Greetings. Welcome to the Eos Energy Enterprises Inc. third quarter 2021 earnings call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. If anyone should require Operator assistance during the conference, please press star, zero on your telephone keypad. Please note this conference is being recorded. I will now turn the conference over to your host, Laura Ellis, VP of Investor Relations. Thank you, you may begin.

Thank you. Good morning everyone and thank you for joining us for Eos’ financial results conference call for the third quarter ended September 30, 2021. On the call today, we have Eos CEO, Joe Mastrangelo, and CFO, Sagar Kurada. 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 related to the expected 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 earnings release and other SEC filings. Our remarks during today’s discussion should be considered to incorporate this information by reference. Forward-looking statements represent our beliefs and assumptions only as of the date such statements are made. We undertake no obligation to update any forward-looking statement made during this call to reflect events or circumstances after today or to reflect new information or the occurrence of unanticipated events, except as required by law. Today’s remarks will also include references to non-GAAP financial measures. Additional information, including reconciliation between non-GAAP financial information to the 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 U.S. 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 Sagar 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 Joe.

Thanks Laura, and thanks everyone for joining us today for the third quarter operating results of Eos Energy Storage. It’s another quarter of great accomplishments for the team, starting off with a page we use every quarter, the technology. We continue to discharge energy and run operating cycles and prove out not only the robustness but also the operating flexibility of what we bring to market. We’ve announced this morning the largest order in the company’s history. We’re at booked orders of over half a gigawatt with the backlog now at $150 million. We’re very excited about the project that we’ve announced with Blue Ridge and Pine Gate - it’s an exciting opportunity for us, but also the follow-on order from Duke and a new order from Amaresco. Our opportunity pipeline continues to be robust with over 22 gigawatt hours. What we’re seeing as we look in the market is continued growth on the opportunity front. We’re navigating a little choppiness and also some uncertainty on when orders will close, but we continue to see customers coming to us to want to understand how our technology can deliver on their needs. The factory and the team in Turtle Creek had a very strong quarter. I’ll go through some of the improvements that we’ve made in the operations. We’re standing at $3.4 million of shipments year to date, and we have $144 million of cash on hand to continue to execute on our operating strategy. Overall, a solid performance by the team and continuing to position the company for future growth. If we move to Slide 4, overall the environment, like many other companies, we are going through the headwinds of what’s happening on the supply chain, both on the labor, material, and logistics side. When you look at where we…

Thanks Joe. Good morning everyone. In the next few pages, I will talk you through the third quarter financials. Let’s start with the income statement. We delivered $718,000 in revenue from the quarter. As you know, motor oil was one of our first commercial orders. Third quarter revenue recognizes the second shipment [indiscernible]. Revenue for the first shipment was recognized in the second quarter financial statement. We also successfully delivered on two other orders this quarter, River Valley in Massachusetts for one megawatt hour, and Renew in India for 0.5 megawatt hours. Our cost of sales in the quarter were $12.9 million. This included $2.8 million of expense related to fair market value adjustments to inventory attributable to future booked orders, additionally, $3.6 million in expenses related to improving our current manufacturing yield, $4.1 million of costs were incurred as we bring the factory up to capacity and entitlement, and lastly $1.2 million in logistics, freight, and other transportation costs. Moving on, our R&D expenses were $1.5 million higher versus Q2, related to ongoing investment in our Z3 product here in 2022. General and administrative expenses were $2.5 million lower, driven by staff-related accruals and outside service spend. Moving to interest expense, the primary driver of interest expense is related to the accounting for the convertible notes specific to the $100 million in investment from Koch Industries earlier in the year. Lastly, other income includes $9.9 million for the change in fair value of existing derivatives and $0.7 million on fair value for our private warrants, both of which are attributable to Eos share price in the third quarter. Moving onto the next page on our cash balance, as of 9/30 we had $144 million in cash. We finalized a $25 million strategic partnership with Trinity Capital to finance our…

Thanks Sagar. I just want to build off of the comments that Sagar talked about on our commercial, how we’re managing our pipeline and closing orders in the backlog we have, to just talk about the over $150 million of backlog that we have on hand with 16 different customers, really how that segregates itself out from type of project. We have a lot of our backlog is on the front of the meter side. We’re starting to grow in the size of those projects, and I’ll talk about that, but also on the behind the meter, you see that being a smaller segment for us in our backlog today, and that really comes down to us experimenting and finding out where the technology works the best and then developing a strategy to address that market as we go forward. Although you see a high concentration on the front of the meter, we believe with the operating aspects of our technology, behind the meter will be important to us, and now we’re working on getting the right partners to be able to address that market. On the use case side, the technology from day one was designed for integrating solar into the grid and helping to enable solar to not only power when the sun is shining but also provide reliable power when the sun is not shining in the evening hours, to manage what is classically called the duck curve. But we’ve also talked about the fact that we see more and more locational capacity available due to firming of the grid, and you can see that that’s how our technology splits out, and then the micro grid other really ties back to that behind the meter that I talked about earlier. One of the proof points for us…

[Operator instructions] Our first question comes from the line of Chris Souther with B. Riley. Please proceed with your questions.

Hey guys, thanks for taking my question here. Congrats on the 300 megawatt hour order with Blue Ridge and adding Amaresco and the Duke follow-on here. I wanted to talk a little bit about some of the pipeline here. Seeing the decline in the current pipeline for active proposals and late stage LOIs, obviously a portion of that is coming from booked orders, which is great. But I’m curious, on the projects that you’re taking out, is it a factor of lithium ion winning a few that you were going after, is it projects that are getting scrapped for supply chain costs or interconnection issues? I’m just kind of curious where you’re seeing some of those later stage ones that are falling out.

Yes, hey Chris, good morning, and thanks. I think you’ve seen there’s a natural progression of active pipeline into LOIs, and both of those feeding into orders, so part of that is just moving through the life cycle of projects. I think when you look at the LOIs, part of that is projects that haven’t moved forward for interconnection, and also just looking at what the revenue models would be from the customer standpoint. Then on the active pipeline piece, it’s a snapshot in time and we do run a pretty strict process of what goes into that number. We took some things out. It was a mix of what you brought up - you know, there are projects that we’ve lost, large projects. As you see, we’re starting to go after bigger and bigger projects. There was one large project that the customer went with lithium ion as their preferred choice - it was a shorter duration project, so not unexpected, and we were going after it. We went after it really as a learning process to see where we were going to be. Then in the lead generation, you’ll see more of that move into active pipeline as we refine the use cases going forward, but for the point in time of where we’re at, you’re just seeing the different moves between the buckets and regular market as far as we see. We feel really good about what we have in there and about seeing the activity in the market coming more and more to longer duration, flexible duration storage.

Got it, okay. That’s very helpful. [Indiscernible] it’s a wide range of $175 million to $300 million target for booked orders by year end. How many--as projects are getting larger here, how many large potential orders could swing things from the low end to the high end there? I’m just curious how many similar size to Blue Ridge we’d be looking at there, that could really swing things from booked at the end of this year to potentially booked early next year, just kind of the moving pieces.

Yes, it’s a great question, Chris. There’s three or four larger projects ranging up to where Blue Ridge/Pine Gate is and a little bit smaller than where they are. We’re giving that big range because it is lumpy, right, so from the standpoint of closing by the end of the calendar year, we see challenges just as you’ve been working through running the process of closing and negotiating, closing out the transactions and just saying that there could be that lumpiness, where things are going to happen after a quarter point but still will move forward, and we’re just trying to signal to everybody that we feel confident in what we have as far as what we’re working on, but there could be some timing risk in there.

Okay, that makes a lot of sense. Looking at the manufacturing capacity, it makes sense you’d kind of push the ramp of additional lines up to that 800 megawatt hours in Pittsburgh, given the push-out in some of the project timing. Could you walk through the cadence of those additional lines coming online between now and year-end 2022, and then you mentioned the scale-up to 1.5 gigawatt hours, I’m curious what are the plans as they stand today and timing expectations that we should look at there.

Yes, so Chris, what you’ll see is we’ll go into first quarter with a similar run rate of when we come out of 4Q from a production standpoint, and then gradually ramp up as we go through the year. I think we’re doing this in phases, so we’re going to add welder capacity as we get to the end of the first quarter, that will then bring up the production of battery modules, and then from that standpoint, we will then go in and add container, where you form and test the container before you ship as you get into third quarter, to be ramped up into the first quarter to that 800 megawatt hour annual run rate. Now, the second part of your question on the 1.5, it’s going to be a mix of two things, right, so what we’ve learned as we’ve gone through here over the last three, four months is that we are starting to get more and more throughput out of our existing assets, and if you remember, what we’ve always said about how we want to run manufacturing is we want to get the process of manufacturing the part right, then go for productivity or automation. We’re at the point now where we consistently get the process right - you see that in our yields. Now it’s how do you get better throughput through the asset base that you have. That being said, when we look at where Turtle Creek is, you’re going to run into entitlement of the facility as you get into the end of next year, beginning of the following year in 2023, so we will be out looking for where factory number two will be located as we get into the middle of next year to get to the target that we have for gigawatt hour production.

Got it, okay. That’s really helpful. Then maybe just last one, could you talk a little bit about the opex trajectory, any additional costs we should be expecting in the fourth quarter or the first half of next year as we’re validating and launching Z3, ramping up sales activity. Just the capital plan as far as capex is very helpful, but I’m just curious where we see operating business going over the next couple quarters here and cash burning [indiscernible].

Sagar, you want to start and then I can jump in?

Yes, hi Chris. The opex for next year will be right in line with where we are for this year, plus maybe 5% to 10% to mark up for the incremental growth. That’s more so specific to your point on research and development and commercial operations as we ramp up both internationally as well as, to Joe’s point, balance out front of the meter and behind the meter.

And Chris, the one thing I would say on your specific question on the Z3 ramp, right, so when you look at what we did on the current product, we were validating, industrializing and commercializing simultaneously in one facility. What we’re doing with the Z3 is we are--we will have a production line, a partial production line in our facility in Edison, which will allow us to do all the work on the industrialization and validation of the product outside of a production where we need to produce product to ship to customers, and then feather that into the production capacity that we have in Turtle Creek or in factory two to deliver the first commercial units at the end of next year. It should be a smoother process where we take the lessons that we’ve learned for the Gen 2.3, apply that to Z3 and do it in our facility here in Edison, side by side with the technology team to be able to ramp up that production process and validate the product itself.

Got it, that’s helpful. I’ll hop in the queue. Thanks guys.

Thanks Chris.

Our next question comes from the line of Tom Curran with Seaport Research Partners. Please proceed with your question.

Good morning.

Hey Tom.

When it comes to educating both investors and prospective customers, you’ve done a great job of articulating the advantages of Eos’ proprietary [indiscernible] chemistry over lithium ion alternatives for long duration storage solutions. But if we shift the frame of comparison from the Znyth versus LIBs - you know, lithium ion batteries, to the Znyth versus other non-LIB storage technologies, which strengths would you emphasize? Specifically, how would you compare and contrast the Znyth with iron air technology and then with liquid metal and molten salt technology?

Yes Tom, I always start off with the framework of the energy value chain is always going to be a mix and no one technology can meet all the use cases of what that mix requires. The examples that you’re talking about, those technologies, those are longer duration discharge technologies than the market segment that we would go after. What I would say, like when you compare to them side by side, I go back to the capex-lite model to add capacity and be able to manufacture product. The operating flexibility that we have to go down into--you know, we can run cycles down into the short duration, and we can run cycles that go beyond 12 hours, so we’re this bridge technology which is a very important market segment as you think about firming up the grid as more renewables come in and giving it the flexibility it needs to handle the intermittency, but to compare one to one on some of the technologies that you brought up, it’s difficult to do just because they’re going for much longer duration storage discharge than what we are. What I would say is we have a much simpler system. What holds when we talk about lithium ion, holds when you look at those technologies as well - earth abundant, readily available raw materials, a very simple system design with competitive upfront investment and very low operating cost to maintain the system, and ease of use, which I think when you look at where we want to apply the technology and how do we want to use it, that’s a key differentiator for us against either side of the spectrum that you look at, either short or long duration.

Great, so as the long duration non-LIB utility storage market matures and we do end up seeing room for several technologies rather than gravitate towards any one silver bullet or dominant solution, you think about that future demand pie consisting of several slices, which single use criterion is most likely to determine the size of each piece? Should it be duration range?

Well, I think it’s the total cycle that you’re looking at, so how fast do you want to charge, how long do you want to wait between discharge, so get up to whatever your charging is, and then how long or short do you want to discharge. It’s that total cycle, and I think what the industry needs to think about, and the way that I think about it having been in the industry 30 years and worked in different technologies, is we talk a generic cycle to make it easy for people to understand, but in the real world you very rarely run at that generic cycle. When I look at what we do as a technology, there is no generic cycle for us, and we showed it in that one chart that shows the battery on consecutive days running different discharge times. There is a tremendous amount of volume there because the whole purpose of wanting to bring energy storage into the energy mix is to give the system flexibility, so you want assets that can be flexible. When we operate like that across that flexible range, different power ratings, different discharge and charge times, you don’t damage the battery, you don’t reduce its useful life, it doesn’t degrade faster, and it gives you great performance, so it’s kind of like hey, what is your use case, how do you want to use it, and we know and I know after 30 year that no one day is going to be exactly the same as the next day, and you need to be able to meet the demands of those days. That’s what we love about our technology in the market.

That’s very helpful, thanks for that, Joe. Sagar, turning to the initial expectation that you would realize the 45 of the initial expected $50 million of revenue for 2021 over the first half of 2022, can you update us on how much of that remaining 45 you now expect to recognize over the first half, and then turning to the Blue Ridge power order, how much of the Blue Ridge power order revenue should we see recognized over the first half?

Yes, I’ll start and then Joe will jump in. Look, first off, we expect at this point to provide a better perspective on 2022 when we report our fourth quarter earnings in February, largely driven by some of the near term secular headwinds that Joe alluded to when he started off the conversation with trends in the marketplace. Clearly all of the backlog is expected to be delivered sometime between 2022 and ’23, and both based on customer readiness and our ramp-up, which is fragmented to the demand at this point, we’ll be taking a look at what the first half looks like. As Joe said, the first quarter will look similar to the fourth quarter, and that’s really what our starting point for 2022 will be.

And Tom, I would just add on timing of when you see Blue Ridge/Pine Gate coming into revenue, these are projects--when you think of the project cycle from order to discharge on the grid, they’re usually median time frames around a year, can be as short as nine months and as long as 18 months. Now, inside the order that we announced are multiple projects, so this will come in over time, so I think when you look at our revenue coming in the first half of next year, that revenue is going to be delivering on the existing backlog that we have, and then going into the second half of the year to start delivering not only this 300 megawatt order for Pine Gate, but the original order that we had with them coming into the quarter. As Sagar said, we’ll come back with what that plan looks like as we get together with customers and understand where they are from a timing standpoint to lay out what the revenue profile will look like throughout 2022.

Great, thank you for taking my questions.

Yes, thanks Tom.

Thank you. As a reminder, if you would like to ask a question, please press star, one on your telephone keypad. Our next question comes from the line of Martin Malloy with Johnson. Please proceed with your question.

Good morning.

Hey Martin.

The Duke order, it was--I think it’s great to see a repeat order from a customer like that. Can you maybe talk a little bit more about how they’re using the batteries and feedback from them on what they saw that they liked?

Yes, so we ran a pilot project with them over the course of 24 months, basically, at their test facility outside Charlotte, North Carolina, and what they really--you know, consistent feedback from the team at Duke has always been we don’t know when the system is running because you don’t draw any power to be able to run, so the fact that we don’t require HVAC to keep the system within a narrow temperature band, and we also don’t know because you don’t make any noise, it’s a very quiet system compared to other technologies. What they really liked was consistently being able to deliver cycles around six hours for the use case that they were looking at, but the flexibility of going down to two and above six as required, and that’s what led us to this next follow-on order, which is a full commercial order with them, and that will hopefully lead to other orders in the future as we deliver and continue to prove out the technology.

Great. Thank you for that. I was wondering, and I don’t know if you’re willing to share this, but when we look forward to the 3.0, it looks like what’s in your backlog is about $244 per kilowatt hour. Can you maybe help us with pricing for 3.0 and how you expect it to trend over time, and also gross profit margins?

What I would say specific--you know, I would go back to the model that we’ve laid out when we went public. What I would say, Martin, is what we are trying to do is deliver more power per container and to require fewer containers in a smaller footprint to deliver on customer requirements. As the market evolves and grows and accelerates, we will continue to compete on price, but hard to really give a forward forecast just because you just don’t know where the market will be. I think giving any guidance on that would be difficult for us to hold to it, but we’re going to continue with our model that we have today and the growth trajectory that we have to be able to make the company gross margin positive and cash flow positive in the future.

Okay. On round trip efficiency for 3.0, the range, any help you could give us there?

Yes, again depending on the use case and how you use it, we have seen--and I’ve run, even with our current technology, you always have to remember on the round trip efficiency, Martin, this is a really interesting question, and I’ll try to keep it--it’s nuanced, but I’ll try to keep it as simple as possible. We run our batteries, we charge to 100 and we discharge down to zero, so when we say round trip efficiency, it’s that full operating cycle of a battery. Now the gen 3 product should be anywhere from the high 70s to low 80s on total round trip efficiency. What we do do is if we do, like what lithium ion does, which lithium ion when they quote their round trip efficiency, they go from 80 to 20 usually on their operating cycle, so if we go from 100 charge down to 20% left in the battery, so don’t discharge down to zero, our round trip efficiency then goes up to the mid-80s, and we’ve run cycles in our factory where the current technology has been in the mid-80s. Now, the specifics of being able to give you a more pinpointed number around the next generation product, give us a little time to get these first production run units on test here towards the end of the year, beginning of next year, and we’ll come back with more details, but we like what we see out of the prototypes that we’re running today.

Okay. Then what are the raw materials specifically that are both scarce or difficult to come by, or is it just the logistics issues that are plaguing everybody, is that what’s causing issues?

Yes, for us it’s logistics and availability. You have to remember, earth abundant raw materials going into the battery, so plastic resins being molded into frames, titanium, carbonized, graphitized felt and zinc bromine electrolyte, so materials are available. It’s managing the delivery of those materials to our production schedule. Honestly, the biggest challenge for us as a team has been around shipping containers. This went from a market where they couldn’t give you enough of them, to you can’t find them and you’ve got to advance buy, and that’s what we’re doing just to make sure that we have those on hand. But it’s like everyone else - you know, you’re dealing with the port issues, and that’s one of two parts that we import, that we just have to manage the timing on when they arrive and getting them to the factory. But it’s a day by day--you know, you need to be in the details, we do production calls on a daily basis to figure out what’s happening, and then you chase them down and try to get better just to keep the material flowing into the factory.

Okay, and my last question on the software side, I thought I heard on the call that you’re seeing some improvements in efficiency as a result of improvements in the software. Could you maybe talk a little bit about the software that you’re developing and how that integrates with the customer’s software for controlling storage or solar units and using them in conjunction with each other, as an example?

Yes, great question Martin. When we came out and developed our system, so the entire system is on a building block basis, our DC system, so our software controls the battery modules and the overall container, right? That software is agnostic to the EMS, the energy management system that the customer uses, and we did than on purpose because we knew coming in as a new entrant to market, we didn’t want to go to customers and say, in order to use our equipment, you have to re-train your workforce on a new software that they interface with. We have taken our system and integrated it into multiple energy management systems that customers use today. What we are learning on our software today, where we’re getting performance, if you go back to that--if you think back to that chart where I showed batteries off the line in July of last year, batteries off the line in December last year, July of last year, and today, our battery management system is managing that variation that we showed to smooth it out. What we’re seeing now is that as we improve upon the manufacturing consistency and first pass yield off the line, we’re able to get more performance out of the battery, because really the way our system works is very simple - the lowest common denominator in the container determines the performance of the container, so what we’re doing now is seeing that all the work that our engineers have done and our R&D team have done to improve the battery gets better performance, and now we’re adapting the software to give customers those multiple use cases that I talked about, so that they can operate the battery any way they want.

Great, thank you very much for your time.

Thanks Martin.

Thank you. Ladies and gentlemen, we have reached the end of the question and answer session. I will now turn the call over to Joe Mastrangelo for closing remarks.

Thanks everyone for joining today. Extremely exciting time to be part of the company and really very exciting to be, either when you go through our labs here in Edison, where I am today, or on the factory floor in Turtle Creek, this is a dedicated workforce that every day comes in and realizes that we have an opportunity to change the way the world powers itself, making it cleaner and greener as we move forward with a product that can deal with the robustness and the real world demand. We’re going to continue to build a great operating company and look forward to coming back beginning of next year to update you on fourth quarter, and thanks again for listening in.

This concludes today’s conference, and you may disconnect your lines at this time. Thank you for your participation and have a wonderful day.