Q4 2023 Eos Energy Enterprises Inc Earnings Call

Unknown Executive: Good morning and welcome to the Eos Energy Enterprise fourth quarter and full year 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 a listen-only mode.

Good morning, and welcome to <unk>.

Enterprises fourth quarter and full year 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 a listen only mode a.

Unknown Executive: A brief question and answer session will follow the formal presentation. With that, I would like to turn the call over to Liz Higley, Director of Investor Relations. You may begin.

A brief question and answer session will follow the formal presentation with that I would like to turn the call over to Lynn <unk> director of Investor Relations.

Unknown Executive: Good morning, everyone, and thank you for joining us for EOS's financial results and conference call for the fourth quarter and full year 2023. On the call today, we have EOS CEO Joe Mastrangelo 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, may include forward-looking statements, including but not limited to current expectations with respect to future results and outlook for our company and statements regarding our ability to secure final approval of a loan from the Department of Energy LPO or our anticipated use of proceeds from any loan facility provided by the U.S. Department of Energy, which are subject Should any of these risks materialize or should our assumptions prove to be incorrect, our actual results may differ materially from our expectations or those implied by these forward-looking statements.

May begin.

Good morning, everyone and thank you for joining us for it yes, its financial results and conference call for the fourth quarter and full year of 2023 on the call today, we have CEO, Joe Mr. Angelo and CFO Nathan.

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 our current expectations with respect to future results and outlook for our company and statements regarding our ability to secure final approval of a loan from the department of Energy L. P.

Or are anticipated use of proceeds from any loan facility provided by the U S Department of energy, which are subject to certain risks uncertainties and assumptions should any of these risks materialize or should our assumptions prove to be incorrect. Our actual results may differ materially from our expectation or those implied by these forward looking statements.

Unknown Executive: The risks and uncertainties that forward-looking statements are subject to are described in our SEC filings. Forward-looking statements represent our beliefs and assumptions only as of the date such statements are made. We undertake no obligation to update any forward-looking statements made during this call to reflect events or circumstances after today or to reflect new information or the occurrence of unanticipated events, except as required by law. This conference call will be available for replay via webcast through EOS's Investor Relations website at investors.eose.com.

The risks and uncertainties that forward looking statements are subject to are described in our SEC filings forward looking statements represent our beliefs and assumptions only as 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.

<unk> or the occurrence of unanticipated events, except as required by law. This conference call will be available for replay via webcast or iOS. Its investor relations website at investors that OFC Dotcom, Joe and Nathan will walk you through the company highlights financial results and business priorities before we proceed to Q&A with that I'll now.

Joseph R. Mastrangelo: Joe and Nathan will walk you through the company highlights, financial results, and business priorities before we proceed to Q&A. With that, I'll now turn the call over to EOS CEO Joe Mastrangelo. Thanks, Liz, and welcome, everybody.

Turn the call over to <unk> CEO, Joe Mr. Angelo.

Thanks, Liz and welcome everybody great.

Joseph R. Mastrangelo: Great to have everyone on the call here this morning. Let's jump right to page three and go through some highlights from last year. First, I think the first place to start off is just the improvement that we've seen on gross margins as we've launched the Z3 product. Year over year, we see a 41% improvement. In the fourth quarter alone, when we really saw production of the Z3 ramp, we had a 66% gross margin improvement versus the prior year period. It just goes to show that all the things that we've been saying about the Z3 are starting to show up in the financials as we move forward and start putting product out into the field. And when you look at the year in and of itself, it was kind of a bookend year, where in Q1 was our last full quarter of Gen 2.3 production, and in Q4 was our first quarter of Z3 production. Those were our two highest quarters in revenue for the company.

Everyone on the call here. This morning, let's jump right to page three and go through some highlights from last year.

First I think the first please I'll start off with just the improvement that we've seen our gross margins as we've launched the E. Three products a year over year, we see a 41% improvement in the fourth quarter alone. When we really saw production of disease free ramp we have a 66% gross margin improvement versus the prior year period. It just goes to show all the things.

We've been saying about the Z three are starting to show themselves in the financials as we move forward and start putting products out to the field and when you look at the year in and of itself. It was kind of a bookend here where in Q1 was our last full quarter of Gen. Two three production and in Q4 was our first quarter of G. III.

Production those are our two highest quarters and revenue for the company I think when you look at how Nathan will talk about the year I think youre going to see some similar dynamics. When you look at 2024, just because as we do the transition to some cut some cost out and also the new state of the art manufacturing line I think you're going to see.

Joseph R. Mastrangelo: I think when you look at how Nathan will talk about the year, I think you're going to see some similar dynamics when you look at 2024, just because as we do the transition to some cost cuts and also the new state-of-the-art manufacturing line, I think you're going to see a similar quarterly profile as you move forward throughout the year. And I think what the Z3 is showing is the ability to generate revenue off of the semi-automated line, drive down costs, and improve gross margins just shows why we've been so positive about getting the Z3 out to customers. Also, I think one of the major accomplishments for the team was being the first non-lithium ion battery company to qualify for a Title 17 loan with the Department of Energy.

A similar quarterly profile as you move forward throughout the year and I think with the <unk>. Three is showing is the ability to generate revenue off of the semi automated line drive down cost and improve gross margins just show why we've been so positive about getting the <unk> Alpha customers also I think one of the major accomplishments for the team was b.

The first non lithium ion battery company to qualify for title 17 loan with the Department of Energy Nathan will talk about where we are in that process, but we continue to feel like we're on track.

Joseph R. Mastrangelo: Nathan will talk about where we are in that process, but we continue to feel like we're on track to closing that loan as we work through and get the first automated line up and running here in the second quarter of 2024. Also, we've designed and are developing that state-of-the-art line in Wisconsin with our automation partner, Acro Automation. We feel really good about how the line looks when you go to actually see it. I've been up there a couple of times to watch the work being done. It is a well-done line with great craftsmanship.

Closing that loan as we work through and get the first automated line up and running here in the second quarter of 2024 also we've designed and are developing that are lined up in up in Wisconsin with our with our automation partner Acro automation, we feel really good about what.

The line looks when you actually see it.

Up there a couple of times to watch the work being done it as it is a well done.

Wine with great craftsmanship, and it's actually pretty emotional when you start seeing the robots actually moving and you start to see the vision of how we wanted to build the G. III takes shape. So a lot in 2023 to be proud of and continue to have to work and close that gap on profitability and that's as we talked about back in December that's the main folk.

Joseph R. Mastrangelo: And it's actually pretty emotional when you start seeing the robots actually moving, and you start to see the vision of how we wanted to build the Z3 take shape. So, a lot in 2023 to be proud of. They continue to have to work and close that gap on profitability. And that's, as we talked about back in December, that's the main focus here as we look at 2024. If we go to page four, just some quick operating highlights, we continue to see growth in our opportunity pipeline up 77% at $13 billion. I think one of the biggest things in 2023, when you look at where we came in at, we came in lower than our order target. And I'll talk a little bit about the dynamics that we see within the pipeline and why we feel like we're building a stronger pipeline that's going to lead to order growth as the Z3 gets out in the field.

This year as we look at it at 2024, if we go to page four just some quick operating highlights.

Continue to see growth in our in our opportunity pipeline Youre up 77%.

$13 billion I think one of the biggest things in 2023, when you look at where we came in we came in lower than our order target and I'll talk a little bit about the dynamics that we see within the pipeline and why we feel like we're building a stronger pipeline that's going to lead to orders growth as disease III gets out in the field notwithstanding that.

Joseph R. Mastrangelo: Notwithstanding that, our backlog was still up 15% year over year, which in normal operating circumstances with that type of order growth, you'd be pretty proud of it. But looking at the opportunity, the secular shift in the industry, we know that line has to grow faster when the team is focused on bringing in opportunities and finding, as long-duration energy storage becomes more critical, those opportunities with key customers. And I'll also talk a little bit in the commercial section about planting those seeds for future growth. Our discharge energy is up at 1.8 gigawatt hours, 1.4 of those gigawatt hours out in the field.

Our backlog was still up 15% year over year, which in which in a normal a normal operating circumstances with that type of orders growth you'd be pretty proud of it but looking at the opportunity the secular shift in the industry. We know that line has to grow faster on the team is focused on bringing in the opportunities and finding as long duration energy storage will become some more.

A critical finding those opportunities with key customers and I'll also talk a little bit on the commercial section about planting those seeds for future growth.

Charge energy is up at one eight gigawatt hours one four of those gigawatt hours out in the field every cycle that we run as a learning for us It helps us make the software better it helps us understand how the customer derives revenue off of our product. It's the best laboratories actually out in the field not actually in our laboratory.

Joseph R. Mastrangelo: Every cycle that we run is a learning for us. It helps us make the software better. It helps us understand how the customer derives revenue from our product. The best laboratory is actually out in the field, not actually in a laboratory.

Joseph R. Mastrangelo: Revenue for 2023, Nathan will walk through the comparisons of this, $16.4 million down slightly versus the prior year. But again, executing the transition to the Z3 while working through the DOE loan, while timing all that with capital raises to effectively get the company through the year, is something that I think we feel proud of and feel like it's a foundation we can build off of here in 2024. Cash on hand, we landed with $69.5 million, not including $15 million in restricted cash, which we have for the loan that we have with Atlas. Again, the team is laser-focused on making every dollar count. You know, I've always said every employee has stock in the company, so every employee thinks and acts like an owner.

Avenue for 'twenty, three Nathan will walk through the comparisons of this $16 4 million.

Down slightly versus prior year, but again executing the transition to the E. Three while working through the Doe loan while timing all of that with capital raises to effectively get the company through the year is something that I think we feel proud of and feel like it's a foundation, we can build off of here in 2020.

For cash on hand, we landed with $69 5 million not including $15 million of restricted cash, which we have for the loan that we have with Atlas again. The team is laser focused on making every dollar count I've always said every employee stock in the company. So every employee thinks and acts like <unk>.

Joseph R. Mastrangelo: We are committed to being able to work through and really navigate through this part of going from truly a R&D company to a full-fledged profitable operating company as we approach year-end 2024. Now, let's move to page five. Just a quick update on Z3. I've talked a little bit about it. If we start off on the left-hand side of the page, on the commercial dynamics, we have 1.9 gigawatt hours, almost the same size as our backlog, what I would call late-stage opportunities. These are opportunities where customers are either getting approval, they're waiting for permits, they're waiting for grants from the Department of Energy that really make us feel good about the selection of the technology and the customers that we're working with.

We are committed to be able to work through and really navigate through this part of going from truly a R&D company into a full fledged profitable operating company as we approach year end 2024.

Move to page five just a quick update on the <unk> three I've talked a little bit about it if we start off on the left hand side of the page on the commercial dynamics.

One nine gigawatt hours almost the same size of our backlog what I would call late stage opportunities. These are opportunities where customers are either getting approval there waiting for permits there waiting for grant from the department of energy that really make us feel good about the selection of the technology and the customers that we're working with.

Joseph R. Mastrangelo: The focus here going forward is really converting this great pipeline number into a great orders backlog and orders number. On the semi-automated manufacturing line, we went from 10 minutes of cycle time at launch to three minutes. We hit about 3% scrap when you normalize for run rate. When you look at where we are as we get into Q1 and Q2, there's going to be a little bit lower utilization on the line versus what we saw in Q4, and that's basically about the transition to lower cost raw materials and starting to implement the line here in Turtle Creek. We achieved power on status in all motion systems in the line.

The focus here going forward is really converting this great pipeline number into into a great orders backlog and orders number semi automated manufacturing line. We went from 10 minutes of cycle time at launch the three minutes, we hit about 3% scrap when you normalize for run rate. When you look at where we are as we get into Q1.

Into Q2, there's going to be a little bit lower utilization on the line versus what we saw in Q4 and Thats basically about the transition to lower cost raw materials and starting to implement the line here.

Turtle Creek, we achieved power on status in all motion systems and the line. This was back in mid February with with the state of the art. One we're gearing up now for the FAA and Milwaukee at Acro, and the SAP coming up in Q2 and Turtle Creek, we feel really good about the plan that we laid out.

Joseph R. Mastrangelo: This was back in mid-February with the state-of-the-art line one. We're gearing up now for the SAT in Milwaukee at ACRO and the SAT coming up in Q2 in Turtle Creek. We feel really good about the plan that we laid out. Having the line in Milwaukee at ACRO allows us to leverage their technical expertise in real time and bring people on the floor to troubleshoot and work through the critical elements of debugging and finalizing mechanical completion. It's been a good partnership, and we feel really good about where we are right now. On our cost roadmap, I'll talk a little bit about this on the other side of the page, but we achieved 30% of the plan that we laid out on December 12th as far as taking out costs. We have additional cost-out benefits coming in in Q1 and then continuing as we go through 2024 to culminate in being contribution margin positive at the end of the year. We've shipped Z3 cubes to four customers.

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In Milwaukee or Acro allows us to leverage their technical expertise real time and bring people on the floor to troubleshoot and work through the critical elements of debugging and finalizing mechanical completion, it's been a good partnership and we feel really good about where we are right now on our cost roadmap I'll talk a little bit about this on the other side of the page we achieved.

30% of the plan that we laid out on December 12, as far as taking out costs, we see additional cost out benefits coming in in Q1, and then continuing as we go through 2024 to culminate in being contribution margin positive at the end of the year.

We've shipped G III cubes are for customers.

Joseph R. Mastrangelo: Many of those are going to be starting installation here as we speak now, and then the biggest thing from that is taking those installations, generating the field data to show what we're seeing in every factory acceptance test that we do and every test cycle that we run in Edison that the product performs and meets the specifications that are out there. Our container performance, you know, right now, we've always talked about, you know, depending on duration, you get different outputs from a container. And that's for every technology, not just ours. You know, if you do short duration right now, which is shipping in a 600 kilowatt hour container, if you do longer duration, it's 695 kilowatt hours, that will improve throughout the year to where we'll culminate in Q4 with an 800 kilowatt hour container with a lot of the work that the R&D and engineering teams are doing right now.

Many of those are going to be starting installation here. We're talking now and then the biggest thing from that is taking those installations generating the field data to show what we're seeing in every factory acceptance test that we do and every test cycle that we run in Edison that the product performs and meets the specifications that are out in the field are container performance right now.

We've always talked about.

Many on duration you get different output in a container that's for every technology not just our technology. If you do short duration right now with shipping is a 600 kilowatt hour container. If you do longer duration, it's 695 kilowatt hours that will improve throughout the year or two where we will culminate in Q4 with an 800.

<unk> kilowatt hour container with a lot of the work that the R&D and engineering teams are doing right. Now finally, a product certifications. We are you all 1973 approved and at the same time, we're NDAA compliant, which is very important when you look at the energy storage in the energy industry.

Joseph R. Mastrangelo: Finally, in product certifications, you know, we are UL 1973 approved. And at the same time, we're NDAA compliant, which is very important when you look at energy storage and the energy industry in general in the United States. I think it's important to note that our product is already compliant and puts aside not only do you get the non-flammability, the flexibility and performance, the recyclability, the safety factor, but you also get security around our product.

In general in the United States I think it's important to note that our product is already compliant and puts the side not only do you get the non flammability the flexibility and performance. The Recyclability. The safety factor you also get security around our product we are sourcing key components from here in the United States, although on a part basis.

Joseph R. Mastrangelo: You know, we are sourcing key components from here in the United States. Although, on a part basis, it may cost more, at the same time, it gives you the security of knowing that this product can be on the grid and de-risks the energy security that we're all worried about. If we go over to the right-hand side of the page, I want to start with the upper right.

It may cost more at the same time. It gives you the security of knowing that this product can be on the grid and de risks.

The energy security that we're all worried about if we go over to the right hand side of the page.

I want to start with the upper right.

Joseph R. Mastrangelo: This is an update on the cost-out walk that we laid out in our strategic outlook back in December. When you look at it at the beginning, you see we started off at 100. We're now down at 71 percent, so 30, 29, 30 percent cost-out of the product. A lot of that has to do with ramping up the line. It also has to do with material cost-out. The Z3 product is a simple product.

As an update of the cost out work that we laid out in our strategic outlook back in December when you look at the beginning you see like we started off at 100, and we're now down at 71%. So 30, 29%, 30% cost out of the product a lot of that has to do with ramping up the line.

Also has to do with the material cost out the <unk> product is a simple product, it's a simple product.

Joseph R. Mastrangelo: It's a simple product that really has a good bill of material cost position. We now need to continue to ramp that product. When you look at the biggest things, when you tell people we want to get down to Z3 at scale at 20 percent of what it was at launch, you have to consider how our factory works and where this comes in as far as what we need to do. I want to go down to the bottom of the page and talk about the Q4 2023 cost makeup. When you look at COGS, you start to take out that 11 percent of that COGS number was building spares for Gen 2.3, and another four percent was Z3 launch costs. These are the costs of tuning the line, running material through the line as we start to figure out how to balance it. It's not a normal run rate.

That really has a good bill of material cost position, we now need to continue to ramp that product. So when you look at like the biggest thing so like when you tell people, we want to get down to <unk> three X scale at 20% of what it was at launch you have to consider like how our factory works and where this comes in as far.

What we need to do and I want to go down to the bottom of the page and talk about the Q4 2023 cost.

So when you look at Cogs, you start to take out that 11% of that Cogs number was building spares for the Gen. Two <unk> three <unk>.

Another 4% was G. III launch cost. So these are the costs of tuning the line running materials through the line as we start to figure out how to balance not normal run rate now the good news around that 4%, it's lower than what we initially had planned for and one of the reasons why when we talk about the <unk> launch and the state of the art line.

Joseph R. Mastrangelo: The good news around that four percent is that it's lower than what we initially had planned for. One of the reasons why when we talk about the Z3 launch and the state-of-the-art line, we think the overall program cost will come in below budget because we were able to ramp up the semi-automated line, learn from that, and apply it to the state-of-the-art line. Then you have 25 percent of this is labor and overhead under absorption. So why do we say that?

We think the overall program cost will come in below budget, because we were able to ramp up the semi automated line learn from that and apply it to the state of the online then you have a 25% of this is labor and overhead under absorption. So why do we say that we'll think about our factory right. The factory that we're in.

Joseph R. Mastrangelo: Well, think about our factory, right? The factory that we're in, or the footprint that we have for manufacturing is, essentially, three locations of approximately 50,000 square feet. One of those locations does containerization, another of those locations houses the semi-automated line, and the third one was where the Gen 2.3 line was located and is where the state-of-the-art line will go into when we ship it from Acro into Eos. However, one-third of that line was basically idle as we went through. So when you think about how we're going to take cost out of the product going forward, it's truly getting better labor and overhead utilization on a per-unit basis as you ramp manufacturing. This is not an invention. This is not complex material science.

The footprint that we have for manufacturing is essentially.

Three locations of approximately 50000 square feet one of those locations does containerization another of those locations houses the semi automated line and the third one was where the Gen. Two three line was located in is where the state of the art line will go into when we when we.

Ship it from acro into Es that one third of that line was basically idle as we went through so when you think about how we're going to take cost out of the product going forward, it's truly getting fatter labor and overhead utilization on a per unit basis as you ramp.

Factoring this is not invention. This is not complex materials science. This is executing on our plan to deliver volume now what I feel really good about is as we're going through and looking at the cost out roadmap. This is going to continue it's not going to stop at this 20%.

Joseph R. Mastrangelo: This is executing on a plan to deliver volume. Now, what I feel really good about is as we're going through and looking at the cost out roadmap, this is going to continue. It's not going to stop at this 20% of the launch cost.

Joseph R. Mastrangelo: We are already starting to refresh the cost out pipeline and start looking at what that will look like beyond 2024. So in an early-stage product like the Z3, there's significant work that we can still do to continue to take cost out, but the initial... Progress and performance in the first quarter of really producing the product shows that the thesis that we had around what the product can do will hold now. It's a matter of scaling and getting the and utilizing our cost Profile to better take down unit costs and drive profitability into the organization. Transitioning over to the Commercial Opportunity Pipeline We saw a drop year-over-year in lead generation.

The launch costs, we're already starting to refresh the cost our pipeline and start looking to what that will look like beyond 2024. So in an early stage product like the <unk> III. There's significant work that we can still do to continue to take cost out but the initial.

Progress and performance in the first quarter are really producing the product shows that the thesis that we had around what the product can do will hold now it's a matter of scaling and getting the and utilizing our cost our cost profile to better take down unit costs and drive profitability into the organization.

Transitioning over to the commercial opportunity pipeline orders backlog, let's just go to the to the classic slide on page seven to talk about some of the dynamics that we're seeing.

We saw a drop year over year and lead generation.

Joseph R. Mastrangelo: What I'd like everyone to know is that I'm not concerned about that, just in the sense that we saw an increase in what I would call solid projects. So we have fewer people coming to us with ideas and more people coming to us with solid opportunities. So seeing that number go down is not concerning to me. And we always talked about there being breakage in each one of these buckets as you transition.

I would like everyone to know about it.

I'm not concerned about that just in the sense that we saw an increase in what I would call solid projects. So we have less people coming to us with ideas and more people coming to us with solid opportunities. So seeing that number go down is not concerning to me and we always talked about there being breakage of.

Each one of these buckets as you transition you are hoping to transition probably 30% of it to the next to the next bucket to come up with the numbers that you wanted that you want to have when you're operating in when you're operating at scale. We saw a significant increase in both the active proposals in the LOI firm commitments, we've got to really work on the LOI firm commitment.

Joseph R. Mastrangelo: You're hoping to transition probably 30% of it to the next bucket to come up with the numbers that you want to have when you're operating on scale. We saw a significant increase in both the active proposals and the LOI firm commitments. We've got to really work on that LOI firm commitment to transition those opportunities over into active backlog with down payments. The team is working on this. What I would say is no one is satisfied with the performance that we've had in delivering orders here as we went through last year.

To transition those opportunities over into active backlog with with down payments. The team is working on this what I would say is no. One is satisfied with the performance that we've had.

Our delivering orders here as we went through the last year.

Joseph R. Mastrangelo: What I do feel good about are the conversations that we're having with customers, where we're positioning the company to grow for the future, and how customers are really saying, "We like the Z3 product, we have a project, work with me to get through the closure of these projects to get the technology out in the field." And that's that 1.9 gigawatt hour that I talked about earlier. So this is an area where we're focused on it; we need to improve our performance; we will improve our performance over time, but I feel really good about the initial interest and how customers are approaching the Z3. And where they are doing that is laid out on page eight. You know, I want to talk about what I would say are the four main areas.

I do feel good about are the conversations that we're having with customers, where we're positioning the company ROE for the future and how customers are really saying, we like the <unk> product. We have a project worked through my work with me to get through closure of the of these projects to get the technology.

The field and Thats at one nine gigawatt hour that I talked about earlier. So this is an area where we're focused on it we need to improve our performance we will improve our performance over time, but feel really good about the initial interest in how customers are approaching the Z III and where they are doing that lays out on page eight I want to talk about.

What I would say are the four main areas.

Joseph R. Mastrangelo: I talked earlier in the U.S. about national security concerns, you know, shift to more domestic content; we're seeing longer-duration energy storage opportunities coming through, and we've also started to see interest from high energy consumption applications like data centers and how our product can match up with either wind or solar or on a standalone basis to help meet those energy needs. You know, when you look at the opportunity, look, the U.S. government banned the Defense Department from procuring batteries produced by four specific Chinese companies. You know, we sit here, and as I said earlier, that's where NDAA compliance comes in. And we also sit here and say to the market, here is an alternative that is invented in the U.S., manufactured in the U.S., using U.S. materials on U.S. manufacturing equipment. It meets that need and allays the concern around national security, as you think about our grid. Next one, you know, when you look at Italy, Italy recently got an incentive program approved to fund 9 gigawatts and 71 gigawatt hours of energy storage that will be implemented over the – out until 2030. You know, we're very excited.

Of growth I talked earlier in the U S. Around this national security concerns shift to more domestic content, we're seeing longer duration energy storage opportunities coming through and also starting to see interest from high energy consumption applications like data centers and how our product can match.

Up with either wind or solar or on a standalone basis to help meet those energy needs. When you look at the opportunity that the U S government banded defense department from procuring batteries produced by four specific Chinese companies, we sit here and as I said earlier, that's where NDAA compliance comes in and we also sit here and say.

To the market here is an alternative that is invented in the U S manufactured in the U S with U S materials on U S manufacturing equipment.

That need and lays the concern around national security as you think about our great next one when you look at Italy, Italy recently.

<unk> got an incentive program approved to fund nine Gigawatts 71 gigawatt hours of energy storage that will be implemented over the out until 2000 2030, we're very excited I mean recently shipped one.

Joseph R. Mastrangelo: I mean, we recently shipped one EOS Z3 tube to start use case testing with a core, with a key customer. You know, that's going to lay the foundation for when the auction happens, and we're starting to see this auction also call for 10% of that auction to be non-lithium ion technology. It doesn't stop at 10%, but it gives it a four, and that's why we're excited and focused to get that project up and running instantly, and then from there, look at how we expand going forward. Australia, another core market, as you see growth. When you look at their market size, it's very big.

Z <unk> to fiscally to start <unk>.

Case testing, where the court with a key customer that's going to lay the foundation for when the auction happens and we're starting to see this auction also call for 10% of that auction being non lithium ion.

Technology, It doesn't stop at 10%, but it gives it a floor. That's why we're excited and focused to get that project up and running especially and then from there look at how we expand going forward, Australia another core market.

<unk> growth when you look at their market size, it's very big.

Joseph R. Mastrangelo: Given the size of the company, we need to do this in partnership with someone. We're working with a couple of different companies down there. We're working to find an initial commercial pilot, and commercial pilot means multiple megawatts, multiple megawatt hours, like you've seen and have seen us talk about with companies like Dominion and Duke here in the United States, but to really be able to do that with a core, large, natural resource company to be able to figure out how we're going to grow in Australia and grow the right way in Australia because of the distances here. We The fourth one being India.

Given the size of the company need to do this in partnership with someone we're working with a couple of different companies down there.

We're working to find and initial commercial pilot and commercial pilot, meaning multiple megawatt multiple megawatt hours like <unk> seen in hadn't seen us talk about with companies like Dominion and Duke here in the United States, but to really be able to do that with a core large natural resource company to be able to figure out how we're going to grow in.

Australia and grow the right way in Australia because of the distance. This year, we have to do this right and be thoughtful about it but the great opportunity as we look forward the fourth one being India, India is targeting a 500 gigawatt hour renewable energy target by 2030.

Joseph R. Mastrangelo: You know, India is targeting a 500 gigawatt hour renewable energy target by 2030. The interesting thing about India is that they're coming up with and bidding on projects where they're talking about 24-hour renewables, so that becomes a mix of... solar, wind, and energy storage. What we're working on, with two large Indian corporations, is understanding how having an asset like the Z3 Cube in that 24-hour energy mix allows you to better balance when wind isn't there, better balance the solar demand, and come up with a more profitable project. It's initial work that we're going through, but we feel really good about where we're headed. We'll keep everyone updated on this. So when you really think about this, the US is where we're shipping the majority of our product.

Anything around India, as they're coming up in bidding projects, where they are talking about 24 hour renewables, so that becomes a mix of.

Solar wind and energy storage, we are working with with two large Indian corporations is understanding how having it in an asset like <unk> in that 24 hour energy mix allows you to better balance when windows isn't there a better balance of solar demand and come up with a more profitable projects.

If the initial work that we're going through but we feel really good about where we're headed and we will keep everyone updated on this so when you really think about this the U S is where we're shifting the majority of our products, we have a pilot going to Italy to position ourselves for long term out there, we're working with partners for Australia, and India to access those markets and as we move forward, we'll keep it.

Joseph R. Mastrangelo: We have a pilot going to Italy to position ourselves for the long term out there. We're working with partners in Australia and India to access those markets, and as we move forward, we'll keep everybody posted on the progress here, but we're seeing more and more opportunities where people are starting to see the benefits of having a flexible, safe, secure, and another really important thing that we never really talked about, we've been too quiet about, is the fact that the Z3 is also silent. You know, it doesn't make any noise because it doesn't have any HVAC systems.

Everybody posted on the progress on the progress here, but we're seeing more and more opportunities where people are starting to see having a flexible safe secure and another really thing that we never really talked about we have been too quiet about is the fact that <unk> is also silence.

It doesn't make any noise because it doesn't have any HVAC systems and that's also important when you think about signing these things in urban areas. No. One wants to have a lot of noise around it and our product actually doesn't make any noise. You know in fact, we had a customer once tell us we don't know when we're using your product because you don't consume any power and you don't make any noise. Those are strengths as you start thinking.

Joseph R. Mastrangelo: And that's also important when you think about citing these things in urban areas. No one wants to have a lot of noise around them, and our product actually doesn't make any noise. You know, in fact, we had a customer once tell us, "We don't know when we're using your product because you don't consume any power, and you don't make any noise." Those are strengths as you start thinking about how the market is gonna evolve in the future. Now let's look at the operational scale and building capacity for the company. Let's go to page 10 for an update on the state-of-the-art manufacturing line. We have a highly efficient capital model for building out capacity, and you're starting to see that more and more as we are building out our line compared to what you hear around lithium-ion manufacturing. We believe it's $30 million capex for 1 gigawatt-hour compared to $85 million for 1 gigawatt-hour of lithium-ion, knowing that we can become profitable at that 1 gigawatt-hour, whereas much larger factories are required to get the economy to scale to hit profitability with lithium-ion.

How the market is going to evolve in the future.

Now, let's look at operational scale and building capacity for the company, Let's go to page 10 for an update on the state of the art manufacturing lines.

We have a highly efficient capital model for building out capacity and Youre, starting to see that more and more as we are building out our line compared to what you hear around lithium ion manufacturer and we believe it's $30 million Capex for one gigawatt hour compared to $85 million from.

One gigawatt hour of lithium ion knowing that we can become profitable at that one gigawatt hour, whereas much larger factories are required to get the economies of scale.

To hit profitability with lithium ion currently we're on budget for the plan as I said there are some recent pictures from acro as the line is being tuned. It is one of those moments where you stand in your watch list. When you think about where the company has come from in the past five years and how this positions us for future growth.

Joseph R. Mastrangelo: Currently, we're on budget for the plan. As I said, there are some recent pictures from Acro as the line is being tuned. It is one of those moments where you stand and you watch this, and you think about where the company has come from in the past five years and how this positions us for future growth. Having a full line assembled on the Acro floor, seeing the power on, seeing the robots moving, seeing our raw materials move across the line, it just goes to show the opportunity that we have. Working with Acro, it actually helps me sleep well at night because they look at what we're trying to do, and they kind of give you a shrug of the shoulders and say, "We've been here before."

Having a full line assembled on the acro floor seeing the power on seeing the robot's moving so you're seeing our raw materials move across the line just it just goes to show the opportunity that we have in working with acro, it's actually.

It helps me sleep well at night, because they look at what we're trying to do and they kind of give you a shrug of the shoulders and say we've been here before this is what our expertise is we're going to build you a great product and so far that's what's been happening as you look at where we're headed we are doing the system integration. The final debugging of the line. The same time, we've also come up with.

Joseph R. Mastrangelo: This is what our expertise is. We're going to build you a great product, and so far, that's what's been happening. As you look at where we're headed, we are doing the system integration, the final debugging of the line. At the same time, we've also come up with this concept of A&B teams rotating in and out of ACRO on a bi-weekly basis.

This concept of.

AMB teams rotating in and out of escrow on a biweekly basis, what that means is that we have people going up to acro, helping to assemble the lines of the maintenance teams are there helping assemble a line and then we're also going to start sending operators up circuit trained on the line so that when it hits the floor and Turtle Creek, we're all familiar with it we know how this works well.

Joseph R. Mastrangelo: What that means is that we have people going up to ACRO helping to assemble the line, so the maintenance teams are there helping to assemble the line, and then we're also going to start sending operators up to start getting trained on the line so that when it hits the ground in Turtle Creek, we're all familiar with it, and we know how this works. We're currently on schedule for the installation and commissioning in Q2, and we'll keep everyone updated on the progress, but it really is something to see when you see it live. Going to page 11, you know, you know, look at the picture on the left. It really shows the simplicity of the product.

Currently on schedule for the installation and commissioning in Q2, and we will keep everyone updated on the progress but.

Really as something to see when you see it lives.

Going to go into page 11.

Look the picture on the on the left really shows the simplicity of the product we're now positioning that.

Joseph R. Mastrangelo: We're now positioning this product to take out the volatility around raw materials. You know, we signed a long-term agreement with both Tetra and Saabic. Tetra for our electrolytes, and Saabic for our conductive polymers.

This product to take out the volatility around raw materials, we signed a long term agreement with both Tetra and Sabic catcher for our electrolyte sabic for our conductive polymers. The same time, we're doing work to get Graphitize felt we what we've done in our supply chain as we move from China to Asia and now looking at.

Joseph R. Mastrangelo: At the same time, we're doing work to get graphitized felt, you know, what we've done in our supply chain is we moved from China to Asia and are now looking at balancing out Asia with a move into the US. We're starting to build this out. This is, you know, a somewhat complex supply chain when you look at it wing to wing. So it's where do you get your pan fiber from, how do you needle that pan fiber or actually turn it into felt, and then how do you graphitize that.

Balancing out Asia with a move into the U S. We're starting to build this out this is.

Somewhat.

Complex.

<unk> when you look at it wing to wing, so it's where do you get your pan fiber from having a needle that Pam fiber or actually turn it turn Pam fiber into felt and then how you're graphitize. That's the good news is is that we're finding U S. Based suppliers that are interested in working with us and we'll keep everyone updated on that but we really feel good about the work that we're doing there and the <unk>.

Joseph R. Mastrangelo: The good news is that we're finding US-based suppliers that are interested in working with us. We'll keep everyone updated on that, but we really feel good about the work that we're doing there and the cost position that it's driving for us as we move forward. And then just on the core of the plastic, you know, the tub and the lid for the battery, we buy 100% in the US from multiple suppliers, and we're expanding capacity and introducing redundancy to get protection around the market. But the goal here is to just drive that battery cost down. You know, for us, where comparison points get difficult is when people talk about lithium-ion cells being at a certain cost point, but we don't actually manufacture cells. We build modules. What you look at here are 20 cells that make up a module.

Cost position that is driving for us as we move forward and then just on core plastic tub and the lid for the battery, we buy 100% in the U S from multiple suppliers and we're expanding capacity in introducing redundancy to get protection around the market, but the goal here is to just drive that battery cost down.

For us we're comparison points get difficult is when <unk>.

People talk about lithium ion cells being at a certain cost points, we don't actually manufacture cells. We build modules. When you look at there is 20 cells that makeup of module and what we see as we look forward going back to that cost work I talked about earlier is a product that will be very competitive.

On a per unit basis as we move forward just as we continue to drive simplicity and focus and partner with large strategic companies to build our product.

You go to page 12, just a quick update.

Joseph R. Mastrangelo: And what we see as we look forward, going back to that cost walk I talked about earlier, is a product that will be very competitive on a per-unit basis as we move forward, just as we continue to drive simplicity and focus and partner with large strategic companies to build our product. If we go to page 12, just a quick update on two programs that were critical and part of the cutover that we're going to be doing here in the first quarter. On the left-hand side, if you look at the details there, what you see on the left-hand side is our old three bipolar, and the new one, basically, what you see is you see less white plastic and more black area. Having more black area means you have more surface area to generate energy from.

Really got two programs that were that were critical and.

And part of the cutover that we're going to be doing here in the first quarter on the left hand side. If you look at the details there what you see on the left hand side is our old three bipolar and the new one basically what you see is you see less white plastic more black area, having more black area means you have more surface area to generate energy.

<unk> out of that both takes cost out of the product and cruise performance and that's where we start talking about getting the fourth quarter and having an 800 kilowatt hour cube performance, that's where a lot of that performance comes from and at the same time when you look in the middle here, we've replaced titanium with a with conductive plastic.

That new piece, there is significantly less expensive to produce than the old one.

When you think about 65% lower and simplifies our manufacturing process and Thats, what drives up our performance to the $6 95, and then eventually to the 800 as we get here and as I talked about before we've hit 30% of our plan that we've laid out in 2012, we've got additional cost out.

Joseph R. Mastrangelo: That both takes cost out of the product and improves performance, and that's where we start talking about getting the fourth quarter and having an 800-kilowatt-hour cube performance. That's where a lot of that performance comes from. At the same time, when you look in the middle here, we've replaced titanium with conductive plastic. That new piece there is significantly less expensive to produce than the old one. When you think about it, it's 65 percent lower, and it simplifies our manufacturing process, and that's what drives up our performance to the 695 and then eventually to the 800 as we get to year end. As I talked about before, we've hit 30 percent of our plan that we laid out in 2012. We've got additional cost out improvements coming for late Q1 2024. We schedule and get the state-of-the-art line up and running in Q2, and then hit the energy density in Q4, and the company and the product are operating at scale. It's pretty exciting. When I look back on this, I know some people would say, "Why did you just go to Z3 in the beginning?"

<unk> coming for late Q1 2024.

Schedule and get to say they are in line up and running in Q2, and then hit the energy density in Q4, and the company and the product is operating at scale, it's pretty exciting and when I look back on this I know.

Some people would say why did you just go to the <unk> three and the beginning if we hadn't done the Gen. Two three we would have never learned valuable lessons on how to manufacture that led to the <unk> three I think we're looking at the Gen. Two three and the C. III there were a lot of unknowns around this concept of doing a tub insertion.

Assembly design and actually manufacturing the Gen. Two three we learned a lot that led to where the <unk> III now is and the fact that we were able to launch at the way that we did.

In Q4, so more to come as we move forward and we thank everybody for listening I'll turn it over to Nathan. Thank you.

Thanks, Joe and thanks, everyone for joining us. This morning, let me start with an update on cash. We ended 2023 was $69 $5 million in cash on the balance sheet and since year end, we have collected some customer deposits and milestone payments and we have current line of sight to collecting on three or four significant customer payments.

Joseph R. Mastrangelo: If we hadn't done the Gen 2.3, we would have never learned the valuable lessons on how to manufacture that led to the Z3. I think when we were looking at the Gen 2.3 and the Z3, there were a lot of unknowns around this concept of doing a tub insertion assembly design. Manufacturing the Gen 2.3, we learned a lot that led to where the Z3 now is and the fact that we were able to launch it the way that we did in Q4. More to come as we move forward. I want to thank everybody for listening. Now, I'll turn it over to Nathan. Thanks, Joe. And thanks, everyone, for joining us this morning.

In the next couple of months as we continue to work towards getting the first advance on the Doe loan. We are also in the process of finalizing negotiations with the expectation to monetize our 2023 production tax credits in the coming weeks and we also expect to monetize our 24 credits on a monthly or quarterly basis.

Going forward consistent with previously announced transactions in the market, we anticipate there to be a 5% to 10% discount on these credits upon monetization with the economics, improving as the size of the credits increases over time.

Nathan G. Kroeker: Let me start with an update on cash. We ended 2023 with $69.5 million in cash on the balance sheet. And since year-end, we have collected some customer deposits and milestone payments, and we have the current line of sight to collecting on three or four significant customer payments in the next couple of months, as we continue to work towards getting the first advance on the DOE loan. We are also in the process of finalizing negotiations with the expectation to monetize our 2023 production tax credits in the coming weeks, and we also expect to monetize our 24 credits on a monthly or quarterly basis going forward. Consistent with previously announced transactions in the market, we anticipate there to be a five to ten percent discount on these credits upon monetization, with the economics improving as the size of the credits increases over time.

Let's get to our financial results.

Turning to the next few slides I will walk through the fourth quarter and full year financial performance along with an outlook for 2020 for now for the fourth quarter revenue in the quarter was $6 6 million up 148% compared to revenue of $2 7 million in Q4 of 2022.

And up 866% compared to revenue of <unk> 7 million in Q3 of 'twenty three.

The year over year growth in revenue was a result of our transition from Gen. Two three to the Eos <unk>, while the sequential quarterly growth was driven by higher production volumes. After a semi automated manufacturing lines as we ramped up production we.

Nathan G. Kroeker: With that, let's get to our financial results. Turning to the next few slides, I will walk through the fourth quarter and full year financial performance along with an outlook for 2024. Now, for the fourth quarter, revenue in the quarter was $6.6 million, up 148% compared to revenue of $2.7 million in Q4 of 2022 and up 866% compared to revenue of $0.7 million in Q3 of 2023.

We shipped our first <unk> <unk> at the end of September to two different customers and we are in the process of delivering a much larger project in Orchard, Texas to a key customer owned by a large north American infrastructure fund, which is scheduled to be completed in the next few weeks.

Cost of goods sold for the quarter was $30 4 million.

A 1% decrease versus prior year, despite higher production volumes, resulting in a 66% gross margin improvement year over year, primarily attributable to better unit economics, obviously <unk> III.

Nathan G. Kroeker: Their year-over-year growth in revenue was a result of our transition from Gen 2.3 to the EOS Z3Q, while the sequential quarterly growth was driven by higher production volumes off the semi-automated manufacturing line as we ramped up production. We shipped our first EOS Z3 Cubes at the end of September to two different customers, and we are in the process of delivering a much larger project in Orchard, Texas, to a key customer owned by a large North American infrastructure fund, which is scheduled to be completed in the next few weeks. Cost of goods sold for the quarter was $30.4 million, a 1% decrease versus the prior year despite higher production volumes, resulting in a 66% gross margin improvement year over year primarily attributable to better unit economics of Z3.

During the quarter, we saw a decrease of approximately 30% in costs as a result of improved labor and overhead absorption. In addition to bill of material cost reductions.

These reductions were partially offset by increased scrap costs from process control changes.

Fourth quarter operating expenses were $18 5, million% to 10% decrease from the prior year period, primarily attributable to there being no write off of assets this quarter and partially offset by an increase in payroll related expenses, such as stock based compensation in the quarter.

So total operating expenses of $18 5 million included $4 1 million of noncash items, including stock based compensation depreciation and amortization, the resulting operating loss for the quarter was $42 2 million or $35 $8 million when you exclude noncash items such as.

Nathan G. Kroeker: During the quarter, we saw a decrease of approximately 30% in costs as a result of improved labor and overhead absorption in addition to bill of material cost reduction. These reductions were partially offset by increased scrap costs from process control changes. Fourth quarter operating expenses were $18.5 million, a 10% decrease from the prior year period, primarily attributable to there being no write-off of assets this quarter and partially offset by an increase in payroll-related expenses such as stock-based compensation. Total operating expenses of $18.5 million included $4.1 million of non-cash items, including stock-based compensation, depreciation, and amortization. The resulting operating loss for the quarter was $42.2 million, or $35.8 million when you exclude non-cash items, such as stock-based compensation, depreciation, and amortization, and a net loss of $41.2 million.

Stock based compensation depreciation and amortization.

And a net loss of $41 2 million. This compares to an operating loss of $48 6 million and a net loss of $56 6 million in the fourth quarter of 2022, Despite 2022, having lower production volumes. So as Joe highlighted earlier, you can see all of our hard work beginning to.

Hey off.

Now turning to slide 15 to review 2023 full year performance.

Revenue for the full year 2023 was $16 4 million a slight decrease compared to revenue of $17 9 million for full year 2022, as we concluded our gen. Two three production in the first half of 'twenty, three and stood up the Z three manufacturing processes in an effort to launch production at the.

Nathan G. Kroeker: This compares to an operating loss of $48.6 million and a net loss of $56.6 million in the fourth quarter of 2022, despite 2022 having lower production volumes. So, as Joe highlighted earlier, you can see all of our hard work beginning to pay off. Now turning to slide 15 to review the 2023 full year. Revenue for the full year 2023 was $16.4 million, a slight decrease compared to revenue of $17.9 million for the full year 2022, as we concluded our Gen 2.3 production in the first half of 2023 and stood up the Z3 manufacturing processes in an effort to launch production at the end of the third quarter. Cost of goods sold was $89.8 million, a $63.5 million decrease compared to the prior year, delivering an improvement of 41% in gross margins year over year, driven by lower input costs combined with improved Z3 manufacturability. During the year, we recognized $3.3 million in production tax credits, net of the anticipated monetization deficit.

The end of the third quarter.

Cost of goods sold was $89 8 million, a 63 5 million decrease compared to the prior year delivering an improvement of 41% in gross margins year over year, driven by lower input costs combined with improved Z three manufacture ability.

During the year, we recognized $3 $3 million in production tax credits net of the anticipated monetization discount.

We are now recognizing both the 45 X and the 10% electrode active material credits and we are working towards monetizing both for 'twenty, three and 'twenty four tax credits at a small discount as we discussed earlier.

We invested $18 $7 million in research and development in 2023 of which $2 3 million was related to noncash items, such as stock based compensation and depreciation and amortization.

<unk> was in line with what we discussed on December 12, and we believe this is a good run rate for R&D on a go forward basis.

We continue to invest in or Z, three battery technology optimize our BMS system and identified various initiatives to reduce battery and system costs.

SG&A for the year was $53 7 million.

Nathan G. Kroeker: We are now recognizing both the 45X and the 10% electrode active material credits. And we are working towards monetizing both the 23 and 24 tax credits at a small discount, as we discussed earlier. We invested $18.7 million in research and development in 2023, of which $2.3 million was related to non-cash items such as stock-based compensation, depreciation, and amortization. This was in line with what we discussed on December the 12th, and we believe this is a good run rate for R&D on a go-forward basis. We continue to invest in our Z3 battery technology, optimize our BMS system, and identify various initiatives to reduce battery and system costs. SG&A for the year was $53.7 million, a 12% decrease compared to $60.6 million in 2022, as we worked on tighter cost control and reducing outside services.

A 12% decrease compared to $60 6 million in 2022, as we worked on tighter cost control and reducing outside services full year SG&A included $12 3 million or approximately 23% of noncash items, including stock compensation depreciation and amortization.

Total operating expense for the year was $79 $5 million a.

A 7% decrease versus prior year of which $14 7 million or approximately 20% was noncash related and $7 2 million was related to asset write offs as we transitioned manufacturing disease III.

Full year operating loss was $152 9 million with a net loss of $229 5 million or $145 3 million, excluding noncash items, including the fair value treatment of our derivative liabilities noncash interest expense stock based.

<unk> depreciation and amortization, a 30% year over year improvement.

Nathan G. Kroeker: Full year SG&A included $12.3 million, or approximately 23% of non-cash items, including stock compensation, depreciation, and amortization. Total operating expense for the year was $79.5 million, a 7% decrease versus the prior year, of which $14.7 million, or approximately 20%, was non-cash related, and $7.2 million was related to asset write-offs as we transitioned manufacturing. Full-year operating loss was $152.9 million, with a net loss of $229.5 million, or $145.3 million, excluding non-cash items, including the fair value treatment of our derivative liabilities, non-cash interest expense, stock-based compensation, depreciation, and amortization, a 30% year-over-year improvement.

Now.

Moving to slide 16, I want to spend some time looking at our past production and what we should expect going forward as we get into the expected financial performance for 2024 as you can see on the left hand side of the page Q4 revenues increased 866% over Q4 of this year and 148% over Q.

Four of last year, as we significantly increased production volumes up or semi automated line.

As discussed earlier, we shipped our first <unk> at the end of September and then ramped up production in Q4, while still producing well below capacity on the semi automated manufacturing line.

While this resulted in us coming in below our initial 2023 revenue guidance. We made the decision to balanced factory output with critical customer commitments. We expect to continue making these trade offs as we prioritize working capital conservation ahead of securing our long term financing.

We continue to work alongside our customers to understand delivery timelines based on their site readiness and aligning these obligations with our cost out roadmap as a result, we currently expect production rates for the first half of the year to be similar or slightly above what we saw in Q4 of 2023.

Nathan G. Kroeker: Moving to slide 16, I want to spend some time looking at our past production and what we should expect going forward as we get into the expected financial performance for 2021. As you can see on the left-hand side of the page, Q4 revenues increased 866 percent over Q4 of this year and 148 percent over Q4 of last year as we significantly increased production volumes off the semi-automated line. As discussed earlier, we shipped our first Z3 cubes at the end of September and then ramped up production in Q4 while still producing well below capacity on the semi-automated manufacturing line. While this resulted in us coming in below our initial 2023 revenue guidance, we made the decision to balance factory output with critical customer commitments.

Before we conclude we want to initiate guidance for 2024 on both revenue and profitability.

Regarding our revenue estimates for 2024, we expect to be between 60 and $90 million based on our current production schedule and anticipated customer delivery schedules, which includes us running the semi automated line for the first part of the year and then transitioning to initial production of batteries on the new state of the art line before.

The end of the second quarter as we have discussed in the past we have a list of customer projects scheduled that supports this revenue plan and we are continuously working with customers to finalize their delivery dates based on their site readiness.

Nathan G. Kroeker: We expect to continue making these tradeoffs as we prioritize working capital conservation ahead of securing our long-term finance. We continue to work alongside our customers to understand delivery timelines based on their site readiness and align these obligations with our cost-out roadmap. As a result, we currently expect production rates for the first half of the year to be similar to or slightly above what we saw in Q4 of 2023. Before we conclude, we want to give guidance for 2024 on both revenue and profitability. Regarding our revenue estimates for 2024, we expect to be between $60 and $90 million based on our current production schedule and anticipated customer delivery schedules, which includes us running the semi-automated line for the first part of the year and then transitioning to initial production of batteries on the new state-of-the-art line before the end of the second quarter.

From a profitability perspective, we expect to achieve positive contribution margin in the fourth quarter.

Positive contribution margin is defined as revenue less direct labor and direct materials also taking into account the benefit of the production tax credits.

As discussed on December 12, and as Joe detailed earlier, we have a roadmap to reduce material and labor costs, while increasing energy density that is expected to result in an 80% reduction in overall product costs on a dollar per kilowatt hour basis from initial launch just scale.

Currently anticipated in early 2025.

In calendar 'twenty, four we expect to reduce costs by approximately 76% from initial commercial launch with further cost out to be achieved when we increase our capacity in the beginning of 2025. Once we achieve positive contribution margin, we intend to increase our production of significantly now that every incremental.

Nathan G. Kroeker: As we have discussed in the past, we have a list of customer projects scheduled that support this revenue plan, and we are continuously working with customers to finalize the delivery dates based on their site readiness. From a profitability perspective, we expect to achieve positive contribution margin in the fourth quarter. A positive contribution margin is defined as revenue less direct labor and direct materials, also taking into account the benefit of the production tax credit.

Unit that we produce helps to cover our fixed costs.

Since the <unk> launch in mid 'twenty, three we have achieved approximately 30% of the total expected cost reductions with additional initiatives to begin cutting in by the end of the first quarter.

Nathan G. Kroeker: As discussed on December the 12th and as Joe detailed earlier, we have a road map to reduce material and labor costs while increasing energy density that is expected to result in an 80% reduction in overall product costs on a dollar per kilowatt hour basis from initial launch to scale, although currently anticipated in early 2020. In calendar 24, we expect to reduce costs by approximately 76% from the initial commercial launch, with further cost savings to be achieved when we increase our capacity at the beginning of 2025. Once we achieve a positive contribution margin, we intend to increase our production significantly now that every incremental unit that we produce helps to cover our future. Since the Z3 launch in mid-23, we have achieved approximately 30% of the total expected cost reductions, with additional initiatives to begin cutting in by the end of the first quarter.

As we move into 'twenty four we expect to continue balancing key customer schedules with necessary workforce development product design enhancements and cost out upfront.

Until the critical point at which each individual battery module build contributes to our bottom line.

We believe this disciplined manufacturing approach will allow us to conserve capital as we work on closing the deal alone and lead to positive contribution margins in Q4 of this year.

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.

Thank you if you'd like to ask a question. Please press star one one if your question has been answered and you'd like to remove yourself from the queue. Please press star one again.

Nathan G. Kroeker: So, as we move into 24, we expect to continue balancing key customer schedules with necessary workforce development, product design enhancements, and cost out, up until the critical point at which each individual battery module we build contributes to our bottom line. We believe this disciplined manufacturing approach will allow us to conserve capital as we work on closing the DOE loan and lead to positive contribution margins in Q4 of this year.

Our first question comes from Christopher Souther with B Riley Your line is open.

Hey, guys.

Thanks for taking my questions and congrats on the continued progress here.

Maybe just the first one on the guidance.

$60 million to $90 million versus the.

I think you've called out like 75 to 100 million.

Had visibility on.

Nathan G. Kroeker: 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. Thank you. If you'd like to ask a question, please press star 1 1. If your question hasn't been answered and you'd like to remove yourself from the queue, please press star 1 1 again.

Between backlog and NOI back in September.

Is there.

A slight delta.

Or is this slight delta there.

Yes.

You're only including stuff that's only in the backlog for the guidance is there any timing shift down production or customer timing.

Unknown Executive: Our first question comes from Christopher Souther with B Raleigh. Your line is open. Hey guys.

Is it.

Joseph R. Mastrangelo: Thanks for taking my questions, and congrats on the continued progress here. Maybe just the first one on the guidance of $60 to $90 million versus the, I think you've called out, like, $75 to $100 million that you had visibility on between backlog and LOI back in September. Is there, you know, a slight delta, or, you know, is the slight delta just stuff that was, you know, you're only including stuff that's only in the backlog for guidance? Is there, you know, any timing shift on production or customer timing? Or, you know, is it conservatism on either production or customer timing? Just wanted to get a sense of, like, what's baked into the $60 to $90. Hey Chris, good morning.

Conservative conservatism on either production or customer timing just wanted to get a sense of like what's.

Baked into the 60 day 90 days.

Hey, Chris Good morning.

So look it's all of the above so there is a piece to this year, where we're looking at the pipeline of opportunities when customers need to execute on projects at the same time in the ramp of the line and coming up with a range of revenue that makes sense for us to be able to to be able to.

As we execute on ramping the lineup in the second half of this year, along with timing of customers and we'll keep everybody updated on how that evolves throughout the year.

Got it Okay, and then maybe just.

Yes, I appreciate all the detail around the cost out progress can you square the.

The two difference.

Nathan G. Kroeker: So look, it's all of the above. So there's a piece of this here where, you know, we're looking at the pipeline of opportunities when customers need to execute on projects at the same time, and the ramp of the line, and coming up with a range of revenue that makes sense for us to be able to handle as we execute on ramping the line up in the second half of this year, along with timing the customers, and we'll keep everybody updated on how that evolves throughout the I got it. Okay. And then maybe just, yeah, I appreciate all the details around the cost-out progress. Can you square the, you know, the two different slide five charts there between the 4Q23 COGS and the breakdown with the cost-out reduction?

Slide five.

Chart, there between the <unk> 23, Cogs and the breakdown with the costs that reduction should we just back out the <unk>.

$2 three from Cogs to get like a Queen center. What we would include in the cost reduction to date and for kind of go forward purposes.

The best way to look at that or did you take out any of the other either launched officer.

Labor et.

Et cetera.

So Chris I would look at it is couple of different things going on here. If you look at the top chart on slide five we are walking you through.

29% cost reduction that has been achieved to date, that's what we achieved in the fourth quarter and it comes from both operations as well as supply chain components to get there than we give you. The line of sight of where we think we're going to end the year based on continued efforts from both R&D supply chain.

Nathan G. Kroeker: Should we just back out Gen 2.3 from COGS to get like a clean sense of what we'd include in, you know, the cost reduction to date and for kind of go-forward purposes? Is that the best way to look at that? Or should we take out any of the other things, you know, either launch costs or, you know, labor, et cetera? So, Chris, I would look at it as a couple different things going on here.

Operations really all aspects of our cost out program I think we will get down 76% of the total 80% that we highlighted back in December.

Nathan G. Kroeker: If you look at the top chart on slide five, we're walking you through the 29% cost-out reduction that has been achieved to date; that's what we achieved in the fourth quarter. And it comes from both operations as well as supply chain components to get there. Then we give you the line of sight of where we think we're going to end the year based on continued efforts from both R&D, supply chain, operations, really all aspects of our cost-out program. I think we'll get down 76% of the total 80% that we highlighted back in December. There is more work to do in the first part of 2025, but as you can see on the chart, the line share of the cost-out that we have a line of sight into today, we expect to occur in 2024.

More work to do in the first part of 2025, but as you can see on the chart. The lion's share of the cost out that we have line of sight into today, we expect to occur in 2024 on the bottom of the page we were trying to give you a sense of.

How far we have left to go in order to get to positive contribution margin. If you take our 34 in Cogs for the quarter and you back out the stuff that really doesn't have to do with the cost out program at hand, right. So gen. Two three.

Some legacy stuff, so take that out <unk> launch costs that's.

And that occurs once when you launch, but thats not really indicative of the future run rate labor and overhead under absorption as Joe talked about we have a big factory big cost associated with that that are being absorbed by a few units. So if you normalize that for the actual units of production in the quarter.

Nathan G. Kroeker: At the bottom of the page, we were trying to give you a sense of how far we have left to go in order to get to positive contribution margin. If you take our 30.4 in COGS for the quarter, and you back out the stuff that really doesn't have to do with the cost-out program at hand, right? So Gen 2.3, you know, that's legacy stuff, so take that out.

That's about 25% that you can take out. So you are left with 60% of that number call it $18 million.

That's the focus when we shift to cost out going forward in both materials and labor labor being tied to the automation. That's the $18 million number that were starting on in order to drive costs out in 2024 and with the cost out program that you see on the chart above we think we get to positive.

Nathan G. Kroeker: Z3 launch costs, that's, you know, and that occurs once when you launch, but that's not really indicative of the future run rate. Labor and overhead underabsorption, as Joe talked about, we have a big factory, big costs associated with that that are being absorbed by a few units. So if you normalize that for the actual units of production in the quarter, that's about 25% that you can take out. So you're left with 60% of that number; call it $18 million.

Contribution margin in the fourth quarter.

Okay Chris.

Great great.

I'd add to Nathan's commentary is this page also not only shows the progress and the underlying positives around the <unk> three as a product. It also shows the strategy of how we want to scale.

Joseph R. Mastrangelo: That's the focus when we shift to cost-out going forward in both materials and labor, labor being tied to automation. That's the $18 million number that we're starting on in order to drive costs out in 2024. And with the cost-out program that you see on the chart above, we think we can get to positive contribution margin in the fourth quarter. And I think, Chris, the only thing I would add to Nathan's commentary is that this page not only shows the progress and the underlying positives around the Z3 as a product, but it also shows the strategy of how we want to scale and the capital efficiency of the way we've designed the manufacturing process. So, we've been doing this shift of where Gen 2.3 was being built is where the Z3 line will come in. So, on 150,000 square feet, you had 50,000 square feet that weren't producing. So, therefore, as you put more volume through it, you get better absorption.

And the capital efficiency of the way we've designed the manufacturing process. So.

We have that we've been doing this shift of where gen. Two three was being built is where the <unk> III line will come in so on a 150000 square feet. You had 50000 square feet that wasn't producing so therefore as you put more volume through that you get better absorption. What you don't want to do right. There is people have asked US why don't you do offer.

Four lines at once well I think you've got to watch like a lot of the lithium companies that are trying to scale up production in the amount of capital it's going to take to do their factory because they are not cost efficient at the lower volumes that like we are so when you look at this we're saying let's get line one in place, let's normalize absorb drive to profitability.

Joseph R. Mastrangelo: What you don't want to do, right? There are people who have asked, it's like, why don't you do all four lines at once? Well, I think you have to watch a lot of the lithium companies that are trying to scale up production and the amount of capital it's going to take to do their factory because they are not cost efficient at the lower volumes that we are. So, when you look at this, we're saying, let's get line one in place. Let's normalize, absorb, drive to profitability, then expand so that you don't wind up with a lot of under-absorbed costs that you have to deal with that causes you to drain your capital as you're trying to grow your company.

Then expanse that you don't wind up with a lot of under absorbed costs that you have to deal with that causes you to drain down your capital as Youre trying to grow your company.

Got it okay, yes.

18, or so million.

What youre using for that kind of top of the chart as well.

Jeff is not included up they're typically right.

I'm, saying, that's the area that we're focused on which is driving down the labor and materials costs, yes. Okay.

Joseph R. Mastrangelo: Got it, okay. Yeah, so that 18 or so million is what you're using for that kind of top of the chart as well. The other stuff is not included up there, it sounds like, right?

Everything everything except for Gen. Two three is in the chart above yes, Okay got it.

In there, including the launch cost and the under absorption and that's why when you look at when you go from 75 down to the end of the year. We are saying is that 25 eventually goes away on the under absorption because youre putting enough volume in to get your per unit costs down because youre utilizing more of your factory yes.

Nathan G. Kroeker: I'm saying that's the area that we're focused on, which is driving down labor and materials costs. Yeah, okay. Everything except for Gen 2.3 is in the chart above.

Nathan G. Kroeker: Yeah, okay. Everything is in there, including the launch costs and the underabsorption. And that's why when you look at when you go from 75 down to the end of the year, what we're saying is that 25 eventually goes away on the underabsorption because you're putting enough volume in to get your per unit cost down because you're utilizing more of your factory. We don't have to do anything other than increase production to achieve those savings.

Yes, we don't have to do anything other than increased production to achieve those savings.

Yeah, that's great. Thanks, Sir thanks for all the color there.

I'll hop in the queue.

Thanks, Chris.

Thank you. Our next question comes from Chip Moore with Ralph M. Cam Your line is open.

Chip if your telephones immediate please on mute.

Can you hear me yes.

Yes, we can hear you.

Hey, Thanks for taking the question, Hey, Joe Hey, Nathan.

Joseph R. Mastrangelo: Yeah, that's great. Thanks for all the time. I'll hop in the queue. Thank you. Thank you. Our next question comes from Chip Moore with Roth MKM. Your line is open. Tip: If your telephone is muted, please unmute it. Can you hear me?

Wondering if you can expand it expand a bit on the.

The energy density improvements you've got.

Coming along for Q4.

Any changes on the automation side, you need to take into account and maybe you can help us put a bit of a finer point on that ramp in that quarter.

Unknown Executive: Yes, we can hear you. Here we go. Hey, thanks for taking the question. Hey, Joe. Hey, Nathan.

Joseph R. Mastrangelo: I'm wondering if you can expand, expand a bit on the energy density improvements you've got coming along for 2.4, any changes on the automation side you need to take into account, and maybe you can help us put a bit of a finer point on that ramp in that quarter. Yeah, so Chip, great question about the automation. So we're not, in the way we've developed an envelope that we don't want to change so that you don't need to go back and change the lines. So everything that we're talking about fits into the existing line. What you may need to do, depending on how this develops, is we may need to change on a couple of workstations some end of arm tooling, but not a long cycle time and not expensive to do, given the benefit that we're going to get.

Yes.

So chip great question around the automation so we're not.

The way we've developed an envelope that we don't want to change. So that you don't need to go back and change the lines everything that we're talking about.

To the existing line, where you may need to do depending on depending on how this develops as we may need to change on a couple of workstation. Some end of arm tooling, but not long cycle time and not expensive to do given the benefit that we're going to get and we've got a list of projects that get us to.

That that higher performance, we talked about.

When we did the 12 12 strategy call Francis Ritchie and <unk> I'll walk through some of the work that we're doing to get there and it's a mix of things as far as changing materials inside of the battery, which are already in progress. If you look at the picture I showed and on test while at the same time looking at how we containerize.

Joseph R. Mastrangelo: And we've got a list of projects that get us to that higher performance. We talked about this when we did the 12-12 strategy call, and Francis Richey and Pranesh Rao walked through some of the work that we're doing to get there. And it's a mix of things as far as changing materials inside of the battery, which is already in progress, if you look at the picture I showed, and on test, while at the same time looking at how we containerize the batteries to get more output out of the container itself or the cube itself.

The batteries to get more output out of the bat out of the container itself, where the cube itself. So we've got a list of projects that will that we have risk weighted and we've come up with a number and feel good about where we stand today as far as the work that the teams have been doing that we talked about on 12 12.

Joseph R. Mastrangelo: So we've got a list of projects that we have risk-weighted, and we've come up with a number, and feel good about where we stand today as far as the work that the teams have been doing that we talked about on 12-12. That's helpful. I appreciate it. And for a follow-up, maybe on the cash side, right? I think maybe you could talk about current cash positions. I think it sounds like you've collected some money since year-end, and you've got line of sight on some more. Just help us out there.

Got it that's helpful. I appreciate it.

For a follow up maybe on the cash side right I think.

Maybe you could talk about current cash positions I think it sounds like you've you've collected some money since year end and you've got line of sight.

On some more just help us there and then I think.

You've got another $15 million or so to deploying a new line just just give us an update on the financing side.

Nathan G. Kroeker: And then I think you've got another $15 million or so to deploy a new line. Just give us an update on the financing side. Yeah, I mean, I don't know that there's a whole lot more to add than what I talked about. We ended the year with $69.5 million.

Yes, I mean I don't know.

Know that Theres, a whole lot more to add than what I talked about we ended the year with $69 5 million. We've had some customer deposits come in we've got customer milestone payments that are scheduled over the next couple of weeks and months and we also anticipate additional customer deposits on some large orders that were working on.

Joseph R. Mastrangelo: We've had some customer deposits come in, and we've got customer milestone payments that are scheduled over the next couple of weeks and months. And we also anticipate additional customer deposits on some large orders that we're working on. Our focus, really, you know, in addition to those customer payments and customer deposits, is really focusing on meeting the CPs and closing on the DOE loan. So that's where our focus is from a capital raise standpoint at this time. And maybe one more related to the international side, you talked about developing some of those markets. Have you explored any strategic potential there, you know, licensing models or anything like that?

Our focus really in addition to those customer payments and customer deposits is really focusing on meeting the Cps and closing on the Doe loan. So that's where our focus is from a capital raise standpoint at this at this time.

Perfect.

One more related on the international side, you talked about.

Developing some of those markets.

Have you explored any strategic potential there in our licensing models or anything like that thanks guys.

Yes, chip, we're not we're not going to comment specifically on that.

Beyond what we said.

Joseph R. Mastrangelo: Thanks, guys. Yeah, Chip, we're not, we're not going to comment specifically on that, obviously, beyond what we said. But, I think, you know, when we look at this, the product was designed, and this goes back a little bit to what we were explaining in the conversation with Chris, the way we designed this manufacturing model is you can put a line in, you don't need a complex factory, there's no clean rooms, you know So you can localize capacity as markets grow.

I think we.

When we look at this the product was designed and this goes back a little bit to what we're explaining on the conversation with Chris The way. We design. This manufacturing miles you can put a line and you don't need a complex factory theres no clean rooms.

The way we've designed the new product now you don't even need a crane. So you can localize capacity as markets grow and that's what we're talking about and I think we're early innings here to say, what that's going to look like but we will keep everyone updated as it evolves.

Understood I appreciate it thanks, Thanks chip.

Thank you our.

Joseph R. Mastrangelo: And that's what we're talking about, and I think we're in the early innings here to say what that's going to look like. But you know, we'll keep everyone updated as it evolves. Understand. Appreciate it.

Our next question comes from Martin Malloy with Johnson Rice. Your line is open.

Good morning, Congratulations on all the progress and the cost reductions already.

Joseph R. Mastrangelo: Thanks. Thanks, Chip. Thank you. Our next question comes from Martin Malloy with Johnson Rice. Your line is open. Good morning. Congratulations on all the progress and the cost reductions already achieved. Chief to date.

The key to date.

I did want to follow up on that.

Financing and funding and I appreciate what you said about the customer deposits.

So.

Joseph R. Mastrangelo: I wanted to follow up on the financing and funding, and I appreciate what you said about the customer deposits. So will you need additional funding now given the customer deposit outlook? Here this year or until you get the DOE loan proceeds coming in. So, Marty, I wouldn't go beyond what Nathan said on the call today. You know, we're working through a bunch of different things. We're finalizing the agreement to monetize the tax credits, we're starting to see operations where receivables are coming in from customers, and we continue to drive the orders book to bring deposits in to bridge us to the line From where we are today, and as it evolves, we'll give more details as we see them.

Will you need additional funding now given the customer deposit outlook.

Here.

This year or until you get the Doe loans proceeds coming in.

Martin I wouldn't go beyond what Nathan said.

On the call today, we're working through a bunch of different things, we're finalizing the agreement to monetize the tax credits were starting to see operations, where receivables are coming in from customers and we continue to drive.

To drive.

The orders booked to bring deposits in to bridge us to the line I wouldn't say, yes, and I wouldn't say no from where we are today and as it evolves, we will give more details as we see them.

Okay and then just for a follow up question you mentioned that you have.

Joseph R. Mastrangelo: And then just for a follow-up question, you mentioned that you've had two Z3 installations online, I think since September. Is there time enough for you to get any feedback from customers on how those are operating? So Marty, what we said was they were under installation and commissioning right now. We never said they were up and running.

Ed.

Tuesday, three installations online I think since September.

Is there a time enough that you've gotten any feedback from customers on how those are operating.

So Marty we said was there under installation and commissioning right now we never said they were up and running and there's a little confusion okay.

Joseph R. Mastrangelo: There's a little confusion. And that's why when you look at page, when we look at page five, you know, and you go halfway down, you know, they're, they're all, and again, there's. A lot of things that we control; there are some things that we don't control on the customer side. The most important thing now is to get the units that have been shipped out in the field up and running so we get that field data. Thank you very much.

And that's why when you look at page when we look at page five.

You go halfway down there all in again theirs.

A lot of things that we control there is some things that we don't control on the customer side. The most important thing now is to get the units that have been shipped out in the field up and running so we get that field data.

Okay.

Joseph R. Mastrangelo: Thanks, Marty. Thank you. Our next question comes from Thomas Boyes with T.D.

You very much.

Thanks Marty.

Thank you our next question comes from.

Unknown Executive: Cowan, your line is open. I appreciate you taking the questions. Maybe just to follow on that point, you know, in your mind, for companies that are, you know, awaiting field data before they kind of move forward with booked orders, how much data do they require? I mean, obviously, it's different for every, every customer, but I'm just wondering what you think would be a sufficient amount of operating data for units in the field before it kind of moves more individuals off the sidelines. Is it months? Is it quarters?

Thomas Boyes with TD Cowen Your line is open.

I appreciate you taking the questions.

Maybe just following that point in your mind for companies that are awaiting field data before they kind of move forward with booked orders.

Much data do they require I mean, obviously, it's different for every every.

Every customer, but I'm just wondering what you think would be a sufficient amount of operating data for units in the field before it kind of moves more individuals off the sidelines is it months quarters, how should we think about that.

It depends I mean, the answer is yes.

Joseph R. Mastrangelo: How should we think about that? It depends. I mean, the answer is yes.

It depends it depends on who you are it depends on the profile of the customer that youre talking to it sounds like if you think about what we said previously if youre dealing with an independent power producer developer they'll take risks sooner on new check. If you are talking to a utility it takes a little bit longer we are in various stages with all.

Joseph R. Mastrangelo: Depends on the profile of the customer that you're talking to, Thomas. If you think about what we said previously, you know, if you're dealing with an independent power producer developer, they'll take risks on new tech sooner. If you're talking to a utility, it takes a little bit longer.

Different kinds of players that have laid out and done different things, we're not going to comment specifically on those conversations, but we have a roadmap of what we need to take people that convert them from opportunities in orders.

Joseph R. Mastrangelo: We are in various stages with all different kinds of players that have laid out and done different things. We're not going to comment specifically on those conversations, but we have a roadmap of what we need to take people and turn them from opportunities into orders. Got it, understood. And then maybe it would be great to see the, you know, the first cube shipped to Italy. I know it's early innings, you know, with respect to kind of standing at the manufacturing base still, but what are the kinds of international work plans for Europe specifically? Are there other countries that you find interesting that have market support mechanisms that make them attractive?

Got it understood and then maybe it'd be great to see the first cube shipped to Italy, I know, it's early innings with respect to kind of see any of the manufacturing base still but what are the kind of the international growth plans correctly Youre specifically are there other countries that.

Can you find interesting to them.

Other support mechanisms that make them attractive.

And then the.

What I would like <unk> pipeline.

Some of that international or is this more of a kind of off the proposal bucket.

So I think we outlined that we outlined in the presentation three areas that we're focused on we can't given the size of the company in evolution of the company you can go everywhere all at once because youll stretch yourself too thin and we don't want to do that so I would stick with what we said in the presentation is the three <unk>.

Joseph R. Mastrangelo: And then, you know, of the 1.9 gigawatt-hour late-stage pipeline, is some of that international, or is this more of a kind of after-proposal bucket? So I think we outlined in the presentation three areas that we're focused on. We can't, given the size of the company and the evolution of the company; you can't go everywhere all at once because you'll stretch yourself too thin, and we don't want to do that.

Geographies that we've worked that we're working with.

What I would say as we talk specifically about Italy because of the turn on auction and where we are there are other countries in Italy and <unk>.

Europe excuse me that we've that we're talking to but those are the three right now that we're focused on.

Joseph R. Mastrangelo: So I stick with what we said in the presentation as the three geographies that we're working with. What I would say is we talk specifically about Italy because of the Terna auction and where we are. There are other countries in Italy, in Europe, excuse me, that we're talking to, but those are the three right now that we're focused on.

And on your second question the majority of what we're talking about the late stage is domestic U S based.

Great. That's helpful. If I could sneak one more in just on the monetization for the 2023 credits. How are you seeing that kind of transferability market develop I've seen some reports where youre looking at like 90 cents on the dollar and your commentary was modest I'm just kind of wondering if that's shooting distance.

Joseph R. Mastrangelo: And on your second question, the majority of what we're talking about in the late stage is domestic, U.S. based. Great. And so if I could sneak one more in on the monetization for the 2023 credits, you know, how are you seeing the kind of transferability market develop? I've seen some reports where you're looking at like 90 cents on the dollar, and your contract was modest.

Yes, yes, that's what we said there is a range that we're seeing kind of 90 to 95.

Nathan G. Kroeker: I'm just kind of wondering if that's, you know, shooting distance. Yeah, yeah, that's what we said, there's a range that we're seeing of kind of 90, 95 cents. Obviously, you take a bigger discount if you're monetizing a smaller number of credits; you take a smaller discount if you have more credits.

Obviously, you'd take a bigger discount if youre monetizing a smaller number of credits you take a lesser discount if you have more credits.

We've recorded these at 90 cents, we believe Thats, where the market is for a company of our size and we anticipate that discount tightening up over time as their volume of credits to sell increases.

Joseph R. Mastrangelo: We've recorded these at 90 cents; we believe that's where the market is for a company of our size, and we anticipate that discount tightening over time as their volume of credits to sell increases. Great. I appreciate the call. I'll hop back into the queue.

Great appreciate the color hop back in the queue.

Thank you. Our next question comes comes from Tom Curran with Seaport Research Partners. Your line is open.

Good morning, Thanks for taking my questions.

I believe in earlier commercial version of <unk> container featured.

Joseph R. Mastrangelo: Thank you. Our next question comes from Tom Curran with Seaport Research Partners. Your line is open. Good morning.

The number I had a total of 672 modules would you tell us how many modules or are in the current long duration offering at rate energy of 695 kilowatt hours and then.

Joseph R. Mastrangelo: Thanks for taking my question. I believe an earlier commercial version of your Z3 container featured, The number I have is a total of 672 modules. Would you tell us how many modules are in the current long-duration offering at a rate energy of 695 kilowatt hours? And then what that module count should be with the target or targeted ranges when you get to 800? 672, The product is the same amount. When we talk about long duration and short duration, you're talking about how you're utilizing that same product, and there are different levels of energy you can get in and out of a system depending on how you discharge and at what power you discharge at, and that's true for any battery technology.

What that module count should be what the target where targeted ranges when you get to 800.

272.

So hopefully that gives you lots of luck.

Yes.

The product is the product.

<unk> had the same amount when we when we talk about long duration short duration.

Youre talking about how you're utilizing that same product in there is there is different levels of energy you can get in and out of our system, depending on how you discharge and what power you discharge at and Thats true for any battery technology. So when you talk about any battery going from a two hour to a four hour to six hour, an eight hour theres going to be that impact.

Joseph R. Mastrangelo: So when you talk about any battery going from a two-hour to a four-hour to a six-hour to an eight-hour, there's going to be that impact on performance that doesn't stay the same, and we're just being clear on how our technology performs at different durations. As we move forward, the goal is to keep the module count in the cube the same. A lot of the energy density improvements we walked through with Francis and Pranesh in December are within the battery module itself. Right? And that was clear, and I assume that it is. I just wanted to make sure we weren't also missing another variable where the configuration or physical density of the actual modules was increasing as well within the container. But very clear, to clarify, right?

On performance it doesn't stay the same and we're just being clear on how our technology performs at the different.

Durations as we move forward. The goal is to keep the module account in the cube the same.

Got it.

The energy density.

A lot of the energy density improvements, we walked through Francis and <unk> walked through in December are within the battery module itself.

Right and that was clear and I assume that it is want to make sure. We we werent also missing another variable where the configuration or physical density of the actual modules is increasing as well within the container Mcdonald's very clear.

Yes.

Joseph R. Mastrangelo: And that's a great point, right? The clarification is like, you know, our battery module is in a box, right? And then you have the internals that then perform. What we're doing is the outer aspect ratio of that battery module box stays the same, and the inner performs better.

Okay.

Clarify alright, that's.

That's a great point right. The clarification is like when you think about our battery module. It's in a box and then you have the internals that then perform what we're doing is that the outer the outer aspect ratio of the bar of that battery module box stays the same the inner.

Joseph R. Mastrangelo: So like if you go to that last page that we had on cost out, and you look at the left hand side, that left hand side, if you look closely, there's more active surface area inside the battery. And that's what's driving the improved performance. Crystal clear.

<unk> better so like if you go to that last page that we have on cost out and you look at the left hand side that left hand side. If you look closely there's more active surface area inside the battery and that's what's driving the improved performance.

Yes.

Joseph R. Mastrangelo: And then when it comes to the scheduled deliveries that underpin your expected volume scale-up over the second half of this year, are there any major external gating items that you're aware of and monitoring, or, you know, for most of those scheduled deliveries, does it really just come down to staying on track for your own SOTA 1 line ramp at this point? Yeah, I think it's a combination of staying on track with the line ramp and then coordinating with customers on customer deliveries. And so, yeah, I don't think there's any one single big gating item.

Crystal clear. Thank you and then when it comes to the scheduled deliveries underpin your expected volume scale up over the second half of this year are there any major external gating items that youre aware of and monitoring or for most of those scheduled deliveries does it really just come down to staying on track for your own soda one line.

At this point.

Yes, I think it's a combination of staying on track with the line ramp and then coordinating with customers on customer deliveries and so.

Yes, I don't think Theres any one single big gating item I think it's just focusing on executing against that plan.

Joseph R. Mastrangelo: I think it's just focusing on executing against that plan. And that's part of the reason why there's a range, Thomas. I think the 60 to 90 range is not all the line risk that's in there. So that's why we gave the range. That's sort of what I was alluding to, that when it comes to the swing factors within that range, they're not 100% internal. They're not all variables. You would expect it to be out of control.

And that's why there is.

Part of the reason why there's a range of times I think.

60 to 90 day range is not all.

Line risk that's in there. So that's why we gave the range.

That's sort of what I was alluding to is it.

When it comes to the swing factors within that range.

You are not 100% internal theyre not all variables.

You would expect it to be have control over.

Joseph R. Mastrangelo: Right. And when you look at the industry in general right now, and the risk you have around finalizing permits, getting to getting the civil works done in a timely manner, we're being prudent in how we forecast that risk and make sure that we get within the range this year. I think that's very important. Yeah, as you should be perfectly fair.

Right and when you look at the industry in general right now and the risks you have around finalizing permits getting to getting the civil works done in a timely manner and we're being prudent in how we're how we're forecasting.

That risk and make sure that we get within the range. This year I think thats very important.

Yes, as you should be a perfectly fair.

Joseph R. Mastrangelo: I appreciate all the transparency and thoughtful, detailed presentation. Thanks, thanks. Thank you. Our next question comes from Joseph Osha with Guggenheim. Your line is open. Hey guys, good morning.

Appreciate all the transparency and thoughtful detailed presentation.

Great. Thanks, so much.

Thank you. Our next question comes from Joseph Osha with Guggenheim. Your line is open.

Hey, guys. Good morning, a couple of questions first wondering if you can give us maybe a slightly more detailed walk through.

Joseph R. Mastrangelo: A couple questions. First, wondering if you can give us maybe a slightly more detailed walk through the sort of the milestones for the LPO draw, to the extent that you can, and then I've got one or two others. Yeah, like we've said in the past, Joe, it's one of the ones that we're focused on getting the first state-of-the-art line up and running and implemented. Beyond that, we really haven't commented on what some of the other ones are, but that's the one that we're focused on.

The sort of the milestones for the <unk> draw.

To the extent that you can and then I've got one or two others.

Yes, like we've said in the past Joe.

One of the ones that we're focused on is getting the first state of the art line up and running and implemented.

Beyond that we really haven't commented on what some of the other ones are but thats. The one that we're focused on that's the one that's likely to drive the timing.

Joseph R. Mastrangelo: That's the one that's likely to drive the timing. But to be clear, you know, because you've got the line, you know, it's coming up in Wisconsin, then you're going to take it apart and move to Turtle Creek. We, you are implying that that line needs to be up and running at some level of scale? Is that what you're saying? Or does it just need to be on the ground so they can look at it?

But to be clear.

Because you've got the wine that's coming up in Wisconsin, and then you've got to take it apart and.

Turbo Creek.

You are implying that that that one needs to be up.

And running at some level of scale or is that what youre, saying or did it just need to be on the ground. So they can look at.

Joseph R. Mastrangelo: It needs to pass a performance test. So we constantly refer to SAT on that line. SAT is expected to occur in the second quarter. That's effectively what there's, you know, the DOE has its own test, but it's effectively tied to SAT. All right, so remind me what that acronym stands for. I'm guessing the T is for test.

It needs to pass a performance test so we constantly referred to.

On that line.

As expected to occur in the second quarter.

That's effectively what.

The Doe has their own tests, but it's effectively tied to SAP.

Alright, So remind me what that acronym stands for I'm guessing the T as test.

Joseph R. Mastrangelo: What's the, Okay, um, thanks. Second question, just looking at your chart on slide five there in the upper right and your scale at the end of coming out of 24. At that point, obviously, you'd hope that the margin and the cost continue to go down. But can we think about the levers as you get into 2025 and beyond being pretty much straightforward, just scale and cost absorption, because your design is going to be nailed down by that point, and a lot of the R&D tweaks are done. So is it pretty much going from there, just straightforward fixed cost absorption? Look, Joe, my experience has always been, even if you have a 200-year-old product, you can continue to take costs out of it by improving the way you package it, by improving the way you manufacture it.

Whats the gist.

This test.

Okay.

Thanks Second question just looking at your chart on slide five there in the upper right and Youre at scale at the end of <unk>.

Coming out of 'twenty four.

At that point, obviously you'd hoped.

The margin cost continues to go down but can we think about the levers that you get into 2025 and beyond being pretty much straightforward just scale and cost absorption because your design is going to be nailed down by that point in a lot of that kind of the R&D tweaks or does it pretty much going from there just straightforward.

Fixed cost absorption.

Look Joe My experience has always been even if you have a 200 year old product you can continue to take cost out of it by improving the way you package it by improving the way you manufacture. It. So I think youll continue to see an evolution of the product that we have we.

Joseph R. Mastrangelo: So I think you'll continue to see an evolution of the product that we have. We think we have a product that we can continue to drive cost out beyond that. A large part of that is scale, but there are other things you can continue to do around software to improve performance, around packaging and how you containerize, and also continue to drive like we're doing right now.

We think we have a product that we can continue to drive cost out beyond that.

Large part of it is scale, but there's other things you can continue to do around software to improve performance around packaging and how you containerized and also continue to drive like we're doing right now, we'll learn more and continue to learn more about the battery in and just improved performance by keeping it inside the same aspect ratio.

Joseph R. Mastrangelo: We'll learn more and continue to learn more about the battery and just improve performance by keeping it inside the same aspect ratio. Yeah, okay. And that kind of leads me to my third question, following on some of the other earlier lines of questioning, you know, as your, I'll call it, functional density improves, is there any kind of set of thermal limitations you run up against?

Yes, Okay, and then that that kind of leads me to my third question. Following on some of the other earlier wide questionnaire as as your I'll call. It functional density improves.

Is there any kind of set of thermal limitations you run up against like where you said you don't have an HVAC and that's great but.

Joseph R. Mastrangelo: Like where you said, you know, hey, you don't have an HVAC, and that's great. But yeah, I guess I'll just ask that simply. Are there any thermal limitations that you can run up against, or are those not relevant? No, look, I think, Joe, what we've looked at, you know, the theoretical round trip efficiency when you back out thermodynamics and the inherent, think plating, bromine absorption that happens during the chemical reaction in the battery. The theoretical round-trip efficiency that you can achieve is in the high 80s or low 90s.

Yes.

I guess I'll just ask that simply are there any thermal limitations that you can run up against are not relevant.

No.

Look I think Joe what we've looked at.

The theoretical the theoretical round trip efficiency, when you back out thermal dynamics and the inherent.

Pleading bromine absorption that happens as the chemical reaction in the battery the theoretical round trip efficiency that you can achieve is the high eighty's low ninety's. There is a lot of things that you need to win in there to be able to do that but when you look at how the battery performs in the temperature range that we have we're not going to exceed that temperature.

Joseph R. Mastrangelo: There's a lot of things that you need to go in there to be able to do that, but when you look at how the battery performs in the temperature range that we have, we're not going to exceed that temperature range that we have right now. I mean, you're talking about going down to minus 20 and up to plus 65 degrees C. That's a pretty wide range, and we don't see ourselves exceeding that as you continue to work on the product. Okay, thank you. Great Thanks, Joe. Thank you. There are no further questions at this time. I'd like to turn the call back over to CEO Joe Mastrangelo for any closing remarks.

The range that we have right now I mean, youre talking about going down to minus 20 up to plus 65 degree C. P.

Pretty wide wide range of we don't see ourselves exceeding that as you continue to work on the product.

Okay. Thank you.

Great. Thanks, Joe Thank you.

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

Joseph R. Mastrangelo: Thanks, thanks, everyone for listening. We'll keep everyone updated here as we progress through. I know there are a lot of important topics that everyone wants to hear about and learn about as we move forward. But the most important thing here for us right now, you know, when you think about this is getting the FAT successfully completed, then on to SAT, continuing to scale up production, and continuing to work that pipeline from opportunity into order closure.

Thanks, everyone for listening, we will keep everyone updated here as we progress through I know theres a lot of important topics that everyone wants to hear.

I hear about and learn about as we move forward. The most important thing here for US right now when you think about this as getting the FHA successfully completed then onto FCT continuing to scale up production and continuing to work that pipeline from opportunity into order closure and we'll keep everyone updated.

Unknown Executive: And we'll keep everyone updated as you make progress on that, but thanks, everyone, for your time today. Thank you for your participation. This does conclude the program, and you may now disconnect. Everyone have a great day. Thomas Boyes, Joseph Souther, Nathan Kroeker, Joseph Osha, Christopher Souther, Nathan Kroeker, Joseph Souther, Nathan Kroeker, Joseph Osha, Joseph Osha, Joseph Osha, [inaudible]

As we make progress on that but thanks, everyone for the time today.

Yes.

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

Okay.

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