Q3 2023 Eos Energy Enterprises Inc Earnings Call

Good day and thank you for standing by welcome to the E. S. Energy's third quarter 'twenty, two or three earnings conference call.

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I would now like to kind of conference over to your speaker today leaves Higley director of Investor Relations. Please go ahead.

Good morning, everyone and thank you for joining us for <unk> financial results and conference call for the third quarter 2023 on the call today, we have CEO, Joe Mr. Angelo and CFO Nathan Kroeker before we begin allow me to provide a disclaimer regarding forward looking statements this call, including the Q&A portion of the call.

<unk> may include forward looking statements, including but not limited to current expectation with respect to future results and outlook for our company as well as statements regarding our ability to secure final approval of a loan from the D. O V where our anticipated use of proceeds from any such loan all of which are subject to certain risks uncertainties and assumptions.

Should any of these risks materialize or should any of 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 SEC filings forward looking statements represent our bill.

Police 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 expect as required by law.

The conference call will be available for replay via webcast through the Investor Relations website at investors thought E. L E 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 over the call to E. S. CEO Joe Mr. Angelo.

Thanks, Liz and welcome everyone to our <unk> earnings call, it's great to be back here with everybody, let's just move to our first page, which is really a milestone page of our first <unk> being shipped out to their customers.

We announced this when it happened back in September but this to me really is the culmination of a lot of hard work not just internally to Eos, but also externally with our customers and our supply base is so much work that goes into this picture of being able to get parts qualified suppliers qualified parts of the fab.

III product off the lines I mean this is just a tremendous achievement. When you really think about the timeline that we've been operating on it we've been very deliberate about the speed at which we do this because the speed at which Youre manufacturing determines the speed at which you are spending capital and we're doing that per customer requirements and then also doing that.

And our learning curve to optimize the capital that we have on hand, we have seen when you go through and look at this and move to the next page is our pipeline continues to strengthen and we are building.

A credible path to strong orders growth that Nathan will walk through.

Here in a moment, but really what I like what I would like that the team has been doing as we're seeing more and more customers come with use cases that fit in with the technology and the company was founded 15 years ago. It was found that a four hour storage and what we're going to talk about today is how use cases are moving to longer duration as they become longer duration youre going to continue.

See this pipeline grow the booked orders grow in the backlog grow over time.

On the bottom we continue this discharge energy we're at one six gigawatts. This really shows that the technology performs there is a lot of hard work going into being able to do that in a lot of lessons learned both internally and with third parties, including.

Energy management system <unk> system suppliers.

Scope suppliers and the customers themselves. The same time when you look at our cash on hand, we ended the quarter with $58 million of cash on hand, again, what I would what I would say here is our capital strategy is not just the capital raise but also the capital that you spend and we're going to talk about both sides of that building into when we come into the December.

Talking about the strategic outlook and ultimately what is what is the company's path to profitability over time. So if we go to the following page as I said on the first page one of the key aspects of how you grow any company is the partnerships with the people that you work with.

We're building strong government support department of energy with the LPL conditional commitment that we announced at the beginning of September we were the first titled 2017, non lithium ion battery company and I think Thats a testament to the hard work that's been done in the labs at suppliers in the factories out of the field to really get a technology.

That the government saw as being eligible for a potential bone as we work through the closing conditions at the same time, we've been working in one of our core markets in California at the California Energy Commission that goes all the way back to 2014 and is now accelerating into many use cases, where that region that region of the country is looking for.

For longer duration flexible and safe energy storage technologies. These things don't happen overnight. When you really think about it. This has been a nine year journey to prove out the technology and grow into commercial scale, but we feel like we've got a technology that provides for the use cases that the market's demand.

And Nathan will also go through in a moment, what we're also doing seeing in ERCOT as that grows at the same time, our customer base is shifting and continues to grow as we get into more and more U S utility customers that picture that we had earlier as the first units going to Duke.

Look as a customer that we again, we've been working with Duke since the 2015 2016 timeframe and are now getting where we're putting disease III product out into a small commercial project, which I think we're all proud of and we will be able to prove out the flexibility and operability of disease three of the Z three technology. We also.

A project that we've talked about with a large U S utility that project will start shipping 47 megawatt hours to start shipping next year.

In the latter part of the first half of next year.

So have applied that customers also apply for grants that underlying these projects that we're executing with them as a very large conditional framework agreement, our offtake agreement, which will help us drive future growth as they look at longer duration energy storage, and we've announced an order and last quarter with Dominion energy again Dominion announcing when you look at this year.

Say 16 megawatt hours and the size of the of the of the market that we're in it seems relatively small but dominion was again another journey Nathan will talk about what that journey looks like it to be able to get 60 megawatt hours out in commercial operation on a commercial product project that leads you to be able to develop and execute on larger projects.

With these customers as you move forward, so really starting to put together pipeline growing building building and proving out the technology over time out in the field and then working with robust customers that at the same time, you're not going to scale into this growth without great suppliers and great partners to be able to bring the raw materials for the parts into the manufacturing.

Fracturing process, we're really happy and I'll give a quick update.

On the work that we're doing with acro on our automated line and how we're moving forward on our first state of the art manufacturing line and how that implementation is going but at the same time, we're really scaling up the supply chain of the company. When you really think about what we've been doing over the past couple of years is truly moving from what is an R&D supply chain on proof.

Concept to a supply chain with multiple suppliers and global scale at a cost position that allows us to develop and communicate in December our path to profitability. We are working on three core components resin supply and to make that resin supply.

The us based.

U S based U S sourced product electrolyte select related around the R&D team simplifying our formula and then finding a large scale large scale mixed or to be able to mix that the mix that <unk> at a cost position that allows us to scale and then grafted is felt which is a very complex supply chain and we're working this at multiple angles to be able.

To take this part which is one of our last parts of the battery Thats not U S sourced that over time develop a U S supply chain for this critical component to both increase our ability to grow and scale. The company do that with U S manufactured material at a cost point that will keep us competitive in the marketplace.

So if we then go through and talk about where we are.

And how we're positioning the company for long term really we're at the stage, where we're balancing multiple priorities, while continuing to meet key customer commitments first priority as always deliver for the customers and balanced your priorities around how you do that when you think about.

Where we are from a financing standpoint, where we are in order on orders growth in orders timing has been a little bit slower than what we forecasted therefore from a financing standpoint, we haven't seen deposits come in at the same rate that we originally forecasted but we've gotten through the <unk> process and are now working on the closing requirements from the Doe.

Which will allow us to scale the company at the same time that you're balancing these factors Youre then balancing the amount of working capital that you are bringing into the company. Therefore, the amount of product that goes out the door. So as we're launching the Z three product, we're looking at where the customer is in their project readiness.

We are in our product cost out timeline. So if you look at our timeline one of the decisions that we've made this quarter, which Jason will walk through in more detail as to focus on getting a key project delivered and are caught over the course of <unk> into the first six weeks of 2024 and then.

<unk> cut in lower cost products that everything we ship from the end of February beginning of March on ships at a lower cost rushing to ship things into the field that are not going to be utilized theyre not going to go online in its time period isn't smart for customers and isn't smart for iOS from the standpoint of the capital that it takes to build and put.

It's out in the field and while we're doing that this also allows leadership focus on delivery of the state of the art manufacturing lines. So we say state of the art manufacturing line I think many people just think about the equipment coming in from Wisconsin from Acro installing the line turning to light on and then you start ramping production while inside of that.

It's not just that manufacture ability of that line or that line itself. There is also developing a workforce we've been doing this over the course of the three plus years that we've been here and Turtle Creek, but really what we're doing now is we're changing the way that we build the product we've got to change the skill set of.

The employees that we have on the shop floor. So overloading production early on is going to detract from our ability to prepare the workforce for the for the new lines coming on and starting to operate so we wanted to be able to manage and continue to build and put product out in the field for critical projects, while training of the workforce for the new way, we are going to have to work on our new line.

<unk> Zeta is installed at the same time, our engineering R&D and manufacturing team is looking at every core process of how we build our product and finding ways to simplify that and improved yield and improved quality. The biggest thing that we've learned as we've gone through the semi automated lineup will talk about this it Nathan.

Also mentioned this in his section is that the number one driver of a defect on the semi automated line.

As operator is operator error, operator error meeting.

The way that we flow materials through the line and the manual operations that we have creates variability that goes away when the state of the art line comes in we've proven out that we can manufacturer.

Dialed in if you will the technology that we're using to build the batteries, but at the same time, we've got to look at that and say in most cases, a human versus a state of the art operation. The state of the art operation operates at higher quality as you do material movement in some of the some of the actual manufacturing processes.

So we want to make sure that we lower the scrap rates that we have by getting to the automated line faster and producing if you will less on the semi automated line to deliver for key customers at the same time I talked earlier about supply chain development and the partnerships that we're building in.

Inside of that are things like critical part qualification and wanting to make sure that the parts that hit the factory floor.

<unk>.

The specifications that we need and can go into production. So when you take these three factors put them together you really look at this and say given the capital that we have and the investments that we want to make in expanding the workforce. We've got to take the people that we have and really focus them on those projects that are <unk>.

Core and critical for the company getting a commercial project or a larger scale commercial projects installed in ERCOT delivering on the on the utility customers 47 megawatt hour project, while developing the new line and training the workforce of bring up suppliers. So we're trying to balance multiple priorities here to scale.

All of the company faster in the long term for profitable growth. So so rather than focus on individual quarterly metrics as we go into 'twenty LIBOR. We're looking at 2024 as a ramp year and we'll talk about this more in December, but we will ramp into production and ramp and will align and do that in a way.

Thats prudent and effectively use capital.

So, let's let's go into a little bit more detail on operational scale.

And building capacity for manufacturing so if we go to <unk>.

Page page eight we came up with a strategy that has three phases to it for how we wanted to scale manufacturing we wanted to first.

Developed discrete manufacturing operations second implement a semi automated line to really learn and see how material flows and understand our bottlenecks and then and there.

Then install and ramp up state of the art manufacturing capacity when we go through each one of these phases theres been lessons learned at each phase thats, making us better for what we're trying to do in the third phase, which is scale up manufacturing.

Discrete.

Operations. This was really moving from <unk>.

<unk> built prototype.

In our Edison facility that was tested and proven out to optimizing design and coming up with manufacturing processes that can scale.

Where we started on discrete automation, we've changed many of the core manufacturing technologies that we're using in that manufacturing line. So if you look at that picture under number one that's how we integrate the bipolar single piece stiffeners into the into the toddler into the frame that we use.

To build the battery, we changed that technology and what were they lower the surface technology, but lower cost technology that delivered higher quality and that's why we wanted to do that because if we would've gone in with a large automated lines from day. One you would have automated or out of technology that wasn't optimized wound up spending a lot of money and why.

The line that could produce the quality that you won but really what we did in this whole process was we took 50% of the parts out of the design, we found 25% savings on the injection molded parts and we truly mitigated our automation of risk because we really understood how parts flow from the raw materials that come in from suppliers to a bad.

Are you going into an enclosure in an enclosure going out in the field on the semi automated line.

The beauty of the way that we're running the semi automated line as you can stand in our factory and look across the line and you could see bottlenecks.

<unk> not just the material, but also where people are gathering and when you look and you see these things should go and try to figure out what's happening why do we have more people at this operation or why are we seeing material buildup at this station on the line and then you go in and run a lean work out and go through your lean processes and take cycle time out when.

You look at what the team has done here we've taken the initial cycle time down from nine minutes when we started.

We thought we had a theoretical cycle time of around 5% to $4 five minutes. The team is now running at three minutes to two five minutes of cycle time, all that happens because you can easily move things around the one thing that happens when you when you implemented an automated light as you lose the flexibility to move equipment around and change material flow.

This allowed us to do that it also allowed us to bring acro on site with us our supplier for the art for the state of the airline to watch everything what's happened, giving us give us feedback on the discrete processes and the way that we're moving but then take that learning and incorporated into how we want to implement the automated line.

We were able and are able as I said earlier, our number one our number one.

Driver of scrap as manual operations over time, we've been able to drive that number down below 5%. It moves around a lot because again, it's highly variable with the people that you have on the line.

And from where we were talking about shipping cubes in September our output off the line has gone up 555 times in the month of October. So we continue to learn and grow and execute on the on the state of the art manufacturing line. Let me just move quickly to page nine.

So we're in the midst of executing on the state of the art manufacturing line at the Acro facility in Wisconsin.

It's critical to note that Theres 30 discrete processes that make up our state of the art manufacturing line.

That may sound like a lot for some people, but from the standpoint of what we're trying to do from product manufacturing it is relatively simple.

But it requires a lot of precision and make sure that you get quality off the line and achieved the output goals that we have as a company. So we're being very thoughtful about how we work through this right now.

We're in the phase of working towards factory acceptance of the line in the Acro facility. So we are assembling these lines in the pictures that you see out of.

The bottom or the actual iOS equipment being installed and we're starting to work individual stations and how you pick and manufacturing equipment to then work through to get to the point, where the line runs and we get a factory acceptance test and then the line comes to Turtle Creek, where we install it and then run a site acceptance testing and start manufacturing.

Question from always would be why not just do the factory acceptance test right and Turtle Creek and skip the step of installing the line in Wisconsin.

Looked at that and we continue to analyze ways to accelerate the schedule, but the thought process behind what we're doing right now is to have access to the full range of technical expertise that macro has by doing that on their site, they're experts walk out of their offices and go and look at fixed and can react quickly to challenges were up.

Dating and live versus if we were to do it internal creek you'd lose travel time and it will cost more from the standpoint of the of the travel and living to get the people to come in and work on the line. So we feel like this is a faster long term lower cost way of bringing the line up into production over time now Nathan talk what Nathan will talk.

About how.

The size of the line is a little bit lower than the line then the subsequent lines that we'll be able to execute on and that's just our way of ramping into the growth over time. The good news is that as we look at this right now we continue to seek ways to both.

Accelerate the schedule and reduce the capital spend but we're looking at where we are right now in the performance that we're seeing the semi automated line and why it was so important to be able to do that semi automated lines that we believe that it will require less working capital to bring the line up and running therefore, the original cost projections there should be some <unk>.

<unk> in that number over time as we work through the process feel really strongly about the partnership that we have with acro and the way that we've been working together and the progress that we're seeing and the work that's been done over the past 12 to 18 months that bringing the <unk> product to a product that can be produced at scale.

Really it's starting to show the promise here as we start working through this in a lot of the hard work behind the scenes things that you don't see we'll start paying dividends as we bring that line on.

<unk> into production in 2024 with that I'll turn the discussion over to Nathan to walk us through a couple of core topics here in the.

Q3 financial results, Thanks for listening and look forward to Q&A.

Thanks, Joe and good morning, everyone. As many of you already know on August 31, we announced that we had received a $399 million conditional commitment for a loan guarantee from the department of energy since that announcement, we have been working through the steps required to get to loan closing and ensuring that all necessary conditions are met.

Today, we want to spend a little bit of time discussing the Doa conditional commitment in the context of project amaze.

Correct Amaze or project American made zinc energy is a $500 million expansion program with an initiative to scale production of our Z <unk> storage systems to eight gigawatt hours of storage annually by 2026. This doughy guaranteed loan would fund 80% of eligible project costs, which is.

The maximum amount available per the statute.

Drawdowns on the loan would be based on reimbursement of Capex and opex eligible costs incurred overtime as we build and scale up our capacity.

Given how we've been progressing on line one we believe overall capital costs may come in below our initial expectations.

Furthermore, the recent performance metrics, we're seeing on the semi automated line suggest that less material will be required to dial in the new line than originally anticipated as.

As we have been running the semi automated line, we're seeing yield rates that indicate initial yields on the automated line could be much higher than originally modeled.

Resulting in lower startup and shakedown costs.

While the scope of the project remains the same we believe the overall project has the potential to cost us less than initially forecasted.

The conditional commitment is structured as a senior secured financing and carries an attractive cost of capital for a company like Es. The interest rate is a small margin above U S treasury rates or a similar tenor and the credit subsidy is being covered by BOE appropriated funds.

As mentioned previously closing and funding of the loan is contingent upon meeting a number of conditions precedent and we expect this would occur sometime in the second quarter of next year.

While we are working through designing and building out the first state of the art line. We are also working through the capital plan required to get us to first events.

This conditional commitment was a critical milestone for the business and has the potential to further support our scaling of <unk> three as well as our broader growth plans.

As seen on the bottom of the page we have been in the year, we application process for well over two years, which included a thorough and rigorous due diligence process surrounding our technical market financial and legal standards and expectations at the same time, while all of that was going on we were simultaneously executing a transaction.

<unk> from our Gen. Two three product and implementing an entirely new manufacturing process as we work toward the launch of the three.

We're very proud of all of the hard work that the team has done to get us to this point and this commitment is a significant endorsement of both of the <unk> technology as well as the role that iOS will play in the broader energy storage and transmission landscape.

Now moving to page 12, I want to give a little bit more color on the expansion program and some of the questions that we've received.

The capacity expansion consists of four state of the art manufacturing lines that would be added over time as supported by customer demand financial and production forecasts as well as construction costs as Joe mentioned, we are currently building out the first line, which we expect to come online in the second quarter of 2024.

Additional lines to follow thereafter.

Each of the lines are capable and expected to produce over two gigawatt hours of storage annually when run at capacity, but we plan to run the first line at 125 gigawatt hours annually, which is less than the anticipated nameplate capacity until we implement sub assembly automation in the future.

I would like to point out that as with any industrial manufacturing process, there will be a natural ramp in production in the one to five gigawatt hours of capacity will not be online on day one.

As you see on this slide and is consistent with what we said last quarter. The cost of a line that should produce over two gigawatt hours annually is estimated to be between 40 and $50 million, but to get our initial lineup to 125 gigawatt hours, we expect to spend closer to $30 million with total.

Cost of a line consists of direct costs paid through our automation partner acro, but it also includes capex costs related to our injection mold and suppliers.

We believe the manufacturing processes capital efficient when comparing to other technologies in the marketplace and if you look at the bottom right hand side of the page. Once we begin to scale production, we expect a significant source of cash to be the production tax credits, which are expected to return up to 125% of the capital investment.

Within one year of full production.

Getting into the next few pages I want to focus on what we're seeing in the market and provide an update on our commercial pipeline and backlog.

We are seeing strong and growing interest in deploying energy storage for greater than four hours of capacity several regions of the United States specifically in the southeast in ERCOT are starting to see a shift to winter net peaks.

So really understand what is going on here or do you need to understand the fundamentals and the human behavior that is causing this shift let's take a look at aircraft. For example in the Summertime system peak load has historically been driven by air conditioning during the hottest hours in the late afternoon.

Two to four hour peaks in electricity demand and late afternoon are often referred to as the Super peak in wholesale power markets. This Super peak corresponds with maximum solar output. So the summer peak net of increase in solar generation has not kept pace with the overall increase in electricity usage.

During other times of the year.

Winter peaks on the other hand, our at night and tend to be longer I E. Eight to 10 hours with small double peaks at the start.

Overnight period as people warm up the house before going to bed and again, when they get up and get ready for the day.

These winter net peaks are driven by population growth poorly insulated homes at a relatively inefficient electric heating along with decommissioned legacy baseload generation being replaced with more intermittent renewable resources.

<unk> electric heating increases at night winter peaks do not coincide with solar generation and so the increase of solar in the overall generation stack has the effect of shifting the net peak from summer to winter.

So what does all of this mean for iOS to keep it simple two to four hour duration storage may address the summer Super peak can help a little with the small winter double peaks, but as these macro trends continue in the market, we expect to see a growing demand for longer duration say, 8% to 10 hour storage solutions through <unk>.

Dress the longer overnight winter net peaks.

We believe <unk> has a competitive advantage as this trend continues as our systems were uniquely designed with the flexibility to operate as low as three hours and up to 12 hours in duration.

Furthermore, our energy storage systems get more efficient as we move beyond four hours effectively getting more energy from the same energy cube. So our footprint in Capex goes down as duration increases, giving us a growing competitive advantage as solar penetration increases in these markets.

Okay.

Flipping to page 15, we've talked previously about how our pipeline and backlog as a portfolio of different customers and projects.

Before getting into our commercial pipeline update I wanted to provide a little more color on this portfolio effect by looking at how some of our typical customers tend to operate in the industry. This page highlights two indicative customer types.

You will find is that every customer can behave a little bit differently.

The portfolio of projects and customers in our pipeline is comprised of a mix of utilities.

Developers and industrial customers today, I'm going to focus on what we generally see with independent developers and utility backed projects and how they fit in with our order book.

Taking a look at independent developers depicted here on the left side of the page you should think of the project lifecycle in three key areas project development, where a project has identified technology is selected and permits are obtained project.

Execution, where the project will be constructed and built out and then project operations, where some of them will come in and operate the project at each stage of this process new investors may come in or the entire project can be sold off to an independent investor or an investment fund.

The final project once fully operational could be owned by the developer and independent investor or the end user.

You may recall, we highlighted IEP last quarter AEP has two projects in our backlog and it is a good example of an independent developer. We are currently shipping energy cubes to the Orchard project in Texas, and which IEP was the developer who found the land and obtained the permits but then sold the equity interest in the project to a large.

North American infrastructure fund, who is now well into the execution phase on this project.

This type of ownership changes common in the industry and many times developers hold the rights to the project and obtaining the permits but are out looking for financing to come in for project execution.

Independent developers may sign larger longer term master supply agreements with us to lock in the technology and the price for a predetermined amount of storage to assist them with building out their economic models as they seek financing for their projects.

A developer or owner may choose to keep the project merchant to take advantage of price arbitrage opportunities in the market or they may contract, some or all of the storage capacity to a third party off taker in order to lock in future cash flows and assistant securing project financing similar.

Similarly, ongoing operations and maintenance of the project once completed can be done by the owner or contracted out to a third party. As you can see there are a number of ways that a project may move through the development lifecycle when initiated by an independent developer now moving to utility back projects, which.

<unk> generally have different objectives and priorities.

The utility, it's often going to take longer to qualify a new technology.

There is an extensive due diligence period and it can take years from initial discussions to full scale order approvals as.

As Joe mentioned earlier, we are focused on delivering a few critical customer orders in early 2024.

One of these orders is a utility back project that is in the initial pilot phase as seen on the right hand side of the page.

This 47 megawatt hour pilot order is a critical one for us and allows us to showcase our technology to one of the largest U S utilities, which we expect to translate into significant future opportunities once it's fully commissioned and in operation.

In addition, we have been working with several different utilities over the last couple of years and we are seeing a lot more traction as many of these customers in the pipeline. We're in a holding pattern and are re engaging and in depth due diligence due to <unk> III coming operational and the recent conditional commitment from the IPO.

Now moving into our commercial pipeline and orders backlog.

I'm going to walk you through our classic pipeline page that Im sure. Many of you are familiar with.

This page is broken out into three key buckets lead generation.

Current pipeline and backlog.

We keep this stage in the same format every quarter. So you all can just focus on the numbers and which you will see both growing market demand and average sales prices increasing from prior quarter.

Starting on the left side of the page is lead generation, which at the end of the quarter was $13 billion rep.

Representing 44 gigawatt hours of storage up $2 $2 billion from the prior quarter.

As a reminder, we do not count lead generation and our current pipeline and generally there is a lot of churn in this bucket as things move in drop out or progress into our pipeline.

Now moving to the middle of the page, we get to our pipeline, which is now at $11 6 billion up $1 9 billion from the prior quarter.

Pipeline represents over 43 gigawatt hours with $10 billion in active proposals and $1 $5 billion in signed letters of intent.

During the quarter, we had one order moved from LOI into booked orders and shortly after the quarter ended we signed a one gigawatt hour letter of intent with a developer in Texas, which you can see represented in the parenthetical called eight gigawatt hours in LOI slash firm commitments here on the page.

As mentioned on previous calls.

An opportunity can progress into an order from any stage in the pipeline and while <unk> can be an important metric for us we look at the pipeline Holistically and as a portfolio of projects. In fact, some large utility names do not signed letters of intent and you will see their projects move directly from active proposal in tobacco.

Log upon receipt of a booked order.

We continue to see an improvement in the overall quality of our customer pipeline with the average price of new proposals in 2023 being up nearly 30% from 2022 and up over 40% from 2021.

With the continued movement to longer duration storage applications, we are seeing customers focus on the economic benefits combined with the safety aspects of the Eos <unk> systems relative to some of the other options in the market.

We are very encouraged by the trends that we're seeing in this regard.

Now moving to the far right.

The backlog stands at $539 million Rep.

Representing over two gigawatt hours as of September 30th.

During Q3, we booked two new orders, one with Dominion energy and then a small behind the meter project with a repeat customer.

We continue to see traction with utility names in our pipeline and this recent order is an important milestone as we have been working with Dominion for over three years to get to this point.

This order enables us to showcase our technology to a top tier utility and has also provided increased exposure to developers knowing that our systems are being selected by highly regarded utility names like Dominion.

Moving into our third quarter financial results.

To be proud about in the third quarter with receiving the dose conditional commitment in August than shipping the first <unk> customer cubes in September and being selected by Dominion for an important pilot project.

There's still a lot of work to be done and the focus of the business is on successful implementation of the state of the art manufacturing line and the path to profitability.

Revenue for the quarter was <unk> 7 million as we ship the first <unk> at the end of September.

Cost of goods sold for the quarter was $21 3 million of which $11 2 million is noncash related items.

Decrease of $28 8 million compared to $50.0 million in the third quarter of 2022, primarily driven by lower shipments and corresponding revenue recognition as we began to deliver our first <unk> customer systems <unk>.

Approximately 40% of Cogs was attributed to onetime noncash accounting reserve adjustments for project commissioning warranty and inventory valuations.

R&D investment was $3 2 million or 28% decrease compared to $4 $5 million over third quarter of 2022, driven by a reduction in outside services spend.

One zero million or 31% of total R&D was noncash stock compensation and depreciation.

While some may expect R&D costs to decline now that <unk> is in production, we expect R&D to stay relatively flat or even increase slightly over time as the R&D team continues to assist with the implementation of the state of the art automated line and is leading a number of product cost out initiatives, including increased system performance.

And the development of our homegrown battery management systems.

SG&A for the quarter was $13 1 million, including $3 7 million of noncash items, which is $1 6 million lower than $2014 $7 million in the third quarter of the prior year driven by decreases in outside consulting and professional fees SG.

SG&A is primarily made up of personnel costs as well as external expenses related to being a public company.

During the quarter approximately 34% of SG&A was personnel costs.

28% was noncash items, such as stock comp and depreciation.

24% was related to outside services, which includes accounting NPS supporting public company operations.

Net interest expense was $9 4 million for the quarter of which $3 7 million was cash and $5 7 million was noncash.

The resulting operating loss was $37 $8 million with a positive net income of $14 9 million.

Lastly, I will give you an update on where we are with our full year company objectives as mentioned earlier a lot to be proud about in the third quarter with both receiving the conditional commitment in late August and shipping. The first initial Z three customer cubes in late September but clarity on timing around our financing has affected over.

For all 2023 timing and original expectations that were set at the beginning of the year.

For a booked order target, we expect to come in below the previously announced outlook as we have stated we believe there are three things that customers are waiting on before committing to a booked order one certainty around our financing.

<unk> VIII cycling data from the field and three formal and final guidance from the IRS, 10% domestic content bonus credit.

Since receiving the DRA conditional commitment we have seen an increased level of engagement from customers and we are continuing to progress these conversations and customer diligence and expect to see an increase in booked orders as we move forward.

We understand that some of these opportunities are being pushed out to the right a bit due to various reasons, including timing of grants or securing other sources of project financing, but that should simply be a matter of timing as the interest and the demand for long duration storage is there.

Our pipeline remains healthy and we're confident that continued progress against the three items I mentioned earlier, we will continue to move these discussions forward.

Compared to the end of last quarter, we increased our opportunity pipeline by $1 9 billion.

And we continue to see the projects in our pipeline getting larger for longer discharge durations and oftentimes are coming from repeat customers.

We are very focused on streamlining the manufacturing process, producing batteries and delivering several critical projects in order to begin accumulating customer discharge data from the field.

While we are now shipping initial Z three orders timing on the corresponding retreat cycle data is dependent on customer installation and commissioning timelines.

And lastly for the IRA domestic content bonus credit, which should no longer be a matter of if iOS customers will qualify, but it's a matter of understanding the total cost savings and the impact to overall customer project economics.

And working through the domestic content review and the validation process with a third party. We believe we will far exceed the domestic content threshold for our customers, which could translate into expanded financial benefits for many of these projects.

Now moving on to revenue guidance, you may recall from our last earnings call that we expected revenue for 2023 to be back end weighted in Q4, we've previously shared that due to most of our revenue recognition occurring at the time of delivery as well as specific guidance in ASC 606.

There could be risks of revenue shifting to the right and into next year.

Our revenue recognition cadence vary depending on certain performance obligations unique to each contract.

As we have gained more visibility into the last quarter of the year. We made the strategic decision to focus on stabilizing the manufacturing line, partially delivering a key customer commitment and then reducing the Q4 production plan in anticipation of the cut in over a number of product cost out modifications in Q1, which.

Should result in lower unit costs.

This decision will result in some revenue being recognized in early 2024, rather than the fourth quarter.

As Joe discussed earlier, the primary purpose of the semi automated line was to optimize the manufacturing process, while delivering on critical customer commitments as.

As a result of balancing these priorities, we expect our 2023 revenue to come in below our previous $30 million to $50 million guidance.

I would like to highlight that this change in our production schedule should not negatively impact any customer commitments as they continue to work through permitting construction timelines and non iOS supply chain delays on critical components, such as Transformers and in burgers.

We will continue to be diligent and running a semi automated line as we build out the new state of the art line in order to ensure we are making the most capital efficient decisions for the business.

Lastly, one of our top initiatives continues to be taking cost out of the product and progressing on our path to profitability. We are on track and we expect to end the year above target as we have locked in cost out projects that will result in more than 15% cost reduction from the three launch these.

Projects include savings derived from design enhancements density improvements and procurement initiatives several of which are scheduled to cutover in February of 2024.

Before I wrap up and turn the call over for questions I want to spend a few minutes discussing our various financing options and how we are thinking about a comprehensive solution to our funding needs.

While we are very encouraged to have received conditional approval for the Doe loan. We expect the first reimbursements are eligible costs from the department of energy to occur in 2024 with that we will need to raise capital between now and then in order to continue to meet critical customer deliveries and fund ongoing business operations, including the build out of our firm.

<unk> state of the art manufacturing line in.

In addition, and as previously stated on the January call in September we expected to end the third quarter with a strong cash position and while financing is something that we continue to work on it wasn't something that needed to be done right away. We had several sources of capital available to us in the third quarter, but as you know we're experiencing a very.

Challenging capital market at the moment and the primary source that we've been using recently is the ATM, which we believe we have been utilizing very responsibly.

While it was not practical to have detailed discussions to address our longer term capital needs without knowing the details contained within the doj's conditional commitment now that we have the detailed doughy term sheet, we have been having much more substantive discussions to explore the various options available to us.

We are in detailed discussions with several different counterparties on potential capital solutions and we're pleased thus far with the nature of these conversations we look forward to updating the market as appropriate however, based on feedback from these discussions we believe that our capital needs will be met with a combination of debt and equity.

While we moved towards the broader capital solution, we will focus on balancing customer output managing our cash position and building out our state of the art manufacturing line with that I want to thank everybody for their time and for listening today and I'll turn the call over to the operator for questions. Operator. Please open the line for questions.

Alright, and as a reminder to ask a question. Please press star one one on your telephone and wait for your name to be announced to withdraw your question. Please press star one again.

Please time bylaw, we compile the Q&A roster.

For your first question comes from the line of Vincent Anderson from Stifel. Please go ahead.

Yes, thanks, good morning.

So this may seem a little too optimistic of a spin.

Curious if theres almost just a little bit too much demand relative to your near term capacity plans to get commitments to convert to orders and particularly if I'm like a small or medium sized projects and I'm worried about utility scale customer coming in and locking up a couple of years worth of your capacity and then maybe just more broadly speaking how are you managing.

These relationships between customers that can provide more immediate orders and deposit cash flows and still keeping those large scale customers happy by not committing too much of your initial capacity.

Hey, good morning.

Okay.

I wouldn't say optimistic it's realistic I mean I think that's.

The balancing act that we're doing to try to put together the pieces of the puzzle.

We do.

Capacity planning.

Projects given on when the customer says, they're going to go alive and the conversations that we're having with people as they look.

We want to have a mix. So you don't you can't run the company on just small projects nor do you want to run the company only on really big projects, because big projects are going to be lumpy and over time, if one doesn't happen and why is it.

As we start scaling so we're always going to have a mix between the two and part of what we're trying to do now is what are the best use cases that highlight.

Technology, what's the best.

Average selling price for us as we go down this road on our path to profitability and then.

As well if the demand comes once you get through getting the first line up and running which is the longest implementation because you're designing and debugging and putting in controls.

We can accelerate.

Bind to <unk> three lines for depending on depending on what happens that's the way we've always designed the company to do this in a modular fashion and bring on capacity as required but we are balancing between where we think we're going to be in managing that.

Yes.

Really production and capacity curve to make sure that we can deliver the last thing we want to do is make a lot of commitments and then not be able to deliver it when we've been able to do so far as we've gone through the past.

The past really 12 to 18 months is managing with customers on when they really need when they really need the product on site to be able to operate in delivering to those to those to that demand and that's a dynamic process. As you go through this of where they are in the overall execution of the project and where we are and our ability to deliver.

Okay, Alright, that's helpful. Thanks, and then just.

Following on that if you're willing to discuss a bit more specifically, which of the factors you listed on the new order guidance change maybe.

Which of those changed most meaningfully over the course of the third quarter that impacted your expectations on new orders for this year.

So.

What I would say that we're seeing as well.

A lot of opportunity coming through.

On the pipeline you like one of the Big things is and I think Nathan mentioned this.

Okay Fabulous pages of the amount of new opportunities that are in the pipeline, we're actually getting into the pipeline or the or the discussion with customers earlier in the process. So you've got to work through a bunch of different factors from a permitting side from a financing side, but when you really look at this tool.

Timing right I mean, this is really working through on timing and delivery and then going back Vincent.

Really referencing back to your earlier question, it's than US telling people look at if you want to deliver by this date, here's the capacity, we have and here's where we needed decision by and then working through to be able to do this but I think the overall.

Trend that we're seeing is longer duration storage.

People are having to work through getting their permitting and everything lined up to be able to do this wanting to do this with Eos technology.

He has five hours.

That five hour storage really favors our technology than the safety factor layering in on top of that and really being thoughtful as we work through these things with not just the direct customer, but also the end user the system operator in the local municipalities to get everything sighted.

And then.

Alright, Thanks al.

I'll pass it along and jump back in the queue. Thanks Nelson Alright.

Alright.

Thank you and your next question comes from the line of Martin Malloy from Johnson Rice <unk> Company. Martin. Your line is open. Please ask your question.

Thank you for taking my question and congratulation.

Relations on all the accomplishments you've had recently.

My first question was just how we should think about reimbursement under the <unk>.

Bo.

Loan program.

The first advance and maybe you could if you could talk about what would be covered in that it would it be.

Not just capex, but worker training R&D.

How should we be thinking about getting once you get to that first defense.

Sure Marty as Nathan good to hear from you.

So as we think about the reimbursement mechanism. That's built into this loan structure its reimbursement of eligible costs and eligible cost is a defined term you could go out and find it on the website, but essentially it's a combination of the capex associated with the with the line or lines.

Project related Opex and so if I hire somebody just to give a simple example, if I hire somebody to manage the acura relationship.

Opex, but it would be considered an eligible cost because it's directly related to the expansion program.

The manager who is out on the floor today, managing the semi automated line.

That's not an eligible cost so it's operating expenses directly related to the expansion program are considered eligible cost. The other one that's probably not quite as easy to understand as the as the ramp up in the shakedown costs. So when.

When we get the line up and running.

It's operating but its offer.

Scrap rates that are higher than normal those incremental scrap costs are considered eligible costs as well and we get to borrow against that so theres ongoing eligible costs. Even after the line is built that we're going to be able to submit for reimbursement as we get ramped up to full capacity.

<unk>.

Thank you for my follow up wanted to ask about slide 12.

The tax credits that you point out the PTC could you maybe talk about 40 section 45 tax credits and domestic content you mentioned, but.

Maybe talk some more about that and any sharing.

Mike you might do with the customers on those.

So really I mean tax credits following the two buckets as you alluded to you've got the production tax credit which is.

It's $45 35, plus 10 per kilowatt hour for any projects that are built and shipped after January one 2023.

We have been recording that since the first quarter of this year and it's pretty straightforward and I think we have enough guidance now to where we feel comfortable recording that and looking actually starting to look at opportunities to monetize those because there is enough clarity around that the second piece of it is the 10% electroactive materials piece.

Still working through trying to get formal guidance on that and exactly how we can calculate that on how we can quantify that so thats ongoing, but then flipping over to the customer side, which is what I think youre pointing to on the ITC.

Customers will get the 30% credit plus the 10% for being located in the correct zones and then the area that we're involved in is the domestic content bonus credit or 10% bonus credit.

And this is for this is not based on production dates. This is based on placed in service states and so we're actually working through with a few customers right now on quantifying those tax credits for projects that are being placed in service in 2023.

And working together with the third party gone through and understanding the.

The guidance and as we look through even on Gen. Two three we are far in excess of the domestic.

Okay.

Required for customers to get that bonus credit and so just like I said working together with individual customers on their specific project economics to see how does this play into their overall IRR and how much improvement do they get on it. So if gen. Two three as foreign excess of the thresholds, we're confident that's even better.

And I think it's a significant source of value with customers now that conversation shifts as you suggested to hey, how do we share in the revenue on this are sharing in the economic benefit of this right.

Sure Hi, domestic content percentage helps to push the entire project.

Above the threshold and it unlocks value on other components of the project that that another storage provider might not be able to unlock for our customer. There is a discussion there about how do we share in that economic benefit and once we have more clarity on that.

Cost of a large will be happy to talk about it in more detail, but those are the conversations that are ongoing today and the margin. The only thing I would add on top of what Nathan just said what he just described is a lot of work that has been done by the team on supply chain development. So.

Everybody talks about the line the line the line when you're going to get the line from macro but.

Having a line where there is no material youre not going to get product, having a line where theres no trained employees, we're not going to deliver product couple of key things that Nathan talks about and there is like we qualify today for the tax credit the move that we're making with our felt supply is not.

It's to get the product as close as we can to a 100% U S supply chain because that de risks the supply chain and <unk>.

Saved the company during Covid was the fact that we had such a high U S content, we're able to continue to do developing development on the product and manufacturing, but we're also doing and I want to clarify like as we think about the ramp and how this plays into the credits we're diversifying our supply base, so everything I talked about earlier.

The presentation that links in with how you get those credits how you scale the company and how you have material flowing and really upscaling. If you will are up or getting into higher volume suppliers to be able to deliver and having those higher volume suppliers b in the United States.

We have been dormant as it comes to manufacturing if you will as a country. When you look at what was happening. So it's not like you can just walk into a supplier and say, let's start doing this there is a journey.

So we are on a journey and working through that journey and that's one of the things. We're also focused on as we bring the new line into production.

Great. Thank you for the answer.

Thanks Martin.

Thank you. Andrew next question is comes from the line of Christopher <unk> from B Riley Christopher Your line is open. Please ask your question.

Hey, guys.

For taking my question.

So it sounds like we're going to keep production pretty low out of the semi automated lines to conserve cash, which makes a lot of sense, but through basically assume.

A similar run rate in <unk>.

<unk>.

Pretty minimal revenue $10 million kind of burn per month.

Just curious if there is we should expect any increases.

We start to build out and test the line.

From that time.

So Chris what I would say is when you look at the production in the month of October.

Five five times higher than what we're doing in September so the.

Mine has scaled up.

Our goal is around production just to be very clear, we want to get our project out and shipped and installed in ERCOT. That's an important project to show the use case of going back to winning orders in the market, having a scaled project that's installed and operating helps you win orders.

In the market. So that's what we're going to be focused on here over the next three.

Three months, if you will as we get it.

Two months like what Nathan talks about is we're cutting over into a lot of the cost out work that's been going on so building off of the comment that I made to Marty earlier, not only are we developing a domestic supply chain and developing and diversifying our supply base. We're also taking significant cost out of the product so cutting.

Trying to factoring when you know you have a bill of material coming that's going to cost less that's as good a capital management is anything you can do and that's what we're going to be able to do from there we shift the focus to delivering our 47 megawatt hour project to the large utility here in the United States, and then youre going to be ramping up the line and that's kind of the <unk>.

<unk> as you think about how you go through this where we will talk about in December is what all of that timing looks like and what that puts together as you start thinking about the roadmap to profitability for the company.

Got it okay. Thanks for clarifying.

The potential cushion was projected to come.

Fully automated line that makes more sense.

And then just a quick one.

Yes.

Just one other thing on that question right as we start flowing parts from suppliers in a controlled fashion. So that lets you get quality control over your over your material flow.

Have a workforce here that you start to train on the operations and get them up to speed and more importantly, when you want to scale and run an operation 24, seven you put your leadership team in place you, let them start running under controlled fashion, we're all learning and we're ramping into that but the important thing here is as you look at the schedule for this project in ERCOT.

We've tailored the.

Production and shipment of those to their schedule and also to allow us to manage our capital efficiently.

Okay. Thanks, and then just the remaining capex amount and timing on line. One I think you've previously talked about $40 million to $50 million of Capex for that.

But slide nine just a chef.

$30 million.

Is that just coming in kind of under previous cost assumptions or was that prior 40% to 50, including some of that additional.

Hub Assembly automation.

And then just kind of where are we in that.

Capex for one.

So I'll just.

Youre on it I'll just clarify a couple of things we have previously said $40 million to $50 million to build a fully automated line that fully automated line.

Nameplate capacity of two gigawatt hours are higher.

So you are absolutely correct in those numbers.

He was the first automated line, we're assuming that it has an output of one to five gigawatt hours.

Assuming that we don't have full automation of the sub assemblies on day, one and so as we look at the Capex associated with that.

Get into one watt hours of production that's around $30 million.

So less than what it will be on subsequent lines and part of that is we don't have the same amount of costs associated with the sub automated sub assemblies.

So it's a lower cost, but also lower output.

At a later date, we could go in and add some of that automation and get the capacity of that line up above two gigawatt hours as well, but we can do that as a separate stage in the process.

Okay, and where are we in that $30 million.

The second part of your question is.

$30 million, where are we at first of all its two primary.

And our nation.

<unk> and systems that acro is working on and the second large bucket of cost and there is all of the tooling that's associated with with the new parts and the new the new line.

We are approximately 40% of the way through paying for the line.

Okay, Perfect and then maybe just last one here on the current pipeline can you give us a sense of the mix overall from a.

Percent of kind of.

Gigawatt hours between utility.

Smaller customers ICP like just what is the overall mix look like it seems like it's shifting more towards.

Kind of the Blue chip utility type customers, but I wanted to get a sense.

Where are we in that.

Shift just given the size of some of those potential customers.

Yes, no we talked a lot today about some of these blue chip names in the portfolio the utilities versus the independent.

We want a diversified portfolio of projects both both in terms of.

Utility back versus independent developer, we also want our portfolio in terms of large projects and small projects front of the meter behind the meter I would say, we're very comfortable with the portfolio of projects that we have and we're going to continue to manage it as a portfolio.

Okay I appreciate that thanks.

Thank you.

One moment for your next question.

And for our next question comes from the line of Joseph Osha from Guggenheim. Joseph Your line is open. Please ask your question.

Hi, Thanks, Good morning, everyone a couple of questions first.

As we think about meeting these.

Apio conditions precedent I know theres, a lot of them and it's complicated, but but could you characterize for me. What you think the real challenges are and what we should be focused on as you move through that process.

Listen Joe I don't think Theres anything there that we can accomplish.

They take different amounts of effort and different amounts of time, but we're moving forward on all fronts. Some of them have to do with real estate. Some have to do with capital requirements to get to first advanced some of them are things like permitting and so nothing there that we're seeing as well.

<unk> challenged we're just working through the process and Joe I think the big gating item is the first line.

Okay. Okay, I'm, just trying to understand as investors how.

How we should think about this other than tier one David press release drops is there.

Some where you have that you might be able to communicate with us.

Progress towards meeting those the Cps.

Number one thing like Joe said as the first line and so we will continue to give updates on where we are at.

So that was first line I think that's the most critical thing to be watching.

Okay.

And then next question sort of between now and then you're you're shipping product.

So more expensive product off of the semi automated line.

Is it the case that by the time you factor in what would it cost you to make that product, but then you've got the $45 sort of counterbalancing. It does.

Does that.

By the time, you put that all in the mix is this a positive gross margin proposition or not.

Sorry were you asking about a specific point in time, what was the first part of your question well between now between now and when the automated line comes out I'm trying to understand whether this revenue. We expect this revenue that you're generating between down debt, which is de minimis, but they're right by in particular by the time you were at 45.

<unk> credit is back.

Here more money coming in the door than going out that's my question.

I think we've I think we've been pretty consistent the last couple of quarters, and saying getting to full automation is critical for us to get to a positive gross margin.

Added scale that you have that fully automated line is a key component.

What I'm trying what I'm trying to say I'm, sorry, what I'm trying to understand is is that still the case, if you add the <unk> 45 ex growth.

Yes, yes.

Okay. Thank you and then last question.

And just buyback.

So more color on that Joe some of the cost out initiatives that we're working on dwarfs. The 45 ex credit so as we think about the path to profitability, it's really around.

Scale automation and driving cost out of the product.

Okay, and then do you have some plan obviously those credits are transferrable now.

Do you have some plans to go out and monetize those as they become available on the <unk> 45 back side.

Yes were in discussions with a couple of different counterparties to be able to monetize those as we earn them in 2024.

Okay. Thank you.

Thanks, Joe.

One moment for your next question.

And we have a follow up question from Vincent Anderson from Stifel. Your.

Your line is open.

Please ask your question.

Yeah. Thanks, So I just wanted to touch on a couple of the supply chain comments that you made earlier, Joe So I assume the Doe loan includes a budget for bringing some of this stuff in house like I think you mentioned electric rate.

Mixing and maybe injection molding as well, but the Westinghouse property permitted incited for either or both of those activities or those things that are going to be contemplated with future lines.

So we have multiple multiple pieces that we're looking at Vincent there is the ability to do it here on the current facility and Thats been our plan.

The permitting the require I mean, theres no additional permitting that we need that.

It's already contemplated so.

That's one of the things that we're also working through and more to come on more to come on that as we go through this up what is.

Not a from a permitting standpoint, but in the area what could be the best site from a logistics standpoint from trucking in and out of the facility. So there's multiple things we're looking at with our current landlord that makes the most sense for us to scale the company over the long term.

Okay, alright that makes sense.

Alright.

Rare did not have permitting issues.

Right.

The electrically mixing benefit I assume.

Maybe more about flexibility on the working capital side by being able to stock individuals' raw materials, then than it is maybe a big cost out or are there more cost savings and mixing them then maybe I'm appreciating here.

No.

Look I think the biggest thing is.

The formula of the electrolyte being simplified over time, one of the things that we've learned as we switched over to conductive plastics in the in the in the bipolar.

Is that.

You get better zinc cleaning and there are some things that we had in the <unk> without getting into the details that you don't really need when you have when you're not using titanium. So theres a lot of things you can get from a manufacturing stability standpoint, with using the conductive plastic versus using take the former titanium that allow us to simply collect.

Cost out from a mixing standpoint, theres going to be multiple theres multiple when you look at the scale of them and when we scale the company as orders come in you're going to need more than you're going to need more than one one company mixing the electrically just from and Youre going to want that from a supply chain security standpoint.

We're going through on what the right.

Say it with the right mix of mixing needs to be.

Sure yes, okay.

And then last quick one.

Injection molding, maybe it's fair to say is a little bit outside of the manufacturing expertise of the current workforce. So I'm just wondering about.

We're not seeing we're not in sourcing in injection molding.

This is about.

Diversifying the injection molders that we're using.

We're trying to do it.

We've worked with a lot of companies over a period of time and the people that stuck with us when we were when we were an R&D company.

Are they stay with US we believe in long term relationships, but at the same time as you scale. The company you need more than capacity of any one supplier and youre going to want more than one supplier to be able to do this sort of thing that we're doing on the injection molding and injection molded parts is not in sourcing that's not contemplated anywhere in our plan and not what our core comp.

Okay.

Understood that makes a lot more sense alright.

Alright, Thanks, guys great. Thanks Vincent.

Thank you answer your last question comes from the line of Thomas Curran from Seaport Research Partners. Your line is open. Please go ahead.

Good morning, guys, thanks for calling in and over time here and taking my questions.

Maybe could you just tell us how.

Much.

<unk> did you ship in September.

In megawatt hours and then.

For as long as Youll remain on semi automatic semi automated line.

Would be the maximum you would ship any given months just given Joe's comment about this.

Step up from September to October just trying to help us set expectations.

Tuned the modeling parameters here between now and when the Arco automated line is fully commissioned and up and running.

Yes, Tom So Joe did a pretty good job I think of walking through the priorities that we're balancing on this line.

We're ramping up the line. It serves multiple purposes. One is to help work out some of the details in the manufacture ability of the products. So that when we do get the state of the art line.

It meets or exceeds our expectations from day, one and so continuing to learn and make improvements off the semi automated line. The second one is to deliver on critical customer shipments. So we can get product in the field. So we can collect cycling data.

Obviously theres ERCOT in particular.

It might be in overtime and so we have several projects that we're trying to get delivered before you get into ERCOT summer and so really it's just working with customers balancing their delivery schedules with our production capacity and the necessary capital and so we will continue to balance those as we get towards the fully automated line.

Got it Okay and then.

Among the strategic partnerships Youre working on.

Do you expect to continue with or maybe.

Renegotiate the zinc bromide.

Supply agreement you have with Tetra.

Look we are in active negotiations throughout the supply chain Tetra, obviously, we've been pretty vocal about that relationship. It's a great partnership with Tetra.

And we're continuing to work through what that relationship looks like going forward.

Got it alright, guys Thats, all I had thanks.

Yes.

Alright, thanks, everybody for listening in and sticking with us here and as Tom said, a little bit of overtime a lot a lot a lot of things going on a lot of a lot of stitching together and want everyone to understand not just what the numbers are but the work going on underneath the numbers to get there we feel really confident on.

On where we are in the orders pipeline, we know that we have to convert those opportunities into into orders. There's a lot of work that goes on underneath that on the timing of when those orders come in.

To me in my view. This is a question of not if but when this is going to happen is Nathan wall.

So through the market is shifting to longer duration storage. So there is always going to be some timing some timing elements that we have to work through here, but feel really good about what we have in the pipeline and how to be able to do that and then as it relates to scaling up capacity. It's a complex. It's a complex is it.

Complex puzzle that we're putting together here, where we're building. The line is actually up one piece of if you will a couple of legs that we have to build out simultaneously, whilst continuing to deliver for our customers and the backlog and how and how we get product out in the field operating which is the big proof point people look for as they as they are making.

Purchasing decisions on future projects. So we'll keep we'll keep our heads down and keep working on building the company and we'll be back in December with a little more color around what the roadmap looks like to turn the company into a profitable company over time and what the factors are around that that could accelerate or slow down that but we feel really good.

Operationally about where the company is in the work that the team is doing and how we're building a company for the long term that is going to capture growth in one of the biggest secular shifts we've seen in the energy industry in my career. So thanks, everyone for the time today.

This concludes today's conference call. Thank you for participating you may now disconnect.

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