Eos Energy Enterprises, Inc.

Greetings and welcome to the EOS Enterprises second quarter 2022 earnings conference call. At this time, all participants are in listen-only mode. A 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. As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Joe Crinkley, at EOS Energy. Thank you, and over to you, sir.

Thank you. Good morning, everyone, and thank you for joining us for EOS Financial Results Conference Call for the second 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 including current expectations with respect to the future results of 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 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 via replay on EOS's 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. And with that, I'll turn the call over to EO CEO, Joe Mastrangelo.

Welcome everyone. Thanks for joining us today for our second quarter earnings call. We're really excited about the performance of the company here in the second quarter. You know, when you start off on our classic page here on page three and just talk about the top part of this, which is around commercial commercial growth, you know, our pipeline, is now above $7 billion. We have 27 gigawatt hours that we are actively pursuing with customers. Our booked orders so far this year are close to $325 million with a backlog of now approaching 2 gigawatt hours with $457 million of total orders and backlog. It's pretty exciting when we see the market evolving and moving more towards long duration energy storage and as we establish ourselves As an operating company, we're starting to see more and more opportunities come in. And you see that operating company metric coming out on the bottom left-hand side of the page, which is around discharge energy from our technology, which now stands at 541 megawatt hours, with almost 50% of that coming from field operations out in the field at customer locations. Continue to prove the robustness of the technology we've been operating in. in extremely harsh environments that have been approaching 50 degree Celsius ambient temperatures with the systems continuing to operate per plan. At the same time, we were able to deliver $5.9 million of revenue in the quarter. We hit 91% battery yield in the factory, now approaching Six Sigma level performance. I'm really proud of what the team's been able to do. And as far as our capacity expansion plan goes, We're now at 536 megawatt hours of annualized capacity, and you see that growth in revenue being driven by that capacity investment that we've made. Randy will walk through the cash balances. We ended with $16.3 million in the bank with closing on the end of July, an $85 million senior secured term loan. and I'll let Randy go through more of the details there, but really strong operating performance, strong allocation of capital and control of our cash to deliver our strongest operating quarter to date since we've been a public company. If we move to the next page on page four, I just want to spend a few moments here on the market itself, starting off on the left-hand side. The announcement of the Inflation Reduction Act can be a big catalyst for energy storage and also a big catalyst for Made in America. One of the key tenants of the bill is that there's a 30% investment tax credit for energy storage plus a 10% bonus for domestic producers, of which EOS is one. So we feel that that pipeline that we've been talking about as this bill moves its way through approval will help us accelerate the growth prospects of the company. At the same time, I also want to talk about something that happened in California in the quarter where there was 106 $140 million grant put in for long duration energy storage. We feel like we fit perfectly on this opportunity and we've been partnering with the CEC almost since the inception of the company going from testing cells to testing batteries to running pilot systems to now being able to use this $140 million to get utility scale projects out into the field installed in California. The same time, two critical international markets that we've been working on are accelerating. When you look at India, where we have a lot of our harsh operating hours out in the field, they just approved a renewables plus storage mandate for their industry, which could equate to 180 gigawatt hours of demand over the next eight years. We've got a presence and we have a lot of experience operating there. We look forward to being able to participate in that market. And then at the same time, we also have been focused on Europe. With what's been happening in the Ukraine, you see many countries now moving to get off of natural gas, going with a renewable plus storage mandate. And we've been working there and we're starting to see acceleration in demand in places like Spain, Germany, Italy, and France. So we'll continue to work that as we move forward. Now, on the demand side, that's great, but then you also have to think about the right-hand side of this page, which is being able to deliver to that demand. We continue to see a very challenging global supply chain, but the fact that we are now at nearly 85% domestic supply chain takes out a lot of the uncertainty in our supply chain and how we're able to deliver and reduce volatility and risk about what we can do, and our product being an inherently earth-abundant bill of materials and being able to get the raw materials and develop long-term relationships, we're able to deliver on a short notice. And in fact, if you look at one of the projects that we closed in the quarter with Bridgelink was for delivery as we get into the end of this year, and that's basically because of the investment in our capital, the investment in the domestic supply chain, and having a bill of material where you'll be able to deliver. So as we take the left-hand side of the page and look at the growth accelerating, and then look at our global supply chain operational strategy, we feel really good about being able to deliver this growth over time, and we're starting to show as a company our ability to be able to execute and deliver to customer requirements, which is very exciting. Now, continuing that talk about growth, I want to move to page six and go to our classic pipeline page where we talk about the opportunities that we're working on as a company. We always start off with what we call lead generation, and lead generation early stage opportunities where customers are coming with ideas and doing feasibility studies you know that lead generation increased close to nine hundred million dollars in the quarter it now stands at six point two billion we're getting a lot of incoming from different ideas of how to generate and come up with operating opportunities for our technology and that is translating into our pipeline growth and remember Pipeline growth, our current pipeline, is made up of three buckets. Technical proposals where we get a use case from the customer and we provide them with a technical use case and the ability to use our technology to generate revenue. A non-binding quote where we're giving a technical and financial use case. And then a letter of intent, firm commitment from customers where they have selected EOS as their technology and have yet to close out all the... requirements to have a project. Those three buckets now stand at $7 billion, which is up nearly $800 million during the quarter. And obviously, our first half booked order is standing at $324.7 million, 1.3 gigawatt, up $258 million versus our Q1 earnings. It's very exciting when you start to look at the projects that we've been talking about moving through the pipeline in that middle section of this page are now turning into booked orders. And we continue to work that process as we go forward and feel really good about how the commercial team has positioned the company for growth. If we move to page seven, I want to spend a moment on our current orders backlog. As we said, we booked $258 million worth of orders. Our backlog stands at $457.3 million. It's very exciting for me to sit here and think about at the end of the quarter, or at the end of July, I hit my four-year anniversary with EOS, and to sit here and think about the fact that we now have nearly two gigawatt hours of backlog is very exciting for me and for the team that has been working to bring this technology to market. On our deliveries, the majority of that backlog is on equipment deliveries, $424 million. We've got 33 million in long-term service revenue. On a percent basis, that's lower than the percentage that we're targeting. But because we have multi-year agreements with people, those service orders will come as we start executing on specific projects. So we expect that number to increase as we move forward. But again, really good progress. in building up a backlog and building up a revenue stream for the company. And as you'll see, we're starting to see customer cash flow through into our numbers when Randy walks through the cash numbers later on in the presentation. Now moving on to page nine, talking about some second quarter operational milestones. We have seen really what I would say five big milestones for us. This passing the 500 megawatt hour of cumulative lifetime energy discharge was a big one for us. You can see that first picture to the left was the 100th energy block being shipped back in April. The center picture is the team that produced the 20,000th battery in our Turtle Creek facility that was built and shipped in June. Very proud of the work that they're being able to do, and they're standing in our new building where that battery was produced. So where they're standing was empty in January and is now producing in June. And that picture to the right is our new fill-in test line, which gets us up to the 536 megawatt hours of annualized capacity. We've increased that capacity by 70% from Q1 in 2022. Really an amazing performance when you look at the amount of volume that we're able to ship and product out the door while moving into a new facility. In my 30 years in the industry, I've never seen a supply chain operations team be able to execute simultaneously a production plan while doing a construction plan to bring a new factory online. We also continued our path to cost out. We took 24% product cost out on an input basis. So the team continues to increase throughput, improve yield while taking costs out of the product truly an exceptional performance by the operational team the same time we move to page 10 we're building upon this operating excellence the lower left-hand side of the page you know we increased our infrared welding capacity by 2x in the quarter you can see those welders there on the left-hand picture the upper left-hand picture and We increased our quarter-over-quarter energy block output by 66%. A lot of that having to do with delivering on the expansion plans. And we're improving our operating performance. We've taken 17% cycle time reduction out of the battery welds and, while I said earlier, taking 24% of cost out. Now, what's important for everyone to realize here as we move forward, we've always talked about building discrete processes that can deliver a quality product, and then automating and improving performance. So some of the cycle time performance that you're seeing, it's just the beginning of what the team will be able to deliver. But the thing that I'm really proudest of is that lower right-hand graph here on page 10 where we hit this 91% battery yield over the course of the quarter, which is a big milestone if you think about where we were at last year this time. So kudos to the team. in Turtle Creek for the delivery. As we look at our progress here on cost out and expansion, we've talked about that left-hand chart. What I would say is on cost, we were targeting 25% cost out. We're off by a point here at the end of the quarter, a lot of that having to do with some final shipments that were scheduled to go out but went out in early July. And on the capacity side, we actually exceeded our capacity target by 21 megawatt hours. We continue to lock in our material requirements. If you see from, you know, this was a chart we showed in the first quarter, you know, we have more inventory on hand. So 25% of what we need to deliver the plan in 2022 has been delivered. We have 65% under PO and we have 10% that we're still out working on volume discounts and tier pricing plans. supplier delivery to be able to deliver on this, but I feel really comfortable about the work here that's being done by our sourcing team to be able to have the material there when we need to build the product. Then on the right hand side, I just want to talk about one of our biggest shifts in supply. That is our first non-ISO North American built enclosure. You know, we've talked about this a few times and we're targeting more than 50% cost out with this product. It's 8% of our total baseline cost. This will take us almost to nearly 90% of our bill of material being North American, American made. It's critical to us here because we will be ramping up the production and delivery of that product you see right there in the month of August. So it's a very exciting time for us as you start to think about going from that 76% cost out down to the 57% that we're targeting on the graph on the left-hand side. So great work, great partnership. The partners that we did to deliver that product, we're also working with to deliver our Z3 enclosure. So it's a pretty exciting time here as we start to look at new ways to deliver and come up with the most cost-effective product in the marketplace. Page 12, just quickly, you know, we were a... R&D company a few years ago. And if you would have looked at when we talked about delivering or using our energy block, that lab portion of the green there, that 136.6 megawatt hours discharged out of our test facility in Edison, New Jersey, that would have been the biggest number. That's been more than surpassed by the energy that we're delivering out in the field to customers. So we're going to continue to see that field number increase. FAT is our factory acceptance test, so when we ship, we cycle all of our batteries before we ship, and that's why that 91% yield that we're talking about is a tested product in the factory that's integrated and shipped out into the field, which is an advantage for customers because there's a lot less installation and commissioning work you need to do with an EOS product with respect to what you'd need to do with a lithium ion or other products when they're shipped out into the fields. Moving to page 13, I want to spend a couple moments on Z3. Z3, when you see this, you see on the left-hand side the battery design that we're going with to be able to deliver. It'll be one battery, 20 cells. When you think about this, a battery that we have today is 40 cells. This battery will be 20 cells and deliver more than 2 and 1 half times the output coming out of that as we've done material and science work with our R&D team to be able to improve product performance. The middle is the new enclosure, which will have 576 batteries inside of this. What we'll do when we get out in the field is put five of those enclosures, we'll string those together using one battery management system, and that will then get us to about the equivalent size of a 40-foot container. And we are targeting significant improvement in performance and footprint power density with this product as we move forward. And if you look at this product on page 14, I just want to give a quick update on where we are on the development of the product in and of itself. Again, another great performance mix of our operations team and the R&D team where you can see the prototype testing tools on the two pictures on the left-hand side. We're very excited about the product that came off the line for the first time in my career. first piece that came off the line met the quality requirements, and we are now getting ready to start to think about design for manufacturability. That electrode that you see in the middle, we've come up with a process that will speed our manufacturing and enable us to get more throughput in our factory over the same asset base. And if you see on the right-hand side, that picture to the right, that is the module that we'll be putting in those enclosures I saw in the previous pages. Great progress here on track, both on a performance, being able to introduce the product out into the marketplace, and the cost targets that we have. So it's a pretty exciting time when you think about the growth of the company, the ability to deliver improvement in operations, and the development of the technology and the next generation product out into the field. With that, I'll turn it over to Randy who will walk us through the financial results and wrap up the discussion today. Thanks.