Eos Energy Enterprises, Inc.

Good morning, and welcome to EOS Energy's first quarter 2022 earnings call. All participants will be in a listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star, then one on your telephone keypad. To withdraw your question, please press star, then two. Please note, this event is being recorded. I would now like to turn the conference over to Joe Crinkley, EOS's Communications Manager. Please go ahead.

Thank you. Good morning, everyone, and thank you for joining us for EOS Financial Results Conference Call for the first quarter of 2022. On the call today, we have EOS CEO Joe Mastrangelo and CFO Randy Gonzalez. 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, uncertainties, and assumptions. Should any of these risks materialize or should our assumptions prove to be incorrect, our actual results may differ materially from our projections 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 filings. Our remarks during today's discussion should be considered to incorporate this information by reference. Forward-looking statements represent our beliefs and assumptions only as of the date such statements are made. We undertake no obligation to update any forward-looking statements made during this call to reflect events or circumstances after today, or to reflect new information or the occurrence of unanticipated events, except as required by law. Today's remarks will also include references to non-GAAP financial measures. Additional information, including reconciliation between non-GAAP financial information The U.S. GAAP financial information is provided in the press release. Non-GAAP information should be considered as supplemental in nature and is not meant to be considered in isolation or as a substitute for the related financial information prepared in accordance with GAAP. In addition, our non-GAAP financial measures may not be the same as or comparable to similar non-GAAP measures presented by other companies. This conference call will be available for replay via webcast through EOS Investor Relations website at investors.eose.com. Joe and Randy will now walk you through the company highlights, financial results, and business priorities before we proceed to Q&A. With that, I'll turn the call over to Joe.

Thanks, Joe. Welcome, everybody, to the 1Q earnings call for EOS Energy Storage. Proud to be here with everyone, and I just want to start off on page three, walking through some recent milestones that have occurred since the end of quarter close. First, we recently signed a large letter of intent with a Northeast solar developer for 300 megawatt hours of future business to be delivered over the course of 2023. We're going to be working with that customer, as we've always talked about with our commercial model, get the LOI signed, get on the same side of the table, close out the overall deal. So we'll be working here over the next 30, 60 days to bring that one to a bookable order. At the same time, we talked about the last call expanding capacity for in a new addition to our facility in Turtle Creek. We've added 65 megawatt hours of that capacity in the first two months that we've been in the facility and are producing product out of that facility in just over 60 days. Really proud of what the operating team has been able to do. And on the picture to the right, you see we shipped our 100th energy block About a week ago, you know, this is a tremendous milestone by the team. Really great accomplishment that that energy block there. Number 100 is going to be headed to Blue Ridge and Pine Gate renewables for the East over project that we've been executing on here over the past. 30, 60 days. At the same time, we also announced a financing commitment for up to $200 million with Yorkville Advisors. We're proud to be partnering with Yorkville. Randy will walk through a little bit more of the details around this agreement that we've come to, but we talked about finding the most effective means to raise additional capital to achieve our growth plans. I think this is one of the first moves that we'll be making here to shore up and be able to deliver on the plan that we laid out in our last call. If we go to page four, you see in the operating highlights, I really want to focus in here on the growth side of the business. $67 million of orders, 241 megawatt hours. Our total order backlog now stands above 200 million and is rapidly approaching a gigawatt hour. And I'll walk through the opportunity pipeline, which now stands at 6.2 billion and is up over a gigawatt hour of opportunities since the last time we were together. Randy will give you the bridge and the walkthrough on the revenue that we delivered today. in the first quarter, and cash on hand right now stands at $55 million, exclusive of the financing arrangement that I previously talked about from Yorkville. We're proud of where the company is heading and how the team is executing. You can see quarter over quarter, sequentially, you continue to see progress across these core metrics as the team continues to get out in the market. We're seeing an uptick in demand for energy storage, and we're also seeing a shortage of available product And that gives us an opportunity as we bring our capacity expansion online to continue to grow the company. And I'll walk through a little bit more of the details on that in the next section. Let's focus now on our commercial pipeline orders backlogs. If we go to page six, this is our traditional commercial activity, our pipeline page. Always want to start off on the left-hand side of this page and talk about lead generation. Lead generation are projects where Customers are asking us for feasibility studies. They're coming with ideas. They want to develop a project plan. They're looking at different regulations and revenue stacks to come up with ideas. When we look at this now, that stands at 5.4 billion or 28 gigawatt hours, up 1.3 billion versus the last time we spoke, and we're starting to see more and more activity and more and more customers approach us to see how our technology can fit their use cases. When you think about this, This has about a 30% hit rate where you go from a lead generation that becomes current pipeline. When you look at the current pipeline, current pipeline today, which is active proposals and LOI firm commitment, stands at $6.2 billion. That's up almost 50% from the last time that we were together. You're seeing a couple of things happening in there. There's normal churn in and out of projects, but overall the core projects, are up around $700 million. And at the same time, as we've been looking and analyzing our cost position and also looking at the demand in the marketplace, there's been an increase in the price that we're bringing to the market, which is also driving up the dollar value of the current pipeline. We now stand about $100 a kilowatt hour higher on price versus where we were at the end of last year. We continue to see that momentum carry forward, and you see the booked orders, which we talked about on the earlier page, the $67 million that we closed that feel really good about that center part of the page and us being able to continue to convert and drive towards our $400 million order target for 2022. And the uptick in lead generation is also important because we have more and more people calling us earlier in the deal cycle, which allows us to tailor their project specs and help them deliver more value to their end user by using EOS technology. So overall, we see the commercial pipeline strengthening, and that's growing rapidly. the current orders backlog. So if you go to page seven and you look at the breakout that we always give you, we booked $62 million, almost $63 million of booked orders. Inside our order increase, we also had change orders. When you start looking at what's happening on the execution of projects, cost inflation that we see principally around transportation and change in scope to be able to deliver on our projects. Our project team is creating value as they go through and execute on the projects. And then you've got customer shipments coming out of that number where we stand now at $212 million in backlog. Really proud of that 827 megawatt hour of backlog. It's 28 projects with 15 different customers, so we are seeing customers purchase more than one project from us, and we're seeing that pipeline of projects for individual customers increase. Backlog deliveries, when you look at where we are in backlog, 177 million of that is for new equipment deliveries, and 35 million of that is for long-term service revenue. Now, when you think about what we've always wanted to target as a company, is a 20 percent ratio and right now we stand around 17 of long-term service revenue of our total backlog that's the number that we're going to keep driving as we move as we move forward you know what we're trying to do is get customers to commit on the long-term service agreement at the time of the new equipment order but in some instances they want to wait until they go through just in the normal cycle and if something that I've always seen as I've been in this industry for 30 years, that that's how the market will behave. But we're really seeing great activity here on the commercial side. And as it relates to asset leasing and things we talked about in the past, there's been no change in the portfolio here as we go more and more with just straight product sales out into the market with a follow-on service agreement. So we're looking to continue to drive this number up. We're proud to have a number above $200 million here. When you think about where we started when we went public being around $5 million. Just great progress by the commercial team in getting the product out into the marketplace. Shifting gears now to talk about operational excellence. We've really seen a lot of progress in the business here and the team that is running the facility in Turtle Creek has really done a fantastic job at improving our performance. If you go to page nine and we talk about building operation excellence, You can see the factory for the people who have come and visited us, every time you come, if you wait about two weeks, you come back in and it looks like a totally different facility than the last time you were there. We're increasing our operational scale. We had 69% increase in the number of energy blocks that we got out of the factory in the first quarter. We took a 50% increase in test fill line output. And the picture on the upper right-hand side of the page shows our new fill line layout. What the team has done is really been taking both lean and Six Sigma and improving performance and output. They've taken, you know, when we were filling batteries before, we were touching the battery 27 times to go from a welded battery to a filled battery, and we're now down to four with a target to get that down to three, which allows us to drive tremendous productivity over the existing asset base. The same time, the picture on the upper left shows our current battery welding room in the existing facility. And the picture on the right is a new machine that we brought into our new facility. As we expand that facility, this machine gives us the ability to use artificial learning to be able to improve the performance of our welders and the throughput of the machines. Now, the key thing on that picture on the upper left-hand side and the big change that was made by the team is that we now have one operator running two welders, which is a tremendous amount of productivity for us across the existing asset base and also reduces the need for labor input on the product that we put out of the factory. Taking that all into account, At the same time, we're also reducing the test cycle time. As we've improved and dialed in our manufacturing processes, we're getting more and more consistent batteries off the line, which is taking us less time to form those batteries and prove that they work and get them out to our customers in the field. And what you've seen is a lot of work being done by the team in taking product cost out. So the work that we've been doing here over the last year 20 weeks is now translated into a 14% cost out on an input basis. This you'll see as we go through and we talk about the financial performance in the quarter. You're not going to see that 14% on a quarter by quarter output basis, but we are starting to see core product cost out as we scale up manufacturing. You can see the battery volume in what we shipped in the first quarter is up 56%, and at the same time, we increased our battery yield to 4%. If you remember, our target is to get to 90%, and at the end of the quarter, we ran on a weighted average of 88%, which has again been great performance by the overall team. What I want to do now is shift to the next page and really talk about the operating environment that we're running the business in today. This is one of the most challenging supply chain environments that I've seen in my 30-year career. We start off on the left-hand side of the page. We see, like everyone else, tremendous inflationary pressure on our overall product. When you look at the battery or core materials, there's been a 10% to 20% increase inflationary pressure on those materials, but what we've been able to do is go out and get multiple suppliers, sign long-term agreements, and look for lower spec and alternate materials to take down cost. On the energy block or the containerization and battery management system, we've been able to increase our U.S. supply chain content, and we've gone for a non-ISO container design, which will take cost out of the overall landed product in the second half of this year. And then finally, one of the biggest cost drivers, I think, across the globe right now is just freight costs. And what we've done to be able to start managing that is that our product now has a non-hazardous rating, which gets us into a lower cost shipping when we're shipping final product. We've increased the U.S. content, which reduces the shipping costs that we have. And then on the customer side, we're working with customers on the transportation where we're holding the costs on battery material and the energy block as we bid out into the market, but then telling the customer that as we bid freight, we're going to have to do that on a cost-plus basis, just because of the uncertainty around that design. Now, while that's happening out in the marketplace, we are taking costs out with production scale, design, and sourcing activities. So if you look at these two lines, the line that starts off at 100% is the index bill of material costs on an input basis for our energy block. If you think about this, we took 14% cost out, and you can see the cost curve coming down to where we are targeting taking nearly 50% of cost out of our product by the end of the year, while at the same time, we ramp up production in the new facility from up to adding the 550 megawatt hours to get to 800 megawatt hours of total cost. Below that graph, when you look at that, you see the timing of the interaction of taking cost out while ramping production, there'll be a lag where we'll start to see savings on an output basis in the second half of the year as we ramp up production. So we're going through this process of driving down costs while ramping up capacity. And as you get into the second half of the year, we're going to start to see costs come down on an output basis. And we feel good about that because if you look at the right-hand side of this page, We're locking in our material pricing and capacity with suppliers. 76% of our 2022 material requirements are under PO. 7% have already been delivered to us and either have been shipped to customers or in inventory. And we've got 17% still to go, which ties to some of the actions that I talked about earlier. on the left-hand side of the page. We're getting good tiered pricing and volume discounts from our suppliers. We're signing up long-term agreements. You saw that with the Tetra agreement that we announced at the beginning of this year. At the same time, this comes with a cost on cash. We've put out $11 million in advance payments to suppliers to lock in capacity, and now it's up to us as a supply chain and operations team to manage the delivery risk of that material coming into the factory, converting that into finished product, and getting that out into the market. I feel really good about the team that we have in place, how they're managing and mitigating the risks, and this is something that we work on on a daily basis to really keep in front of this, and new things pop up every day, but the team has shown tremendous grit and flexibility in being able to manage through these and continue quarter over quarter to deliver more output with a higher yield at a lower cost. So really proud of the work that's being done there. With that, let me turn it over to Randy, who will walk through the financial results and then wrap up and get us into Q&A. Thanks.