Eos Energy Enterprises, Inc.

Good morning and welcome to EOS Energy Enterprises' fourth quarter and four-year 2022 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 form and presentation. With that, I would like to turn the call over to Joe Crinkley, Communications Manager. Sir, you may begin.

Thank you. Good morning, everyone, and thank you for joining us for EOS Financial Results and Conference Call for the fourth quarter and full year 2022. On the call today, we have EOS CEO Jonah Strangelo and CFO Nathan Craker. 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 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 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. Today's remarks may also include references to non-GAAP financial measures. Additional information, including reconciliation between non-GAAP financial information to 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 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 EO CEO, Joe Mastrangelo.

Joe, and thanks everyone for joining this morning as we deliver our 2022 financial results. I'd like to move right into page three and go through our operating highlights, the classic format we use every quarter. When you look at how we see the market growing, and we'll go through in a little bit more details as we as we go through the presentation, but our opportunity pipeline stands at $7.5 billion, representing 29 gigawatt hours of potential orders. We've seen a significant strengthening and growth in this number since the passage of the IRA, and I'll talk later on in the presentation about how we see that evolving here over the next 12 months. On booked orders, we booked almost $340 million of orders, about a gigawatt, 1.4 gigawatt hours, That, when you think about where we were at the end of last year, tremendous performance by the team, had a lot of momentum going into 4Q that made us feel good about increasing our orders commitment for the year. But with the passage of the IRA, we saw a lot of growth on the opportunity pipeline side. The slowdown on the order side is everybody's kind of waiting to see how Treasury rules on the investment tax credit and the production tax credit. So I think more to come, but I feel really good about what we're seeing on the opportunity pipeline. Discharge energy, we're above 800 megawatt hours of energy discharge, continues to grow quarter over quarter. Today, as we get later into the presentation, I'll walk through and talk a little bit about the containers that we built, where they are in their phase of operation, and how we're moving that forward with our team out in the field. Revenue, we came in at $17.9 million, a 290% increase versus last year, below what we set our guidance on at the beginning of the year. But if you remember, at the end of last year, we reduced that guidance just as the as the IRA legislation came in place and working with our customers to have shipments go out in 2023 so that both of us can take advantage of the full benefits of the IRA program. We ended the year with a little bit over $17 million of cash on hand that's available for us to use, plus another $14 million of restricted cash tied to our senior secured loan with Atlas Credit Partners. So when you take all those things into consideration, really, some good performance by the entire team as we move forward. I wanna go now to page four and talk a little bit about page that we showed last time we were together and just talk to where we are versus what we said in Q3. Around the legislation, I told you about the impact on orders and shipments at the end of 2023, but feel really good about how that's gonna evolve here over the next few months as we see blue chip customers and also significant shift to longer duration storage, we see the pipeline going up. I think you'll see that converting into orders as we go through the year. On the existing product, we delivered our largest project to date to Pine Gate for their Eastover project, and we're in the midst of finalizing commissioning on those units. The team has done a fantastic job as we've gone through 4Q, really, in my view, being in the industry for 30 years, this is our first time Executing on a big project. I think the team really did a phenomenal job of working through and confronting things that we really never saw before Because we've never done something this big but the level of expertise that we brought in the company has allowed us to manage through that as We get the project up and running for our customer on g3 development We started manufacturing the product in Turtle Creek. We're really excited about how the products performing I'll go into a little bit more details on how that works, but this move of going to the z3 which takes a a safe product that performs and gives operating flexibility and really further simplifying it down to fewer parts, a faster manufacturing cycle time, better operability, higher performance was the right decision for the company. And what we're seeing coming off of our low rate initial production line here at Turtle Creek has been nothing short of good news. And we feel really good about how we can move this forward in the future. From a capital allocation standpoint, we do, as I said, in order to produce those units, we installed our initial Z3 manufacturing stations. Another example of going from an empty room to a line up and running and producing product, relatively low capital allocation, just proves out the theory that we've been saying since we went public two years ago, that this is a scalable technology that can provide measurable benefits to customers and can be scaled in the capital efficiency that other technologies yet to have yet to see from our revised strategy we delivered on what we said we were going to do at the end in q3 and feel really good as we enter as we enter 2020 2023 you know again we'll go through and Nathan will talk later on you know the biggest the biggest thing for us is now pulling all these things together getting the capital to be able to scale the company and we've been working on that amongst multiple different avenues of Most importantly, we continue to work with the Department of Energy on our loan application. We're in the due diligence phase. We feel really good about the cooperation that we have. and going through, this is something that really, when you think about what we're doing as a company, it's somewhat a first for the industry, for sure, and somewhat a first for the LPL. So we're being very thoughtful about how we move through the process with them to get through due diligence into conditional approval and funding here in the later part of 2023. So feel good about the positioning. More to come as we move forward. We'll keep you updated on the progress, but continuing to progress and work with them through the due diligence process. Now, if we go to page five and you look at the energy storage market, this integrated legislation that's been put in place for the United States is something that's really accelerating the growth for energy storage. And again, our technology was designed to be paired with what I would call green molecules like wind and solar, but also works well to make brown molecules a lot more effective. And we're seeing the demand not only increase for energy storage in general, but also the duration of how people want to use the product and then understanding as you have more and more intermittency brought into the grid, both from how energy is used and how energy is um is produced our technology fits perfectly in there now the important thing to think about again like the market is huge the growth is big focus is important so when you look at this inside the united states three markets successfully commercially launching and establishing ourselves in three markets will allow us to hit significant growth for the for the company the california market where we announced a project with the California Energy Commission and Indian Energy is currently under execution. We look forward to delivering that, but there's more to come behind that as they are really at the forefront of long-duration non-lithium ion storage to add to what they already have in their grid. The ERCOT market in Texas, there's a queue of 66 gigawatt hours. We've got projects that we'll be delivering there out of our backlog over the course of 2023. But we see an uptick in our opportunity pipeline specifically focused on the ERCOT market. And then New York is another area with the goals that they've put out for green energy and carbon neutral strategy. There's a significant amount of future growth as we go forward. Now, I feel good about the overall legislative landscape that we're putting in place to be able to grow energy storage. So there's benefits on the investment side. that are also added with a 10% kicker on the investment tax credit if you buy U.S. technology. We're pushing to make sure that that's manufactured in the U.S., not assembled in the U.S. We're trying to establish as a clear supply chain for the country as we move forward to give us better grid stability and great energy security. And talking about energy security, if you move to the far right-hand side of the page, you see Europe announcing a new green deal. We're starting to see growth there. You see Australia coming out with a climate solutions package, I think what other parts of the world are seeing is that with an integrated strategy like the United States has right now, there's an opportunity to grow and grow not only your ability to generate power for people to live their lives, but also do that in a less impactful way on our environment. If you think about the challenge that we face as an industry, over the next 20 years, the demand for electricity will increase 50%. That demand for electricity is going to need technologies like EOS, and I think we're primed to be able to deliver that as we look forward. Now, just wrapping up here on 2022, I'm proud of what we've done. You know, when you think back, and I look being on the inside of the company and watching what everybody does on a day-to-day basis, this is a tremendous performance. We've got to continue to drive the company on this path, the full commercial scale, and and the Z3 product allows us to do this. But year over year, we've increased our shipments to customers 4.4 times. We got to 600 megawatt hours of capacity with a $20 million investment, proving that you can scale quickly and capital efficiently our technology. As I talked earlier, we delivered $17.9 million of revenue from our backlog. We got our manufacturing process in the Gen 2.3 product above 90%. That above 90%, we'll talk about, if it's that good, why are you switching? Well, if it's that good, why are we switching? Because switching to the Z3 allows us to do it faster with even a higher yield than that 97%, even as we're producing our first batteries. And we've accelerated our booked order growth. I talked about the orders growth, but I also want to talk about 1.3 gigawatt hours of signed customer master supply agreements Those are agreements that go over across multiple years. What we're seeing happening in this space is as customers look to that growth I talked about on the prior page and they see tight capacity coming from lithium-ion, with lithium-ion really being focused on the EV market, they look to us as the company with probably the largest manufacturing capacity in the industry for non-lithium-ion batteries. and look to us to help fill that gap and be able to grow. So we feel really good about that 1.3 gigawatt hour multi-year master supply agreements just allow us to steadily grow in the future. And then lastly, just want to give this quick snapshot of six metrics that really talk about the performance in 2022. Order pipeline up 83%, booked orders up nearly 150%, order backlog up over 200%, Shipments up over 300%, revenue up nearly 300%, discharge energy up 100%. Great performance. And again, when you think about this, the piece that's missing in here is a profitable company. And what we learned about the Gen 2.3 product was there was a lot of cycle time required to manufacture it. There were components inside of that battery that were higher cost for us to be able to drive cost out. And the switch to the Z3 positions us to start this journey from where we are today to becoming a cash flow positive company. So if we go to the next section, so commercial viability for the product, it's very important to think about the demand is there. It's getting to the point where we can show that the product works as designed and then continue to grow the company as we move forward. So if we move to slide nine, shipments and installations, I think this is an important slide. that really talks about some of the dynamics that we're seeing out in the marketplace. We've shipped 258 energy blocks over the life of the company as of the end of February, as of the 26th of February in 2023. When you look at how that mix works, 6% of those are out cycling in the market, 75% of those are in commissioning with the lion's share being the Eastover project for Pine Gate, which you can see a picture of that project on the lower right-hand side of the page. It's just a beautiful thing for all of us inside of EOS to look at. And for those of us that have been with the company for a while, it's also one of these aha moments where you say, look at what we've created from a small lab in Edison to have a factory in Turtle Creek and then a project like that down in South Carolina. That 75% will change as Eastover comes online. And then there's another 19% that are waiting, permitting in-site readiness as customers work through their process to get ready to install the container. So we continue to work this. I talked earlier about the work that the team has done out in the field. Really phenomenal and something for all of us to be proud of and really will continue to show this as we move forward. But this really goes to show that this is a product that's no longer in the lab, it's no longer just in the factory, it's out in the field and being used by customers. So if we move forward, if we just go to the next page and take that installed base and think about how it's being used out in the field, the big thing for me is we crossed the threshold of 500 megawatt hours out in the field, 500 megawatt hours of energy generated out of our systems out in the field by customers. We're approaching a gigawatt hour of output It's going to be great to watch as the Eastover project becomes live. When you look at that chart on the lower right and you look to the far right, you see that line sloping up. That's the cycling that we see in Eastover today, and it's only going to increase as the customer uses that technology. Now, the next slide on slide 11, look, that's talking about what we've done and where we are. This next slide is just a picture of the team that made the first Z3 cube reality. You can see the cube, but it's more importantly to see the team, the people that actually made this happen. That cube is now in our facility in Edison, New Jersey and going through various performance tests and updates around our BMS, our software to operate the system. But I'm proud of that group of people that you see standing in front of that product and proud of that product. It's just a great accomplishment to think that that's how we started off 2023. If we go to slide 12, here's some shots of the low rate initial production line there on the bottom left. You know, we're rapidly approaching 1,400 batteries as we speak. The beauty of this is that the yield off of this line is 97%. Now, when you think about this, I just want to talk for a minute about our strategy of how we build out capacity. I've talked about this before where many battery companies in the past have struggled because they build a factory then go out and try to get volume. And then when they start manufacturing, you learn what you don't know. You know, we truly are an uncharted territory here. So everything we do is a first. So you want to learn before you make a massive investment. So what do we do as far as bringing capacity online? We start off by bringing in discrete manufacturing processes and getting those to perform at a high quality level. That's that 97% first best yield. We then go and figure out how many of those machines do you need in a manufacturing cell to be able to get capacity. And then we try to figure out what's the configuration of those machines in a manufacturing line so that you can drive the optimal performance and output of that line. Do you have some machines on the right? Do you have some machines on the left? How do you feed the material in? But we're moving the material manually. Because once you figure out your line configuration through that manual material move, then you automate. The hardest thing to do in a flow production line, like what we're doing here, is build a line and then realize that should be in a different spot. Maybe something should come before or after. Then that costs a lot of money to fix. So we're very wise with the money that we spend to make sure that we do it right. We learn, adapt, implement, then learn again and make ourselves better. But the beauty of this first seven weeks of production is that the team in Turtle Creek is operating at a Six Sigma level of yield off of the line. The second thing that I'd like to talk about is the simplicity of this product. We had a benchmark done of our manufacturing process versus building an EV battery on an automated line. So the Z3 automated line, we have one-third the parts that go into the module itself. We have one-third the processes to be able to manufacture those batteries with one-third the stations. And also critical to note, with no clean rooms. It's precise, but it's not complex. And you see that complexity, that simplicity coming out where we use 1 20th of the PLC automation codes. The software that's used to operate the line will use 1 20th of the code that a lithium ion battery line would use versus an EOS line. Now, all that coming out on the other side, I think on the far right, this is important. We've already gone through UL9540A testing on this battery. One of the tests that you do is shooting a nail at the battery. And the reason why you do that is to see if the battery will, if it will cause a thermal event or explosion of the battery when shot with the nail. Well, I'm happy to tell you that they tried it four times and the nail wouldn't even penetrate the battery. So when we went through the testing, it was unapplicable. We've gone through, we went more than 2x the specification required with no fire, so proving out it's not flammable, with less vapor. Remember, water-based electrolyte, thermal event, you're driving heat. The heat then turns to steam, and our safety measure is to vent out the steam out of the battery. We've passed those tests with flying colors, so very proud of the team here to go from Set a lineup, build it, first cube, 9548, and now we're starting UL 1973 testing. So well on the way to having a product that will be out in the market relatively quickly. If we go to page 13, this shows the clear advantages that we get as a company and you as shareholders of the Z3 versus the Gen 2.3 and why we made the decisions that we made. To do a one gigawatt hour line, it's 50% lower capacity investment than what you have on Gen 2.3. the cycle time comes down from about 55 minutes to build a battery to around 90 seconds with a Z3 battery. When you think about how that operates, you can just see between the pictures here on the second column from the left, the Gen 2.3 battery has 2x the cells and more than 2x the parts of what we have on a Z3 battery. We get 9x increase in battery output on the line with an automated Z3 factory. So it's just a great move for us from manufacturability, repeatability, and quality. The energy density of what the customers buy goes up 35%, and the size comes down by 50%. So it's really a great product that becomes more power dense. It can be built faster, and it can be built at scale with high quality. And that equates to the fourth one, which is at launch, we're starting off at a cost position that's 50% lower than the cost that we had for the Gen 2.3 battery when we launched it. And that's because of the materials that we're using in our bill of materials and in the battery itself, which reminding everyone again, are about 95% sourced and manufactured in the United States. So product invented in the United States, perfected in the United States, built in the United States, It's something that everyone in the company, whether we're in Edison or in Turtle Creek, are very proud of. So now shifting gears and going to the commercial pipeline and orders backlog, let's go to page 15, which is our classic commercial pipeline page that we review every quarter. Again, to remind everyone, lead generation are projects where customers come with an idea and they don't yet have a technical use case that we can give them an offer on. That number is up nearly $2 billion since last quarter. What happens is, in general, about 30% of that converts in the current pipeline. Current pipeline we define in three segments. First one is where we can give a technical proposal, where we can give a non-binding financial quote, and importantly, when we can get a letter of intent or firm commitment. Basically, in layman's terms, the customer comes and says, if I win this project, EOS is my technology provider. We focus on that because we want to be on the same side as the customers that go through that negotiation. You can see $7.5 billion, but more importantly, in this number, we announced an order in January with a prominent energy storage operator in the United States that had a conditional offtake agreement of four gigawatt hours. And you can see in gray what that conditional offtake agreement does for the LOI firm commitments. And I can tell you, from our standpoint, it's great being on the same side of the table with that operator. We look forward to that gray. Going over to the far right, which is the backlog of orders that we have on hand, which we talked about earlier, stands above $450 million. The delivery, and we talk about this many times, there's really three main components, I would say, inside of there. You've got specific projects that we have to deliver. You've got those long-term multi-year service agreements that I talked about earlier, the supply agreements, excuse me, that I talked about earlier, and then you've got a service component on when that installed base gets up and running. So that goes into that 463. It's hard to model that number out specifically just because of the fact that we don't know how those multi-year supply agreements are going to play out from demand from the customer. But having that backlog makes us feel good about the investments we're making, the way we're positioning the product, So I think we made a lot of progress. The area that we got to work on as we move forward is going to be getting the Z3 up and commercialized and continuing down the road of becoming a profitable company. With that, I'll turn this over to Nathan, who walked through the financial results and just officially like to publicly welcome to the team. It's been great working with him here over the past couple weeks. We've been all over. We've been kind of in our honeymoon phase of working together, and we've been spending it both in Edison and and in Turtle Creek. So it's been great working with them, getting to know them, and getting them on the team. So Nathan, turn it over to you.