Q2 2022 Eos Energy Enterprises Inc Earnings Call
Okay.
Yeah.
Greetings and welcome to the you also enterprises' second quarter 2022 earnings conference call.
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I would now like to turn the conference over to your host Joe correctly.
Energy.
Thank you and over to you Sir. Thank you good morning, everyone and thank you for joining us for <unk> financial results conference call for the second quarter of 2022.
On the call today, we have CEO , John <unk> and CFO Randy <unk>.
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, including current expectations with respect to the future results of 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 are that would imply.
By these forward looking statements.
Risks and uncertainties that forward looking statements are subject to are described in our earnings release and other SEC filings.
Our remarks during todays discussion should be considered to incorporate this information by reference.
Forward looking statements represent our beliefs and assumptions only as of the date such statements are made we undertake no obligation to update any forward looking statements made during this call to reflect events or circumstances after today.
Or to reflect new information or the occurrence of unanticipated events, except as required by law.
Today's remarks will also include references to non-GAAP financial measures.
Additional information, including reconciliation between non-GAAP financial information the 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 related financial information prepared in accordance with GAAP and.
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 via replay on <unk> website at investors got E Dot com.
Randy will now walk you through the company highlights financial results and business priorities before we proceed to Q&A and with that I'll turn the call over to <unk> CEO , Joe Ms. Angela.
Welcome everyone. Thanks for joining us today for our second quarter earnings call. We're really excited about the performance of the company here in the second quarter. When you start off on our classic page here on page three and just talk about the top part of this which is around <unk>.
Commercial commercial growth our pipeline is now above $7 billion. We have 27 gigawatt hours that we are actively pursuing with customers. Our booked orders. So far this year are close to $325 million with a backlog of now approaching two gigawatt hours with $457 million of <unk>.
Total orders in backlog, it's pretty exciting when do we see the market evolving and moving more towards long duration energy storage and as we establish ourselves as a as an operating company, we're starting to see more and more opportunities come in and you see that operating company metric coming out on the bottom left hand side of the page which is around discharge.
<unk> energy from our technology, which now stands at 541 megawatt hours with almost 50% of that coming from field operations out in the field at customer locations continue to prove the robustness of the technology, we've been operating in extremely harsh environments that had been approached.
<unk> 50 degree.
Celsius ambient temperatures with the systems continuing to operate per plan. The same time, we were able to deliver $5 $9 million of revenue in the quarter, we hit 91% battery yield in the factory now approaching six Sigma level performance I'm really proud of what the team has been able to do it.
As far as our capacity expansion plan.
We're now at 536 megawatt hours of annualized capacity and you see that growth in revenue will be driven by that capacity investment that we've made and Randy will walk through the.
The cash balances we ended we ended with $63 million.
The bank with closing.
On the end of July and $85 million senior secured term loan and I'll, let Randy go through more of the details there, but really strong operating performance strong allocation of capital and control of our of our cash to deliver our strongest operating quarter to date since we've been a public company. We move to the next page on page four just want to spend.
A few moments here on the market itself starting off on the left hand side the announcement of the inflation reduction Act.
Can be a big catalyst for energy storage and also a big catalyst for made in America. One of the key tenants of the Bill is that there is a 30% investment tax credit for energy storage, plus a 10% bonus for domestic producers of which <unk> is one so we feel that that pipeline that we've been.
Talking about is this bill moves its way through approval will help us accelerate the growth prospects of the company. The same time I also want to talk about something that happened in California.
In the quarter, where there was a 100 and.
80, $140 million excuse me $140 million grant put in for long duration energy storage, we feel like we fit perfectly on this opportunity and we've been partnering with the CDC almost since the except the inception of the company going from testing sells the testing batteries to running pilot systems now being able to use it.
$140 million to get <unk> utility scale projects out into the field installed in California. The same time, two critical international markets that we've been working on.
Our accelerating when you look at India, where we have a lot of our harsh operating hours out in the field. They just approved a.
Renewables plus storage mandate for their industry, which could.
Equate to 180 gigawatt hours of demand over the next eight years, we've got a presence that we have a lot of experience operating there and we look forward to being able to participate in that market and then at the same time. We're also have been focused on Europe with what's been happening in the Ukraine, you see many countries now moving to get off of natural gas going with a with a renewable.
<unk> plus storage mandate and we've been working there and we're starting to see acceleration in demand in places like Spain, Germany, Italy, and France. So we'll continue to work that as we move forward now on the demand side Thats great. But then you also have to think about the right hand side of this page is just being able to deliver to that demand we continue to see.
A very challenging global supply chain, but the fact that we are now at nearly 85% domestic supply chain takes a lot out a lot of the uncertainty in our supply chain and how we're able to deliver and reduce volatility and risk about what we can do and our product being inherently earth abundant.
Build materials and being able to get the raw materials and develop long term relationships, we're able to deliver on a short notice and in fact, if you look at one of the projects that we closed in the quarter with bridge link was for delivery as we get into the end of this year and Thats basically because of the investment in our capital investment in that.
Domestic supply chain, and having a bill of material, where youll be able to deliver so as we take the left hand side of the page and look at the growth accelerating and then look at our global supply chain operational strategy, we feel really good about being able to deliver this growth over time and we're starting to show as a company our ability to be able to execute and deliver to customer reach.
<unk>, which is very exciting.
Now continuing that talk about growth I want to move to page six and go to our classic pipeline page, where we talk about the opportunities that we're working on as a company. We always start off with what we call lead generation lead generation or early stage opportunities, where customers are coming with ideas and doing feasibility.
These studies that lead generation increased close to $900 million in the quarter and now stands at $6 2 billion were getting a lot of incoming from different ideas of how to generate and come up with.
Operating opportunities for our technology and that is translating into our pipeline growth and remember pipeline growth of our current pipeline is made up of three buckets technical proposals, where we get a use case on the customer and we provide them with a technical use case.
The ability to use our technology to generate revenue, a nonbinding co or giving a technical and financial use case, and then a letter of intent firm commitment from customers, where they have selected <unk> as their technology and have yet to close out all the all the.
Requirements to have to have a project that those three buckets now stand at $7 billion, which is up nearly $800 million during the quarter and obviously, our first half booked orders standing at $324 $7 million one three gigawatt.
$258 million versus our Q1 earnings is very exciting when you start to look at the projects that we've been talking about moving through the pipeline in that Middle section of this page are now turning into booked orders and we continue to work that process as we go forward and feel really good about how the.
Team has positioned the company for growth as we move to page seven I want to spend a moment on our current orders backlog.
We said, we booked $258 million worth of orders our backlog stands at 457 3 million.
It's very exciting for me to sit here and think about at the end of the quarter at the end of July I hit my four year anniversary with iOS and to sit here and think about the fact that we now have nearly two gigawatt hours of backlog is very exciting for me and for the team that has been working to bring this technology to market.
On our deliveries the majority of the of that backlog is on equipment deliveries of $424 million, we got $33 million in long term service revenue on a percent basis, that's lower than the percentage that we're targeting but because we have multi year agreements with people those service.
Orders will come as we start executing on specific projects that we expect that number to increase as we move forward, but again really good progress in building up a backlog in building up a revenue stream for the company and as you'll see we're starting to see customer cash flow through into our numbers when Randy walks through the cash numbers later on in the presentation.
Asia.
Now moving onto page nine talking about some second quarter operational milestones, we have seen really what I would say five big milestones for us this passing the 500 megawatt hour.
<unk> cumulative lifetime energy discharge was a big one for US you can see that first picture to the left was the 100 energy block being shipped back in April The center picture is the team that produced the 200000, the 20 thousands of battery.
Our Turtle Creek facility that was built and shipped in June very proud of the work that they are being able to do and they are standing in our new building.
Where that battery was produced so that we're there standing was empty in January and is now producing in June and that picture to the right is our new fill in test line, which gets us up to the 536 megawatt hours of annualized capacity, we've increased that capacity by 70% from Q1 in 2002.
Two really an amazing performance when you look at the amount of volume that we're able to ship and product out the door, while moving into a new facility in my 30 years in.
In the industry I've never seen a supply chain operations team be able to execute simultaneously a production plan, while doing a construction plan to bring a new factory online. We also continued our path to cost out we took 24%.
The cost out on an input basis. So the team continues to increase throughput improve.
Yield while taking cost out of the product truly an exceptional performance by the operational team.
Same time, we move to page 10, we are building upon.
This operating excellence the lower left hand side of the page, we increased our infrared welding capacity by <unk> in the quarter you can see those welders.
On the left hand picture of the upper left hand picture, we increased our quarter over quarter energy block output by 66% a lot of that having to do with delivering on the expansion plans and we're improving our operating performance, we've taken 17% cycle time reduction.
Out of the battery wells and while I said earlier, taking 24% of cost out now what's important for everyone to realize here as we move forward. We've always talked about building discrete processes that can deliver a quality product and then automating and improving performance. So some of the cycle time performance that.
You're seeing it's just the beginning of what the team will be able to deliver but the thing that I'm really proud of stuff is that lower right hand graph here on page 10, where we hit this 91% battery yield over the course of the quarter, which is a big milestone. If you think about where we were at last year. This time, so kudos to the team and Turtle Creek.
For the delivery.
As we look at our.
Our progress here on cost out and expansion we've talked about that left hand chart. What I would say is on cost we were targeting 25% cost out we're off by a point here at the end of the quarter a lot of that having to do with some final shipments that were scheduled to go out but went out in early July and on the capacity.
Side, we actually exceeded our capacity target by 21 megawatt hours, we continue to lock in our material requirements. If you see from this was a chart we showed.
In the first quarter, we have more inventory on hand, so 25% of what we need to deliver the plan in 2022, it's been delivered we have 65% under <unk>, we have 10% that we're still out working on volume discounts and tiered pricing and supplier delivery to be able to deliver on this but I feel really comfortable about that.
<unk>, that's being done by our sourcing team to be able to have the material there when we need to build the product then on the right hand side I just want to talk about one of our biggest.
Shifts in supply that is our first.
Non ISO north American built in closure, we've talked about this a few times, we're targeting more than 50% cost out with this product, it's 8% of our total baseline cost this will take us almost to nearly 90% of our bill of material being North American <unk>.
<unk> need it's critical to us here, because we will be ramping up the production and delivery of that product you see right. There in the month of August . So it's a very exciting time for us as you start to think about going from that 76% cost out down to the 57% that we're targeting on the graph on the left hand side so great work.
<unk> partnership the partners that we did to deliver that product. We're also working with.
To deliver our Z three enclosure. So it's a pretty exciting time here as we start to look at new ways to deliver and come up with the most cost effective.
Product in the marketplace.
<unk> 12 is quickly we were a.
R&D company, a few years ago, and if you would've looked at when we talked about delivering our using our energy blocked that lab portion of that of the green there that $136 six megawatt hours discharged out of our test facility in Edison, New Jersey that would have been the biggest number that's been more.
<unk> surpassed by the energy that we're delivering out in the field to customers. So we're going to continue to see that field number increase.
As our factory acceptance testing when we ship we cycle all of our all of our batteries before we ship and Thats why that 91% yield that we're talking about is a tested product and the factory that's integrated and shipped out into the field, which is an advantage for customers because theres a lot less installation and commissioning work you need to do with it.
<unk> product with respect to what you would need to do with lithium ion or other products when they're shipped out into the field moves.
Moving to page 13 want to spend a couple of moments on <unk> III.
Z three when you see this you see on the on the left hand side. The battery design that we're going west to be able to deliver it'll be one battery <unk> cells. When you think about this a battery that we have today is 40 cells. This battery will be 'twenty cells and deliver more than two five times the output coming out of that as we've done.
One material science work with our R&D team to be able to improve product performance. The middle is the new enclosure, which will have 576 batteries inside of this we will do we get out in the field has put five of those enclosures will string those together using one battery management system and that will then get.
To about the equivalent size of a 40 foot container and we are targeting significant improvement in performance in footprint power density with this product as we move forward and if you look at this product on page 14, just wanted to give a quick update on where we are on the development of the product and the number itself.
Again, another great performance mix of our operations team and the R&D team, where you can see the.
The prototype testing tools on the two pictures on the left hand side, we're very excited about the product that came off the line for the first time in my career first piece that came off the line met the quality requirements and we are now getting ready to start to think about design for manufacture ability that electrode that you see in the middle East.
Come up with a process that will speed, our manufacturing and enable us to get more throughput in our factory over the same asset base and if you see on the right hand side that picture to the right that is the module that will be putting in those enclosures I saw on the previous pages. So great progress here on track both on.
Our performance being able to introduce the product out to the marketplace and the cost targets that we have so it's a pretty exciting time. When you think about the growth of the company the ability to deliver improvement in operations and the development of the technology and the next generation product out into the field with that I'll turn it over to Randy will walk us through the financial results and wrap up the <unk>.
Discussion today thanks.
Thanks, Joe and good morning, everyone as.
As we've discussed over the last couple of quarters. The plan. We are executing requires the company to raise additional capital.
We are happy to report the $85 million senior secured term loan with Atlas credit partners that we announced yesterday.
It's a four year non amortizing loan that bears interest at sofa, plus eight 5%.
In addition on May 12, we officially submitted the part two application to the department of Energy loan program office and that process continues to progress.
We will talk more about liquidity capital resources and other funding opportunities in a subsequent slide.
Turning to slide 16.
Revenue for the quarter was $5 $9 million, an increase of 79% versus first quarter and 28% higher compared to our full year 2021 revenue.
The revenue increase quarter over quarter mirrors capacity expansion increase.
The majority of the revenue in second quarter was related to deliveries for the 80 megawatt hour Pine Gate East over project and we expect deliveries on this project to be complete in the third quarter.
We are beginning to see revenue from services, including commissioning and training revenue streams.
We anticipate that we will continue to realize incremental service revenue for energy blocks that have already shipped and been delivered to customers where a portion of revenue has been recognized in previous quarters.
Cost of goods sold was $36 $9 million essentially flat versus last quarter, excluding a $1 2 million reserve for contract losses.
We continue to progress according to plan on our product cost reduction efforts and have reduced the per unit energy block bill of material cost by 24% on an input basis since the beginning of the year.
If you compare our revenue and cost of goods sold to the second quarter of last year, we are seeing greater than four times operating leverage.
R&D expense for the quarter was $5 $5 million slightly higher versus last quarter and includes $400000 of noncash items, including stock comp expense depreciation and amortization.
This increase is due to ramped up design and development efforts on our next generation product <unk>, three which is scheduled to launch next year.
SG&A was $19 1 million, which includes $3 2 million of noncash expense.
The biggest driver of the increase versus last quarter is associated with the accelerated cost reduction of our current generation product.
We engaged a top tier third party firm with a performance fee based structure to help in this effort.
Most of the cost reduction initiatives, we were working on now translate to the next generation product and give us higher confidence that we can reach the targeted cost entitlement of the <unk> III product at launch.
In addition, we had higher legal expenses associated with several finite matters, including financing activities.
We incurred a $2 million noncash loss from the write down of PP&E as part of the company review of assets.
Operating loss was $57 $4 million and net loss was $56 7 million.
Turning to slide 17.
We had $16 $3 million of cash on hand as of the end of second quarter.
We received $5 million of inflows from customers as we executed on project milestones.
We raised $12 $5 million in cash against Vascepa arrangement with Yorkville advisors.
Next we paid $5 million on a note related to the 2021 buyout of our manufacturing joint venture partner.
Remaining cash outflows were $51 million with the detail on the right hand side of the slide.
Turning to slide 18.
Although capital markets have been challenging we've been working hard to provide the funding optionality to best position <unk> for further growth, especially as the market is accelerating and demand for long duration energy storage increases.
We've added $85 million of debt to our capital structure with the Atlas loan, which has the potential to be upsized to $100 million as the company is permitted to make a onetime requests of up to an additional $15 million subject to lender consent.
Under the SIPA, we still have access to $187 $5 million as we.
<unk> $12 $5 million in the second quarter as a reminder, Eos has an effective S. Three shelf registration filed with the SEC for up to $300 million of common stock preferred stock and or debt securities $200 million of which was a takedown for the <unk>.
Bob.
We will continue to evaluate additional opportunities for raising capital to fund the company's growth.
In addition, there are other funding opportunities that we are currently pursuing including the Doe loan and a federal R&D Grant.
We formed a partnership which includes a university and supply chain consortium to pursue the grant, which we expect to apply for in late fourth quarter of 2022 or early first quarter of 2023.
Now turning to slide 19, we wanted to give an update on our progress against the 2022 full year company commitments.
The facility expansion continues to be on track to increase our capacity to a total of 800 megawatt hours.
During the quarter, we executed on capital deployment to increase manufacturing capacity to 536 megawatt hours on an annualized basis, while improving manufacturing processes.
We continue to manage capital equipment deliveries and the phasing of commissioning on these assets.
We're still on plan for full year Capex investment of between $25 million to $35 million and see a path to even further expansion to support the accelerating commercial pipeline if additional capital is available.
The backlog is secure to achieve $50 million of revenue in 2022, and our production volume is expected to significantly ramp in the second half of the year as the facility expansion continues to come online.
Regarding our backlog growth, we booked $257 million of orders in the second quarter, bringing the total year to date booked orders to $325 million.
Given the progress against our initial orders target and the improved market conditions.
We have increased the new orders commitment by $100 million to $500 million.
With that I want to thank everybody for their time and for listening in today I would now like to turn it over to the operator for questions.
Operator will you. Please open up the line for Q&A.
Yes.
Thank you very much.
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One moment please poll for questions.
We have a first question from the line of Martin Malloy with.
Jason Ryan. Please go ahead.
Good morning, Marty Malloy with Johnson Rice.
My first question is around the Doe funding.
Can you maybe give us an update in terms of your discussions with the Doe and has there been any delay in the timetable for when you might hear back from them.
Hey, Marty good morning, this is Randy Gonzales.
So like we said in the remarks.
Discussions with the with the Doe continues.
I think what we mentioned last quarter was.
Our expectation is that we would.
We would we would get conditional approval kind of late Q3, maybe early Q4 and then.
Funding.
60 to 90 days subsequent to that so I think thats still our expectation.
So so I don't think anything's changed there from a timeline perspective.
Okay great.
In light of the term loan facility.
The recently announced could you maybe talk about your outlook for manufacturing capacity expansion beyond.
This year.
Beyond the 800 megawatt hours.
So our outlook and I'll, let Joe expand but our outlook is that.
When when capital is available the market is certainly there we have the backlog for it and so we have every intention to expand well beyond the 800 megawatt hours of capacity most likely in one gigawatt hour increments.
In terms of expansion.
Yes, Mark.
Joe the only thing I would add to Randy's comments is with the <unk> three coming.
For introduction in the in the second half.
Next year, we will probably expand again as we get into.
2023, and if you remember like we given the cycle time of our ability to expand capacity, we don't really need to pull that that switch until until.
End of this year at the earliest probably beginning of the following year. So we're timing that against where the product will be and where the backlog will be but but the goal is to per the model come out of come out of the end of 2023 with multiple gigawatt hours of manufacturing capacity.
Great. Thank you congratulations on the strong order quarter.
Thanks, Thanks Martin.
Thank you we have next question from the line of Chris <unk> with B Riley. Please go ahead.
Hey, guys. Congrats on the backlog progress maybe if you could just talk through the cadence of the revenue ramp between third quarter and fourth quarter be some customer timing.
And what are customers, saying about supply chain's growth components that may impact the timing of deliveries and recognition.
Against Samsung.
Now standing here today is $50 million and then we applied for.
<unk> $46 million for the second half of the year could you give us a sense of how much of the rest of the backlog.
2023.
Yes, it seems like bridge Lake and the other large developer there you've recently.
We're kind of longer term supply agreements, but really clear whether sounds absorbed as you sell is that how it properly.
The orders are those deals work.
Hey, Chris Good morning.
So so on the first part of the of the question on how does the second half of the year look for the remaining revenue.
I think all projects are moving forward and obviously in the environment that you're in you're dealing with choppy waters.
Not only from and I think we've done a pretty good job of securing components to be able to deliver as we ramp up but then there's also the civil works and permitting side of this on the on the customer and I think the projects that we have in the second half backlog have a requirement to be the customer has to be online.
By the end of.
By the end of this year. So we're lined up to be able to do that and just working with the customer on a day by day basis to time deliveries to the site and installation and commissioning to their readiness. So.
Not so concerned about the revenue plan as we look at the $50 million being locked in now the second the second part of your question on 2023 revenue look we haven't given guidance yet on.
The number for 2023, but remember bridged link is a multi youre right bridge I think is a multi year.
Agreement that we have but there will be volume in 2023 that we're working with bridge link gone to determine what the deliveries will be for that plus other backlog that we have but you got to give us here a few more months to see where we settle out on third <unk> orders to come back on where we think revenue will be for 2023.
Got it okay makes sense.
Maybe just talk a little bit more about leverage within Cogs could you give a bit more color on where.
What's the fixed component within that $37 million.
In cost of goods sold.
Hey, pretty flat or even decline with disease III ramp versus kind of a portion of that is variable material component that should continue to climb as we've seen over the last couple of quarters here.
Volume pricing and they.
Continuing and then just an update where we think that even revenue run rate would be for gross margins either.
The existing product versus <unk> launch next year.
Yes, Chris So let me let me take the first part so the fixed portion in second quarter has increased some remember we're expanding into another building on the same campus and Turtle Creek, So naturally we're adding capital.
Capital assets, we have a new building so fixed cost has increased somewhat and so youll continue to see the fixed cost leverage.
As we continue to add capacity come online. The wine is purpose built its a single line flow, we're seeing much lower tact times.
Improved yield.
And so you're naturally going to see more fixed cost leverage there.
The other thing I'll say just in general around cost of goods sold as we talked about we talked about.
The per unit cost reduction efforts being in line with our expectations.
And that will continue it's.
It's a big strategic priority of the company.
But in terms of in terms of going gross margin positive that will happen.
At Z launch timing <unk> launch timing.
And Chris I would just add on the fixed cost side. Your question I can remember, we've always said like a gigawatt hour, depending on where you start is between $50 million to $60 million of fixed assets.
That number is where we're tracking to to get to the capacity that we're targeting by the end of the year and then you just got a model that out as far as like your depreciation schedule. So so.
Youre seeing also when Randy talks about operating leverage on the sales. It's just that we are flowing more volume over that same asset base. So the asset base is not growing as fast as the sales growing and that's been the model that we built our supply chain around from the start.
Okay.
And when it makes sense and then just maybe last one kind of cash block.
Year Capex.
It's going to ramp up a bit on the guidance so.
Yes.
$50 billion you saw in this quarter probably.
Would increase to reflect that.
Can you just kind of walk through that.
It kind of order of operations here.
Between the different other leverage you talked about maybe specifically touching on customer deposits.
It's kind of one that you had mentioned previously I'm curious where are we with some of those.
Other.
Diluted financing outside of the deal.
Yes, so you're right Chris So we did see $5 million of customer inflows. Our revenue model is such that and where we are in the market and.
With with.
With the available availability of our product and maybe the lack of availability of other products in the market revenue model is such that we are.
We are we are getting deposits when we sign either master supply agreements or purchase orders with customers. So that will be certainly be a source of cash as we continue to ramp up revenue deliver to customers deliver on milestone pay.
<unk> that will also be a source of cash. So I think it's important to note that the revenue model is not just a down payment.
It's also milestone payments throughout the manufacturing process. So three to four months before before delivery, we will typically get a milestone payment and then when the product is ready to ship, we will get a milestone ship pay.
And so the majority of cash on an order is received before it is even ship and then the remainder is received.
When when the when the system is commissioned.
So so we talked about the federal grant the federal R&D Grant that.
It is out there.
We've talked about just optionality in terms of our our access to capital and including the SIPA.
And so we feel we feel really good about where we are and given the given the company optionality and flexibility in order to raise capital as the company needs that.
Okay. Thanks, guys I'll hop in the queue here.
Thanks, Chris.
Thank you we have next question from the line of Joseph Osha with Guggenheim. Please go ahead.
Okay.
Thank you and good morning folks.
My compliments on the progress so I'm wondering looking at the order book and the transition to the three.
Are you able to share with us how much of your book is the three at this point or is there any differentiation.
In the orders between two three and <unk> III.
No Hey, Joe Good morning.
There is no differentiation I think.
We're managing to is the transition time between the two products as we ramp up the manufacturing and introduction of the <unk> three next year.
Yeah.
We need a little bit more time here to continue on that modeling and timing of equipment arrivals to come back and talk about where shipments of the current product will start to come down and we will ramp up the <unk> three and to full production as we get into the second half of next year.
Okay would it be fair to say then that you.
Thank you can exit 2023, perhaps all of the three year should perhaps think about that is first part of 2024.
I would say I would say towards the latter half of next year will be 100% <unk> three production for new shipments with the current product just being production for service requirements on what's installed out in the field.
Okay.
And just to return to this funding.
<unk> got a bar that you can upsized to 100.
You put a some kind of expectations around timing.
It's fair to say, though that in addition to the 85 and if you I'm sorry that.
Their dose still need to be some other funding in terms of accessing capital markets or customer deposits or what have you.
Correct.
Yes, Joe I think that was the purpose of the second last page. It Randy laid out is we've got multiple avenues here too.
The bridge the company through into the latter half of next year. I mean, we will continue to use the shipper facility, where that makes sense and then we have the other $100 million of capacity that we're trying to determine what the best path is there.
I think one of the things that we're doing in the on the Doe Grant side, which would be great for us on our product development. Our grant application is in consortium with.
Potential technology partner for <unk>.
Part development along with <unk>.
Three universities to be able to to be able to get us to 100%.
It's a dual thing where to help US fund the R&D program, but then also get us to the 100% North America scope of supply. So there's multiple ways that we will continue to do this but I think the most important thing and I think the thing that we've always said is that we only spend what we need and we tried to be very good stewards of capital and minimize the cash out.
Flows and we will continue to do that because that's the first I think order of business and then behind that we have these other these other levers that we can pull to be able to keep the company growing and moving along our strategic path.
Okay. Thanks, and then my final question you mentioned in your prepared comments obviously the.
Yes.
Right.
Inflation back in.
ITC in the cockpit.
Okay.
But there is another part of it went through the manufacturing.
Tax credits.
Just wondering if you reviewed that part of the equation and thought about how that might apply to you.
Yes, so so.
Yes, it's great. It's a great question, Joe you are right.
Yes, we are looking into that and how that applies to us and obviously with our manufacturing footprint that we have and the fact that our factory our factories is in Pennsylvania in 11 key suppliers in Pennsylvania. There is there is.
There are some things that we can be able that we can look at that I think play into this but we need some time just to work to work through that given the timing of when everything happened and obviously, we had this confluence of that happening is it kind of on an accelerated time basis closing the secured loan and closed in the quarter. So we need a little bit of time to work through that.
Certainly okay. Thank you great.
Great. Thanks Chuck.
Yes.
Thank you we have next question from the line of Sebastian Chandra with benchmark. Please go ahead.
Hey, Joe Randy just a question I guess on.
Good morning.
Vendor b deposits not the vendor deposits trucking customer deposits.
If I was looking at the Q from last night.
Wood is what line with that Ian.
The vendor deposits I assume it is your deposits with.
Supply chain, but what about customer deposits yes.
Sundar I think the point is is that.
With some of the big Big agreements, we just announced.
There is a requirement for investor deposits. So.
Youll see that when we actually get the vendor deposits. So.
We will receive them.
After a certain period of time after the agreement has been signed so there is a time lag. So I don't think youre going to see those in the Q2 balance sheet.
Okay got it.
Randy are there is there any customer deposits.
In Q2.
Specifically in Q2, I don't think theres any any customer deposits.
Got you okay.
Yes.
Given the timing of when we sign the deals.
Youll see the receivable from customers has gone up and we should be getting paid here in the next 60 to 90 days from the customers that closed orders in the quarter. So it's a timing given that the orders close at the end of the quarter.
Okay.
You might have mentioned this but.
What are the sizes.
The Doe funding and the grant.
That you're pursuing.
So we haven't we haven't specified any.
Thing with regards to the loan.
The federal R&D grants.
Our available in 50 or $100 million increments.
Okay got you.
Okay.
Yes, I guess im finally, trying to sort of understand that.
The pace of the expansion.
And some of the stuff we talked about.
Previous quarters supply chain issues.
Which which of those has sort of been relieved in which are still there I think we've talked about.
<unk> availability and costs.
Of course materials et cetera, but would you say those are still lingering in a substantial fashion or do you think the real gating variable towards accelerating shipments.
Just getting your facilities built out.
And the people.
Yeah. So <unk>, let me break down the question because there's multiple parts in there right. So what I would say in this environment, you're always going to have the risk of winding up with material shortages, just because of the world that we live in but we have locked in if you. If you go back.
Sure.
If you go back into the earnings deck onto page 11, we've lot we've locked in 90% of our materially they're being delivered 25% or under 65%, 10% to go as we turn on the new container supplier, which is happening.
As we speak we will now be sourcing.
Our enclosures from New York and not from Asia. So that takes out a lot of risk in the supply chain from the capacity buildup. The capacity expansion is on plan like we went from an empty building to fully producing batteries.
In our new facility and that will continue to ramp as we go through the year.
We are just in the timing of ramping up production per the plan.
If you look at.
The left hand side of page 11.
We are ahead of the capacity plan that we laid out at the beginning of the year, we need to keep executing on that.
Our growth in revenue was in line with the increased capacity that we have in the factory and we just have to keep working that so so I look at that I look at those two factors.
As daily management of your total supply chain internal external.
As much as as.
As much as.
We are managing to produce in an environment with Covid, we still have COVID-19 cases and have.
And every every every manufacturing company goes through this where they have down.
You have to manage around and have a flexible workforce to be able to manage around that and then when you talk about it in your on your other question around quality look.
We're at 91% yield that's over the quarter. When you look at that that's the quarterly average of what's come off of the manufacturing line, that's up significantly from where we were last year at this time and when you look at this that number will continue to go up and what I would say is that we are on track and I won't declare victory on this until we.
Get a significant amount of time under our belt are performing at a six sigma level, but we're tracking to be at a six sigma level from a first pass yield in the factory.
Okay.
Good color. Thank you.
Thanks.
Thank you ladies and gentlemen, we have reached the end of the question and answer session and I'd like to turn the call back to Joe <unk> for closing remarks over to you Sir thank.
Thank you thanks, everybody for listening in today.
Look again.
I believe we've made tremendous progress here as we look at the growth of the company the position of the positioning of the pipeline to continue to grow our orders backlog.
We are an operating company that is producing and shipping product everyday proud of what our operations team continues to do to position the factory to deliver for customers a quality product that performs well continue to work our cost equation, both on the fixed and the variable side.
To position the company to become margin positive as we get into the end of next year and then into 2024, that's our goal and that's what we'll continue to do and Randy and I are committed here to continue to work the liquidity and capital requirements of the company and find ways to fund the company to grow but the whole.
Model of this company was built around being able to ramp it in a capital light model. So that gigawatt hour of production requires $50 million of.
Of capital, we don't we don't need that capital sitting in the bank account, we need that capital, we actually invested and that's how we're positioning the capital to bring into the company and we will continue to find those sources and continue to work the equation of bringing cash from customers as we as we grow the backlog and deliver out into the market. So we're excited.
<unk>.
On where we are.
Again yesterday was my my four year anniversary with Nielsen, it's been quite a ride coming from an R&D company to one with an almost two gigawatt hour backlog that is delivering to customers every day and when I get up in the morning, I get very excited about where the company is positioned to grow for the future. We have a lot of work left to do but we have the team on.
Field that we'll be able to deliver on the strategic plan that the company has laid out and I look forward to continuing to do that with the team here at <unk>. So thanks for listening today.
Thank you very much Sir ladies and gentlemen, this concludes today's conference.
Connect your lines at this time, thank you for your participation.
Okay.
Yes.
Okay.
Yes.
Yes.
Yes.
Yes.
Yes.
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