Eos Energy Enterprises, Inc.

Good morning, and welcome to EOS Energy Enterprise's second quarter 2023 conference call. As a reminder, today's call is being recorded, and your participation implies consent to such recording. At this time, all participants are in listen-only mode. A brief question and answer session will follow the formal presentation. With that, I would like to turn the call over to Liz Higley, Acting Director of Investor Relations. Thank you. You may begin.

Thank you. Good morning, everyone, and thank you for joining us for EOS's financial results and conference call for the second quarter 2023. On the call today, we have EOS CEO Joe Mastrangelo 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 but not limited to 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 expectation 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. This conference call will be available for replay via webcast through EOS's Investor Relations website at investors.eose.com. Joe and Nathan will walk you through the company highlights, financial results, and business performance priorities before we proceed to Q&A. With that, I'll now turn the call over to EOS CEO, Joe Mastrangelo.

On behalf of the 300 plus employees at EOS, I want to welcome everyone to our Q2 earnings call. This is a very important moment in time for both EOS and for our industry. As I said before, I've been in the energy industry for nearly 30 years, and EOS has been in existence for 15 years. We're at an important inflection point as you look at what the world needs to power its future. When you look right now in the United States, the Texas, the ERCOT market is operating at record highs. California is experiencing high temperatures, which is straining their ability to produce on the grid. You see numerous fires on energy storage projects, which has caused a significant concern about how we can deliver and integrate renewables safely into our grid. Nathan's going to go through later on the details around our order pipeline backlog and some specific customer examples. But what I wanted to talk about is what's required to truly grow our business and ultimately what's required to help decarbonize our energy grid. What's important here is not just the intent of decarbonization. It's having the policies in place to deliver that. At the same time as you have the policy framework in place, which I believe we do, in the United States with the IRA legislation, it's then taking those policies and acting. And where we need to work on as an industry and as a company is acting and moving faster to deliver on that demand. What the world is asking for right now is not a two-hour energy storage solution, but a flexible energy storage solution that provides the safety and reliability that we all demand from our power grid. We believe that we have that solution over time to deliver into that market, and it's no more evidenced by that number on the lower left-hand side of the page, the fact that we've discharged 1.4 gigawatt hours of energy over the lifetime of our product. We still have work to do. We still have things that we need to fix, improve, and refine, but we have a technology that can deliver upon the need in the marketplace that we see every day and talk about every day. At the same time, we're focused on being able to deliver that product out of a state-of-the-art factory that we like to say it's a technology that was designed with American minds, it's built with American hands, using predominantly American materials on American manufacturing equipment. That's important to note as we talk about also energy security and our ability to deliver the future growth of our country. If you flip to page four, look, a picture tells a thousand stories. Here's a picture of our semi-automated manufacturing line in Turtle Creek, Pennsylvania, with our employees manning their stations and building batteries. Now, we are in early days of commercial production, but we feel really good about where we are, and we are very proud of what the team is doing and delivering on a day-by-day basis. So if we move to page five, I just want to hit on three core concepts here as to why we feel like we have a product that can deliver the future needs of our industry and the world. First one is we've taken a product that has been around for 15 years. We've used the basic same core chemistry. And our challenge technologically has always been, how do you do that and seal that battery so that the battery can perform over a 20-year lifespan? How do you do that at a cost where you can deliver a product? And how do you do that at a cycle time that you can scale into a fast-growing market? We've learned a lot over the various generations of our technology, and at every step of the way, we've incorporated that into this new Z3 design. This new Z3 design that the team has developed, the initial results are very promising, but you have to realize what the technological team was able to do in Edison, New Jersey, is take out the highest cost component in our battery, that being titanium, and replacing it with conductive polymers. learning from the ceiling challenges that we had on leaking batteries and taking that and incorporating it into the design of the Z3 battery, which enables us to both reduce cycle time and improve performance. If you move to the center of the page, our initial battery performance is very promising. Now here, I think what we have to do is take an insider's view of what performance means. So I've heard people say and talk about, well, EOS's round-trip efficiency is lower than lithium-ion. And that's true. We sacrifice a couple points of round-trip efficiency for the safety and to reduce the fire risk around our technology that you see in lithium-ion. But at the same time, if you measure us at two hours of energy delivery against lithium ion, we also need to then take lithium ion and measure them at 4, 6, 8, 10, and 12 hours discharge time. That same performance that an EOS battery can do with that same round trip efficiency without requiring the HVAC systems to be able to operate, you get that with an EOS solution. And that's important when you think about These systems are operating in higher temperature environments. That's why you have the high power demand here this summer. So you need something that's going to be safe, that doesn't require sophisticated, complex cooling systems to allow them to perform. That's the product that the team has been able to develop. And when you look at the performance of nine modules. So this is a small subset of technology, but that technology is performing exactly as it was designed in the lab. Now, there are going to be challenges as we move forward. I've done numerous new product introductions throughout my 30-year career. You don't know what you don't know until you start building and executing on your roadmap. But what we've seen from our initial performance is really promising as we look to deliver in the future. And then on the far right-hand side of the page, you don't sell an individual battery cell. You don't even sell an individual battery. You sell a system. And inside that system, you've got to look at how you make that cost effective and how you make that operate. And the team here has done a fantastic job of coming up and simplifying our system. Our whole goal here is reduce the amount of wires that you have out in the field, reduce the complexity that you have on the field, allow more energy cubes to operate off of the same power electronics to reduce costs, to simplify the system, and allow it to perform in a difficult operating environment and deliver what's expected of the industry and of this product. So if we take those three fundamentals and then flip to page six and talk about our line launch. Look, I'm proud to say that I work at EOS. I'm proud to be part of this team. The team amazes me every day with the work that they do. And if you start off on the left-hand side of this page, that's day one of commercial production that happened a few weeks ago. Now, we've been very purposeful about turning on commercial production because of the speed that you manufacture. If you have an inherent problem inside your battery, inside the production process, the compounding cost that it would be to shareholders is cash burn. And we've been very, very cautious about how we've launched this product to make sure that we're spending every dollar we have wisely. And we've learned at every step of the way how to improve how we build the battery. We started off, you remember, I've said this before, Gen 2.3 had a 90-minute cycle time to build a battery. First day we built batteries, we were at four minutes on the semi-automated line. And we believe we have a path to take that down to two minutes of cycle time as we move forward. And this initial production comes with less than 1% scrap. And the batteries that are coming off of the line are performing like the ones that we showed on the prior page, meeting specification. Now, we're going to put these batteries to the test. We're going to get them out in the field and start operating them. But what the team is doing out in Turtle Creek is nothing short of amazing in my viewpoint. At the same time, I talked about this before, you don't just sell batteries, you sell an overall system. We call that the EOC3 Cube. If you look at that middle picture, that's us starting to run our strings inside of a cube that would go out into the field. Now, we're finding out as we've spent a lot of time here again in Edison, New Jersey, in our R&D facility and our software facility, developing a simpler battery management system. What we do differently than other technologies is we allow our battery to operate across a wide temperature range. We allow it to operate charge and discharge over a wide number of hours. But we do that with a very simple battery management system that allows flexibility for the end users. And what we've been trying to do, and the whole trick here is, reduce voltage in the system to increase throughput and to increase output of the system. It's not just about what your individual battery does, but how your systems perform. The team has spent a lot of time doing that. At the same time, I get a lot of questions about where are we on the state of the art manufacturing process. The far right, that's the design of the new line that's going to go into our factory in Turtle Creek. We're in the midst of developing the software and controls logic around that. We've made some purchases of long lead items around robotics. We feel really good about the progress that we're making around this, but this all comes back to, again, how we manage the timing of investment in that line versus the timing and spend on getting product out in the field. What everybody has to remember here before I turn this over to Nathan to talk about becoming profitable in the commercial pipeline is this is an industry where you have to prove yourself out in the field. It's not prove yourself in the laboratory. So we've got to get the Z3 out in the field operating on customer sites and at the same time perfect what we're doing, then automate, then scale. And we're trying to do that in a very compressed cycle time. I feel really good about where we are. We'll keep everyone updated on the challenges as we move forward, but I want to turn it over to Nathan, who's going to walk you through some more details around our pipeline, around our path to profitability, and then also around the financials for the second quarter. Thanks for listening today.