Eos Energy Enterprises, Inc.

Ladies and gentlemen, thank you for standing by. My name is Desiree and I will be your conference operator today. At this time, I would like to welcome everyone to the EOS Energy second quarter 2024 earnings conference call. All lines have been placed on mute to prevent any backward noise. After the speaker's remarks, there will be a question and answer session. I would now like to turn the conference over to Lise Higley, Director of Investor Relations. Please go ahead.

Yeah, good morning everyone and thanks for joining us for EOS's financial results and conference call for the second quarter 2024. 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 and outlook for our company, and statements regarding our ability to secure final approval of a loan from the Department of Energy LPO or our anticipated use of proceeds from any loan facility provided by the U.S. Department of Energy, 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 expectations or those implied by these forward-looking statements. The risk and uncertainty that forward-looking statements are subject to are described in our SEC filings. Forward-looking statements represent our beliefs and assumptions only as 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. The 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 priorities before we proceed to Q&A. With that, I'll now turn the call over to EO's CEO, Joe Mastrangelo.

Thanks, Liz. Good morning, everyone. Thanks for joining us for our second quarter earnings call. Let's start off with our operational highlights page. Just a couple of things to give context around the numbers. Upper left-hand side of the page, we talk about our commercial pipeline. That $13.8 billion represents nearly a $500 million increase over last quarter, which continues to show the opportunity that we have to position EOS's technology out in the marketplace. Nathan will walk through more on booked orders and order backlog in his section, but we continue to see traction, and I'll go through some more details about what we've seen since the end of June to today, since announcing the closing of the server's financing. and how that's impacting this top line on the page. On the bottom, we've now gotten to four gigawatt hours of discharge energy with the majority of that coming from out in the field. We continue to see the potential of technology and the technology working and continuing to deliver performance for our customers. On the revenue side in Q2, revenue of $900,000 really impacted and driven by two things. One plan, which was the implementation of the state-of-the-art line, which we knew we would slow down our production rate as we were bringing the line in place. When you really think about what the team did with the state-of-the-art line, they basically took what was an empty building at the beginning of the quarter and basically transformed it into our first automated state-of-the-art production line in around 60 days. Tremendous performance there. The second piece driving when you see where revenue is was as we were going through and working with Cerberus, and I'll talk more about their investment thesis and the process that we went through, but we went through a very detailed process. due diligence process with Cerberus. And as we got into the quarter, we really made the decision to preserve capital to get us to what we thought would be the closing point of the quarter. So we preserved capital around bringing in working capital and really focused on getting the line up and running. And that's why you see the $900,000 revenue in the quarter. Nathan will also walk through the $52 million in cash. But what I'd say overall, really strong performance by the team. Truly, to me, amazing when you think about the implementation of the state-of-the-art line. I'll give some more details on that later. And then continuing to see the technology work out in the field, really very important things. And when you think about the three things we've always talked about as it relates to growing on orders, customers being able to come and see the state-of-the-art line, check, technology working out in the field, now at 4 gigawatt hours or 3.6 gigawatt hours happening at customer locations. And the third piece of that being financing, I'll talk more about how our relationship and the investment with Cerberus helps us position it to grow for the future. So we go to the next page on our recent achievements. The biggest achievement, I think, in the second quarter was securing the strategic investment from Cerberus. Really a phenomenal job by the entire team, and I'd like to recognize them. Nathan Croker and Michael Silverman really quarterbacked this process through and got us to the finish line to really have a partner that now as we've secured financing for us to position the company to get to profitability. We brought the state-of-the-art line in the commercial production at the end of the quarter, which I talked about. This is just one of these things where what I now tell the team is what was a dream is now a reality, and you find yourself when you're walking to a meeting and you walk past the line that you somewhat get distracted just watching how the line works and the work that's been done by Chris Dillinger and the team has just been fantastic to see that line now up and producing batteries. And then the last one, something we're announcing today, we were selected by Bloomberg New Energy Finance as a Tier 1 energy storage supplier. I think the big thing here is we're one of five U.S. companies and one of two alternate technology battery manufacturers selected to be on this list. It really shows how the team has gone from six years ago an R&D company into an operating company recognized by one of the prominent voices in the new energy space. I think it just needs to continue head down getting work done, but getting this type of recognition really does motivate the team as they come in every day to go to work. Third page, why Everest chose EOS. This is a page I think everybody should kind of read through, digest. I'm not going to talk through the bullet points, but we wanted to share with you what Cerberus shared with us after we closed the loan and why they invested in EOS. And I think it validates many of the points that we talked about over the years that we've been a public company. I think the level of detail that Cerberus went through in their due diligence is something that we've never gone through at the company in securing financing and really having them go out and talk to third parties, work with customers, talk to suppliers, just validated what the team has done and how we're positioning the company for the future. I'd say some of the biggest things for us, I'll talk about a little bit more on the next page, are access to not only internal expertise in Cerberus to help make EOS a better company, but also just the broader network that Cerberus has out in the marketplace in many avenues that allows EOS to play bigger and play like that tier one supplier that BNEF recognized recently. The second piece of this I would say is you think about how this positions us. We talked about that third leg to the stool on commercial orders, on financing. and their access to the capital markets is allowing us to really think about how do we facilitate customer projects to go from an opportunity, an LOI, a late stage order into a booked order. Being able to work with them and use their financial expertise to do that is going to pay dividends as we move forward. If we go to the following page with some of the tailwinds, we signed a 960 megawatt hour letter of intent with a new customer that was brought in and introduced to us by Cerberus. And that deal will close subject to their final financing. But really exciting as we start to really sit down and talk about how the technology works and the use cases that the technology can deliver on. There's also been an additional 11 customer factory visits. Again, we talk about come see the line, see batteries being produced. show that the company's a real operating company. We've had 11 customers come into the factory since announcing the closing of the deal. Our short-term pipeline has gone up 6 gigawatt hours, and we've got 17-plus gigawatt hours of longer-term market opportunities that we've not yet reflected in our pipeline slide that Nathan's talked about, because the majority of that has happened subsequent to closing the second quarter, but you're really starting to see activity in the marketplace around the excitement of having a long-term strategic investor in the company. On the right-hand side of the page around operational excellence, one of the things that we're going to be doing is implementing an operating council where we're going to be bringing in expertise from Cerberus and also bringing in the experts that we have on our own board to sit down and really work with the team to help position us to start delivering more reliably as we move forward. I'm very excited about having the expertise in the room. It helps make our team better and will help make the company better in the short term and in the long term. We've also continued to identify new cost-out opportunities, both on design materials and looking at contract manufacturing for various components of our system as we continue to evolve and move towards that goal of 100% U.S. content over the next 18 to 24 months. We've also been able to accelerate the work on our proprietary software. This has been great. to be able to sit down and work through how we want to position the company for the long term. Having secured the financing and knowing that we execute the financing is there has allowed us as a leadership team to take a step back and think about the company more strategically. We've always talked about software being a key component of the long-term strategy for EOS. And now we're really focused on accelerating that and bringing that to market faster and continuing to build up the capabilities that we talked about. If you go back and think about what we talked about in our December strategic outlook, we're now accelerating on that strategy that we laid out end of last year. And then as we've closed the financing, we're starting to work with many of our Tier 1 suppliers on how they can expand their relationships with us on improved terms to enable us to deliver faster, deliver at lower cost, and really deliver to the marketplace. So all in all, when you really look at this, work through the second quarter, I'd summarize a lot of the effort of the entire company was getting a closing on the financing from Chevros, and then once that financing was closed and announced, we quickly shifted to getting the line into commercial production, getting customers in to see how the line works, and then how do we really position ourselves to deliver on both our growth and profitability goals that we've laid out previously. And I think we're off to a good start there with more to come as we go through the second half of the year. Now if we go to the next section and talk about operational scale and manufacturing capacity, if we move to the next page, just some shots of the state-of-the-art line. We are rapidly approaching the 10-second cycle time. As we continue to go through and really this is less about the mechanical performance of the line and more about the software integration around part tracking and quality metrics and being able to work through various aspects of building a high-quality battery at overall 10-second cycle time. We feel really good about the work that the team is doing. We validated all of our sub-assembly processes for quality, which is important. What goes into that box that then becomes a battery is as important as the box itself. As you think about what we did in second quarter, we aligned our direct labor costs to the production volume and then tried to manage through our manufacturing overhead to be able to minimize the impact of slowing down production while implementing the line and continuing to position ourselves to grow production as we scale into the capacity of the line over the second half of the year. And we achieved and we continued to work our direct material cost out targets, and we're now at 66%. which is up around 11 points versus the last time we talked to you at the end of one queue. So the team continues to deliver on that roadmap we laid out in December. As we move forward, you know, the biggest item here, and Nathan will talk about it in his section, is improving our labor and overhead utilization. And that labor and overhead utilization comes with volume coming through on the line and comes with really getting to stabilize performance and normalize performance and then getting the team to execute on the plan that we laid out. But that's critical to us as you think about the cost-out targets that we laid out at the beginning of the year. We continue to fine-tune that line performance. You don't stop with just implementing the line. There's many things that we started to look at of how you can do lean manufacturing and stigma around various components of the line to continue to refine and improve performance. and training the workforce for this new work environment that we operate in. Good news is in one of those 11 customer visits that we've had here in the month of July, one of the customers mentioned to us that they've never seen a factory that looked as clean and it was as safe as when they walked through and saw the state-of-the-art line in production. So we just got to train the workforce to work in this new environment as we move forward. We're also in the process of testing higher density materials to achieve our Q4 costal target. If you go back and think about what Francis Ritchie talked about in December and the work that he was doing on the inside of the battery, what's in the box, if you will, we continue to deliver on that. Those materials are on test and some preliminary positive results, but we've got to continue working towards that and then cutting that in to production as we get into the fourth quarter. And then the big one here as we move forward is just automating our sub-assembly processes to then take the line capacity up from what we forecasted to what we think is entitlement around that and then allow us to position for line number two as we continue to see the growth in the marketplace. So really, you know, great performance. By the team, still work left to do, but very encouraging about the foundation that we've laid and what we can build around what we now have positioned in Turtle Creek to grow the company going forward. We now move over to the commercial opportunity pipeline and orders backlog. I turn this over to Nathan to walk through the pipeline metrics. I just want to spend a moment on what we're seeing in the marketplace. The left-hand side of this page really talks about new long-duration energy storage requirements. Everybody kind of thinks about this. I just want to peel back a little bit here the proverbial onion, if you will, to talk about how use cases are evolving in the marketplace. When we talk about long-duration energy storage and we say going above six to eight hours, What we're starting to see in the marketplace is it's not a straight six to eight hour discharge. It's multiple discharge cycles in a day for different durations, which our battery can actually was designed to be able to do that. So when you're looking at a deeper duck curve or double peaks in a day, you're talking about discharging and charging the technology multiple times in the day, which is a key differentiator in our product. Now, in the middle of this, we've always talked about, when you read a lot of the news, we've always talked about EOS. We're a good neighbor, right? We're manufactured in the USA. We're NDAA compliant, which is very important from a grid and energy security standpoint. We're certified safe. Product is non-flammable. It's non-flammable from the point it's made. to when it's transported, to when it's installed, to when it's operated. We're functionally silent. Our units on the field, when you stand by them, probably wouldn't be any louder than my voice right now. Whereas, if you think about other technologies in the field, when they're up and running, it's like having a police siren going off continuously throughout the day. And then we're fully recyclable at the end of our useful life. This is important because we can come back and we look at What's inside the battery, we can repurpose the electrolyte and bring it back to its original state. We can reuse the felt that's inside the battery, and the plastics can be recycled all through normal recycling processes, processes that exist today. So what does all that mean if you're buying our technology? Well, the right-hand side of this page talks about a new way of thinking about levelized cost of storage. The dark green line is EOS. The yellow line is the incumbent technology out in the marketplace. Given the fact of our low degradation and not having to do augmentation, and also the fact that you can multiple cycle during the day, we can deliver more revenue for our customers over the life cycle of a project, over 25 years. Now, how does that translate? Everybody likes to talk about, well, your capex is a little higher. True point. There is higher capex driven by the power density that we have, but you've got to weigh the power density off with the factors I talked about in the middle of the page. Sometimes people talk about, well, your RTE is a little bit lower than lithium-ion. Also a true statement. But because we don't augment at the midpoint of a project lifecycle, because we can do peak shifting along with ancillary energy services and deliver more energy, and because we can do multiple cycles in a day, the total energy that a customer can deliver is significantly higher than what you get with an incumbent technology. So when we talk to customers and we're educating them on how this product is different and how it delivers different benefits and how it delivers different use cases that are emerging as the market evolves, our levelized cost of storage advantage can be up to 30% over a 25-year project lifecycle. This page here is really what we go through when we're out selling. When Nathan talks about the pipeline, that's what we're doing as we're moving every step of the way down that pipeline. Now you layer on top of this what I talked about earlier with having access to stronger financial partners to bring financing to our customers, it becomes a very compelling offer. What I'd like to do now is take that backdrop and I'll turn it over to Nathan to walk through our pipeline and then go through the financials. Thanks for listening.