as I said earlier the pipeline is rapidly growing and we see more and more people wanting to have longer duration storage and coming to iOS as the provider of that solution as they think about what they want and how they want to monetize their assets.

Move forward and shift into orders growth and revenue I want to start off on page six just to.

Baseline back on how we think about the market segmentation.

So we always break this down into into three segments the short duration.

Zero to three hours this where lithium ion is really strong and provides a great solution to the marketplace. The long duration 12, plus where there are a lot of customer a lot of competitors that are developing technology and starting to ramp up their manufacturing processes much like we've done over the last 18 months and then you have this medium.

Our intra day or would I like to call truly the flexibility simplicity and safety segment of the marketplace, it's going to be 115 gigawatt hours iOS has the perfect solution.

This customer need and when we look at this we think about.

When you're delivering solutions that needs to offset the intermittency of renewables you need to have flexibility they cant be static rigid systems and that's exactly what our technology does and that's exactly why you see us with this nearly 600 megawatt hour backlog and a pipeline that is rapidly growing and expanding as the commercial team.

Is out selling our solution into the into the customer base.

Take a look at this next slide you see that list that we have significant competitive advantages versus the incumbent incumbent lithium ion not just on our ability to operate across a wider operating range with.

With a larger depth of discharge.

Your operating range when it comes to temperature and a lower degradation, but also our cost advantages that our cost advantage. That's derived from the fact that we have principally five earth abundant raw materials in our overall system.

Supply chain is domestically based.

Stabilize the derisked it over the last four months, we ship our products. Unlike other products in the marketplace, it's shipped fully integrated and its container with zero voltage in there which increases the safety of the product when it's when it's being shipped to the site either by over the ocean or over the roads on a truck we have a law.

Longer operational lifetime, when you think about our system and how it charges and discharges with every cycle that we operate our battery, you're basically resetting that battery and increasing and maintaining its useful life for 15 to 20 years same performance, we don't have any auxiliary systems either.

<unk> heating ventilation and air conditioning to operate in a narrow temperature range or unlike flow batteries, we don't have high pressure pumps to move our intellectual eight out of large tanks through a membrane and the catalysts to generate electricity were self we're self contained system, that's very safe and it's hard to damage the system when you outside.

The suggested operating specifications of the product and at the end of its useful life 20 years from now many of US will probably won't be in the industry anymore. This product will be able to be recycled very simply and cheaply and all the raw materials can be put to use into new year. So we think not only does this offer the flexibility not only into this.

Decarbonize, our energy value chain, but it also has a compelling overall from from birth to rebirth lifecycle that adds to exactly what we're trying to do as we think about renewable energy for the energy value chain.

Move from page, 7% to PHP, just trying to walk through our traditional page on the pipeline right. So so as everyone knows we.

We call our pipeline.

<unk>, where we have a technical use case from our customers that we can provide.

A technical proposal financial pulling as we do do early generation.

Ideation or idea generation with customers, where we have another $4 billion of opportunities that we're working on with our customers, but these are things where people come with ideas. So when you think about this page and you move it from left to right that lead generation.

In general Youre getting a 50 50 hit rate from lead generation into pipeline from pipeline without which I recall active proposals and letters of intent from commitments. That's about a 30% hit rate and then you have booked orders. So when you think about where the cost of the company is and how we've positioned it for.

Future growth the company is well positioned to continue to grow its backlog and continue to expand and we like what we see from the customers that we've been working with in that LOI firm commitment bucket is a 240 megawatt hour project with with bridge link in West, Texas, which is an air cut project, which we feel really.

Good about what originally wants to do and we're working with them on the same side of the table to close that out and turn that into an order here.

Relatively quickly so we're pretty excited about what the team has done to position ourselves for future growth and we'll continue to keep everyone updated as we think about this now although on the booked orders side. When you look and it says no change versus the last time, we were together for earnings.

Did book 50, 50 over $51 million of orders with Blue chip customers like <unk>, Duke and Blue Ridge and <unk>.

Power. So we're pretty excited about that those booked orders for the year and where the backlog stands. So if you go to the next page and just think about the backlog there is.

28 projects are 14 customers. So we do have customers coming back for multiple projects, which is a testament to what the team has done is establishing us or us in the marketplace. When you think about the backlog in and of itself. It's important to note that.

Hundred $14 million of this is the capital equipment shipping the product out into the field, but we've already started to create a recurring revenue stream with long term service agreements, which are $34 million of the opportunities that you have in the backlog and then there are some asset leasing.

Projects that we go through when you think about that you look at.

Why that number has gone down versus the third quarter. That's basically because we had one project where the customer found their own financing is in the process of closing that yields is no longer going to finance that project, but we're working now in the factory to be able to manufacture that product and get it out in the field and Thats Another project down in Texas in the air.

Cut the ERCOT operating regions. So we're very excited about where we are from a backlog standpoint, how the commercial model has evolved over the past 12 months and we will continue to drive growth and backlog for the company to start delivering higher revenue numbers as we look to the rest of 2022.

Now shift into and talk about manufacturing.

And our ability to deliver product again, I just would start often say signing the lease and expanding our manufacturing capacity in Turtle Creek is very important for us to be able to continue to grow the company and at the same time being approved by the department of energy through its phase one loan program and now start.

Often face to offer also offers us a way to be able to finance the future capacity growth of the company as we look to the future I'm really proud of what the team has done out in Turtle Creek. If you focus on the left hand side of the page we've seen continuous yield improvement in the factory I talked earlier about how we're getting more output out of the same.

Asset base, we've expanded our manufacturing workforce, we're really proud of the team that we have there one thing I would say, it's not only does our company do good things for the energy value chain, we're doing good things for the community that we operate in when you look at our supervisors on the shop floor today, where the first employees that came into the factory 18.

[noise] ago, and our workforce is an impressive workforce, we've got nearly 15% our veterans and 40% minority and people can come in and we've got a really good growth trajectory career trajectory for people to really work in the Green Tech sector, and what used to be coal country of the United States and we've also started to optimize.

Our processes and our cycle time, and this is something that never stops you gotta be relentless about this you've got to bring lean we have a new <unk>.

Supply chain leader, who has joined the company comes with a very extensive background both in technology and in manufacturing is only going to help us get that better and when you look at the right hand side of this page you can see the first shots of our of our new facility Internal Creek, we've gone through signed the leases I talked about earlier and what you can see on that.

Far right picture as we've started to lay out mark.

Manufacturing slow on the shop floor. So that we can start looking at how the product and the raw material is going to flow through the factory to optimize that and get more and more output off of the same asset base and this is critical because when you look at the investment in this facility is $50 million to get one.

Gigawatt hour of capacity, which is 60% less than what it would cost. If you were doing a comparable lithium ion facility. So we've designed the entire business to be modular in the product and how you can figure and ship in the field, but also be modular and our Capex program. So that we can either accelerate or slow down our capital.

Depending on what we see happening in the marketplace. So the team internal Creek something that we're really proud of and all investors should be proud of what the team has built in such a short period of time and better days are even coming now as I said on the initial results of 2020 due are better than what we saw in the fourth quarter and we're excited about where we're going to be as we move forward so with that.

I'll turn it over to our new CFO , Randy Gonzales and welcome him formally publicly to the team and then let Randy take it from here. Thanks.

Thanks, Joe and good morning, everyone. Let me start by saying how excited I am to be part of the Eos team and I wanted to take this opportunity to explain why I chose those first and foremost the positive impact that <unk> has in making the world a better place through accelerating de carbonization.

I can't think of a better cause mid and long duration energy storage technologies like ours are a key catalyst for the continued adoption and higher capacity utilization of renewable energy solutions.

Second <unk> has a technology that works, which now requires industrial scale and I'm energized to apply my decades of experience in managing rapid growth driving operational excellence instilling discipline through performance management and executing strategy.

Finally, I was excited to partner with Joe and the rest of the leadership team to continue to build on the platform of this critical technology, which has been developed in the U S and which is produced in the U S with a primarily domestic supply chain.

Now turning to slide 13, I'll walk through the fourth quarter, and then full year financial performance and outlook for the full year 2022.

The fourth quarter as a validation of the rapid operational scale. The company expected and is a good baseline for what to expect going forward as we produce against our backlog, especially as we bring the additional manufacturing capacity online in the second half of the year.

In the quarter, we achieved significant operating leverage with revenue, increasing 332% versus third quarter to $3 $1 million, while cost of goods sold only increased 64%.

This is greater than five X operating leverage on volume.

We continue to see substantial improvements in productivity and efficiency in our operations through reductions in scrap rates and increasing first half yields and we have the right plan with the right resources to deliver a significant reduction in cost of goods sold over the course of 2022.

On the expense side, we continue to invest in research and development to improve the technology, we deliver to customers, we invested $5 4 million in the fourth quarter in R&D.

As Joe mentioned earlier, we've made great progress on our next generation battery development and we will continue the intense focus on R&D efforts in 2022 to improve battery performance and to reduce both the cost of the product and lifetime operating cost of our battery system.

This includes developing manufacturing and process technologies that will improve throughput and yield which will lead to additional operating leverage.

SG&A for the quarter was $14 million as we continue to invest in the platform for growth.

$5 million of this total is structural $4 1 million is noncash related to stock comp expense. There was another approximately $1 $3 million of one time items and the remainder is discretionary spend associated with scaling the business.

Overall, our fourth quarter operating loss was $37 6 million.

Turning to slide 14 full year revenue was $4 $6 million, which was in line with the company estimates.

Full year operating loss was $135 million, which includes $30 million to terminate the high power JV agreement.

Turning now to slide 15, we had $105 million of cash on hand at December 31, 2021.

And the current global supply chain environment, we've been actively working to lock in raw material delivery to match, our sales plan and as a result fourth quarter cash outflows include $5 million of advanced payments to suppliers to secure volume commitments in.

In addition, there was another $2 million of advanced payments to capital equipment Oems for Capex in conjunction with the Turtle Creek capacity expansion.

Now turning to slide 16, and I'll cover our outlook for 2022.

As Joe highlighted in his remarks, our differentiated technology serves a large and growing market opportunity with strong secular tailwind.

Our product is resonating in the marketplace as evidenced by the significant positive momentum in our sales pipeline, including a growing number of large utility scale projects with blue chip customers in our backlog, which currently stands at close to $150 million.

These tailwind support our commitment to deliver on $50 million of revenue and $400 million and net new booked orders in 2022.

To support our growth, we expect Capex investment in the range of $25 million to $35 million. This year as we scale up our manufacturing capacity to 800 megawatt hours with our recently announced expansion of internal Creek.

We will continue our focus on improving our operating performance to deliver on our customer commitments with a goal of maintaining over a 90% first pass manufacturing yield.

The hard work that our team is doing in our existing Turtle Creek facility has enabled the significant progress we've made to date and strengthened our confidence in our plans to scale capacity in 2022.

Our technology continues to fulfill a core need in today's and Tomorrow's energy landscape and we are positioning the company to deliver in 2022 and beyond.

When we look at the way the market is accelerating and the need for our technology. We are now poised to operationally scale the company to actively capture that opportunity.

The plan that we just outlined will require the company to raise additional capital to fully reach its potential.

As you saw with our announcement yesterday regarding the department of Energy Park, one loan approval, we are actively seeking different funding options to achieve the company's full potential.

This will allow us to not only grow topline, but also achieve profitability in the midterm.

With that I want to thank everybody for their time and listening in today I would now like to turn it over to the operator for questions.

Operator will you. Please open the line for Q&A.

Thank you we will now be conducting a question and answer session.

I would like to ask a question. Please press star one on your telephone keypad, a confirmation tone will indicate your line is in the question queue you.

You May press star two 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 star keys, one moment, please while we poll for questions.

Okay.

First question, Christopher Souther with B Riley.

Hey, guys. Thanks for taking my question here.

You could walk us through.

The cadence for the $50 million in revenue expected for 2022, obviously it started last year same target.

Customer timing and ramp execution challenges throughout the year. So I just wanted to get some color on why the confidence in time that we can achieve this year.

I think entering last year a lot more.

Opportunities you were targeting through the year, we're LOI versus order backlog, so any kind of way you can frame the cadence.

The current booked orders.

How do you have the competency and hitting the numbers here would be great.

Hey, Chris How're you doing.

First I'd start off with.

We are executing.

From a backlog of orders so.

Orders are in hand, there is always timing risk in the in the market like we saw last year, but we've we've created I think a clear roadmap with the customers that tie out to the $50 million around delivery and startup of the of the of the systems.

And then from a production standpoint.

As we highlighted the lot of the work that we've been doing with the team is locking in the supply base to be able to have the materials that ramp up as we go through the year. The expansion of the Turtle Creek facility and quite honestly the yields that we saw at the end of last year beginning of this year, which are extremely promising as we dial in.

The manufacturing process and really.

When you're running a factory like we're running a factory, it's everyday making that factory better and bringing lean principles and operation Excellence and we just see improvement everyday and what we're doing and how the team is executing and it all starts again execute from the backlog lock in the supply chain, which is a chat.

<unk> right now, but we just battle that day by day and continue to make the factory better as we expand the capacity.

Got it so could you kind of frame first half second half of the year.

Cadence or by quarter.

Just on the <unk>.

Order backlog.

What we should expect as far as that that cadence.

Well.

I think Chris.

You'll see a ramp within the year.

Sure.

Similar similar like we're always ramping year over year and ramping quarter over quarter, we got to work through that and really when you look at where we are from an evolutionary standpoint. The 50 for the year is solidified we've got to work the quarter by quarter, but we don't really give quarterly guidance on revenue.

Okay.

And then on the.

Gross margin picture.

See the strong leverage quarter over quarter.

Can you talk a bit about how we should expect that to continue where the break even point.

Look from a quarterly revenue run rate as we start to start to scale up here as far as getting to positive gross margin.

Yes, Chris Good morning, this is Randy so.

What I, what I would tell you is that we know what our cost entitlement is for both the current generation products in the future generation product.

And so in the near term we talked about we will continue to see a significant reduction in the cost of our products and that comes in many different areas. It comes from scale. So we're spreading our fixed cost over higher volume. It comes from the increased improvement significantly.

Improvement in the in the first pass yield and the productivity of the plant reduced scrap rates, but it primarily comes from the fact that we have a plan a clear plan on pulling levers from a from a procurement perspective.

Especially around commercial negotiations.

Material substitution.

And it's a finite number of projects that get us to.

A very good place here in the near term, it's less than 20 projects.

And so what I would tell you is that the path to gross margin positive.

<unk> is an 18 month path.

And so we are we're very excited about that because.

<unk>.

As we.

As we continue development efforts.

And become a full scale.

Industrial manufacturer.

That is becoming clearer and clearer everyday with with a clear plan.

Okay, and then maybe just the last one.

Great to see the progress on the Doe loan program there.

Do you have a sense on that.

<unk> when we could.

I guess get a decision on that final decision.

Susan on the loan approval process.

And ballpark kind of numbers that we could be looking at as far as that.

That program as far as cash in.

Yes, so Chris.

I would say is that we got through the part the part one.

To move into part two very quickly.

We want to continue that pace and we are on a regular rhythm with the Doe working through that but we've now got to work through the due diligence process and reviewing.

Where we are and get them out to now start looking at the the.

The facility in Turtle Creek. So we've got some work to do I wouldn't want to put a timeline on it.

Either too long or too short I'd, just say that we just got to keep working on it with the same intensity that we have been working on.

What we're doing now is the way that we've thought about how we want the structure of the program is this this part two that we're working with them on now is to support the expansion and Turtle Creek, and bringing that facility up to full scale and that that'll be where we're working on and then we and then as we look for future capacity.

From there there could be additional tranches of funding as we go forward, but that's more to come as we go forward I think we're just excited that when you look at the amount of time. It took us from when we started to where we are it's a phenomenal running start.

And Jr. Sean the entire team and the loan office Robert Edwards. These guys have been phenomenal with the support that they've given us as we work through this and really get to this point where.

On a product or technology invented in the United States developed in the United States with a U S supply chain, we've already created a 150 green tech jobs, and what was coal country and we're going to add another another probably 100 to 150 as we look forward to scaling that scaling the factory. So we fit perfectly what they want to do.

And they help companies like ours bridge to scale. So it's a perfect fit between the both of US just got to keep working through it to get to get to closure.

Okay. It makes sense thanks, guys.

Thanks, Chris.

Next question, Tom Korean with Seaport research partner.

Good morning.

Hey, good.

Good morning.

Sure.

Curious.

Given the visibility you have underpinning the expected $400 million in orders.

You're guiding to for 2022.

If and as it seems like Youre on track to book those could we see upside to $50 million in revenue would it be possible for some of those orders to turn quickly enough.

For you to actually exceed that revenue target.

So it sounds like I think we feel really comfortable with the pipeline that we have and where we stand to get to that $400 million I mean, that's a forex growth right now in this in this market with where we are in the capabilities of the of us to scale, yes, I mean, we're going to keep working it.

And tried to try to get.

We will maximize the value that will tie to the capacity that we have in the factory, but we feel really comfortable on the 400 out here as we sit at the end of February we got 10 months ago, we'll keep everybody updated on where we are but like when you look at the opportunities that are teed up the LOI that we just signed and if you look at our model.

And we've shown improving that LOI become orders and we're happy with the ones that we just closed out we've got to work through to get those closed and be on pace to do the $400 million for the year.

And Joe.

What do you expect the mix to be for that $50 million you will ship in 2022.

In terms of zinc models.

So 2022 will principally be the gen. Two three.

With initial Z three.

We've talked about initial Z three getting into production by the end of the year, we just got to keep working to that but the majority of the sales for this year will be the gen. Two three as planned.

Got it and then.

Randy welcome to your first call.

So I'm curious.

For 2022.

What specific cost targets do you have and.

Upon exiting the year, where would you like the cash balance on the balance sheet today.

So so with regards to the to the cost targets I mean, we have those internally Tom so like.

Like I said the visibility to gross margin positive within 18 months is real and we have a plan for that.

So.

Just.

Kind of kind of extrapolate based off of that.

In terms of in terms of cash balance.

I don't know if we have a target for the end of the year right. So when we talked about.

The Doe Dod alone.

We've talked about we are actively in the market looking for.

Other.

Other funding sources and so we'll keep we'll keep the market updated as we progress on that and.

And I think Tom just I just would add on.

Just to piggyback on Randy's comments. So we've always said that we built this company to be modular and everything that it does from the way the product is installed out in the fields of the way, we add to Pat manufacturing capacity. So I think a lot of where we were as we look and think about the trajectory of the company a lot of that is going to depend on where your first.

Question started as to where are we on backlog and delivery to customers. The good news is as we look at funding, we can either accelerate or conserve depending on where we are.

In that in that growth trajectory. So we want to just keep optionality and see where we are but we're at this unique moment in time, where I think as a leadership team. We're sitting here thinking about how do we position this company to capture the growth the secular change in the industry and allow us to establish itself as the preeminent supplier for flexible <unk>.

<unk> storage.

Understood I appreciate the additional color.

Thanks.

Next question to Bash Chandra with the benchmark company.

Thanks, Hi, Joe Welcome Randy.

Thanks, So much maybe a question for Randy here.

Following up on the last couple of I think so yes, if one was to sort of look at these numbers.

Could you kind of guide us on.

Off these assumptions say, yes, 50 million booked revenues.

And then we annualize.

Cost of goods sold and <unk>.

885 million.

And then 35 million of Capex.

<unk>.

Which would be the implied drawdown on your cash balances plus whatever the loans are.

Can you take those various pieces and sort of.

Tell us where that construct might be flawed.

So I.

I mean, I guess, what I would tell you <unk> is like take take the assumption of being gross gross margin positive.

Within 18 months take the assumption.

$50 million of revenue and.

The understanding that we're going to need to raise capital the Doe.

The Doe loan process is not the only thing that's being worked right. So.

We have a lot of confidence that where we are in the market whats going on both on.

The commercial side.

Pipeline perspective.

And from a pricing perspective.

There is.

There is.

There's a lot to be excited about here right. So.

<unk>.

If you're building a model what I would tell you is that.

That.

We for both 2022 and 2023, we expect the pricing part of the equation to continue to increase and we expect our costs to significantly decrease continue that trajectory.

The range of the Capex model of $25 million to $35 million.

Like Joe said right I mean, we have the ability in terms of being modular.

To flocked to flex up and down as the.

As the situation dictates.

So so I hope that gives you a little bit more context.

Yes.

What might also help is if you.

I look at the cost of goods number how would you bucket that.

In terms of raw materials labor.

Things like that so some sense of what is scalable and that number and discretionary and what may not be.

Yeah. So good question, so keep in mind keep in mind to that.

We have a fixed cost base in the facility now it's very low volume from <unk>.

<unk> 2021, it started to ramp up like we expected in the fourth quarter. It will continue to ramp so on a per unit basis, we're going to be getting that scale right. So a big a big a large percentage more so than a full scale manufacturer is comprised.

Of that fixed.

Fixed cost from from having a facility with low volume.

There was also a lot of other kind of suboptimal cost.

Which is related to.

Being being at the early stage of the learning curve from.

From a process perspective, which every quarter you see the progress that we make.

So Joe mentioned about the increased productivity and first pass yield so youre going to see a lot of costs come out there.

And youre going to see the majority of the cost though come out from.

From the raw material piece of it.

Which is.

Again, we know what our cost entitlement is.

We have a very simple product in terms of the <unk>.

Raw material components.

We are continually looking at alternative suppliers.

Continually looking at material substitution.

Those are the near term levers, which we're we've got a lot of confidence around the more the more.

I'd call. It mid term levers is design, but that's naturally happening with the next generation product because we are designing for cost and we're designing for manufacture ability. So.

We're at this.

With this incredible place in time, where we have we have clear visibility to.

Not only what can be done, but whats being done and.

That will naturally happen, so instead of like giving you giving you.

Raw materials has X percent.

Direct labor is X percent I think its irrelevant, where we are now because all of those percentages will will rapidly change as we continue to progress but.

Think what you should be modeling is.

The trajectory of gross margin.

Positive in 18 months from now.

In <unk> the only thing I would add is that you have been out to the facility right.

We've engaged we've engaged the workforce they are going through.

In December we took a piece of equipment that we.

We talked about this at the mid point, where our yields were in the in the high <unk> low eighties, the team themselves to the shop floor.

People on the floor building the building you're building the batteries and assembling the systems did they came up with something and increase the throughput by 40% and improve the yield by 15 points. So we just have to keep working each one of these one by one so I take your three buckets when I look at them and say.

Multiple suppliers on the raw materials continue to increase the domestic content of what we buy to get it as close as we can.

100% to reduce logistics costs and also.

To reduce the uncertainty of delivery quite frankly from from international suppliers.

On the on the.

On the.

I would call processing cost of taking raw material and turning that into finished product with a lot of work that we continue to look at it from a manufacturing standpoint, putting technology into the shop for Thats part of the expansion and then on the leverage piece of this the overhead piece the facility today.

That's why and that's why you're seeing <unk> sales up over 300% yet cost of goods sold under 100 around 70, that's at leverage of having the facility of that size to deliver more volume and unlocking that by just getting better and better every day and that's why it's so important in the model of always remembering that last.

Bucket the driver on that is the $50 million capex spend that we have to get two gigawatt hour as we optimize that the guys on the shop floor come up with ways to unlock more productivity out of the model that becomes more efficient and that's why we feel so comfortable about saying gross margin positive within 18 months.

Okay got it.

Yes, I guess on the topline theres been local news reports and so on anticipating sizable <unk>.

Deliveries from you guys.

And Joe I appreciate.

Right, you don't give quarterly guidance, but.

How would you characterize the.

No. The I guess the cycle times now because I think you have some pretty big projects teed up maybe.

Maybe even second quarter and certainly in the second half of this year for delivery and revenue recognition.

Yeah, Yeah, any any further color without giving us the firm numbers.

Look we are now.

We announced in.

The <unk> called the contract with Blue Ridge, <unk>, and we start to deliver the first project to Blue Ridge here in the first half. The first half of 2022, then we have a mix of we've got.

<unk> project coming in the year, where we're working on them as far as timing and site readiness of what months that falls into and then at the same time.

There's the ERCOT project with IEP, where I talked about shifting away from where we were going to finance that to where they are self financing and that project is also accelerating so we're working through the mix of how these things flow through <unk> into <unk>, but yes, I think the more important thing to me shoebox within your <unk>.

<unk> is that the company will have the large installations out in the field that show how the product operates in a scalable system, which enables us to deliver that $400 million of order growth because customers will see the proof point. That's the proof point that people are working on and that's what we're focused on honestly like for.

US and where we are in our development. The total year to me is more important than a quarterly point and we've got to get these proof points on the board that allow us to grow the grow the revenue grow the orders take the cost out to deliver on profitability and even though even though my heritage is from GE I look at this and say.

Look do you do the investors really want this team managing to March 31st or managing to December 31, I think it's December 31st and Thats, how we plan around it and that's why I hesitate, giving a quarterly numbers too much because I just don't want to put something out there and then spend a lot of energy are talking about something thats quite honestly.

Artificial when you think about what we're trying to do as we grow the company.

Understood. Thanks, guys.

Thank you Bob.

Your next question comes from James West with Evercore.

Yes.

Hey, good morning, Joe already.

James how are you James.

Hey, good so you're at this interesting point in time Joe.

That.

And a critical point in time, where as you said R&D too.

Executing on the plan here in rapid growth and so.

Our recognized <unk> had some good wins on yield improvement through expanding bacterin you feel good about.

The way things were flowing right now, but as we go through this year and recognize and again as you just put.

Put it we shouldn't care about March 31st script, but similar reverse but what are the kind of one to three buckets of.

Of concerns that you might have what's top of mind that would could derail what is.

What is it really a compelling story right now.

Yes look again, we're we're operating a little bit in the in the unknown.

On the supply chain, we've talked about this before where this is a daily grind of staying on top of things and making sure you're assuring delivery remaining flexible.

And agile in how you run your supply chain. So so it's a new muscle normally when you run a supply chain you want these things to be marching bands, where theyre, just going down and they know the choreography and they deliver what you need.

The way the supply chain the analogy I would say, it's a slight change to become like jazz.

Everybody is kind of doing their own thing and you want to put it all together and make it sound. Good. So I think that challenge number one for US as you think about how we wanted to deliver.

I feel good about the $50 million coming from.

Delivering out of the backlog and it's the timing piece of it of site readiness installation get up commissioning and on the grid. We worked through that's another thing you got to work through on a daily basis with your customers.

To be able to deliver those to me are that are the two biggest ones and then inside of that we've got the capacity expansion coming online. The new facility. We are starting to install equipment into the new facility. We're looking to be able to scale. The capacity that is a key lever I feel good about it because.

Way that we've learned in the way we operated in the fourth quarter. It makes me feel really good about being able to transition in the new facility and really get output out of the footprint, but to me those are the three things from us from delivering on the on the on the $50 million in revenue revenue side on the on the cost piece of it I feel really good.

Again.

To deliver on deliver on what we're talking about on cost of goods sold its 20 items.

It's going out and just executing on a plan that Randy and the team have put in place here over the last seven weeks that really makes me feel good about what we have to do on that front here over the next 18 months and then on the order book side again, it's continuing to show that capability to be able to deliver in.

The power of how the technology operates.

The opportunity pipeline opportunities are growing and I think people see the need for the technology from a from a transitioning from opportunity to order. We are managing through where I think people are looking and saying the ITC being delayed.

Something that people just come and say look.

I wanted to do the project with you. That's why you see such big LOI, but let's also keep an eye on this of when we need to install and how we get our PPA and how we get our financing. So we just got to work through all of those all of those risk factors that we always talk about but that's what we have to do and I feel good about the operating team. We now have out on the field that we'll be able to manage through that.

Okay, Okay fair enough.

A follow up for me.

It's in the queue.

You are in phase two the deal is.

We spent a lot of time with sugar as team and Theyre not taking technology risk we're taking.

Payback risk, which tells you that they believe in your technology and clearly the market is believing in that and so.

As we look at the commercial activity in the leads and the huge increase in leads sequentially.

What do you think it takes outside of the ITC, we think it takes to get to transition those into backlog and to get your win rate or your win percentage up.

Yes James.

The number one selling tool for this company, whether it's an investor looking at why Eos is good investor customer looking at iOS as to why.

It's a good partner for a project is come and walk the shop floor.

It's something that a lot of the companies that are talking about entering the space don't have and it's been a it's been a journey to get where we are but the biggest proof point for everybody is that 400 megawatt hours of discharge energy and work in the shop floor and watching containers being loaded on trucks batter.

He is being built and tested I mean, that's just we just got to keep we just got to keep showing those proof points of this is a company that's not doing technology development that might work. This is a company. That's taking technology like you said, it's not technology risks that you are investing in our buying its operational risk and.

We've got a very experienced team here that can deliver on this.

Alright, Okay got it thanks, Jeff.

Yes.

Next question Martin Malloy with Johnson Rice.

Good morning, Thank you for taking my question.

Uh huh.

Hi, first question was just I wanted to maybe see if you could.

Provide some more commentary on the reoccurring service and software revenue and maybe the margins associated with that and how that might layer in from a timing perspective.

Yeah, So so Martin.

In conjunction with the orders that we have part of that is long term service agreements.

That debt that kicks in after the expiration of the warranty period, which is typically two years can be three years in some cases.

But the.

So the profile of that is there is a long tail. So that's probably between like the second third year and the 15th year of the asset being in service.

And it's kind of typical kind of typical recurring revenue.

High margin stuff.

So I don't want to I don't want to scope, it, but it's going to be probably.

Greater than 50% gross margin.

Okay. Thank.

Thank you and then.

Very courage you can see.

Orders from a company like <unk> that had been pilot testing.

Your equipment.

When you look at the 400 million.

Are the orders that you are talking about for 2022 could you maybe.

To help us with should we be looking for reoccurring repeat customer orders.

On that.

Customers that had been pilot testing the product.

Absolutely and also new customers I think we continue to expand.

Going to the big Blue Chip energy, either IPP utility behind the meter operators.

As we continue to show proof points on we get more and more of that but what I would say is like look at the current backlog.

28 projects 14 customers. So we're getting multiple customers multiple projects for the same customers. So I think youll continue to see that grow and what we're trying to do.

We sit in the middle.

Like with our suppliers and our customers we want partnerships in both directions, where we're making each other successful and thats, how we approach with customers and when they see the collaboration they look for other opportunities and that's how we'll continue to grow the backlog, but I'm also very encouraged in that growth of pipeline to above 4 billion. There is a.

A lot of new people coming and saying I'd like to talk to you about this project that has a six to eight hour.

Charged duration, let's talk about the technology and we go in and show them and make a lot of progress.

Great. Thank you very much that's helpful. Thanks.

Next question Joseph Osha with Guggenheim Partners.

Good morning, gentlemen.

Joe.

Couple of questions.

Go back to the question of how you sit about locking in materials. So obviously, it's an inflationary environment and so the further out you go the harder it gets so just wondering youre in practical terms, how far out have you been able to lock in key input because it's six months a whole year.

Okay.

It depends on the commodity Joe, but yes that.

That's how we've done it so you have seen we announced in the fourth quarter, the strategic agreement with Tetra to supply a core component around our electrolyte theres other agreements that we have done for the other raw materials that we have and we continue to look to be able to find new sources here.

To get suppliers and diversify the supply base, but when we look at this it's out beyond it's out beyond mid year.

But like you said, it's tougher to do that I think the thing that the thing that we want to be very careful about and I think this is like when we were talking on <unk> earlier question.

For us are focusing to be and lock in the raw material supply.

And then work on reducing the processing cost and optimizing the overhead base that you have to be able to deliver a gross margin positive product.

Okay. So it's fair to say that in general.

Can manage about six months out but after after that at this point, it's still kind of a work in progress is that a good broad characterization.

Again dependent I think that's a broad brush across.

What we're doing I think on the strategic things that we have it's longer than that and there is some of them I'd rather not talk about here on the call, but we've locked in some things on a longer period than that and then there is other things where it just makes more sense to do it on short term, but we feel good about the material supply capabilities that we have to get and deliver the $50 million.

Okay. Thanks.

Looking at the capital raised last year James's enthusiasm jigger and his team they are great guys, but.

I'm just curious do you guys have a sort of a plan b that would involve.

Maybe slowing things a bit and conserving capital.

We're not gonna turned out.

Can't necessarily raising promotions if you want.

Yes, Joe this is.

Randy I mean, great question. So I mean, just to expand a little bit on what on what Joe said earlier right.

The beauty of this business model is that weekend.

No.

While up and dial down in a very agile and flexible fashion so absolutely.

Just just as an example, right I mean.

The business model from a manufacturing capacity perspective is not build it and they will come we have the backlog and we're expanding the capacity in association with the backlog. So in the comments around SG&A and kind of what's structural and.

Whats discretionary.

That we can dial up and dial down as we as we need to.

That's the entire business model that the company has been built on so.

It's an emphatic yes.

Okay. So there is.

And obviously you don't you you'd always rather grow the business faster everybody would but.

There is it should it happen and I'm sure it won't.

It proves more difficult to raise capital there is a path to scale. This business more slowly with the resources you have on hand.

Yes, Joe Thats exactly the model that we've always talked about.

What what my goal and my four years since I've been here and the funding that we have now is better than what we had at any point in time in the first.

Three years of working at the company.

We've designed this thing so that I don't like philosophically never want to have you never want to be chasing capacity you want do you want to have orders fulfilling capacity. So we can slower are accelerating that as we see funding in the market move and that's the way we've got to run this to kind of.

Navigate this bridge into full fledge operating status, that's exactly what we're going to do as a leadership team.

Okay. Thanks, and then just one final quick one can you maybe give us some visibility into the.

Run rates for the key elements of operating cost is if you look at the year, how much you can spend on R&D and selling and obviously those are moving targets as well but is there.

Some number that.

The good thing about it now.

So I mean, specifically R&D.

I mean thats.

That's.

Sure.

If anything that's going to that's going to accelerate with the with the next generation of products. So.

So I think I think we talked a lot about.

The revenue piece, we talked a lot about the.

Cost of sales piece.

<unk> talked about on the on the G&A and kind of whats what's structural and.

Whats discretionary.

But I would.

I would not anticipate that.

R&D from where we sit now.

B is going to is going to decrease.

Yes, I think Youll see Joe I think what Youll see on R&D as we've got we've got different things that we want to develop here and the value prop.

So just talk a little bit about let me just break down kind of let me talk R&D moment on sales and then talk G&A right. So on the R&D side.

Got the <unk> coming.

Continue to invest in that I think theres. Some theres some great work that we're developing around how we package and deliver the product for both cost and performance and then theres. The whole software side of this that we've been working on our BMS and how do we expand the value proposition. So I think you'll see over time.

Level of spending, but spending to really build out full capability to meet a wide range of operating conditions in the market on the selling side, we need to continue to grow our sales team to get more people out into the more feet on the street to be selling the product.

Meetings and rhythm to start to come back to normal we're going to need to have people out selling so youll see us continue to invest there and on the G&A side I've always wanted to keep this as light as possible and that's what we'll continue to do as we go forward because that's what ultimately also like we talked about slowing down.

The Capex spend that's the other lever here that you really got to keep your eye on as Youre thinking about how you navigate the capital markets and how you want to grow.

Yes.

Okay. Thanks, Thanks, very much guys.

Thanks, Jeff Thanks, Joe.

I will now turn the floor over to Joe for closing remark.

Thanks, Ed.

Thanks, everyone for joining today really excited about the results and what the team delivered.

<unk> and excited here as we start the journey on the operating targets that we laid out and we'll keep everybody updated.

On our progress and just exciting and proud to be to be part of this team and and really shape the future of the energy mix as people as we power People's Daily lives. Thank you.

This concludes today's teleconference. You may disconnect your lines at this time and thank you for your participation.

Yeah.

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Good morning, and welcome to the Ehealth energy at your prices fourth quarter and full year 2021 conference call.

As a reminder, today's call is being recorded and your participation implies consent to such recording 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 zero on your telephone keypad.

With that I would like to turn the call over to Lauren L. S. As VP of Investor Relations. Thank you you may begin.

Thank you good morning, everyone and thank you for joining us for <unk> financial results conference call for the fourth quarter and full year ended December 31st 2021 .

On the call today, we have CEO , Joe Mr. Angelo and CFO , Randy Gonzales 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.

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

<unk> remarks will also include references to non-GAAP financial measures additional information, including reconciliations between non-GAAP financial information to U S. GAAP financial information is provided in the press release non-GAAP information should be considered a supplemental in nature and is not meant to be considered in isolation or as a substitute with critical.

The financial information prepared in accordance with 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 our Investor Relations website at investors <unk> E. O S E Dot Com, Joe and Randy 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.

Lauren and welcome everyone Great to walk you through our <unk> in 2021 operating results if we move to page three.

Im going to start where we always do and thats with how much energy we discharge out of our systems. Since the last time, we were together at the end of <unk> with discharge nearly 100 megawatt hours of energy from our systems, both either out of the field test. We're now over 400 megawatt hours and just continues to show the robustness and the proven nature of the techs.

Knowledge that we have out in the market marketplace.

For me personally the journey here over the last year or so it's really fantastic to be sitting here thinking about having nearly 600 megawatt hours of orders and backlog almost totaling $150 million, but the lion's share of the work that the team has done over the past few months is really beefing up our opportunity pipeline.

We've gone out and proven the technology and show them the value. Our pipeline is now 25 gigawatt hours of opportunities at over $4 billion that bodes well as we walk through here today. When we think we can do as we as we go through 2022 lastly, when you when you think about the operations of the company.

We were able to recognize $4 $6 million of revenue. The team had a really good fourth quarter, which Randy will walk you through a little bit more details on that but I think when you summarize this page you're really starting to see the company now transitioning from an R&D company to a full fledged operating company and if we move to the next page you can see.

See we show some of the core operating highlights for the quarter for the company. We are on a rapid growth trajectory as a company. When you look at growing our operational scale, which is really positioning us for the future, we signed and announced earlier this week, the doubling of our manufacturing footprint and Turtle Creek, Pennsylvania.

Be able to build our 800 megawatt hour a year capacity. The same time, we are piloting a manufacturing lines here in Edison New Jersey.

For our new <unk> product that product has been on test and we've produced our first units I think one of the more important things, which you may think of as the soft thing, but it is very important out in the market is the fact that we received ISO 9001 certification for our manufacturing facility in Turtle Creek. This is critical for US as we go out and show customers the capability.

That we have and the maturity that we're starting to gain in our manufacturing process. When you look at those manufacturing process. We had a very strong quarter, we had a 68% increase in output versus the first half of 2021, our first pass yields at towards the end of the year, we're approaching 90%.

And we're consistently going above that as you look at the first few days here in 2022, and we've reduced our cycle time by nearly 75% and that's shown in the financial results that we're delivering today, we have shipped more than 50 containers out of the field, which is really great performance by the entire operating team you talked.

On the commercial side sales volume is up four times versus the third quarter, we signed $176 million of new customer LOI and firm commitments that when you think about our business model, which I'll talk about in the next section that's a leading indicator for orders that are going to come in the near term as customers.

Close out their contracts and as I said earlier the pipeline is rapidly growing and we see more and more people wanting to have longer duration storage and coming to iOS as the provider of that solution as they think about what they want and how they want to monetize their assets.

Move forward and shift into orders growth in revenue I want to start off on page six just.

Baseline back on how we think about the market segmentation.

So we always break this down into into three segments the short duration.

Zero to three hours. This is where lithium ion is really strong and provides a great solution to the marketplace. The long duration 12, plus where there are a lot of customer a lot of competitors that are developing technology and starting to ramp up their manufacturing processes much like we've done over the last 18 months and then you have this medium.

Intra day or would I like to call truly the flexibility simplicity and safety segment of the marketplace, that's going to be 115 gigawatt hours Eos has the perfect solution.

This customer need and when we look at this we think about.

When you are delivering solutions that need to offset the intermittency of renewables you need to have flexibility they cant be static rigid systems and that's exactly what our technology does and that's exactly why you see us with this nearly 600 megawatt hour backlog and a pipeline that's rapidly growing and expanding as the commercial team.

<unk> is out selling our solution into the into the customer base.

Take a look at this next slide you see that list that we have significant competitive advantages versus the incumbent incumbent lithium ion not just on our ability to operate across a wider operating range with a.

With a larger depth of discharge.

Your operating range when it comes to temperature and a lower degradation, but also our cost advantages that our cost advantage. That's derived from the fact that we have principally five earths abundant raw materials in our overall system.

Supply chain is domestically based.

Stabilize the derisked it over the last four months.

If our product unlike other products in the marketplace, it's shipped fully integrated and its container with zero voltage in there which increases the safety of the product when it's when it's being shipped to the site either by over the ocean or over the roads on a truck we have a longer operational lifetime. When you think about our system and how it chart.

As a discharge as with every cycle that we operate our battery youre basically resetting that battery and increasing and maintaining its useful life for 15 to 20 years with the same performance, we don't have any auxiliary systems either.

HVAC heating ventilation and air conditioning to operate in a narrow temperature range or unlike flow batteries, we don't have high pressure pumps to move our intellectual eight out of large tanks through a membrane and the catalysts to generate electricity were self we're self contained system, that's very safe and it's hard to damage the system when you outside.

The suggested operating specifications of the product and at the end of its useful life 20 years from now many of US will probably won't be in the industry anymore. This product will be able to be recycled very simply and cheaply and all the raw materials can be put to use into a new year. So we think not only does this offer the flexibility not only into this.

Help decarbonize, our energy value chain, but it also has a compelling overall from from birth to rebirth lifecycle that adds to exactly what we're trying to do as we think about renewable energy for the energy value chain.

Move from page seven page eight just wanted to walk through our traditional page on the pipeline right. So so as everyone knows.

We call our pipeline.

Projects, where we have a technical use case from our customers that we can provide.

A technical proposal financial holding as we do do early generation.

Ideation or idea generation with customers, where we have another $4 billion of opportunities that we're working on with our customers, but these are things where people come with ideas. So when you think about this page and you move it from left to right that lead generation.

In general Youre getting a 50 50 hit rate from lead generation into pipeline from pipeline without which I recall active proposals and letters of intent firm commitments and Thats about a 30% hit rate and then you have booked orders. So when you think about where the cost of the company is and how we've positioned it for.

Future growth the company is well positioned to continue to grow its backlog and continue to expand and we like what we see from the customers that we've been working with in that LOI firm prevented bucket is a 240 megawatt hour project with with bridge link in West, Texas, which is the Aircard project, which we feel really.

Good about what bridge like wants to do and we're working with them on the same side of the table to close that out and turn that into an order here.

A relatively quickly so we're pretty excited about what the team has done to position ourselves for future growth and we'll continue to keep everyone updated as we think about this now although on the booked order side. When you look and it says no change versus the last time, we were together for earnings. We did book 50, 50 over $51 million of orders with Blue chip customers like.

<unk>, Duke and Blue Ridge and Pine Gate.

Power. So we're pretty excited about that those booked orders for the year, where the backlog stands. If you go to the next page and just think about the backlog.

28 projects are 14 customers. So we do have customers coming back for multiple projects, which is a testament to what the team has done is establishing us or us in the marketplace. When you think about the backlog in and of itself. It's important to note that $114 million of this is the capital equipment shipping the product out into the.

Field, but we've already started to create a recurring revenue stream with long term service agreements, which are $34 million.

Of the opportunities that you have in the backlog and then there are some asset leasing.

Projects that we go through when you think about that you looked at.

Why that number has gone down versus the third quarter. That's basically because we had one project where the customer found their own financing and is in the process of closing that yields is no longer going to finance that project, but we're working now in the factory to be able to manufacture that product and get it out in the field and Thats Another project down in Texas and the <unk>.

New York had operating regions. So we're very excited about where we are from a backlog standpoint, how the commercial model has evolved over the past 12 months. It will continue to drive growth and backlog for the company to start delivering higher revenue numbers as we look to the rest of 2022, if we now shift.

Into and talk about manufacturing.

Our ability to deliver product again, I, just would start off and say.

Signing the lease and expanding our manufacturing capacity and Turtle Creek is very important for us to be able to continue to grow the company and at the same time being approved by the department of energy through its phase one loan program and now starting off on Phase II offer also offers us a way to be able to finance the future <unk>.

<unk> the growth of the company as we look to the future I'm really proud of what the team has done out in Turtle Creek. If you focus on the left hand side of the page we've seen continuous yield improvement in the factory I talked earlier about how we're getting more output out of the same asset base, we've expanded our manufacturing workforce, we're really proud of.

The team that we have there one thing I would say, it's not only does our company do good things for the energy value chain, we're doing good things for the community that we operate in when you look at our supervisors on the shop floor today, where the first employees that came into the factory 18 months ago and our workforce is an impressive workforce, we've got nearly 15%.

Sent our veterans and 40% minority and people can come in and we've got a really good growth trajectory career trajectory for people to really work in the Green Tech sector, and what used to be coal country of the United States and we've also started to optimize our processes and our cycle time and this is something that never stops you gotta be relentless about this.

You've got to bring lean we have a new <unk>.

Supply chain leader, who has joined the company comes with a very extensive background both in technology and in and in manufacturing is only going to help us get that better and when you look at the right hand side of this page you can see the first shots of our of our new facility in Turtle Creek, we've gone through sign the lease as I talked about earlier and what you can see on that.

Far right picture as we've started to lay out mark.

Manufacturing slow on the shop floor. So that we can start looking at how the the.

The product and the raw material is going to flow through the factory to optimize that and get more and more output all off of the same asset base and this is critical because when you look at the investment in this facility is $50 million to get one gigawatt hour of capacity, which is 60% less than what it would cost if you were doing in a comparable lift.

<unk> facility. So we have designed the entire business to be modular in the product and how you can figure and ship in the field, but also be modular and our Capex program. So that we can either accelerate or slow down our capital spend depending on what we see happening in the marketplace. So the team into or something that we're really proud of and all investors.

Should be proud of what the team has built in such a short period of time and better days are even coming now as I said on the initial results of 2020 due are better than what we saw in the fourth quarter and we're excited about where we're going to be as we move forward. So with that I'll turn it over to our new CFO , Randy Gonzales and welcome him formally and publicly to the team.

And then let Randy take it from here. Thanks.

Thanks, Joe and good morning, everyone. Let me start by saying how excited I am to be part of the Eos team and I wanted to take this opportunity to explain why I chose <unk> first and foremost the positive impact that <unk> has in making the world a better place through accelerating de carbonization I can't think of a better cause mid <unk>.

Long duration energy storage technologies like ours are a key catalyst for the continued adoption and higher capacity utilization of renewable energy solutions.

Second <unk> has a technology that works, which now requires industrial scale and I'm energized to apply my decades of experience in managing rapid growth driving operational excellence instilling discipline through performance management and executing strategy.

Finally, I was excited to partner with Joe and the rest of the leadership team to continue to build on the platform of this critical technology, which has been developed in the U S and which is produced in the U S with a primarily domestic supply chain.

Now turning to slide 13, I'll walk through the fourth quarter, and then full year financial performance and outlook for the full year 2022.

The fourth quarter as a validation of the rapid operational scale. The company expected and is a good baseline for what to expect going forward as we produce against our backlog, especially as we bring the additional manufacturing capacity online in the second half of the year.

In the quarter, we achieved significant operating leverage with revenue, increasing 332% versus third quarter to $3 1 million.

While cost of goods sold only increased 64%.

This is greater than five X operating leverage on volume.

We continue to see substantial improvements in productivity and efficiency in our operations through reductions in scrap rates and increasing first half yields and we have the right plan with the right resources to deliver a significant reduction in cost of goods sold over the course of 2022.

On the expense side, we continue to invest in research and development to improve the technology, we deliver to customers, we invested $5 $4 million in the fourth quarter in R&D.

As Joe mentioned earlier, we've made great progress on our next generation battery development and we will continue the intense focus on R&D efforts in 2022 to improve battery performance and to reduce both the cost of the product and lifetime operating cost of our battery system.

This includes developing manufacturing and process technologies that will improve throughput and yield which will lead to additional operating leverage.

SG&A for the quarter was $14 million as we continue to invest in the platform for growth.

$5 million of this total is structural $4 1 million is noncash related to stock comp expense. There was another approximately $1 $3 million of one time items and the remainder is discretionary spend associated with scaling the business.

Overall, our fourth quarter operating loss was $37 6 million.

Turning to slide 14 full year revenue was $4 $6 million, which was in line with company estimates.

Full year operating loss was $135 million, which includes $30 million to terminate the high power JV agreement.

Turning now to slide 15, we had $105 million of cash on hand at December 31, 2021.

And the current global supply chain environment, we've been actively working to lock in raw material delivery to match, our sales plan and as a result fourth quarter cash outflows include $5 million of advanced payments to suppliers to secure volume commitments.

In addition, there was another $2 million of advanced payments to capital equipment Oems for Capex in conjunction with the Turtle Creek capacity expansion.

Now turning to slide 16, and I'll cover our outlook for 2022.

As Joe highlighted in his remarks, our differentiated technology serves a large and growing market opportunity with strong secular tailwind our product is resonating in the marketplace as evidenced by the significant positive momentum in our sales pipeline, including a growing number of large utility scale projects.

With Blue chip customers in our backlog, which currently stands at close to $150 million. These.

These tailwind support our commitment to deliver on $50 million of revenue and $400 million and net new booked orders in 2022.

To support our growth, we expect Capex investment in the range of $25 million to $35 million. This year as we scale up our manufacturing capacity to 800 megawatt hours with our recently announced expansion and Turtle Creek.

We will continue our focus on improving our operating performance to deliver on our customer commitments with a goal of maintaining over a 90% first pass manufacturing yield.

The hard work that our team is doing in our existing Turtle Creek facility has enabled the significant progress we've made to date and strengthened our confidence in our plans to scale capacity in 2022 our.

Our technology continues to fulfill a core need in today's and Tomorrow's energy landscape and we are positioning the company to deliver in 2022 and beyond.

When we look at the way the market is accelerating and the need for our technology. We are now poised to operationally scale the company to actively capture that opportunity.

The plan that we just outlined will require the company to raise additional capital to fully reach its potential.

As you saw with our announcement yesterday regarding the department of energy part one loan approval. We are actively seeking different funding options to achieve the company's full potential.

This will allow us to not only grow topline, but also achieve profitability in the midterm.

With that I want to thank everybody for their time and listening in today I would now like to turn it over to the operator for questions.

Operator will you. Please open the line for Q&A.

Thank you we will now be conducting a question and answer session.

I would like to ask a question. Please press star one on your telephone keypad, let me confirmation tone will indicate your line is in the question queue you.

You May press Star two if you 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 snarky one moment. Please while we poll for questions.

Okay.

First question, Chris Souther with B Riley.

Hey, guys. Thanks for taking my question here.

Maybe you could walk us through.

The cadence for the $50 million in revenue expected for 2022, obviously it started last year seeing target.

Customer timing and ramp execution challenges throughout the year. So I just wanted to get some color on why.

My confidence in time that we can achieve this year.

I think entering last year a lot more.

Opportunities you were targeting for the year were LOI versus order backlog, so any kind of way you can frame the cadence.

The current booked orders.

How do you have the competency and hitting the numbers here would be great.

Hey, Chris How're you doing.

Look first I'd start off with.

We are executing.

From a backlog of orders. So the orders are in hand, there is always timing risk in the in the market like we saw last year, but we've we've created I think a clear roadmap with the customers that tie out to the $50 million around delivery and startup of the of the of the systems.

And then from a production standpoint, as we as we highlighted the lot of the work that we've been doing is with the team is locking in the supply base to be able to have the materials that ramp up as we go through the year. The expansion of the Turtle Creek facility and quite honestly the yields that we saw at the end of last year being.

End of this year, which are extremely promising as we dial in the manufacturing process and really.

When you're running a factory like we're running a factory, it's everyday making that factory better and bringing lean principles and operation Excellence and we just see improvement every day and what we're doing and how the team is executing and it all starts again execute from the backlog lock in the supply chain, which is a challenge.

Right now, but we just battle that day by day and continue to make the factory better as we expand the capacity.

Got it so could you kind of frame first half second half of the year.

<unk> by quarter based on the order backlog, what we should expect as far as that that cadence.

Right.

I think Chris.

Youll see a ramp within the year like.

Similar similar like we're always ramping year over year and ramping quarter over quarter, we got to work through that and you know really when you look at where we are from an evolutionary standpoint 50 for the year is solidified we've got to work the quarter by quarter, but we don't really give quarterly guidance on.

On revenue.

Okay understood and then on the gross margin margin picture nice to see the strong leverage quarter over quarter.

Can you talk a bit about.

How we should expect that to continue where the break even.

Points look from a quarterly revenue run rate as we start to start to scale up here as far as getting to positive gross margin.

Yes, Chris Good morning, this is Randy so.

What I would tell you is that we know what our cost entitlement is for both the current generation products in the future generation product.

And so in the near term we talked about we will continue to see a significant reduction in the cost of our products and that comes in many different areas. It comes from scale. So we're spreading our fixed cost over higher volume. It comes from the increased improvement significant improvement.

<unk> in the in the first pass yield and the productivity of the plant reduced scrap rates, but it primarily comes from the fact that we have a plan a clear plan on.

Pulling levers from a from a procurement perspective.

Specially around commercial negotiations.

Material substitution.

And it's a finite number of projects that get us to.

A very good place here in the near term, it's less than 20 projects.

And so what I would tell you is that the path to gross margin positive.

Is an 18 months past.

And so we are we're very excited about that because.

As we.

As we continue development efforts.

And become a full scale.

Industrial manufacturer.

That is becoming clearer and clearer everyday with with a clear plan.

Okay, and then maybe just the last one.

Great to see the progress on the Doe loan program there.

Do you have a sense on the timing.

Timing when we could.

Sure.

I guess get a decision on the final decision on the loan approval process.

Yes.

<unk> Park kind of numbers that we could be looking at as far as.

That program as far as cash in.

Yes, so Chris.

I would say is that we got through the part the part one.

The move into part two very quickly we.

We want to continue that pace and we are on a regular rhythm with the Doe working through that but we've now got to work through the due diligence process and reviewing.

Where we are and get them out to now start looking at the.

The facility in Turtle Creek. So we've got some work to do I wouldn't want to put a timeline on it.

Either too long or too short I'd, just say that we just got to keep working on it with the same intensity that we have been working on.

What we're doing now is the way that we've thought about how we want to structure of the program is this this part two that we're working with them on now is to support the expansion and Turtle Creek, and bringing that facility up to full scale and that that'll be where we're working on and then we and then as we look for future capacity.

From there there could be additional tranches of funding as we go forward, but that's more to come as we go forward I think we're just excited that when you look at the amount of time. It took us from when we started to where we are it's a phenomenal running start.

Jaeger, Sean the entire team and the loan office Robert Edwards. These guys have been phenomenal with the support that they've given us as we work through this and really get to this point where.

At a product the technology invented in the United States developed in the United States with the U S supply chain, we've already created a 150 green tech jobs, and what was coal country and we're going to add another another probably 100 to 150 as we look forward to scaling the scaling and the factory. So we fit perfectly what they want to do.

And they help companies like ours bridge to scale. So it is a perfect fit between the both of US we've just got to keep working through it to get to get to closure.

Okay. It makes sense thanks, guys.

Thanks, Chris.

Next question, Tom Korean with Seaport research partner.

Good morning.

Good morning, Tom.

Curious.

Given the visibility you have underpinning the expected $400 million in orders.

<unk>.

You're guiding to for 2022.

It seems like Youre on track to book those could we see upside to $50 million in revenue.

Would it be possible for some of those orders to turn quickly enough.

For you to actually exceed that revenue target.

So it sounds like I think we feel really comfortable with the pipeline that we have and where we stand to get to that $400 million I mean, thats a forex growth right now in this in this market with where we are in the capabilities of the bus to scale, yes, I mean, we're going to keep working.

And try to get try to get.

We will maximize the value that will tie to the capacity that we have in the factory, but we feel really comfortable on the 400 out here as we sit at the end of February we got 10 months ago, we'll keep everybody updated on where we are but like when you look at the opportunities that are teed up the LOI that we just signed you know if you look at our model.

We've shown improving that LOI become orders and we're happy with the ones that we just closed out we've got to work through to get those closed and be on pace to do the $400 million for the year.

And Joe what do you expect the mix to be for that $50 million you will ship in 2022.

Terms of zinc models.

So 2022 will principally be the gen. Two three with with initial <unk> three.

We've talked about initial G III getting into production by the end of the year, we just got to keep working to that but the majority of the sales for this year will be the gen. Two three as planned.

Got it and then Randy.

Randy Welcome welcome to your first call.

I'm curious.

For 2022.

What specific cost targets do you have.

Upon exiting the year, where would you like the cash balance on the balance sheet to be.

So so with regards to the to the cost targets I mean, we have those internally Tom So like I said the visibility to gross margin positive within 18 months is real and we have a plan for that.

So.

Just kind of kind of extrapolate based off of that.

In terms of in terms of cash balance.

I don't know if we have a target for the end of the year right. So when we talked about.

The Doe.

Loan.

We've talked about we are actively in the market looking for.

Other.

Other funding sources and so we'll keep we'll keep the market updated as we progress on that.

I think Tom just I just would add on.

Just to piggyback on Randy's comments, we've always said that we built this company to be modular and everything that it does from the way the product is installed out in the fields of the way, we add to Pat manufacturing capacity. So I think a lot of where we were as we look and think about the trajectory of the company a lot of that is going to depend on where your first.

Question started as to where are we on backlog and delivery to customers. The good news is as we look at funding, we can either accelerate or conserve depending on where we are.

In that in that growth trajectory. So we want to just keep optionality and see where we are but we're at this unique moment in time, where I think as a leadership team. We're sitting here thinking about how do we position this company to capture the growth the secular change in the industry and allow us to establish itself as the preeminent supplier for flexible <unk>.

<unk> storage.

Understood I appreciate the additional color.

Thanks.

Next question to Bash Chandra with the benchmark company.

So thanks, Hi, Joe Welcome Randy.

Thanks, So much maybe a question for Randy here.

Following up on the last couple of I think so yes, if one was to sort of look at these numbers.

Could you kind of guide us on.

Off these assumptions say, yes, 50 million booked revenues.

And then we annualize.

Cost of goods sold and <unk>.

885 million.

And then $35 million of Capex.

Which would be the implied drawdown on your cash balances plus whatever the loans are.

Can you take those various pieces and sort of.

Tell us where that construct might be flawed.

So I mean.

What I would tell you <unk> is like take take the assumption of being gross gross margin positive within 18 months take the assumption.

$50 million.

Revenue and.

The understanding that we're going to need to raise capital the Doe.

The Doe loan process is not the only thing that's being worked right. So.

We have a lot of confidence that where we are in the market whats going on both on.

The commercial side.

From a pipeline perspective and from a pricing perspective.

There is.

There is.

There's a lot to be excited about here right. So.

If you are if you're building a model what I would tell you is that.

That.

We for both 2022 and 2023, we expect the pricing part of the equation to continue to increase and we expect our costs to significantly decrease continue that trajectory.

The range of the Capex model of $25 million to $35 million.

Yes.

Like Joe said right I mean, we have the ability in terms of being modular.

To flock to flex up and down as the.

As the situation dictates.

So so I hope that gives you a little bit more context.

Yes.

What might also help is if you if.

I look at the cost of goods number how would you bucket that.

In terms of raw materials labor.

Things like that so some sense of what is scalable and that number.

Discretionary and what may not be.

Yeah. So good question so keep in mind keep in mind that.

We have a fixed cost base in the facility now it's very low volume from.

<unk> 2021, it started to ramp up like we expected in the fourth quarter. It will continue to ramp so on a per unit basis, we're going to be getting that scale right. So a big a big a large percentage more so than a full scale manufacturer is comprise.

Of that fixed.

The fixed cost from from having a facility with low volume.

There was also a lot of other kind of suboptimal cost.

Which is related to.

Being being at the early stage of the learning curve.

From a process perspective, which every quarter you see the progress that we make.

So Joe mentioned about the increased productivity and first pass yield so youre going to see a lot of costs come out there.

And youre going to see the majority of the cost though come out from.

From the raw material piece of it.

Which is.

Again, we know what our cost entitlement is.

We have a very simple product in terms of the raw material components.

We are continually looking at alternative suppliers.

Continually looking at material substitution.

Those are the near term levers, which we're we've got a lot of confidence around.

The more the more.

More.

I'd call it mid term levers is.

Design, but that's naturally happening with the next generation product because we are designing for cost and we're designing for manufacture ability. So we're at this.

With this incredible place in time, where we have we have clear visibility to.

Not only what can be done, but whats being done and.

That will naturally happen, so instead of like giving you giving you.

Raw materials has X percent.

Direct labor is X percent I think its irrelevant, where we are now because all of those percentages will will rapidly change as.

As we continue to progress but.

I think what you should be modeling is.

The trajectory of gross margin.

Positive in 18 months from now and <unk>. The only thing I would add is that <unk> been out to the facility right.

We've engaged we've engaged the workforce silly theyre going through.

In December we took a piece of equipment that.

We talked about this at the mid point, where our yields were in the in the high <unk> low eighty's.

Team themselves either the shop floor.

The people on the floor building the building the building the batteries and assembly and the systems that they came up with something and increase the throughput by 40% and improve the yield by 15 points. So we just have to keep working each one of these one by one.

I take your three buckets, when I look at them and say.

Multiple suppliers on the raw materials continue to increase the domestic content of what we buy to get it as close as we can.

100% to reduce logistics costs and also.

To reduce the uncertainty of delivery quite frankly from from international suppliers.

On the on the.

What I would call processing cost of taking raw material and turning that into finished product with a lot of work that we continue to look at from a manufacturing standpoint, putting technology into the shop for Thats part of the expansion and then on the leverage piece of this the overhead piece the facility today and that's why in that.

Why you're seeing <unk> sales up over 300% yet cost of goods sold under 100 around 70 that debt leverage of having the facility of that size to deliver more volume and unlocking that by just getting better and better every day and that's why it's so important in the model of always remembering that last bucket the <unk>.

Driver on that is the $50 million capex spend that we have to get two gigawatt hour as we optimize that the guys on the shop floor come up with ways to unlock more productivity out of the model that becomes more efficient and that's why we feel so comfortable about saying gross margin positive within 18 months.

Okay got it.

Yes, I guess on the top line.

Theres been local news reports and so on anticipating sizeable.

Deliveries from you guys.

And Joe.

I appreciate you don't give quarterly guidance, but how.

How would you characterize the.

The I guess the cycle times now because I think you have some pretty big projects teed up.

Maybe even second quarter and certainly in the second half of this year for delivery and revenue recognition. So yeah, yeah, any any further color without giving us the firm numbers.

Look, we we announced we announced in.

The <unk> called the contract with Blue Ridge, <unk>, and we start to deliver the first project to Blue Ridge here in the first half. The first half of 2022, then we have a mix of we've got.

<unk> project coming in the year, where we're working on them as far as timing and site readiness of what month that falls into and then at the same time.

<unk>.

Theres, the ERCOT project with IEP, where I talked about shifting away from where we were going to finance that to where they are self financing and that project is also accelerating so we're working through the mix of how these things flow through <unk> into <unk>, but yeah I think the more important thing to me shoebox within your question is that.

At the company, we will have the large installations out in the field that show how the product operates in a scalable system, which enables us to deliver that $400 million of order growth because customers will see the proof point. That's the proof point that people are working on and that's what we're focused on honestly like for us and where.

We are in our development. The total year to me is more important than a quarterly point and we've got to get these proof points on the board that allow us to grow the grow the revenue grow the orders take the cost out to deliver on profitability and even though even though my heritage is from GE I look at this and say like look.

Do you do the investors really want this team managing to March 31st or managing to December 31, I think it's December 31st and Thats, how we plan around it and that's why I hesitate, giving a quarterly numbers too much because I just don't want to put something out there and then spend a lot of energy talking about something thats quite honestly somewhat.

When you think about what we're trying to do as we grow the company.

Understood. Thanks, guys.

Thank you Bob.

Your next question comes from James West with Evercore.

Hey, Good morning, Joe Randy Hey, James how are you Hey, James.

Good.

At this interesting point in time Joe.

And a critical point in time, where as you said it.

Indeed.

Executing on the plan here in rapid growth. So I recognize you've had some good wins on yield improvements youre expanding in factories you feel good about.

The way things were flowing right now, but as we go through this year and recognize and again as you just put it.

Didn't care about March 31, this year, but similar to reverse but what are the kind of one to three buckets of of concerns that you might have what's top of mind that could derail what is.

What does it really compelling story right now.

Yes look.

We're we're operating a little bit in the in the unknown on on the supply chain. We've talked about this before where this is a daily grind of staying on top of things and making sure you're assuring delivery remaining flexible.

And agile in how you run your supply chain. So so it's a new muscle normally when you run a supply chain you want these things to be like marching bands, where theyre, just going down and they know the choreography and they deliver what you need.

The way the supply chain and I'll, just say, it's a slight change to become like jazz.

He is kind of doing their own thing and you want to put it all together and make it sound. Good. So I think that challenge number one for US as you think about how we wanted to deliver.

I feel good about the $50 million coming from.

Delivering out of the backlog and it's the timing piece of it.

Site readiness.

Installation get up commissioning and on the grid. We work through that's another thing you got to work through on a daily basis with your customers.

To be able to deliver those to me are that are the two biggest ones and then inside of that we've got the capacity expansion coming online. The new facility. We are starting to install equipment into the new facility. We're looking to be able to scale. The capacity that is a key lever I feel good about it because.

Way that we've learned in the way we operated in the fourth quarter. It makes me feel really good about being able to transition in the new facility and really get output out of the footprint, but to me those are the three things from us from delivering on the on the on the $50 million in revenue revenue side on the on the cost piece of it I feel really good.

Again.

To deliver on deliver on what we're talking about on cost of goods sold its 20 items.

It's going out and just executing on a plan that Randy and the team have put in place here over the last seven weeks that really makes me feel good about what we have to do on that front here over the next 18 months and then on the order book side again, it's continuing to show that capability to be able to deliver in.

The power of how the technology operates.

The opportunity pipeline opportunities are growing and I think people see the need for the technology from a from transitioning from opportunity to order, we're managing through what I think people are looking and saying the ITC being delayed is.

Something that people just come and say look.

I wanted to do the project with you. That's why you see such big LOI, but let's also keep an eye on this or when we need to install and how we get our PPA and how we get our financing. So we just got to work through all of those all of those risk factors that we always talk about but that's what we have to do and I feel good about the operating team. We now have out on the field that we'll be able to manage through that.

Okay, Okay, that's fair enough.

Maybe a follow up for me and I think it's important.

Youre in phase II the dose as you know we've.

We spent a lot of time with sugar as team Theyre, not taking technology risk, they're taking your payback risk, which tells you that they believe in your technology and are clearly the market is believing in that and so the.

As we look at the commercial activity in the leads and the huge increase in leads sequentially.

What do you think it takes to outside of the ITC. We think it takes to get to transition those into backlog and to get your win rate or your win percentage up.

Yes.

James.

The number one selling tool for this company, whether it's an investor looking at why Eos is good investor customer looking at yields as to why.

It's a good partner for a project is come and walk the shop floor.

Something that a lot of the companies that are talking about entering the space don't have and it's been a it's been a journey to get where we are but the biggest proof point for everybody is that 400 megawatt hours of discharge energy and work in the shop floor and watching.

Containers being loaded on trucks batteries being built and tested I mean thats just we just got to keep we just got to keep showing those proof points of this is a company that's not doing technology development that might work. This is a company. That's taking technology like you said, it's not technology risks that you are investing in our buying.

Operational risk and we've got a very experienced team here that can deliver on this.

Alright, Okay got it thanks, Jeff Thanks James.

James.

Next question Martin Malloy with Johnson Rice.

Yeah.

Good morning, Thank you for taking my question.

Hi, first question was just I wanted to maybe see if you could.

Provide some more commentary on the reoccurring service and software revenue and maybe the margins associated with that and how that might layer in from a timing perspective.

Yes, so so Martin in conjunction with the orders that we have part of that is a long term service agreements.

That debt.

That kicks in after the expiration of the warranty period, which is typically two years can be three years in some cases.

But the.

Sure.

The profile of that is there is a long tail.

So.

Thats probably between like the second third year, and the 15th year of the asset being in service.

And.

It's kind of typical.

Typical recurring revenue.

High margin stuff.

I don't want to I don't want to scope, it, but it's going to be probably.

Greater than 50% gross margin.

Okay.

Thank you and then.

Very encouraging to see.

A repeat order from a company like <unk> that had been pilot testing.

Your equipment.

When you look at the 400 million.

Are the orders that you are talking about for 2022 could you maybe.

To help us with should we be looking for reoccurring repeat customer orders.

On that.

Customers that had been pilot testing the product.

Absolutely and also new customers I think we continue to expand into.

Two the big Blue Chip energy, either IPP utility behind the meter operators.

As we continue to show proof points on we get more and more of that but what I would say is like look at the current backlog.

28 projects 14 customers. So we're getting multiple customers multiple projects for the same customers. So I think youll continue to see that grow and what we're trying to do.

We sit in the middle of like with our suppliers and our customers we want partnerships in both directions, where we're making each other successful and thats, how we approach with customers and when they see the collaboration they look for other opportunities and that's how we'll continue to grow the backlog, but I'm also very encouraged in that growth of pipelines.

Above 4 billion there is a lot of new people coming and saying I'd like to talk to you about this project that has a six to eight hour disc.

Discharge duration, let's talk about the technology and we go in and show them and make a lot of progress.

Great. Thank you very much that's helpful. Thanks.

Next question Joseph Osha with Guggenheim Partners.

Good morning, gentlemen, Hey, Joe.

A couple of questions to go back to the question of how are you.

You said about locking in materials. So obviously, it's an inflationary environment and so the further out you go the harder it gets so just wondering youre in practical terms how.

How far out have.

You've been able to lock in key input because it's six months a whole year.

It depends on the commodity Joe, but yes that.

That's how we've done the things you've seen we announced in the fourth quarter, the strategic agreement with Tetra to supply a core component around our intellectual eight theres other agreements that we've done for the other raw materials that we have and we continue to look to be able to find new sources here.

To get suppliers and diversify the supply base, but when we look at this it's.

Beyond it's out beyond mid year.

But like you said, it's tougher to do that I think the thing that the thing that we wanted to be very careful about and I think this is like when we were talking on <unk> earlier question.

For us are focusing to be and lock in the raw material supply.

And then work on reducing the processing cost and optimizing the overhead base that you have to be able to deliver a gross margin positive product.

Okay.

Fair to say that in general you can manage about six months out but after after that at this point, it's still kind of a work in progress is that a good broad characterization.

Again dependent I think that's a broad brush across.

And what we're doing I think on the strategic things that we have it's longer than that and then there is some of them I'd rather not talk about here on the call, but we've locked in some things on a longer period than that and then there is other things where it just makes more sense to do it on short term, but we feel good about the material supply capabilities that we have to get and deliver the $50 million.

Okay. Thanks.

Looking at the capital raise and our sheer James's enthusiasm jigger and his team. They are great guys, but I'm. Just curious do you guys have a sort of a plan b that would involve.

Maybe slowing things a bit and conserving capital.

We're not gonna turned out.

Can't necessarily raise with Mercury if you want.

Yes, Joe This is Randy I mean, great question. So I mean, just to expand a little bit on what on what Joe said earlier right.

The beauty of this business model is that weekend.

No.

While up and dial down in a very agile and flexible fashion so absolutely.

Just just as an example, right I mean.

The business model from a manufacturing capacity perspective is not build it and they will come we have the backlog and we're expanding the capacity in association with the backlog. So in the comments around SG&A and kind of what's structural and.

Whats discretionary.

That we can dial up and dial down as we as we need to.

That's the entire business model of that the company has been built on so.

It's an emphatic yes.

Okay. So there is.

And obviously you don't you would always rather grow the business faster everybody would but.

There is it should it happen and I'm sure it won't.

It proves more difficult to raise capital there is a path to scale. This business more slowly with the resources you have on hand.

Yes, Joe Thats exactly the model that we've always talked about.

What what my goal and my four years since I've been here and the funding that we have now is better than what we had at any point in time in the first.

Three years of working at the company.

We've designed this thing so that like I don't like philosophically never want to have you never want to be chasing capacity you want do you want to have orders fulfilling capacity. So we can slower are accelerating that as we see funding in the market move and that's the way we've got to run this to kind of.

Navigate this bridge into full fledge operating status, that's exactly what we're going to do as a leadership team.

Okay. Thanks, and then just one final quick one can you maybe give us some visibility into the runway.

Run rates for the key elements of operating cost is if you look at the year, how much you can spend in R&D and selling and obviously those are moving targets as well but is there.

Some number that then.

Think about it now.

So I mean, specifically on R&D.

I mean thats the.

That's.

Sure.

If anything that's going to that's going to accelerate with the with the next generation product. So.

So I think I think we talked a lot about.

The revenue piece, we talked a lot about that.

Cost of sales piece.

<unk> talked about on the on the G&A and kind of whats what's structural and.

Whats discretionary.

But I would.

I would not anticipate that.

R&D from where we sit now is going to be is going to is going to decrease.

Yes, I think Youll see Joe I think what Youll see on R&D as we've got we've got different things that we want to develop here and the value prop. So just talk a little bit about let me just break down kind of let me talk R&D moment on sales and then talk G&A right. So on the R&D.

Side, we've got the <unk> coming.

<unk> continued to invest in that I think theres. Some theres some great work that we're developing around how we package and deliver the product for both cost and performance and then theres. The whole software side of this that we've been working on our BMS and how do we expand the value proposition. So I think you'll see over time.

Level is spending but spending to really build out full capability to meet a wide range of operating conditions in the market on the selling side, we need to continue to grow our sales team to get more people out into the more feet on the street to be selling the product.

Meetings and rhythm to start to come back to normal we're going to need to have people out selling so youll see us continue to invest there and on the G&A side I've always wanted to keep this as light as possible and that's what we'll continue to do as we go forward because that's what ultimately also like we talked about slowing down the.

Capex spend that's the other lever here that you really got to keep your eye on as Youre thinking about how you navigate the capital markets and how you want to grow.

Okay. Thanks, Thanks, very much guys.

Yeah, Thanks, Jeff Thanks, Joe.

I will now turn the floor over to Joe for closing remark.

Thanks, and thanks, everyone for joining today.

Excited about the results and what the team delivered.

<unk> and excited here as we start the journey on the operating targets that we laid out and we'll keep everybody updated.

On our progress and just exciting and proud to be to be part of this team and and really shape the future of the energy mix as people as we power People's Daily lives. So thank you.

This concludes today's teleconference. You may disconnect your lines at this time and thank you for your participation.