This conference call transcript was computer generated and almost certianly contains errors. This transcript is provided for information purposes only.EarningsCall, LLC makes no representation about the accuracy of the aforementioned transcript, and you are cautioned not to place undue reliance on the information provided by the transcript.
spk02: Good morning and welcome to EOS's fourth quarter and full year 2020 conference call. As a reminder, today's call is being recorded and your participation implies consent to such recording. At this time, all participants are in a listen-only mode. A brief question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. With that, I would like to turn the call over to Ankit Hira with Investor Relations. Thank you, sir. Please begin.
spk03: Thank you. Good morning, everyone, and thank you for joining us for EOS's financial results conference call for the fourth quarter ended December 31st, 2020. On the call today, we have EOS CEO, Joe Mastrangelo, and CFO, Sagar Karata. Before we begin, allow me to provide a disclaimer regarding forward-looking statements. This call, including the Q&A portion of the call, may include forward-looking statements related to the expected future results for our company, which are subject to certain risks and uncertainties and assumptions. Should any of these risks materialize or should our assumptions prove to be incorrect or actual results may differ materially from our projections or those implied by these forward-looking statements? The risks and uncertainties that forward-looking statements are subject to are described in our earnings release and other SEC balance, including our most recent registration statement in Form S-1. Our remarks during today's discussion should be considered to incorporate this information by reference. Forward-looking statements represent our beliefs, and assumptions that only as of the date such statements are made. We undertake no obligation to update any forward-looking statements made during this call to reflect events or circumstances after today, or to reflect new information or the occurrence of unanticipated events, except as required by law. Today's remarks will also include references to non-GAAP financial measures. Additional information, including reconciliation between non-GAAP financial information and the GAAP financial information, is provided in the press release. This conference call will be available for replay via webcast through EOS's Investor Relations website at investors.eos.com. Joe will begin with an overview of EOS. Saga will then take you through a review of the financials before we proceed to Q&A. With that, I'll now turn the call over to Joe.
spk01: Thanks, Akin, and thanks to everyone for joining us today on our first earning call as a public company after a successful business combination with B. Reilly Principal Merger Corp. 2 last November. The transaction was a critical step for us at EOS as it laid the groundwork for us to execute on our mission, and that is to accelerate the shift to clean energy with solutions that transform how the world stores and accesses power. Throughout everything we've all been challenged with in the recent months, everyone here at EOS continues to push forward on our green technology products and services that we believe turn conventional thinking on its head. As we said before, we're not just trying to get the job done or to just get more energy storage out into the market now. The team here is working to deliver storage solutions that do the job better to deliver safe, scalable, sustainable, and efficient storage solutions that are purpose-built for where the market is going in the future. If we go to the next slide, I think you see we had an impressive year in 2020, and it's a testament to the team's commitment. While SAGR will go through our financial details later in the call, there are a few numbers I'm particularly proud of that I'd like to highlight right off the bat. Our pipeline continues to grow and stands at above $3.5 billion of over 21 gigawatt hours of potential storage. The team has built a strong backlog with over $21 million in booked orders today, over 71 megawatt hours of storage. Coming out of the merger with BMRG, We now have over $120 million of cash on hand in the debt-free balance sheet, well-positioned to grow the company as we move forward. And part of that cash will be invested in growing our production capacity, which today stands at 280 megawatt hours, and will grow with an additional investment of $38 million here over the current year. We've achieved a successful milestone of passing all the tests required for UL9540A certification, and we're in the process of finishing all of our testing for UL 1973. These are important for us to be able to bring our solutions to indoor applications and, again, a great result by the entire team. We are now standing at over 200 colleagues here in EOS and this is just a great way for us to position the business for future growth as we grow the talent of our team. As I said, Sagar will have more on these later, but for now, Those of you who may be new to the EOS story, I'd like to take a little bit of time to talk about how we see the energy market and how we're uniquely positioning EOS for long-term growth. So if we flip to slide five, we see the market is in a moment of radical transformation. And on slide six, it's in a moment similar to what we've seen in other industries in the past. You know, when you think about it, we're standing at a moment in the energy industry where like the computer industry stood so many years before. When you think about it, if it were 30 years ago and I were to tell you that you would be carrying around the computing power of a mainframe in your pocket, many people would have doubted the ability to do that. But today, as all of us walk around with our smartphones, that's exactly what we're doing. So similar technological advances are fundamentally reshaping the dynamics of the energy markets. They're decentralizing and democratizing power production. Today, anyone, anywhere can produce or store power. At the same time, demand is going up as every aspect of everyday life now depends on the technology that brings power to life. It truly is a technical marvel every time we flip the light switch in our home. And we're also enabling the decarbonization. Renewables like solar and wind are becoming increasingly efficient and affordable. If you look at the next slide, on this slide you see some of the key factors that support what I said on the previous slide on decentralization, power being produced anywhere. You see a massive increase in microgrid installations, over 2x what they were in 2008. At the same time, we have over 2 million installed solar systems, which is equivalent to producing one year of demand for the state of California. On democratization, where we talk about power being produced by anyone, when you look at one in five homes in California is equipped with storage, we installed 11 gigawatt hours of energy storage globally last year, 2x what was done in 2019, just a year before. On the demand side, there's still 2x the U.S. population that lacks reliable power. And a 3% growth rate is equivalent of adding 13 New York cities to the demand curve for reliable power. And on decarbonization, this is really protecting the environment as we grow modern-day life. 64% of the world's electricity is still produced by non-renewables globally, which is 4x the production in the U.S., but the growth of renewables continues to grow astronomically, 90% worldwide, 2x what it was the year before. So when you take these four factors together and move forward to the next slide, what we now have is an opportunity, an opportunity that is a challenge at the same time where you look at how our system operates, you have two factors happening. What we talk about is waste. In a large part, this waste is driven by the fact that when we produce power is not exactly when we want to use power. So at times, there's power out there that's actually wasted, that doesn't go anywhere, that's not used. And then there's also scarcity, the flip side of having waste. You know, when power capacity is needed and it's not there for the user when you flip that light switch or plug in your phone to charge it. So if we go to the next slide on page nine, so as we talk about waste and scarcity, let's look at Texas and California. You know, think about this waste that I talked about, power that's produced and not used. The power that was produced that didn't get on the grid and didn't ultimately get used would supply enough demand for one year of power in Texas. The same time we all saw what happened a few weeks ago in Texas. Now, while storage would not have solved that problem, we also need to consider, because many times when we talk about excess power demand, we talk about it during warm weather. But you saw the impact of not being able to handle peak demand when there's cold weather. So we need to balance that. this ability to bring power and store it and shift it forward to win their scarcity. And you see that also in California. Last spring, there were 15 gigawatts of power that were turned off from renewables because there wasn't demand. That's more than the total storage capacity that was installed last year. And at the same time, as you roll forward into the summertime, there were more than 20 days of rolling blackouts because of the excess demand that was created in the summertime where we didn't have power available. So really what we're talking about as we talk about storage is thinking that supply with when the demand is there to give people power when they need it. Let's go back for a moment to our information technology metaphor. We see the energy market reaching a similar point in its evolution. If everyone everywhere can produce power, what gets produced that is not immediately needed must have somewhere to go. And then it needs to be accessible by everyone everywhere at a later time. Supply and demand have to be synchronized to maximize utilization and overall system efficiency. In the energy market, the linchpin of this synchronization is energy storage. If we flip to slide 11, I want to talk about the evolution of storage over the last 10 years and then how we look forward to the next 10 years. When you think about what we did in 2010, 2015, was bringing an existing technology in lithium ion that allows us to manage short-term spot peaks in supply and demand to shift power and discharge it over a one-hour time period. We then took that technology and were able to optimize it to stretch it from a one-hour duration, so one hour meaning the time that you can discharge energy from your storage system back into the grid to be used by consumers, we stretched that out to two hours. But what we're looking for as we look forward in the marketplace is four hours of discharge. The ability to time shift and capture the generating solar power as an example during the day and shift that so that we can use that into the evening and through the night. The market is starting to recognize this as renewables become a more meaningful part of generating capacity. We're at the early stages of what is expected to be a significant growth opportunity over the long term. If you just look at the next 10 years, we're seeing a projection of a 31% compound annual growth rate from 20 gigawatt hours of global storage deployments to 740 gigawatt hours. This is what the team at EOS saw coming more than 10 years ago. And we focused on building our technology to match that need as the market evolved. If we move to slide 12, I'd like to just focus for a moment on what we as EOS, where our technology fits into the overall energy mix. The energy system always is going to require a mix of technologies. There's never going to be one technology or one size fits all. This is for a very simple thing of flipping a light switch once again. There's a very complex system behind that that enables that to occur. So what we have focused on is not doing the short duration. That's something that's better met with technologies like lithium ions. and not looking at discharge times of over 18 hours, which is a very important part of the market, but there's better technologies than what we bring to the market. What we look at is right down the middle, this three to 12 hour discharge segment, which is $160 billion market opportunity. So over the next 10 years, our team is going to take the knowledge that we've built up over the last 12 to truly help revolutionize how we provide power to the marketplace. On slide 13, what we like to call this is the dawn of the energy cloud. Again, thinking about the information technology metaphor, what we at EOS are trying to do is allow this radical transformation that I talked about on earlier slides. If we move forward to page 14, because you see this decentralization, democratization, the growth in demand, and decarbonizing, It means that the landscape that we're all used to dealing with is changing. It's becoming more complex, more competitive, more challenging, and I think more interesting. Traditional utilities and large-scale generators will continue to be key customers, but consumers will no longer be tethered to the old one-way market. We'll be working with a whole host of new entrants with different business models, industry experience, and operating scale. These are the microgrid operators that are out there. These are companies that are looking to make themselves more efficient by generating their own power and operating in an island mode. We believe that this shift is happening faster than what many may think. It's the fastest evolution I've seen in my 30-year career in the energy markets. If we flip forward to slide 15, we really start to see our customer conversations that we're having are starting to change. It's who we're talking to, what they're asking for, and how we tailor our solutions for the future of the market. It shaped how we've been thinking about the revenue streams that Sagar will talk about in more detail later. We're engaging much earlier with potential customers and opportunistically investing in what we believe are promising development concepts. We're financing whole renewables projects, particularly solar plus storage microgrids, And of course, in addition to traditional equipment leasing, direct cash sales and providing long-term service contracts to make sure that our products provide the reliability that our customers demand. So if you look at slide 16, the idea of an energy cloud landscape is also shaping the portfolio of both products and services we're continuing to optimize and build. Long-duration storage is at the heart, the core of our business. our proprietary battery technology. But increasingly, we'll be looking to expand into software and service offerings to accelerate adoption and optimize the use of our technology. Right now, I'd like to dig a bit deeper into our storage solution and why we think it's so well suited to this new energy market. Let's start on slide 17 with our battery. As I mentioned earlier, more than 10 years ago, the EOS team set out to create a three to 12 hour battery chemistry. The result of that effort is our proprietary Zenith technology inspired by industrial zinc plating baths, but protected by a portfolio of more than 200 patents. It stores energy through zinc deposits. With the chemistry solved, we turned our attention to the development of a scalable battery construction. Over the last three years, we've refined our design down to just three easily assembled components, an aqueous electrolyte, a bipolar electrode, and polymer frames made up of a handful of readily available materials, zinc, titanium, graphite, felt, plastic, and water. That's all, all in a simple sealed battery with no moving or external parts, a technology that's easy to scale. And if we look on page 18, We've been focused on putting the Zenith technology through its paces, not only in our lab, which is one of the largest in the country, but also out in the field with nine systems deployed across four continents. In total, Zenith batteries have discharged over 200 megawatt hours since 2016. We're also now in the final stages of getting product safety UL certification completed for UL 1973. which is the standard for safety for stationary storage applications, and UL9540A, the standard for safety for thermal runway, which represents harsh abuse testing and also ensures that our product is non-flammable. At the same time that we've been running these tests and getting the certifications, in our lab, we run the equipment harder than it's ever going to be run out in the field to prove that it's a technology that can handle any environment. On slide 19, The Zenith has consistently delivered not just on our target three to 12 hour discharge goal, but also addresses other limitations of lithium ion technologies that we saw as impediments to mass adoption of storage technology. As I said at the beginning of this call, EOS is not about doing what's been done for the last 10 years. We're building what's needed for the future. The Zenith is safe. Our chemistry is inherently non-flammable and non-toxic, so it doesn't need a large HVAC system or fire suppression equipment around it. It's scalable. We don't use any precious or conflict metals or need clean rooms in manufacturing, so there are very few supply chain constraints. It's sustainable. It runs for more than 20 years or 6,000 cycles, charging and discharging. And at the end of use, it's fully, easily recyclable. Zenith is as clean as the clean energy we store. Efficient. It operates in extreme temperatures from as low as 4 degrees Fahrenheit, negative 4 degrees Fahrenheit, to as high as 122 degrees Fahrenheit. Our charge and discharge rates can be adapted to changing power needs, and we deliver a full 100% depth of discharge. Our round-trip efficiency is in the high 70s to low 80s percent. We're within three to five points of lithium-ion. when you net out all the losses that happen on the lithium ion system when they're running their HVAC and other systems that are required to keep it moving. I'd like to think of the Zenith batteries as the workhorse of energy storage. You don't have to think or worry about them. They just get whatever job you need done, perfect for the new types of customers and challenges we're facing. Oh, and this is key. All those benefits are safety, scalability, sustainability, and efficiency. They can add up to significant reductions in total cost of ownership. When you look at A 10-megawatt, 40-megawatt-hour system. Our cost of ownership is currently about 30% lower than lithium-ion, and we have a plan to drive costs out even further. On slide 20, we're building all this right here in the United States. For those of you who don't know me, I joined EOS in 2018 after a 25-year career at General Electric to help scale the manufacturing and commercialize our product. And one of our first decisions was to bring production back to the United States. Last year, we built our manufacturing joint venture in Pittsburgh with one of our main investors, Holtec. It's called High Power. We got the factory up and running in seven months, and we're scaling up production and shipping product right now. We integrated our supply chain so that 80% of our suppliers are within a two-hour car ride of our factory. We also went out and negotiated a volume tier pricing to help us scale the business as well as improve the quality and consistency of all of our raw materials to be able to meet the demanding conditions that the energy markets expect from suppliers. On slide 21, we're pretty excited about what we've done with our Zenith batteries. But at the end of the day, customers don't buy individual batteries. They buy energy storage systems. And this is just another area where our technology opens up unique opportunities to meet New market needs are simple battery design and the fact that we have no ancillary systems has allowed us to adopt a modular racking system design. Similar to what you might use for computer servers that we can configure to almost any customer use case. We can fit a basic basic open rack into any existing indoor environment like a building basement. We call that our stack. Or we could take two racks and fit them into our plug and play cube, a standard 10 by 20 outdoor rated shipping container. Or we can build out our hanger with a series of racks stacked too high to get maximum power density. A lot of the capacity in the same smallest footprint. Just to give a little more context of what that all means, if we did a hanger installation with the square footage of your average home improvement store, you'd be able to have a 100 megawatt, 400 megawatt hour system. enough to provide storage to a small town. And every system, of course, is fully integrated with our proprietary battery management system software, which allows multiple use cases for our customers to maximize the return on the investment they make in an EOS solution. On slide 22, so let's think back to that energy cloud, the dawn of a decentralized, democratized, decarbonized system with a wide variety of customers and needs, You could see how the Zenith batteries integrated with our proprietary software in our stacks, cubes, and hangers are positioned to meet the moment, to bring clean, long-duration energy storage under a building in a dense city, out in the remotest of locations, or in the center of a wildfire region. We think we've got the right technology and approach and the people to deliver. We started a year ago with one salesperson and 45 people, and we sit here today with 12 salespeople, and 200 people who all come into work every day to develop positively ingenious solutions to the world's energy storage challenges. With that, I'll turn it over to Sagar to talk about what everyone's been working on, the financial and commercial front. Over to you, Sagar.
spk05: Thanks, Joe. Good morning, everyone. Over the next two pages, I'll be discussing a summary of the 2020 reported financials. Detailed financial statements and relevant management discussions are available in our 10K and supplemental disclosures. Page 24 is a summary of our 2020 income statement. We made a strategic decision in 2019 to discontinue the sale of our Gen 2 battery and instead focus on commercialization of Gen 2.3. We shipped our first Gen 2.3 container in January of 2021. Revenue in 2020, however, is attributable to the recognition of previously deferred revenue. Cost of sales predominantly reflect cost of our batteries that we purchased from our joint venture at HyPower. Our joint venture began its production in late 2020, and as a result, manufactured fewer batteries. Our cost of sales includes higher attribution of fixed costs and overhead charges to produce these batteries. As Joe mentioned earlier, we made significant progress in getting our batteries certified by UL and are expecting full certification by Q2 2021. We incurred higher research and development costs in 20 compared to 19 from expenses related to this UL certification. We will continue to invest in our technology evolution in 2021. The increase in general and administrative expenses are due to investment in people, processes, and systems, both as a result of our commercialization efforts and our requirements as a public company. Further included are $2.5 million of higher professional fees and marketing expenses related to our merger and listing on the NASDAQ. Moving to page 25. As of 12-31, we had $122 million of cash. Net of transaction expenses that were directly related to the merger, cash proceeds from financing activities in 2020 produced $126 million in cash to EOS. Since 1116, our invested activity includes $3 million in capital expenditure for future capacity expansion as we ramp up production. Additionally, our operating activities include $2 million in general administrative expenses and an additional $1 million in cost of sales. In the next section, I'll be reviewing our progress with commercial pipeline, and booked orders to deliver on our 2021 financial commitments. So if I may refer you to page 27, which is a snapshot of our commercial activity as of 1-31-2021, our customer engagement starts with a lead generation process where we work with our customers to materialize ideas and assess for feasibility, regulation, project plans, and economics. We today have 1.8 billion or 10 gigawatt hours in review within lead generation. Our commercial pipeline is 3.5 billion or 19 gigawatt hours. This constitutes of two key segments, active proposals of 2.8 billion and customers with whom we have a firm commitment and that's 0.6 billion. Any customers or projects with a clear mandate on project requirements, technical specifications, and only a use case that satisfies EOS specifications will be included in our pipeline. We actively present our commercial and technical proposals to customers for such pipelines. Our experience indicates 30% of this over the long run translates into booked orders. In specific circumstances where we have reached an agreement on commercial terms with select customers and have agreed to terms with a letter of intent supported by clearly defined next steps that require actions on part of the customer can be categorized as projects with an LOI or firm commitment. Our experience indicates that an average of 60% within this category translate to booked orders. So as of 1-31-2021, this resulted in 21 million in booked orders. We consider a project to be a booked order where there is a purchase order for EOS to procure material, manufacture, and deliver EOS storage solutions. We see strong momentum in demand and awareness with respect to our solutions. Our booked orders have approximately increased 10 times since the analyst presentation in October and 4 million since our presentation in January. On page 28, let me review a few financing strategies that enable our ability to partner with customers delivering energy and storage solutions. Firstly, We are engaged in development financing for early stage clean energy initiatives with select customers where we currently have a firm commitment. We have committed to $5 million in capital to partner with independent power producers to determine site, scale, market potential within the United States. Once potential partners or off-takers are established, EOS will have exclusive rights to deliver storage. The expected economic value creation from the sale of EOS storage solution is not currently included in this committed capital. Secondly, we have partnered to deliver project financing to select customers and support in development of comprehensive microgrid renewable energy solutions. These customers have successfully received interconnection permitting required for the project and are looking for financing solutions tailored to cover the project costs such as engineering, pre-development, solar, and additional construction required. The economic value creation of the yield storage solution is not currently again included in this committed capital. Lastly, We have strategically agreed to participate in an asset leasing arrangement with select customers for EOS equipment on a lease-to-own basis. This financing is offered at competitive rates and secured in collateral from the storage assets commissioned on-ground. With all of this in mind, in our 3.5 billion pipeline, we have we have line of sight or we see more than $100 million in total opportunities with other customers, ranging from development financing to project financing and asset leasing. On page 29, I'd like to offer you more specific details on the $21.2 million in booked orders we have reviewed earlier on page 27 when discussing commercial activities. Our current booked orders constitute 19 projects with 13 customers and 71 megawatt hours. 14.6 of that represent direct purchase of EOS equipment, and that involves 53 megawatt hours scheduled to be delivered in 2021. Additionally, 4 million of asset leasing represent 18 megawatt hours with two projects. We discussed asset leasing in context of our overall financing strategies on page 27. These projects are also scheduled for delivery in 2021. These two categories make up $18.6 million of our booked orders. Additionally, our booked orders constitute $2.6 million in recurring services from monitoring and maintenance obligations that typically begin starting with year three and range from five to 18 years. 12 of our 19 booked orders have contractual recurring revenue arrangements with EOS. Development financing and project financing from page 28 are not included as a part of our booked orders. We expect the momentum on booked orders to continue in 2021 to deliver our forecasted commitments for the year and beyond. Moving to page 30, I wish to update you on our investment to grow manufacturing capacity from 260 MWh today to 800 MWh in total before year-end 2021. We are partnering with world-class robotics, automation, welding, and molding experts in the United States to align our manufacturing and production schedules to deliver to an expected 1.7 gigawatt hour sales volume between the years of 2021 and 22. This investment will require 38 million in capital expenditure. The uses of this capital will support purchase of new equipment, line automation, and productivity with certain commissioning and implementation costs. We will also be insourcing key business operations internal to our manufacturing facilities during this process to further ensure seamless production and to deliver to our customers' needs. We have a few more topics to cover on commercial activity today and on the total company. And for this, I will hand the conversation back to Joe, who will lead us through this dialogue.
spk01: Thanks, Sagar. Before we move to Q&A, there's two last points I'd like to make. First, I'd like to give you a bit of an idea of the kind of customers and challenges that are behind the numbers that Sagar talked about. As I said earlier, in this new energy landscape, we're working with organizations that represent a variety of business models, industry experience, and operational scale. They're addressing a wide variety of grid challenges from hardening existing systems to deal with changing environmental realities to expanding participation in green energy production to more diverse communities. If you look at this slide and start on the left-hand side, we announced an order with EnerSmart at the end of last year. We've now converted that frame of agreement into two fully booked finance projects for three megawatt, nine megawatt hours each. This is expanding local capacity for the rolling outages that have occurred in California and wildfire relief. And in our pipeline, we have another 737 megawatt hours of potential projects. Then you look at another project we announced. This is with ChargeBliss, again, in California, where we're building grid resiliency for critical hospital operations. When you look at our pipeline that Sagar talked about, there's another 59 megawatt hours of projects that we're working on that address the same need. Then there's the example of Co-op Power in Massachusetts. This is enabling green energy in low-income areas, something that we're really proud of as a company, and there's another 680 megawatt hours of projects that fit into this type of project. And then there's the project that we, one of the first projects we announced as an order last year with Neotropical Technologies for Nigeria, which is bringing solar microgrids to remote underserved locations around the globe. And there's another 48 megawatt hours of projects that we're looking at to do this. None of these companies are household names, but they're all making a tremendous difference in how we face the challenges of modern growing life and bring reliable power to people when they need it and when it's required. So the last thing I want to leave you with on the final slide is where we're focusing over the next year and the team we've put in place to deliver these results. We start off with a target of $300 million in booked orders. You know, we've got Balki Iyer, who's our chief commercial officer, And the new 12-person team that we talked about, it's growing our backlog and we're looking to convert that backlog into more orders that will ship over the course of 2021 and beyond. We're going to be expanding our manufacturing capacity up to 800 megawatt hours. We've got a great team of people that have been with the company for a while and new people that we've brought in with expertise. And as Sagar talked about, we've got some great partners bringing the right technology for us to be able to expand our capacity. We're going to deliver $50 million in revenue, and I'm excited to announce the addition to our team of a former colleague of mine, Jody Markopoulos. Jody's coming in in about a week and a half to take over as our chief operating officer, and she'll not only be helping us in the delivery of that revenue, but also focus on the goal above of expanding that manufacturing capacity. We're going to be wrapping up UL certification, as we've talked about a couple times here in the presentation, led by Daniel Freiberg, who's our senior vice president of engineering and his team. And most importantly, we're going to be coming out with a Gen 3.0 product by the end of the year, taking a lot of what we learned on prior iterations and what we've been doing in the labs to turn that into a product that continues to outperform expectations. You know, Lisa Kunitsyn just joined us from outside the company. She's going to be working with Francis Ritchie, who's the head of our research and development department, to bring this product to reality. And Jasper Health has joined us As the leader of HR, we're going to be working on putting in the right, adding some more of the right people and putting in the right culture in place for the company so we can continue to grow and capture the opportunity in front of us. You know, we're really excited about where we're headed. You know, we're happy to say that we've got $21 million in our current backlog to deliver on that $50 million revenue target. And we're excited as we go into the rest of this year to continue to deliver on the six objectives that you see above. I think this is a great place to close out the presentation today. I'll turn it back over to the operator for questions and answers.
spk02: Thank you. At this time, we'll be conducting a question and answer session. If you'd like to ask a question today, please press star 1 from your telephone keypad and a confirmation tone indicate your lines in the question queue. You may press star 2 if you'd like to remove your question from the queue. For participants that are using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. Thank you. And our first question comes from the line of Chris Souther with B. Reilly. Please proceed with your question.
spk00: Hey, guys. Thanks for taking my question and congrats on the progress here.
spk01: Thanks, Chris.
spk00: Yeah, good morning. So I wanted to start with the 2021 visibility. So we've got, you know, almost 15 million in booked orders. A portion of that $4 million in leasing I imagine gets recognized this year, but it's probably over several years. So maybe you could just talk about where we are with the rest of that $50 million in the revenue plan. Is the bulk of it in LOIs or firm commitments? Are there some earlier opportunities you still need to hit to make that $50 million? Towards the end of last year, you talked about about $150 million in 2021 opportunities that were you know, end of last year or early this year target. So how much of that is still out there?
spk01: Yeah, Chris, I'll start off and then Sagar can jump in. You know, the pipeline, as Sagar walked through, the pipeline continues to grow and continue to add great opportunities to the pipeline. You know, to your point, you know, we do have a good portion of the remaining amount of backlog, which are LOIs and commitments that we continue to work through to close those out. We're in the final stages with a couple of partners on land acquisitions for a few installations. And then also when you look at what's coming in from new opportunities, we're in the final bid stages with a broad base of global customers to really close out that $50 million and get that in backlog. I think that's going to evolve over the next probably you know, into the end of the second quarter. But I feel really good as far as where we are from an opportunity pipeline and how that looks at and how we look for the future. And probably more importantly than just talking about the 50 is focusing on the 300 million because that's also going to position us as we start looking to 2022 from having the backlog going into next year. So when you look at the mix of that, I think we've got – a good opportunity pipeline that's going to allow us to deliver on those commitments. I don't know, Sagar, if you want to add anything to that.
spk05: Yeah, absolutely. Thanks, Joe. Agree with all of that. Chris, here's how I probably respond to your question, right? We have 650-odd million in LOI firm commitments. About 30% of that we think will translate into booked orders. That LOI firm commitment is over the period of 22 and 21 deliveries. So I'd handicap some of that coming into... delivering for the 50 million and the rest of it for 22. Now, of the remaining 3 billion that we have in pipeline, 30% of that will then translate furthermore to substantiate the 50. Where we sit today, we're working with at least about two and a half times coverage on pipeline to deliver both the 50 million and for next year's targets that we have assumed in our projections. and feel we'll be able to get there pretty well.
spk00: That's great to hear. So maybe you could just talk a bit about the sales process for behind the meter, which it seems like a bulk of the stuff you've closed so far versus some of the larger front of meter stuff, maybe using like Hecate as an example, where you signed an LOI there late last fall. When do we expect orders to... ahead of those 2022 sales to start ramping up from them? Is that one large order that comes in from a customer like that, or is it project by project? And just trying to figure out how we should correlate that pipeline growth in the second half of last year into the order expectations.
spk01: Yeah. Yeah, Chris. So, you know, Hecate specifically, it's multiple projects that we're working on with them And we're continuing to go through the process of pushing those projects through the pipe, through the closing process to turn them into firm orders. And I think we're getting close on a couple opportunities. I think we've got some things we still need to do in a couple of different geographies in the United States. But when you look at what's underneath that frame agreement LOI that we talked about last year, You know, we're talking to heck of, you know, I think now we're probably up to five or six different projects opportunities that we're working on to help them close out and to work through and get the right technical configuration so that they get the returns that they that they require on the on the installations that they're putting in the field.
spk00: Okay. That's helpful. And, you know, maybe just, you know, this year, you know, I assume it's going to be kind of a back half-weighted year, but anything you could provide on the cadence that would be helpful in, you know, kind of forecasting out the ramp and then, you know, similarly on the, you know, CapEx manufacturing side, you know, if you could just talk about, you know, what the run rates and, you know, we think we could hit exiting the year would be helpful as well.
spk01: Tugger, do you want to start and then I can jump in?
spk05: Yeah, absolutely. So two-part question, Chris. I'll answer the first part on revenue guidance. As you very well know, we are at this point offering the total year guidance, which is the $50 million in revenue and $300 million in booked orders on top of the $50 exiting the year of 21. Look, there's a ramping of our manufacturing facilities. Like Joe was saying earlier, we have our high-power facility established as of November of 2020. So the first quarter and the second quarter will be really focused on honing in on our operational processes and ensuring that we deliver a quality product out in the field. And the second half of the year will be ramping up the volume of batteries per day and how that translates into customer solutions. Our trajectory is in line with our customer expectations and that's how we have designed the booked orders to meet and manage expectations both internally as well as externally. The CAPEX requirements, which is the second part of your question, we are intending to invest $38 million to grow our total capacity to 800 megawatt hours from current 260. That is designed to correlate with two key activities. Strategically, the launch of the Gen 3.0 battery, which Joe touched on, and he can double-click on that a little bit more. in the fourth quarter of this year. And secondarily, it is to match to the ramping up of customer delivery that I alluded to when talking through the first half versus the second half of 2021. Between these two, I see the ramping up of $38 million setting us up well for delivering on the $300 million of booked orders in 2022. And we have enough manufacturing capacity to manage to our current year delivery schedule and focus on the J3 launch.
spk01: Yeah, and Sagar, I would just add, Chris, the goal here in the next six months is stabilize the operation in high power now that we've been running the facility and continue to improve on our quality and throughput. The big news that's in here is pulling in the Gen 3 product into 2021. So as we've gone through and looked at the testing of the product, what we've learned as we've gone through Gen 2.3, we're going to accelerate the launch of that product by six months. And then that, when you think about the fourth quarter, that will be ramping the production of that product. So retrofitting, um, the existing line and bringing in new lines to increase capacity, which allows us to position the business with a higher power density product out in the marketplace. So, so it's pretty exciting what we're going to be doing here. So I'd look for like first half of the year to be stabilization, the second half of the year to be ramping up to the gen three product into 2022.
spk00: Understood. So of the 50 million, uh, You know, what portion of that would be, you know, it sounds like a good portion of that might be Gen 3 product. Is that a good way to think about that? Yeah, well, we'll have to see how.
spk01: Yeah, and I think, Chris, hard to give a definitive split right now because it's going to obviously depend on customer requirements from a delivery standpoint. But, you know, yeah, I think you're going to look at a year where the second half is where the bulk of the revenue will come from.
spk00: Okay, that's helpful. Thanks, guys.
spk01: Great. All right. Thanks, Chris.
spk02: Thank you. Our next question comes from the line. We have time for one additional question coming from the line of Subhash Chandra with Northland. Please receive your questions. Hi, Joe.
spk04: Question on the project financing and development financing and so on. As we sort of look into 22, how significant do you think that will be as a portion of your total sales going forward? And could you kind of illustrate how that might change the timing of certain things like revenue and costs? And I guess further fleshing it out, how profitable do you think it would be in project financing versus just a standard sale?
spk05: Yeah, so a few things in there. Let me take it one at a time, Subhash, and help me clarify if I'm not answering all of those questions. So let's start with development financing, right? that is a long-term investment for us because because we are really feeding ideas and conversations where we see and agree with the market potential so as you know through that development financing will involve land acquisitions interconnections etc we think that that will help us enable that probably about on the fifth five million of committed capital it'll enable about 10 to 25% of our booked orders in 21, and the rest of it will translate into 2022. The project financing side of it, look, we are financing projects where we know we are actively involved in providing overall storage solutions, right? So that is much more immediate on return basis because because the land interconnection and a variety of other necessary items to understand the magnitude of the economic value are more or less ascertained. So I see that very, very opportunistically. On the asset leasing side, there's a huge opportunity here, and we are only beginning to tap the conversations with our customers, because to Joe's point, as the conversations with the microgrids evolve, there will be an opportunity to further invest more. The line of sight we have today is about 100 million in total opportunity between all three of them. And as Chris was suggesting earlier, yes, as far as the lease to own goes, the revenue recognition will be much more immediate as much as the cash flow will accrete over the period of the lease. But I see all three of these having a... pretty important role to play in our 300 million booked order target and about 10 to 25% of role to play as we think through our 2021 50 million target.
spk01: Yeah, and I think Subhash, I would just add on top of Sagar's comments, you know, you look at the way the backlog sits today and the ratio of what's financed versus cash sales, you know, probably want to keep it close to that amount, given a few points here or there. If you just look at the opportunity versus the target, you'd say the opportunity is 33% of the target. We'll look and see how we address that going forward. And obviously, we can partner on the financing and leasing side as we get the right customers in and underwrite the project. So I think more to come on how we address that. But I think given where the market is, There is an opportunity with pent-up demand where bringing financing unlocks a lot of really good projects to really help in transforming the way we deliver power to the world.
spk04: Okay, got it. And in the comparisons of your, you know, from pipeline to sales, comp from Jan until now, everything moved in the right direction. There was just one category there that's projects under technical evaluation that seemed to have gone down. Is that just a wrinkle in timing or what's going on there?
spk01: I think it's... Yeah, it's a wrinkle in time, a snapshot in time from where we are. As you move things through the pipeline you're going to have these little ups and downs in each individual bucket but we'll fill we'll fill that we have to fill that back up and we'll continue to fill that back up it's not that um the opportunities aren't there it's just where we are as far as the project cycle that we're in from from closing deals Sebastian also add that Sebastian also add sorry to that the lead generation bucket on the same note
spk05: which is a funnel into that active technical proposal section has grown by 700 million, right? So what you're seeing is, to Joe's point, that snapshot, but part of managing and being transparent around what our pipeline is at the end of every period, I suppose.
spk04: Yeah, no, that's right. Those numbers are not big. And then just on, you know, when do you think you feel comfortable on, you know, 21 guidance in the line items below sales? And some of these things, let's say the UL certification and the R&D costs associated with it. I mean, do you see a number like that going down post-certification? Or should we just assume that, you know, the run rate is at the 20 level or higher?
spk05: um considering that your sales will accelerate yeah look i think 2020 was about gen about uh ul certification so certainly we have we have made significant progress there you'll see that particular cost taper down but then again um to joe's point i think what's exciting about the company as we sit here today is the earlier launch of gen 3.0 than what we would have originally expected with previous guidance. So the investment and the expenditure both on the CAPEX side and the OPEX side will certainly involve Gen 3.0. So I'll make sure that there is much more appropriate guidance on a specificity basis coming to you sooner than later. But Gen 3.0 will certainly be a focus in R&D as we go through the next few months leading into Q4.
spk01: Yeah. And Sagar, I would just add too much. What I would say is I think about the R&D number. It's going to transform itself as the strategy of the company evolves. And we need to keep in this space. We've got to keep innovating to stay relevant. And, you know, when you think about how the company's evolved, we were investing in chemistry and then we were investing in a battery. Now we're going to be investing in the new storage system, and on top of that storage system, as we come out with the Gen 3.0 and the different configurations that we talked about, we'll be investing in software. So you're going to see while the number will remain constant, the investment in the future of the company is going to shift as we move from being just a battery company to being an energy storage provider.
spk04: Mm-hmm. And, Joe, on that point, the software, right? Could you elaborate? So, you know, batteries come with management software, which you no doubt have. But is there an ambition now to somehow upsize the value add of that software from the traditional role?
spk01: So it depends on the customer that we're talking about. You know, the way that the strategy of how we've introduced our products was to be agnostic to the energy management system. We have our own battery management system that manages today the containers and the overall system from how you run it and charge and discharge. When you look at certain customer classes, they're going to want an integrated solution, and we're looking at the best way to bring that integrated solution. I think historically we've been transactional on that, and I think we're looking at how we can be more strategic of how we bring that to market. Okay, got it.
spk04: And a final one, Joe, for you. So given what's happened here in recent weeks with the polar vortex, so any sort of macro commentary, I mean, clearly all sources of power failed, presumably. Lithium did not perform well, though we haven't seen many headlines on how batteries fared in this mess. I assume they didn't fare very well with the need for ancillary power and so on and so forth. But do you see sort of a wedge here that you can use against lithium in what's transpired?
spk01: I come back and say we've designed a product. built upon, you know, when you look at the leadership team and all of our experience in the energy industry, we know the product needs to be robust and reliable. And the comment that I made of, you know, from a polar, we've operated in a polar vortex before in the East Coast last year, and we've done it out in the desert. I think that's important as you look at this. I also think that we're complementary to how lithium ion is used. So this four to eight hour range is what we specialize in and that's what we want to help grow in the marketplace. I think there's a big opportunity for us because I think the lesson that needs to come out of this, and I think there are a lot of lessons that still need to be learned, is that when we flip a light switch with something that's very simple, there's a huge complex system behind doing that, and we've all got to do a better job to design a robust, reliable system that's going to require multiple technologies. There's a place for all of us, and we think we've designed – a technology that meets a big unmet demand in the marketplace today, and we can do that safely, sustainably, and reliably.
spk04: All right. Thanks, Joe. Thanks, Eric. All right. Thanks so much. Thanks a lot.
spk02: Thank you. At this time, I'll turn the floor back to Joe Mestranzo for closing remarks.
spk01: Yeah. Thanks, Rob. Thanks, everybody, for joining in today. It's a very exciting time. for us here at EOS. We're excited about what we've been able to achieve and bringing the company public and being here today to announce our first earnings call. And we look forward to continuing to update everybody on the progress that we make. And we are dedicated to bringing positively ingenious technology to the energy grid and helping it become more robust and reliable. So thanks again for listening and talk soon. Thank you.
spk02: This will conclude today's conference. You may disconnect your lines at this time. Thank you for your participation.
Disclaimer