Q2 2023 Eos Energy Enterprises Inc Earnings Call

Good morning, and welcome to Eos Energy Enterprises' second quarter 2023 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 listen only mode.

Brief question and answer session will follow the formal presentation with that I'd like.

To turn the call over to Liz Higley acting director of Investor Relations. Thank you you may begin.

Thank you good morning, everyone and thank you for joining us for <unk> financial results and conference call for the second quarter 2023.

Today, we have CEO , Joe Mr. Angelo and CFO Nathan Craker 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 but not limited to current expectation with respect to future results for our company.

But you 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 expectation or those implied by these forward looking statements the risks and uncertainties that forward looking statements are subject to are described in our <unk>.

E filing.

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 a certain circumstances after today or to reflect new information or the occurrence of unanticipated events, except as required by law.

This conference call will be available for replay via webcast or yes, its investor relations website at investors that E. O S C Dot com, Joe and Nathan Milwaukee 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 <unk> CEO Joe Mr. Angelo.

On behalf of the 300 plus employees at Yale So I want to welcome everyone to our Q2 earnings call.

It's a very important moment in time for both yields and for our industry as I said before I've been in the energy industry for nearly 30 years and iOS has been in existence for 15 years. We're at an important inflection point as you look at what the world needs to power. Its feature when you look right now in the United States, Texas.

The aircraft market is operating at record highs, California is experiencing high temperatures, which are straining their ability to produce on the grid you see numerous fires on energy storage projects, which has caused a significant concern about how we can deliver and integrate renewables safely into our grid Nathan is going to go through later on the day.

Challenge around our order pipeline backlog and some specific customer examples, but what I wanted to talk about is what's required to truly grow our business and ultimately what's required to help decarbonize our energy our energy Gregg what's important here is not just being a peak.

Carbonization, it's having the policies in place to deliver that at the same time as you have the policy framework in place, which I believe we do in the United States with the IRA legislation, it's been taking those policies and active and where we need to work on as an industry and as a company is acting and moving faster to deliver on.

That demand what the world is asking for right now it's not a two hour energy storage solution, but a flexible energy storage solution that provides the safety and reliability that we all demand from our power grid. We believe that we have that solution over time to deliver into that market and it's no more evidenced by that number on the lower left hand.

Side of the page the fact that we've discharged one four gigawatt hours of energy over the lifetime of a product.

We still have work to do we still have things that we need to fix improve and refine but we have a technology that can deliver upon the need in the marketplace that we see every day and talk about every day at the same time, we're focused on being able to deliver that product out of the state of the art factory that we like to say, it's a technology that was designed with American <unk>.

<unk>, it's built with American hands, using predominantly American materials on American manufacturing equipment. That's important to note as we talk about also energy security and our ability to deliver the future growth of our country. If you flip the page four.

Picture tells a thousand stories, here's a picture of our semi automated manufacturing line in Turtle Creek, Pennsylvania with our employees many of their stations and building batteries. Now we are in early days of commercial production, but we feel really good about where we are and we're very proud of what the team is doing and delivering on a day by.

Day basis. So if we move to page five I just wanted to hit on three core concepts here as to why we feel like we have a product that can deliver the future needs of our industry and our and the world's first one is we've taken a product that has been around for 15 years, we've used the basic same.

Core chemistry, and our challenge technologically has always been how do you do that and feel that batteries. So that the battery can perform over a 20 year lifespan. How do you do that at a cost where you can deliver a product and how do you do that.

At our cycle time that you can scale into a fast growing market. We've learned a lot over the various generations of our technology in every step of the way we've incorporated that into this new Z redesign. This news G. III design that the team has developed the initial results are very promising but you have to realize like what the technological team.

<unk> was able to do in Edison, New Jersey is take out the highest cost component in our battery that being titanium and replacing it with conductive polymer learnings from the ceiling challenges that we had leaching batteries and taking that and incorporating it into the design of the Z three battery, which enables us to both reduce cycle time.

Improved performance he moved to the center of the page. Our initial battery performance is very promising now here I think we have to do is take an insider's view of what performance means so I've heard people say and talk about well Eos is round trip efficiency is lower than what else would then lithium ion and that's <unk>.

True, we sacrifice a couple of points of round trip efficiency for the safety and to reduce the fire risk around our technology that you see in lithium ion but at the same time, if you measure us at two hours of energy delivery against lithium ion. We also need to then take lithium ion and measure them at 468, 10 and 12.

Hours discharged time that same performance set an iOS batteries can do with that same round trip efficiency without requiring the HVAC systems to be able to operate you get that wasn't with with an <unk> solution and that's important when you think about these systems are operating in higher temperature environments. That's.

Why you have the high power demand here. This summer so you need something thats going to be safe that doesn't require sophisticated complex cooling systems to allow them to perform that's the product that the team has been able to develop and when you look at the performance of nine modules. So this is a small subset of technology, but.

That technology is performing exactly as it was designed in the lab now theyre going to be challenges as we move forward I've done numerous new product introductions throughout my 30 year career, you don't know what you don't know until you start building and executing on on your on your roadmap, but what we've seen from our initial performance is really promising.

As we look to deliver in the future and then on the on the on the far right hand side of the page you don't sell an individual battery cell you don't even sell an individual battery you sell a system and inside that system. You got to look at how you make that cost effective and how you make that operates and the team here has done a fantastic job of coming up in <unk>.

<unk> our system our whole goal here is reduce the amount of wires that you have out in the field reduced the complexity that you have on the field allow more energy cubes to operate off of the same power electronics to reduce costs to simplify the system and allow us to perform in a difficult operating environment and deliver what's expected of the industry and in others.

Product. So we take those three fundamentals and then flip to page six and talk about the are aligned much look I'm proud to say that I work at years I'm proud to be part of this team. The team Amazes me everyday with the work that they do and if you start off on the left hand side of this page. That's the one in commercial production that happened a few weeks ago now we've been very.

Purposeful about turning on commercial production because of the speed that you manufacture if you have an inherent problem inside your battery inside the production process. The compounding cost that it would be to shareholders of cash burn and we've been very very cautious about how we've launched this product.

To make sure that we're spending every dollar we have wisely and we've learned at every step of the way how to improve how we build the battery. We started off you remember I've said this before Gen 2.3 had a 90 minutes cycle time to build the battery first day, we built batteries were up four minutes on the semi automated online and we believe we have a path.

Take that down to two minutes of cycle time, as we move forward and this initial production comes with less than 1% scrap and the batteries that are coming off of the lines are performing like the ones that we showed on the prior page meeting specification now we're going to put these batteries to the test we're going to get them out in the field and sorry operator.

But what the team is doing out in Turtle Creek is nothing short of amazing and my viewpoint at the same time I talked about this before you don't just sell batteries you sell an overall system, we call that the EOC or acute if you look at that Middle picture, that's all starting to run our strings in side of acute that would go out.

And to the field that we're finding out is we've spent a lot of time here again in Edison New Jersey in.

R&D facility and our software facility developing a simpler battery management system, we do differently than other technologies as we allow our battery to operate across a wide temperature range, we allowed to operate charge and discharge of over a wide number of hours, but we do that with a very simple battery management system that allows for.

Flexibility for the end users and what we've been trying to do and the whole trick here is reduced voltage in the system to increase throughput and to increase our <unk> output of the system. It's not just about what your individual battery does but how your assistant perform the team has spent a lot of time doing that at the same time I get a lot of questions about where are we on the state of the art Manny.

Fracturing process well the far right.

The design.

Of the new line Thats going to go into our factory in Turtle Creek, we're in the midst of developing the software and controls logic around that we've made some purchases of long lead items around robotics, we feel really good about the progress that we're making around this but this all comes back to again, how we manage the timing of it.

Investment in that line versus the timing and spend on getting product out in the field what everybody has to remember here before I turn this over to Nathan to talk about becoming profitable in the commercial pipeline is this is an industry, where you have to prove yourself out in the field, it's not prove yourself from the laboratory. So we've got to get the Z three outlet field operating income.

<unk> sites and at the same time perfect. What we're doing then automate then scale and we're trying to do that in a very compressed cycle time I feel really good about where we are we'll keep everyone updated on the challenges as we move forward, but I want to turn it over to Nathan who is going to walk you through some more details around our pipeline around our path to profitability and.

And also around the financials for the second quarter. Thanks for listening today.

Thanks, Joe Good morning, everybody I wanted to take a moment to explain how we're thinking about our path to profitability not only are we improving our bottom line, but we are also focused on improving our top line.

As you know the first step to profitability is getting to positive gross profit from this point, we can begin to cover our operating expenses, which tend to be more fixed in nature as we achieve economies of scale looking.

Looking at this graph what you see here as sales prices are currently expected to increase over time. This is a result of increased market demand for long duration storage combined with a shortage of manufacturing capacity in the market.

Some of these price increases are already baked into our backlog and are expected to be realized following the delivery of some of the earlier projects, which were sold at lower prices in order to secure a foothold in a lithium dominated marketplace.

As we establish our technology and credibility in the market and secure the needed financing to expand our manufacturing capacity, we expect to see our pricing increase overtime.

The iras, 10% domestic content bonus credit is an added tailwind with our domestic content levels, we expect customers to see this benefit not only for their storage assets, but potentially in helping their overall projects to qualify for this added 10% credit.

Moving on to Cogs, while sales prices are increasing one of the top priorities of the company is to continue focusing on taking cost out of the product with our planned cost out initiatives in place we expect to reach gross profit breakeven as we scale. Our first automated line this would enable higher throughput, allowing us to them.

Or more of our fixed costs and gain operating leverage our cost program for 2023 includes seven discrete projects that are anticipated to either lower our supply costs increase energy density or improve the manufacture ability of our product all three of these goals are essential.

To getting to profitability.

On top of taking cost out another benefit available to us as the $45 per kilowatt hour production tax credit.

As we produce storage systems, we are able to realize this benefit as an offset to Cogs, which we have already begun accounting for it in the first half of the year.

While there is $45 tax credit will help to accelerate our path to breakeven we do not believe it is essential to achieve profitability. We believe this business makes economic sense, even without the tax credit, but it's certainly acts as an added benefit to us over time.

Despite the progress we are making on improving our backlog and driving out costs, we still expect to see negative margins as we come down our cost curve and deliver on early backlog orders.

Moving onto slide nine Im now going to walk you through our classic pipeline page that I'm sure. Many of you are familiar with this page is broken out into three key buckets lead generation current pipeline and backlog starting on the left side of the page is lead generation, which at the end of the quarter was $10 9 billion.

Representing 59 gigawatt hours of storage up $1 2 billion from the previous quarter. You should think about this stage is customers coming to us with an idea for our project in which they do not yet have a technical use case for us to quota, we do not count lead generation and our current pipeline and generally there is a lot of churn.

Here is things drop out or progressing through our pipeline.

Moving to the right, we get to our pipeline and we defined pipeline in three segments. One does at Abbott technical use case to have we provided a non binding quote.

And three do we have a signed letter of intent, we do not call something current pipeline unless we have a technical use case for we can provide a technical proposal to the customer, which then leads us to giving them a nonbinding quote.

Our Gulf from there is to then get customers to sign an LOI with us which represents a non binding agreement and if the project materializes they plan to choose us as their technology.

Our current pipeline is now at $9 7 billion and is up $1 1 billion from the prior quarter, we have $1 $6 billion in signed Loi's, an increase of $93 million versus last quarter, representing over seven gigawatt hours from there the intention is to materialize projects into booked order.

<unk>, which then get added to our backlog. We currently expect roughly 30% to be converted from Lois into booked orders overtime.

The backlog stands at $534 million as of June 30, including some long term service revenue, which represents less than 6% of the total value of our backlog.

We expect to grow service revenue as more projects become operational in the field. During Q2, we booked a new industrial order in California.

And we removed two small projects that no longer met our qualifications to be considered in backlog, while we didn't see a large increase in orders during the quarter. We continue to feel our pipeline is strong and we believe many potential customers may be waiting to see our state of the art factory in operation as well as additional clarity on the <unk>.

<unk> tax credits.

Each quarter, we assess the health of our reported backlog doing so requires us to exercise judgment about uncertain factors, we sometimes come to review that a project that was booked in the past is unlikely to materialize or a change order has been executed in which case, we may adjust our backlog.

This assessment has resulted in projects being removed from our backlog in each of the last two quarters.

Yeah.

While we've previously shipped products to 12 customers. Our current backlog consists of 13 customers representing two two gigawatt hours, which includes a mix of utilities developers ipp's and industrial customers.

Over 50% of our backlog is in the California, and ERCOT markets with the remaining 50% spread across our other U S and international markets.

Now, let's take a deeper dive on a few of the larger customers that we have in our backlog beginning with bridge link we first signed an MSA with bridge linked commodities LLC back in March of last year. This was a multiyear MSA where bridge link locked in the price of 240 megawatt hours of storage over three year period and then.

Increase the overall size of the MSA to one gigawatt hour in June of last year.

Bridge link as a developer of solar and storage projects and has informed us that it is <unk> and its pipeline and some of these projects have received interconnects, while others are well into the interconnection queue.

This is important because in interconnect approval is essential for our project to be able to deliver power to the grid.

In today's environment and interconnect can take years to secure meaning that these types of projects have a certain amount of intrinsic value and we believe a number of them will ultimately be built.

We were informed by bridge linked management that its affiliate has reached a confidential settlement with its lender and the related assets were not sold at auction.

Bridged link recently confirmed that they are actively seeking alternative financing for these projects.

Moving onto IEP and.

In 2020, we entered into an agreement to supply one gigawatt hour of storage, which was added to the pipeline as a letter of intent.

Of this we have two Texas projects totaling 100 megawatt hours in the backlog with the remaining 900 megawatt hours included an LOI.

Control of the two Texas projects was transferred to a large north American infrastructure Fund and we currently anticipate breaking ground on the first project later this summer with delivery scheduled for Q4 of this year.

Carson hybrid is another significant customer for us we have a project in California that is co located with an active gas turbine peak or plant that is delivering power to the California grid to meet the high summer demand.

Construction is expected to begin this fall as soon as we can access that construction site to deliver our products.

In addition, we have a 300 megawatt hour project with Carson that has recently received its interconnection approval and is included in our backlog, we have received a deposit or down payment on both contracts.

Next we have a confidential customer that is a leading northeast developer of solar and storage projects that has signed a multiyear MSA with us to lock in the price of our storage systems customers actively pursuing permitting and New York and given the safety of our product relative to other alternatives and the recent fires that have been.

In the news we currently expect this markets have significant growth potential.

We anticipate cash coming in as Poser issued and production schedules are set under this MSA.

And finally, we have another confidential customer there is a very large utility and one of the largest operators of energy storage in the U S.

This utility has signed a long term framework agreement for up to four gigawatt hours of energy storage volume, which is included in our pipeline in the LOI slash firm commitment category along with the PEO for their first 47 megawatt hour project, which is in our backlog and we expect to deliver later this year.

<unk> is an important project for the team as it represents our opportunity to demonstrate the capability of <unk> technology to one of the largest utilities in the world. The balance of our backlog is a combination of smaller deals both front of the meter and behind the meter with developers ipp's in investment grade utilities.

Now moving on to Slide 10. This is a page where we want to walk through the structure of our standard form customer contract as it relates to expected cash flows going forward in order to offset the high working capital needs of the business, we strive to receive cash early to fund raw material purchases generally.

Speaking, our template customer supply contracts are structured so that as we begin to manufacture and deliver storage systems, we expect to receive approximately 60% of cash prior to customer delivery amounts.

Amounts received are of course subject to the final negotiated terms in each individual agreement now looking at the page I want to walk you through the process of what we generally see from a signed letter of intent all the way to commercial operation on the right hand side of the page.

As mentioned earlier a letter of intent represents the last stage in our pipeline before a deal gets into backlog you should think about this stage as a non binding agreement that aligns our interests with the customers and has us on the same side of the table, especially in the case of a developer as they pursue projects out in the marketplace, if the customer wins.

Eos wins to clarify.

<unk> never meet our criteria for a booked order.

What do you see next is that an LOI or any active proposal can be formalized into a master supply agreement or MSA.

Alternatively, a customer can skip the MSA and go directly to a definitive supply agreement with a po, which sometimes happens for smaller more discrete projects.

Msas and pose can be considered booked orders provided they meet certain internal qualifications and each agreement can have different cash milestones, which are detailed in the contract. We typically require each of our customers to pay a deposit or down payment before they are allocated a slot in our production schedule.

You should think of an MSA is a multiyear agreement that defines a commitment to a specific amount of storage capacity being purchased over a defined period of time.

As time progresses and specific projects are identified individuals pose would then be executed under those msas.

We often get a small deposit of up to 5% <unk> a cancellation fee with our multiyear msas.

Even if an MSA does not have a specific project identified it helps us with long term capacity planning.

In the case of multiyear Msas.

Then issued when individual projects materialize when we receive a purchase order, we usually expect to receive 10% to 30% of the total contract price as a down payment.

We expect such payments to be a significant source of cash to offset increased working capital needs as some portion of our active proposals.

<unk> and Msas eventually result in purchase orders.

Next we expect to receive another 20% to 30% of the contract price during the manufacturing stage. During this stage, we're sourcing the raw materials and we ask that our customers pay a cash milestone prior to manufacturing their systems and or additional cash when the product is ready to ship.

Revenue recognition does not necessarily follow the cash flows or the manufacturing cycle, but rather is determined based on our fulfillment of obligations to the customer.

A meaningful portion of revenue is recognized when control passes to the customer again determined by the specific terms of the applicable agreement.

Next we expect to receive another 25% to 30% when systems are fully delivered at this point iOS begins site installation and commissioning in the last 5% to 10% would be received after commissioning is complete and the system is placed in operation.

I'd like to point out that an item. We have mentioned briefly in the past is the opportunity for long term service revenue.

While our contracts generally offer a standard two year warranty. We also provide customers with the option to purchase a long term service agreement, which can go out as long as 20 years.

As we begin to get more systems in operation. We expect this to be an increasing source of cash and revenue in the future.

Now, let's move into our second quarter financial results.

Overall, the second quarter was an important quarter for the team and I'm very proud of our employees as we continue to keep our heads down and focus on getting the <unk> systems into the market. Each day, we become better than the day before and we expect our financials to begin to reflect these improvements over time.

Revenue for the quarter was <unk> $2 million as we recognized revenue on our last Gen. Two three systems before beginning the transition of our factory to Z three production.

Cost of goods sold for the quarter was $11 $2 million of which $2 3 million is noncash related item a decrease of $25 6 million compared to the second quarter of 2022, primarily driven by a decrease in unit volume, partially offset by increases in commissioning costs associated with the Pine gate.

Project.

R&D investment was $5 million.

A slight decrease compared to the second quarter last year, driven by a reduction in third party services, partially offset by ongoing Z three development.

<unk> $3 million was noncash stock compensation and depreciation.

SG&A for the quarter was $13 1 million, including $2 2 million of noncash items, which is $6 million lower than the second quarter of the prior year driven primarily by decreases in outside consulting expense as we brought several of these functions in house.

Interest expense was $19 6 million for the quarter of which $4 9 million was driven by the senior secured term loan and the equipment financing facility with Trinity capital the.

The other $14 $8 million was noncash related to the interest expense and amortization from our convertible notes.

The resulting operating loss was $34 $6 million with a net loss of $131 $6 million or $28 $9 million, excluding noncash items, which is a year over year improvement of 44%.

Lastly, I will give you an update on our progress against our full year company objectives.

Second quarter was very much a transitional quarter and Theres still a lot of work for us to do in order to reach our goals.

We increased our opportunity pipeline by $1 $1 billion in the second quarter and during the first half of 2023, we had $86 $9 million in booked orders with three customers.

While three customers may not sound like a lot the largest order was with a repeat customer and another one was for an initial project accompanied by a larger framework agreement of up to four gigawatt.

Which is included in our pipeline.

We also signed five new letters of intent for a total of one two gigawatt hours during the first half of 2023.

If we receive a positive outcome on our loan application, we expect to see increased customer confidence in our product and our ability to deliver long duration energy storage projects.

Next we remain on track towards our 30% to $50 million revenue objective. If you recall, we said that the upper end of the range was contingent on getting our automated line up and running in Q4, while the lower end was if the automated line pushed into next year.

We are now tracking for the lower end of the range in the first half of 2023, we had revenue of $9 1 million as we think about the rest of the year. We currently expect remaining revenue to be back end weighted in Q4 with the majority of our revenue recognition occurring at the time of delivery as opposed to win Prada.

<unk> has produced a revenue objective for the year can be somewhat binary depending on the exact delivery timing of one or two large projects.

While we believe we will be able to achieve our revenue objective for the year. The specific revenue recognition criteria could potentially push some of this revenue into early 2024.

Lastly, the team continues to stay focused on cost out and while we have discussed the key projects for 2023. It should be noted we have line of sight into further cost out initiatives that will come in 2024, thus far we have achieved two of seven key projects for our year end cost objective and we believe we remain on.

Track to hit this metric with that I want to thank everybody for their time and for listening today I would now like to turn it over to the operator for questions. Operator. Please open the line for questions.

Thank you I'd like to ask a question. Please press star one one is.

Your question has been answered and you'd like to remove yourself from the queue. Please press star one again.

Good morning, this is actually Hilary on for Joe.

Just wanted to first touch on somewhere else.

Our comments on the transition.

And if you could just share any more.

Our detail on kind of key learnings, thus far and if theres been any kind of key manufacturing challenges.

Congrats.

Hey, Larry good morning.

Yes, I mean look at every phase of this there has been there's been learnings I think I think what.

Accelerated the development of the <unk> three and at the same time at a lower cost position was doing the discrete manufacturing processes first so if you look at where we started on our on our line and like building. Our bipolar is integrating the bipolar is into the into the tub and then.

Filling the battery we've changed each one of those technologies as we've gone through SaaS, we learn things we found other technologies that either gave us a higher process capability.

Or a better yield coming out of the coming out of the overall processor and a faster cycle time. So we've made a lot of changes there and then inside of this with a lot of the design work that the technology team has done a lot of that work is done here in Edison, where we're prototyping product when you bring it on.

Do it at production scale, you start learning things when you're trying to transport batteries. So there are certain things in the way that we design the tops of the bipolar is that were causing a potential sloshing.

Electrolyte could go between cells, and causing imbalances of batteries when you're transporting it on truck or by C that we wound up having to fix and then the last one which is the most important one is as you lay out the material flow in the factory, we start to learn of where do you want people positioned where do you want the material position how much <unk> do you want to add.

Going into each one of your manufacturing processes to reduce cycle time, so as we've gone through and done this as I said as we said on the page the continuous flow of a battery to the line is four minutes. We think we can we can have that on the semi automated in line with some of the things that the team is finding so it truly is where every shift.

Started off and end with what did you learn what do we need to change what do you need to make your job better because this is truly a learning process. I mean, we've only been at commercial production here for a little bit over a little bit over a week. When you really think about in earnings so everyday.

Are you going to learn the most from the people on the on the on the factory floor that are building the batteries and that is going to make us better.

Great and then just as you look to transition.

Goodbye and execute on some of the customer Mr. Business. Just wondering if you could provide some context for how quickly well see that start.

Positive.

So sure happy to elaborate on that a little bit if you look at the different cost out initiatives that we've got identified.

Really touch on three different areas of supply chain.

And some efficiencies in our supply chain is improving the energy density of the battery and then also improving the manufacturing ability.

And some of these we are putting into effect now like we said with two of these have already been accomplished and specifically its around volume discounts on our Q. So thats a supply chain related items second one is improving the overall power density of the batteries. So that falls in the category of improving the energy efficiency.

These are things that we can do now even on our semi automated line. There are other cost out initiatives that are dependent on getting to a fully automated line, but you won't really see us fully achieving cost items.

Got it.

Next year.

General Electric grid I was managing product lines that were hundreds and hundreds of years old and you were getting 4% to 5% cost out productivity every year in a very mature product.

This here as we go through this we're going to be learning everyday and finding ways and updating our cost our pipeline looking at cycle time reductions and productivity ideas. So this is going to be an iterative process, where it's a funnel right you bring ideas and then you want to realize ideas out the back end of this and I think we're starting to see as you actually start building.

Operating the product you start to find more and more ideas on how to take cost out we just got to keep our nose to the grindstone and just keep finding ways to improve the competitiveness of what we put out in the field.

As I was listening Joanne I can fully address your question you were asking about gross margin breakeven and I would say, we want to achieve gross margin breakeven and so we can get the.

The efficiencies of the fully automated line. So that's how I would think COVID-19 in terms of timing and the timing of that is somewhat dependent.

Jeff.

Great. Thank you for taking my questions.

Thanks, Larry.

Thank you. Our next question comes from Christopher Souther with B Riley Securities. Your line is open.

Hey, guys.

Maybe just following up on that.

So if we ramp can you please.

And some of the metrics you called out here.

Semi automated ballpark team.

Out of the cycle time, and less than 1% scrap rates comparable to what we saw with the thanks with JBT.

$2 three can you update us on how the bomb cost today comparable.

$2 3 million without <unk> would be post the great transformation you called out for 2023.

This is all kind of prior to the full automation that you talked about right.

Alright, great.

Hey, Chris.

Look I mean this is this is night and day.

Yeah.

The team.

Of people that went through Gen. Two three there's days where at.

At the end of the day, we're sitting in our city you are sitting in an office talking and we'll say do you remember where we were at the same time with Gen. Two three and its just 90 day difference I mean like when you think about Gen. Two three at the end of the first week of commercial production our yields were in the 50%.

Range on a good on a good day for the first months as we were trying to perfect.

The infrared welding process. When you look at the stacked up and I think it is important they didn't talk about was you were doing 41 infrared wells, which we are doing this we're doing those 41 wells. It was the largest surface area that has been done as it as an infrared world and it was also the most continuous well so doing the size of.

The battery, we're doing for 41 wells no. One else is doing that but you don't get paid by doing technological marvels. So doing what we're doing now with one the cycle kind of being at four minutes Youre, probably talking about youre saving.

90, more than an hour and a half per battery as you go through and do this with a lot less material handling.

On the.

And then I think look I think we can actually get better from where we are as we go through and look and look at the scrap rates and the performance I think the thing that we've done is.

Our new manufacturing operations leader, He's got visual management boards hour by hour that the entire team is focused on what they have to do in each one of their stations.

Use the time here in the last three months to prepare ourselves to grow the company and its paying dividends here in the startup. So it is totally different than what we had on.

Gen. Two three now what I would say is we learned a lot on gen. Two three I think the biggest thing that we all need to remember right.

Gen. Two three from a manufacturing standpoint, and a product design standpoint, we learned a lot about sealing technology of sealing the battery and having as good itself is not having a cell to cell leakage of electorally going from one cell to the other so what we learned on that feeling allowed us to come up with the mechanical design.

On <unk> III and the same time getting gen. Two three containers out in the field and operating we learned a tremendous amount around software controls in managing and optimizing performance and Thats very importantly, we take up we spent a lot of time talking about the battery.

But what we really provide to the field as I said as a system and that system with the with the with the <unk> three is much more efficient our software and technology leader Panache rally with he and his team have done on the battery management system and how we've been able to introduce this and have it work.

Coming off of our prototype development is nothing short of amazing. So so we have a lot of work to do.

You don't know.

Theres still a known as youre going to have to we're going to have we're going to be challenged with as we move forward, but it's very exciting for us to think about where we started and how we did the development of this product and how and how it's really going and when you think about it Chris like we had our first production prototype battery if you will.

It was less than 12 months ago and to be in production 12 months later with the way. We're doing this with 300 people. That's why I say the team Amazes me and that's why I also say I am proud to work for this company.

Got it.

On the bottom cop.

So maybe.

Yes, maybe firstly.

More meaningful today versus kind of that post the three cost initiatives you called out here like what is the reduction you think.

And where does it stand today.

Really I think the picture hasn't changed from what we've said historically, which is this battery.

Or actually this entire system on a kilowatt hour basis was designed at half the cost of where we started with gen. Two three.

Got it.

Seven cost out initiatives that were focused on for this year two of which are completed.

When we say completed length in the case of the containers I mean, we've negotiated the contract.

Don't fully realize those savings coming through our P&L until I recall.

But so there's a lot of those types of things that are going to roll in overtime and then as Joe mentioned I mean this is a continuous improvement process, we will have significant efficiencies and get to full automation, but even after that we can change.

Improvements either supply chain design improvements et cetera going forward.

Specifics on the bond I mean, thats as much granularity as we can get into at this point, yes, I mean, I think it's fair to say that.

Youre starting point of the launches significantly lower than where we were at Gen. Two three just just on the form factor of the battery and the fact that we have no titanium.

Seven projects that Nathan is talking about that again at the core of what we do.

To build the battery so like Chris as.

As you look at the surface right. This is something else. Thanks. So a 300 person company going out building a pipeline of opportunities building building. This battery bring a factory online. The third piece of this is building an American supply chain.

So there is a tremendous cross selling opportunity here with us working with companies like Tetra intellectually and coming up with ways to optimize the formula to optimize the mixing and delivering of that to then look at what are we doing from the manufacturing of other components to really reduce the total supply chain costs both.

Material costs logistics costs, but going out and saying like here. We are a 300 person entity in an environment, where people say, Ken America, innovate and Ken American manufacturer and you know what I'd say I say, yeah, we can because 300 people are doing it.

Got it.

Maybe just kind of ship from store.

Focus on American made and all of that.

Everything in your kind of commercial activity.

But for the order backlog and you called out.

Scott.

See in the factory.

But can you give us a sense do you guys get a sense of what the current people on the current pipeline are waiting for the <unk>.

Order commitment.

Before moving forward.

What are customers, saying as far as kind of the.

The deal process.

Absolutely, Chris I mean, we've had a number.

Conversations anecdotally were theyre, saying exactly that right we want to we like the technology. We've seen if you've done a bunch of research, but we just want to make sure that you guys are well capitalized and youre going to be here to deliver the product and also be here to deliver on the long term service agreements on the backend and so I think capital is important.

I think just as important as we get <unk> III product out in the field and cycling and customers can go out and see it and test it and looked at the <unk>.

Data in there.

Successes I think thats very important and then the third piece that customers are mentioning is just additional clarity around.

Domestic content Irene credits.

Still a lot of discussion around that.

So we're talking to.

Those three as we get clarity on those three things, we should see a significant increase in <unk>.

<unk> moving through our commercial pipeline.

Chris.

I would add I mean, I think Nathan is kind of give you the.

The technical how we get their response the way I've always thought about this in my 30 year career is that when someone decides.

To place a purchase order with the company they are making a bet on you.

And when we're talking about these types of projects.

And I'm very passionate about the fact that we've got to start speeding up and doing things faster to meet the demand in this market, but youre looking at projects, where someone's, making a purchasing decision today and if they are lucky they are going to get their grid connection in two to three years, So theyre seeing theyre, making this decision and saying I'm, making my bet on this company and these people.

For something Thats going to happen two to three years from now so we need to do as Nathan said secure the financing.

Scale, the factory and show them that we're going to be there to deliver that project and yes, bringing them and showing them the manufacturing the product and how the product works helps but we've got to also show them that we're going to stand by the commitments that we make and we're going to deliver on those commitments as we move forward and that's as important as anything of having the.

Underlying financials, it's both things.

The being able to be there from a financing standpoint, and being able to be there from a reliable partner that delivers and we're doing both.

No that's really helpful. I'll hop in the queue. Thanks, guys. Thanks, Thanks, Chris.

Thank you. Our next question comes from Vincent Anderson with Stifel. Your line is open.

Yeah. Thanks, good morning, everyone.

So just maybe to get out of the way.

It sounds like you've completed everything that you needed to on your end of the loan process, which I believe would include the term sheet.

If that's the case to the 30 day clock start on the Treasury OMB approval process, that's still wait until the loan goes through this new call. It pre conditional commitment review.

Yes, good morning Vincent.

I would say, yes, we're definitely in that 30 day window.

Haven't been responding to some questions over the last couple of weeks.

They're getting fewer and further between the easier to answer.

So we've been working through which makes me deliver at the very final stages of answer. Your question. There are multiple approvals that have to occur in this process.

Yes.

Necessarily clear from the outside looking in what their processes, but we do believe and we've been informed we are in the very final stages of that so.

We are hopeful that by Labor day, we've got some great news to talk about.

Sorry, we can't control.

The exact timing of it.

Okay.

It's helpful.

And then actually Nathan Thanks for the deep dive on the pipeline I was actually hoping we could go back to like a 10000 foot view of the industry really quick so.

Far as your customers go you have companies like Blue chip utility companies that are going to be self funding. These projects, but you have a very different structure and a lot of the renewables market in terms of both the structure and the financing. So I was hoping maybe you could just kind of talk about how those projects would compare to something like a large scale utility customer.

And then just kind of ancillary to that you hinted a cup.

A couple of times that the interconnect they.

They might not want to call them delays, but they feel like delays to me is that having any impact on the pace of leads moving through the pipeline or the funding of those projects.

Yes Vincent.

I'll take some of these amazing in fill and so on the on the last part of your question look the news that came out about the new FERC process is great news for the industry rate and we've got to get <unk>.

Projects through the pipeline of projects and projects onto the grid performing like you look at Texas. It looks like in the last week, it's almost like every other day they set a record output for their grid, California going into high like I said earlier going into a very hot time.

At a time period here and straining on their on their reserve margins. So we need these projects we need to move we need to move quickly here to make this happen to make to make the new energy future reality right.

That process of getting through it slows down the project in the sense of Youre not breaking ground on the project youre, not installing assets and you're not charging and discharging on the grid, while you're waiting for approval. So we got to find a way to be factor is that in the we is the entire industry, including policy and government approvals and state approvals that need to happen to.

To get the projects through.

On your question.

Blue chip customers, what we see more and more of those coming in and putting us through our paces and working through the pipeline and being and bolt.

Some of the backlog confidential customers that Nathan talked about and also in our LOI pipeline, but on the other part of this market.

Look.

You could spend your time, and just look at Google or or read.

Any of the any of the trade magazines to see the number of developers out there coming up with storage projects in the way. These projects work are in general Youre doing project development that youre going out and saying, Here's where I wanted to my project I'm going to spend some money to do development to get permitting and get things online then once I get all that done I'm going to out and finance my project with either.

That our equity so you're making a partnership with people that have to go out and work through that process and then get through the permitting and then do their project. When we were flattening company. Those are the types of people that wanted we had entrepreneurs who saw an opportunity a great American story by the way I see an opportunity to have an idea let's do this together.

And those guys have come back and we've developed and work through this and are now getting ready to install assets. So you've got to work through that process side by side, It's a bumpy road, but its a bumpy road when youre at Eos and it was a bumpy road when I was at GE like where you have got to work through these like you look at the Big players. That's why there was at the time.

A G energy financial services, where Theres, a Siemens financial services, because people know that to accelerate some of these projects you guys are helping get them through their financing to get them online we do that more on the technology side, and then try to bring in people that we know from our backgrounds, whether that be nathan's background in the industry my background in the industry we've got.

Jeff Bornstein on our board, who would who was the CFO of GE and the CFO of GE capital that we have all these contacts and we're trying to put together the deal to take these LOI to these opportunities turn them into backlog and backlog is not a guarantee of SaaS backlog. Just means we believe we have a project that's firm enough that we're going to start doing <unk>.

Patsy planning around it then you got to translate that into revenue and Thats, where the real hard work starts, but you've got to be a partner all the way through it goes back to where I started before.

This is a question where somebody is giving you an order. They are taken they are betting their career on your ability to deliver and you got to put 100% in to deliver that project and we're going to do that any of us.

That's very helpful. I appreciate it I think that's all from me. Thank you. Thanks, Thanks guys.

Thank you there are no further questions I'd like to turn the call back over to Joe Mr. Angelo for closing remarks.

Thank you and thanks, everyone for listening today.

Exciting time, a lot of work going on but extremely extremely energizing energizing and I say that as a as a as with a dual meaning of what happens everyday whether that be in Edison, our internal kreger out in the field, but also <unk>.

Exciting to think about the future of the company, where we have to build here and we're going to continue to be focused on the long term value creation for our shareholders by bringing a product to market that the market demands, making it as competitive as possible and helping to power the new energy future and were excited to be able to do that and again.

I'll end the call the same way I started on behalf of the 300 plus people that come in to work everyday to make this a great company. Thank you for your time today.

Thank you for your participation. This does conclude the program and you may now disconnect everyone have a great day.

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