Eos Energy Enterprises Q2 2024 Earnings Call Transcript

Quartr
Provided by Quartr
August 7, 2024

There are 7 speakers on the call.

Operator

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 20 24 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session.

Operator

I would now like to turn the conference over to Lisa Higley, Director of Investor Relations. Please go ahead.

Speaker 1

Yes. Good morning, everyone, and thanks for joining us for EOS' financial results and conference call for the Q2 2024. On the call today, we have EOS' CEO, Joe Mastrangelo and CFO, Nathan Kroeker. Before we begin, allow me to provide a disclaimer regarding forward looking statements. This call, including the Q and 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.

Speaker 1

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 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.

Speaker 1

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' Investor Relations website at investors. Eos dotcom. Joe and Nathan will walk you through the company highlights, financial results and business priorities before we proceed to Q and A. With that, I'll now turn the call over to EOS' CEO, Joe Mastrangelo.

Speaker 2

Thanks, Liz. Good morning, everyone. Thanks for joining us for our Q2 earnings call. Let's start off with our operational highlights page. Just a couple of things to give context around the numbers.

Speaker 2

Upper left hand side of the page, we talk about our commercial pipeline. That 13.8 $1,000,000,000 represents nearly a $500,000,000 increase over last quarter, which continues to show the opportunity that we have to position EOS' 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 Cerberus financing and how that's impacting the top line on the page. On the bottom, we've now gotten to 4 gigawatt hours of discharge energy with the majority of that coming from out in the field. We continue to see the potential of the technology and the technology working and continuing to deliver performance for our customers.

Speaker 2

On the revenue

Speaker 3

side in

Speaker 2

Q2, revenue of $900,000 really impacted and driven by 2 things. 1, plan, which was the implementation of the state of the art line, which we knew we would slow down our production rate as we're 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 1st 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're going through and working with Sarah Person, I'll talk more about their investment thesis and the process that we went through.

Speaker 2

But we went through a very detailed due diligence process with Cerberus. And as we got into the quarter, we really made the decision to preserve capital to get us to the what we thought will 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 $52,000,000 in cash.

Speaker 2

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 then the 3rd 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.

Speaker 2

So we go to the next page on our recent achievements. The biggest achievement, I think, in the second quarter was securing the strategic investments from Cerberus, really a phenomenal job by the entire team. I'd like to recognize Nathan Croker and Michael Silverman who 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. I mean, this is just one of these things where what I now tell the team is what was a dream is now a reality.

Speaker 2

And you find yourself when you walk into 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 Dellinger and the team has just been fantastic to see that line now up and producing batteries. And then last one, something we're announcing today, we are selected by Bloomberg New Energy Finance as a Tier 1 energy storage supplier. I think the big thing here is we're 1 of 5 U. S. Companies and 1 of 2 alternate technology battery manufacturers selected to be on this list.

Speaker 2

Really shows how the team has gone from 6 years ago, an R and D company into an operating company recognized by 1 of the preeminent voices in the new energy space. I think it just it 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. 3rd page, why Cerberus chose EOS.

Speaker 3

This is

Speaker 2

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 Zebra has 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 3rd parties, work with customers, talk to suppliers, just validated what the team has done and how we're positioning the company for the future.

Speaker 2

I'd say some of the biggest things for us, and I'll talk about

Speaker 4

a little bit more on

Speaker 2

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 1 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 3rd leg to the stool in commercial orders on financing and Cerverus 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 9 60 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.

Speaker 2

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 is 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 has talked about because the majority of that has happened subsequent to closing the Q2, 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.

Speaker 2

I'm very excited about having 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.

Speaker 2

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.

Speaker 2

So all in all, when you really look at this, work through the Q2, I'd summarize like a lot of the effort of the entire company was getting a closing on the financing from Cerberus. 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 keep 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 and overall 10 second cycle time.

Speaker 2

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 Q2, 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 continue to work our direct material cost out targets, and we're now at 66%.

Speaker 2

We're still up around 11 points versus the last time we talked to you at the end of 1Q. So the team continues to deliver on that road map we laid out in December. As we move forward, 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 stabilized performance and normalized 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.

Speaker 2

You don't stop with just implementing the line. There's many things we started to look at of how you can do lean manufacturing and Sigma 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 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 for to achieve our Q4 cost out target.

Speaker 2

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 and 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 into production as we get into the Q4. 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 2 as we continue to see the growth in the marketplace. So really 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.

Speaker 2

We now move over to the commercial opportunity pipeline and orders backlog. Before 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.

Speaker 2

So when we talk about long duration energy storage and we say going above 6 to 8 hours, we're starting to see in the marketplace is it's not a straight 6 to 8 hour discharge. It's multiple discharge cycles in a day for different durations, which our battery enhancement actually was designed to be able to do that. So when you're looking at deeper duct curve or double peaks in a day, you're talking about discharging and charging the technology multiple times in a day, which is 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?

Speaker 2

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.

Speaker 2

We're functionally silent. Our units out in 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 what's inside the 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.

Speaker 2

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 on the marketplace. Given the fact of our low Now,

Speaker 3

how

Speaker 2

does that translate? Everybody 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 got to weigh the power density off with the factors I talked about in the middle of the page.

Speaker 2

People talk about, well, your RT is a little bit lower than lithium ion, also a true statement. But because we don't augment at the midpoint of a project life cycle, 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 product project lifecycle. That this page here is really what we go through when we're out selling. And when Nathan talks about the pipeline, that's what we're doing as we're moving every step of the way down that pipeline.

Speaker 2

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.

Speaker 3

Thanks, Joe, and thanks, everybody, for joining us this morning. I will spend the rest of our time walking through our commercial pipeline, talk about how we've strengthened the balance sheet along with our Q2 performance, and then we will wrap up with an outlook for the balance of 2024. Moving into our commercial pipeline, we are excited to see increased activity and corresponding growth following the announcement we made with Cerberus in late June. As of June 30, our pipeline was nearly $14,000,000,000 representing 52 gigawatt hours of storage, including a $1,400,000,000 in signed letters of intent, which are primarily waiting upon successful commercialization of first project deployment and customer financing. It should be noted that the commercial tailwinds we have seen following the strategic investment are just beginning to be reflected in these numbers as there was only 4 days of the quarter remaining when we made the announcement.

Speaker 3

More specifically, the 9 60 Megawatt Hour Letter of Intent that we signed in July will be included in our pipeline when we update it for the Q3 and we expect that LOI to become a booked order upon closing of customer financing. As we've highlighted in prior quarters, we are now tracking to 2.2 gigawatt hours in late stage approvals, which generally include projects awaiting financing, government grants or other shortlisted projects. The 4% increase in commercial pipeline quarter over quarter reflects the healthy churn of new projects moving in and through the pipeline, as Joe discussed earlier. We feel very good about our total pipeline and we're seeing positive changes in the overall mix as we shift towards utility scale project opportunities with blue chip customers and we continue to see positive movement towards grid scale deployment with several major utilities. Our backlog as of the quarter end was $587,000,000 which is up 10% from this time last year, but slightly lower than last quarter.

Speaker 3

During the quarter, we booked an additional 25 megawatt hours for an expansion of our Mada Oosh project with Indian Energy, bringing the total project size up to 60 Megawatt hours, designed to enhance greater resiliency for the Viejas tribal bands in Alpine, California. This is our largest order to date that is being funded by the California Energy Commission and we look forward to continuing to deliver storage in the state of California going forward. Now moving into our backlog, the change you see in overall value was due to the renegotiation of an existing MSA that included several leases where we were able to amend the terms in order to remove certain components and improve the overall economics and make better use of our balance sheet. This is a good example of how we continue to work with each of our customers to enhance the overall quality of our backlog and pipeline. Turning to the next page, I want to spend some time talking about the cash requirements to get us to profitability and fund future capacity expansion.

Speaker 3

At the end of June, we announced a strategic investment of up to $315,500,000 from an affiliate of Cerberus Capital Management to support our growth plans. This investment comes during a secular shift in global energy markets, where the demand for safe alternatives to incumbent battery technologies is increasing and the world is facing significant energy growth along with an increased focus on higher energy independence and security. As Joe discussed earlier, the capital investment will be instrumental in enabling us to deliver a differentiated product, a safe and simple energy storage solution with proprietary software capabilities. Is structured as a $210,500,000 delayed draw term loan, of which $75,000,000 was funded at closing. The remaining $135,000,000 will be funded over the coming months as we deliver on our business plan and achieve certain operational and financial milestones.

Speaker 3

In addition to the term loan, there is a $105,000,000 revolver that we may draw upon if required at Cerberus' discretion. Given the equity interest that Cerberus has in the business, they are incentivized to ensure that we have sufficient growth capital to get to profitability and this revolver provides that additional flexibility and growth capital should it be needed. The structure was very intentional as we believe the $210,000,000 is sufficient to get us to positive operating cash flow in 2025. But then we also added the revolver for added flexibility in the event that it is needed to accelerate future lines to meet customer demand. This transaction enhances our ability to continue working with the DOE to close the previously announced conditional commitment for a loan guarantee.

Speaker 3

With our immediate capital needs met, Cerberus is now working alongside us on the DOE loan closing process. While we believe the Cerberus facility provides us with the cash needed to get to profitability, we view the DOE loan as a way to further accelerate and increase capacity at a lower cost of capital than the Cerberus revolver. And as shareholders, Cerberus is motivated to assist us in getting the loan closed. 1 of the immediate benefits of the Cerberus investment was giving us the ability to retire our $100,000,000 existing senior secured term loan for $27,000,000 of which $20,000,000 has already been paid and the remaining $7,000,000 will be payable over the next 12 months. This strengthens our balance sheet and puts us on a stronger foundation from which to execute on our growth plans.

Speaker 3

Now before getting into the 2nd quarter financial results, let me provide an update on our cash position and a bit more detail on future funding milestones and how they're designed to operate. We ended the quarter with $52,500,000 in cash on the balance sheet, not including $5,100,000 in short and long term restricted cash, which relates to the minimum liquidity on the Cerberus loan and several required escrow deposits. The initial funding of $75,000,000 under the Cerberus loan was funded on June 21. The net amount to the balance sheet was $50,000,000 after deal fees, original issue discount and payments to terminate the Atlas loan. The remaining on August 31, October 31 and then January 31, 2025 upon the achievement of certain milestones.

Speaker 3

With August 31 upon us, we are very focused on meeting and exceeding the first performance milestones, and we continue to make positive strides on all areas of the business. Lastly, while balancing the commissioning of our state of the art manufacturing line and closing on the service investment, we've been very focused on minimizing cash burn and optimizing working capital to support our ongoing operations and strategic initiatives. As a proactive measure to conserve capital in the Q2, we made the decision to scale back production volumes and prioritize shipping new product from our new line. While we still expect to be at negative contribution margins in the short term, we have a clear path to positive contribution margins before year end as we scale our production on the state of the art line. We have also been taking measures to increase cash inflows and enhance our liquidity as we monetize our tax credits and collect on customer milestone payments.

Speaker 3

During the quarter, we entered into tax credit purchase agreements to sell our 2023 and Q1 2024 production tax credits. We received $3,400,000 in cash, representing a 10% discount on the face value of these credits. We anticipate continuing these transactions. And as we ramp up production, we have seen increased interest in future tax credit purchases at smaller discounts, which equates to more cash on the balance sheet when we sell future credits. In addition, customer deposits and milestone payments continue to be a source of cash to fund our working capital requirements as we ramp up operations.

Speaker 3

We continue to see positive momentum with our commercial activity, and we anticipate an increase in deposits as pipeline begins to convert to booked orders. With that, let's get into our financial results. In the 2nd quarter, revenue was $900,000 which is down compared to 6.6 $1,000,000 in Q1, but higher than the prior year period, primarily due to increased component and commissioning revenue. As we discussed in our Q1 call, we expected Q2 revenue to be significantly lower as we focused on debugging and initiating commercial production on our first state of the art manufacturing line, while also transitioning to our new lower cost battery module and scaling back production volumes to conserve capital as we closed the service transaction. Cost of goods sold was $14,100,000 a 26% increase compared to prior year.

Speaker 3

While there are a lot of ins and outs that flow through this line item, there are really only 2 significant things that happened with COGS this quarter. First, we had increased project costs associated with several more customer sites that are now undergoing installation and commissioning than we had a year ago. And second, we delivered more units at a lower cost per unit than last year, with the primary deliveries being Z3 units to a 2020 customer in New Jersey that has provided access to their site as an opportunity to showcase our new Z3 system to prospective customers. While providing a valuable test case for customers, the upgrading of the Energy Storage systems on this demo site resulted in increased costs this quarter without any associated revenue. As we increase our production going forward, the fixed cost components of labor and factory overhead will be absorbed across a greater number of units, driving down per unit costs and supporting our path to profitability.

Speaker 3

Other operating expenses for the quarter totaled 15 point $8,000,000 which is 33% lower than the prior year, mainly driven by a 95% decrease in asset write downs and a 14% decrease in SG and A and R and D expenses. Other operating compensation, depreciation, amortization and asset write downs. Operating loss in the quarter was $29,000,000 a 16% improvement compared to the prior year. Excluding non cash items such as stock based compensation, depreciation, amortization and PP and E write offs, our operating loss was $25,500,000 Net loss to shareholders for the quarter was $28,200,000 compared to a net loss of $131,600,000 in the prior year. The net loss in the quarter included a $68,500,000 gain on the extinguishment of the Atlas term loan.

Speaker 3

Finally, let's shift our focus to our 2024 outlook on the next slide. Regarding our revenue estimates for 2024, we continue to expect to realize between $60,000,000 $90,000,000 based on our current production plans and anticipated customer delivery schedules. However, with the timing of the capital investments and the ramp up of the new line, we're probably not going to be at the upper end of that range come year end. As Joe mentioned earlier, we have achieved 66% of our direct material cost out target and continue to deliver on our cost out road map, giving us line of sight to positive contribution margin before the end of this year. Contribution margin being defined as revenue less direct labor and direct materials, including the benefit of the production tax credits.

Speaker 3

Before we close for today, I want to remind everybody that we have our special shareholders meeting coming up in September, and we look forward to talking to you then. With that, I want to thank everybody for their time today. I would now like to turn it over to the operator for questions. Operator?

Operator

Thank you. We will now begin the question and answer Your first question comes from the line of Chip Moore with ROTH. Your line is open.

Speaker 4

Good morning. Hey, everybody. Thanks for taking the question. Congrats on the achievements this quarter. I wanted to ask about Cerberus.

Speaker 4

You talked about their network and playing bigger. Just maybe talk about what they bring to commercial development, whether that's data center or other opportunities? And then you talked about explaining financing solutions to help drive customer adoption, maybe just expand a bit upon that?

Speaker 3

Hey, Chip, good morning. How are you?

Speaker 2

Look, as it relates to data centers, there's multiple avenues that we can go through. I mean, obviously, first off, Cerberus is a large real estate portfolio that we can let into that tie into data centers as far as customers that they may have. The same time just the at a $60 plus 1,000,000,000 company, they've got a lot of connections with a lot of different players in the marketplace that have opened up and made introductions for us as far as who we can talk to and that's generating pipeline of opportunities and then around financing, not direct financing per se from Cerberus themselves, but obviously in the network that they have with other financial players is bringing us in to discuss the portfolio of opportunities that we have and the opportunity for other financial players to finance projects that we have. So it's really multifaceted when you think about the gateways that they bring to us. And as we've been going through here the 1st 30 days, we're working on all of those to see where those come out along with continuing what we were doing before.

Speaker 4

That's helpful, Joe. And just curious in general how customer tone has changed since you announced the deal, I guess, particularly for those utility backed projects that take a bit longer and they're a little more cautious, what you're seeing there?

Speaker 2

Yes. I mean, Chip, when you look at utility backed projects, the ones that are that we're surety of the company being able to deliver at the same time with newer projects that we might have been discussing it now brings you know being able to say that you've secured financing to get to profitability now gives people the confidence that the project is going to be delivered where there was a question mark before. It's like what I said in my early remarks of what I tell the team, what's once a dream or a vision is now a reality of us executing to realizing our potential. I think customers like that versus a lot of the uncertainty that we had surrounding the company before we got the financing from Cerberus.

Speaker 4

Got it. It's helpful. If I could sneak one more in just on the milestones. Sure. Yes, the biggest risks that you see there or how comfortable you are with those milestones?

Speaker 4

And then remind us, I think you have sort of 2 shots on goal sort of getting to ultimate goals out in, I think, it's April next year. Thank you.

Speaker 2

Yes. I mean, obviously, we feel good about the milestones that we have there in line with the financial objectives that we laid out to begin with for the company. And we'll work through those to go through with the ultimate goal being of achieving the milestones in April. But we want to achieve all the milestones as we go through and we execute on the plan that we have because that ties to the financial plan that we've had and the estimates that we've published to the market.

Operator

Our next question comes from the line of Martin Malloy with Johnson Rice. Your line is open.

Speaker 5

Good morning. Congratulations on all the progress you're making. Wanted to ask about the ramp in production capacity to the 8 gigawatt hours. Could you maybe talk about some of the factors that would influence that? And now that you've got more confidence on the financing side, any update there in terms the pace of ramping that and then potentially moving beyond the 8 gigawatt hours?

Speaker 2

So Marty, I think the one thing that doesn't change for EOS is just we'll expand capacity as we have the order book. And I think the way that we built the company was when you really look at closing orders and delivering projects, you're talking about a 12 to 18 month timeline to be able to do that, where expanding capacity can be done in a lower amount of that time. Now obviously, as we see the pipeline strengthening and orders getting close to closing, we will make a decision on adding the second, third and fourth line as demand comes in. And that can obviously be accelerated as demand accelerates. And then beyond the 8 gigawatt hours, I mean, we've always said that we've been relatively conservative on the market share that we thought EOS would be able to gain, as we've grown.

Speaker 2

And we've always thought of being bigger than an 8 gigawatt hour manufacturer. So we will go through and evaluate locations that would allow us to optimize logistics costs if we were to think about doing a factory number 2. But the thing about the way the line is designed and the way the capacity costs are designed to say, you don't need a massive, massive factory to gain economies of scale, actually doing it in smaller chunks closer to where the demand is lowers your logistics costs and reduces the cycle time to bring projects online. So that's how we would think about that. We haven't really thought about Factory 2 as of yet, but that would be the plan long term as the company continues to grow hopefully.

Speaker 5

Okay. And then as a follow-up question, just wanted to try to get your sense as to how important the domestic content is in the customer decision making process?

Speaker 2

Marty, it's becoming very important. I mean, I'll let Nathan talk through that because he's been doing a lot of work on that.

Speaker 3

Yes, I would say Marty, good morning. I would say it depends on the customer and the use case. Everybody is focused on the domestic content and the bonus credit. I think where we really bring additional value is with our 91% domestic content tracking towards 100, that if a developer is putting solar and storage into a project and they're using U. S.

Speaker 3

Made steel, we have the ability for them to unlock bonus credits on the entire project. And there's real value there that is a significant increase in the overall IRR for the project. So again, we'll work through with customers in terms of sizing every individual project and make sure they can capitalize on that value. So I think it's customer by customer, but it's a key part of the discussion.

Speaker 2

And I think Marty inside of that, it's not just I would just add like it's not just the total number, we sit above 90% on U. S. Content today. It's not just that total number that's important, it's the components within that and being NDAA compliant because that's a guarantee around grid security and how your software works in all of your printed circuit boards and things that you have in your project. And I think that becomes also important as the company looks for higher degree of energy independence in the future.

Speaker 5

Thank you. I'll turn it back.

Speaker 2

Thanks,

Operator

We do have another one question coming in from Ryan Pfingst with B. Riley. Your line is open.

Speaker 6

Hey, good morning guys. Thanks for taking my questions. Could you just talk about potential risks to certain parts of the business or to the DOE loan if we do get a change in U. S. Administration?

Speaker 2

Right. I really wouldn't know how to answer that other than to say that I think

Speaker 3

both sides

Speaker 2

of the aisle agree that U. S. Manufacturing is important. I think what we've laid out as far as the financing that we have in the partnership with Cerberus, that's financing that gets us to profitability and self funding the business as we grow going forward. And I think that's what we're focused on, while also focusing on closing the DOE loan.

Speaker 2

And I think around closing the DOE loan, it's important for everyone to realize that we had a major change in the capital structure of this company a little over 30 days ago, which have required us to go back and work through some of the terms and conditions on the loan. And we continue to work on that with the DOE LPL along with Cerberus. And one of the things that we're really working on with them is the inter creditor agreement now that a new creditor has come in and we were able to retire the Atlas debt as part of the Cerberus financing. We meet regularly with the DOE and in fact the team will be in Washington next week to continue that work and we're confident that we'll be able to close that loan here in the future, and we'll just continue to work on that. While at the same time, I've always said, Ryan, that we've designed this business to take to utilize any kind of programs that are there, but not to be dependent upon that for our success.

Speaker 2

But I think what everyone agrees with is we want more manufacturing in the United States. We want energy security as we move forward, and we need energy storage, whether you're using renewables or fossil fuel to power the future of the country, we're going to need energy storage. And EOS provides all three of those things, and that's what we just have to keep working on.

Speaker 6

Yes, makes sense. Thanks for that color. And I guess just one second one. Just curious what the mix looks like today for the current pipeline from a customer type perspective between utilities, IPPs and smaller customers?

Speaker 3

Yes. I think it's consistent with how it's been in the past. We try to maintain a portfolio in the pipeline and in the backlog, no different from your personal investment allocation, right? You want diversification there. Different types of customers move at different pace, have different motivators.

Speaker 3

We're very happy to have a combination of IPPs, utility backed developers. We've got smaller projects, commercial and industrial projects, micro grid applications. So it's a good portfolio. We have never given a detailed breakdown of that, but I would say the overall mix is consistent with where it's been in the past and we continue to focus our business development efforts across those various customer segments.

Operator

There are no further questions at this time. Mr. Joe Mastrangelo, our CEO, I turn the call back over to you.

Speaker 2

Thank you, and thanks everyone for listening today. Again, a lot to be proud of in the Q2, focus moving forward, growing the business, scaling the line, driving down costs as we get through the second half of the year. Again, I'd like to congratulate everyone that works at Eos for all the hard work in what was a very uncertain environment. As we move forward now, we know what the path is to get to profitability and that's delivering on the plan to unlock the financing to grow the company into what is a secular shift in the energy industry and thank all of our customers who are having the faith to place purchase orders with us and all of our shareholders for investing their money and working with us as we grow the company. We'll continue head down focused on the goal and getting the hard work done.

Speaker 2

As I've said many times in my more than 30 year career, this is by far the hardest thing I've ever done, but also the most rewarding when you see progress. So thanks everyone for listening, and we'll keep everyone updated and look forward to talking in September at our Special Shareholder Meeting.

Operator

Ladies and gentlemen, this concludes today's conference call. You may now disconnect.

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Earnings Conference Call
Eos Energy Enterprises Q2 2024
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