Good day, and thank you for standing by. Welcome to EOS Energy's First Quarter 2024 Earnings Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Liz Higley, Director of Investor Relations. Please go ahead.

Good morning, everyone, and thank you for joining us for Eos' financial results and conference call for the first quarter 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&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 any of our assumptions prove to be incorrect, our actual results may differ materially from our expectation of those implied by these forward-looking statements. The risks and uncertainties that forward-looking statements are subject to are described in our SEC filings. Forward-looking statements represent our beliefs and assumptions only as of the date such statements are made. We undertake no obligation to update any forward-looking statements made during this call to reflect events or circumstances after today or to reflect new information or the occurrence of unanticipated events, expect as required by law. The conference call will be available for replay via webcast through Eos' Investor Relations website at investors.eose.com. Joe and Nathan will walk you through the company highlights, financial results and business priorities before we proceed to Q&A. With that, I'll now turn the call over to Eos' CEO, Joe Mastrangelo.

Thanks, Liz. Welcome, everyone. Thanks for taking the time here this morning. Let's jump right into what I think is the biggest news of the session here today. Last week, we successfully completed the factory acceptance test for the state-of-the-art Line 1 with our automation partner, Acro Automation in Wisconsin, really a tremendous achievement by the combined team of the 2 companies to get the FAT completed in the way that we got it completed. And we got through final system debugging and integration in 6 weeks. The total cycle time on the line is a battery moving through stations around 12 seconds. We really have a couple of stations that we need to tune in. The majority of the stations are running at the 10-second target. We've got a clear line of sight to get to that 10-second cycle time. It's very impressive to watch the batteries go through the manufacturing process and see how far we've come and see the quality that's able to come off of the line. Now, when you take a look at that and now think about what's next, what's next? First equipment arriving today in Turtle Creek, and then start being installed in our factory here in Building 700 here where we've been manufacturing on the semi-automated line. Pretty exciting time here. The operators have been trained on the state-of-the-art line during FAT, and then our installation and commissioning is on plan per our schedule. Now, I think this is very important for us as a company in a couple of areas. One, we continue to execute to the plan that we laid out at our strategic outlook session in December. The second piece is getting through the FAT as a critical step as we think about customers wanting to see our ability…

Thanks, Joe. Thanks, everybody, for joining us this morning. I will spend the rest of the time walking through where we are on our cost-out roadmap, along with our first quarter performance, and an outlook for the rest of 2024. Moving to Slide 10, I just want to spend some time on 2 programs that are critical to our cost-out program and part of the manufacturing cutover that we undertook last month and as we discussed back in December. If you look on the left, what you see here is the new lower cost, higher energy density module that was designed for further cost-out, as well as being uniquely designed in anticipation of our automated line. If you remember from our last call, Joe talked about increasing the surface area of the felt on the bipolars and replacing the terminal electrodes with conductive plastic. Having more felt surface area means you have the ability to retain more energy, which has resulted in 15% more energy per module. Further, you can see the differences in the lids on these 2 images. The design has evolved as we replaced the titanium stud in the old design with a tab that is sealed in place with potting compound to improve manufacturability and reduce cost in the automated line. All of these enhancements take cost out of the product and improve the performance, both of which were key components of our cost-out roadmap that we laid out in December. Now, switching to the inline cube, we are very proud of the team that has taken a concept and brought it to reality in just 4 months. This design was created with the intent of capitalizing on the value propositions of our Z3 battery technology and by working with customers and incorporating their suggested enhancements…

[Operator Instructions] Our first question is going to come from the line of Chris Souther with B. Riley.

Congrats on the progress here with the Factory Acceptance Testing. I just wanted to get a sense, what are the areas we're still working on to hit 10-second cycle times? If you could kind of walk through some of those areas that are a little bit slow in the line today, and then maybe walk through the steps needed from operational and/or financial we need with site acceptance testing in order to close the DOE facility as we see it today.

So, on the line cycle time, look, there's 2 stations on what I would call the back end of the line that we need to work on speeding up the production of those individual stations. I would call from a level of complexity, not highly complex, just a matter of working through the control logic and how you pulse the batteries through the different stations. I think the team has a path on that. So we'll just continue pushing this forward. I mean, again, like with any production line, we're never going to stop making this thing better and improving upon this and 10 is not the end. 10 is the starting line to then find productivity year-over-year as we go through this. So this is just a natural evolution. What I'm particularly proud of is the front end of the line running at 10 seconds on every station. I mean, that's been an amazing amount of work being done really by 3 companies, Eos, Acro and Rockwell Automation just really pulling this together. And when you stand there and watch it, it's pretty impressive. From an SAT standpoint, look, we're sitting off the shop floor here in Building 700 and the first truck is here and they're unloading the first piece of equipment onto the line as we speak. It's going to be rebuilding that line here on the factory floor and then running SAT to get through a successful test, which we're confident on given where we are from a schedule. And we put a lot of planning into disassembly and the logistics around how things are arriving and how we're going to build out the line. On the floor, the team has spent the past month or so just getting the floor ready, wiring and prepared for electrolyte tanks to be installed to be able to get through on the throughput. So, we're pretty excited about getting through that per the plan by the end of Q2. On other things, like again, we haven't talked about the other CPs that we have around closing the loan, but we're confident that we're dialing in with those and working with the LPO to get to a successful close here after SAT.

That's great. And then on the incremental $20 million CapEx to expand the Line 1 capacity to 2 gigawatt hours, would that be funded potentially upfront by the DOE, like I think you've talked about for future lines or would that be back-end like we've seen on the first 1.2 gigawatt hours? And I'm curious, do we need that subassembly automation to hit positive contribution margins later this year or not?

Chris, just to clarify, that's not 1 of the positive contribution margins, our goal for the year as a company. It's not tied to the funding of the loan. I mean, when you think about the purpose of LPO, it's a bridge to bankability. So that's not 1 of the conditions that we have, but every LPO loan has the same mechanism in that it's a reimbursement of cost. So you would invest that cost and then that cost would be reimbursed. If you remember, when we talked about the loan closing, we got the maximum amount of reimbursement at 80%. So you would spend that capital and then be reimbursed 80% of the capital spent to be able to do that work.

And one moment as we move on to our next question. And our next question is going to come from the line of Chip Moore with ROTH.

I guess, congrats on factory acceptance as well. I think, Joe, you did a good job on the last question there. Maybe you can expand on sort of what you learned during that process, and I guess would you say that site acceptance was fairly derisked here, just given some of those things you talked about in terms of planning for installation here?

Yes. So thanks, Chip. Look, we learned a lot through this process, right? So, going through it really when -- I can't say enough about the Acro team and the way that we pulled together to get through this. I mean, this was literally run in the morning, sit down, do like an after-action report out, come back in the afternoon, run again, see where we improved and just continuously dialing in how material moved and how the individual stations worked. Really like what we've learned as we've gone through this is just the consistency that you get from an automated line of how you produce and just watching that time come down. When we started off on this, individual cycle times were above 20 seconds when we started, and you're basically, I mean, this is like running a marathon, right? You start off your training and you're not running as fast as you want, but the more you run, the more you run and the better you get. And I think we learned a lot about component quality, how we feed the lines, how the individual stations worked, and I think it's just pretty exciting to really think about executing this next phase of the installation. Like we had a plan that said, get through FAT successfully, start taking apart this part of these individual portions of the line, get it on trucks and get trucks to Turtle Creek and, first, as I said earlier, first ones here, next 2 are arriving, we'll have 3 trucks worth of equipment arriving. There's a team from Acro on site. If you come and look at the parking lot, there's Wisconsin license plates out in the parking lot because they're here with us, helping us put the line back together. One of the things that we did do was, we had our line operators in Acro last week for the FAT, so they've run the line. When we were building the line, we had our maintenance team there helping to build the line. That's a learning curve that as things arrive here, we'll know how to put the equipment back together again because we've done it once before. So, I feel good about where we are. And again, like we've got a fairly detailed daily plan of how we have to work through this, and we'll just continue to work through this and let everyone know when we get through SAT where we are. I mean, I feel confident but never feel like you've won the game until you cross the finish line. I think that's what we're focused on, getting across the finish line.

That's great. That's helpful color. And if I could ask about liquidity, I think you talked about PTC monetization. I think maybe being able to accelerate efforts there, and then anything you can give us on line of sight on milestone cash payments or anything else on liquidity.

Yes. So on the PTC, it was a significant amount of work to get the first deal done. As you know, the marketplace is still fairly new, but we do have a counterparty that has an appetite for more tax credits. And we've already worked through all the legal documentation to get one done. So I do feel like we could monetize every quarter much quicker going forward. And that's our plan in order to do that. From a liquidity standpoint, look, I mean, it's consistent with what we've talked about previously, which is, focus on getting the SAT completed here at the end of the quarter, meeting the final conditions for long-term financing and, in the short term, continue to manage cash outflows as efficiently as possible while still hitting critical customer delivery dates and then in trying to pull in customer milestone payments and deposits. So, kind of balancing that in the short term as we focus on getting the line implemented in long-term funding security.

Maybe just 1 last 1 on that incremental $20 million to get to 2 gigawatts and automated bipolar subassembly process. I think you mentioned sort of timing on that tied to securing longer-term funding. Does that imply that that's not -- DOE loan is not contingent upon that?

DOE loan is not contingent on that. That would be a future event, just like Line 2 or Line 3 and that we would spend the money, apply for reimbursement and get reimbursed. Joe touched on the mechanics of the loan a little bit earlier. I mean, once you get through the first reimbursement, that money goes into an account and kind of recycles inside the mechanism to where we can use that to pay for the next round of costs and then submit for reimbursement again. So once you get through the first closing and funding, that money kind of recirculates within the cap stack, if you will.

And one moment as we move on to our next question. And our next question is going to come from the line of James West with Evercore.

So congratulations on getting the line up and running. As you guys, you'll get more experience and ramp further here. Any changes to the strategy for Line 2, 3, 4 and expanding capacity further? And then, did I hear correctly that this, what you have in the backlog should take up most of the capacity, if not all, of Line 1 for the next 1 to 2 years?

Yes. If we just stay pat on Line 1, yes, James. I think, underlying your question, if you look at what's happening in the marketplace, the market continues to accelerate to bigger projects with longer duration energy storage and a somewhat demand of domestic or U.S. produced technology for energy security. All 3 of those things -- I think, Eos meets all 3 of those criteria. So as you look at the strategy for expansion, the strategy for expansion is going to continue to be expanding as we get backlog. I think what we've learned going through the line with Acro on Line 1 is, we can convert these lines in a relatively quickly and we're only going to add that capacity as we see the backlog firming up and the pipeline firming up to be able to produce. What we don't want to have is, like really want to avoid, capacity chasing orders versus orders wanting to get in front of capacity and us investing our capital when we have the orders to be able to deliver, and that will continue to be the strategy. Now, what I think we're seeing is a building storm, if you will, inside of what we're trying to do in the country and also starting to see Europe and India and Australia and other places go through the same acceleration that we're seeing in the U.S. So I think demand signals will continue to strengthen. The entire philosophy of how we came up with our manufacturing capacity strategy was build it in lines, make the lines incrementals, spend capacity as you need it. And if you have demand signals that come from other places, you would then expand into other buildings. So this isn't like, I don't think our strategy has ever been a 10 gigawatt hour factory in Pennsylvania, it's build out Project AMAZE in Pennsylvania, then look where you can reduce logistics costs by co-locating a factory near demand. And that will be the next phase of the growth as we get through this first part here of getting the line up and running and delivering.

Okay. Okay. Makes sense. And so for -- to push go on kind of a Line 2 is, would you need to have it totally sold out, half sold out, what's kind of the gating factor or the data point you need to see before you commit to it?

So, look, I think we look forward on a rolling basis, 6, 12, 18 months, you're going to be looking out -- you're going to be looking out on the 12 to 18 month demand signal and want to have -- in my view, you're going to want to be close to that 50% mark because you can absorb that and continue to, and make profit off the line. Like when you look at it, and this, just if I take back your question, James, and kind of link it back into like our second quarter numbers. If you look at what happened in quarter to us on the page where Nathan walked through cost out, we don't want to have capacity sitting there underabsorbed that drags down the performance of the company. So like when you look out, you say, if I get to 50% on line, I can absorb that capacity and still get to breakeven positive on a contribution margin basis. And that's how we'll make the investment decisions. But at the same time, you're going to be weighing the opportunity pipeline and what's out there for conversion and the orders over that 12 month time period to take that 50% that you're locked in on and increase that as you move forward. And I think that's going to be the best way for us to continue effective utilization of capital and deliver a company that has profitable growth.

And one moment as we move on to our next question. And our next question comes from the line of Joseph Osha with Guggenheim.

I did want to return quickly to this issue on the DOE side. I guess I had gotten the impression that site acceptance was really the major thing that we had to deal with prior to the initial draw, and that it might be reasonable to expect that to conclude by the end of Q2. So, I guess I'm asking, A, are any of these other CPs really material hurdles in your view? And B, are you still comfortable telling us that we should get there by the end of Q2 in terms of the initial draw?

I think this -- so you asked a couple of questions in there. One, we're on schedule to get SAT done by the end of the second quarter. That is a significant CP in terms of the DOE. There's obviously, we've got to submit our eligible expenses, they've got to review, they've got a process, they've got to reimburse. We've been led to believe that's probably a 30-day turnaround time. And that is -- there's other smaller CPs, but we've always been focused on the SAT. I think that's the big one we've got to focus on. And so, I would anticipate closing funding several weeks after that.

So I guess, let me try it a different way. Do you believe that you're going to be in a position then to give the LPO the relevant documentation by the end of the quarter?

So Joe, they'll be part of the SAT process, as they have been all the way through this. I'm not going to make a commitment on the cycle time and the processing time of an external entity, but we feel like we'll be able to show them that the line is running to the performance that we signed up to in the loan. And then from there, as Nathan said, we have to go through the process of reimbursement of the costs -- review of the costs.

Okay. All right. That's helpful, I have some more, but I'll take it offline for later.

One moment as we move on to our next question. Our next question comes from the line of Martin Malloy with Johnson Rice & Company.

Congratulations on all the progress you've made, including the cost out initiatives. My first question, I just wanted to ask about customer conversations over the last couple months and if they've changed. We're hearing in the press a lot more about utility companies increasing their expectations for demand and data center power needs increasing and them wanting power as quickly as possible and reliability. Can you maybe talk about anything you're seeing with respect to that, that maybe has changed with customer conversations or new customers in the last couple months?

Well, Marty, I think you see it in the growth of the opportunity pipeline on a quarter-over-quarter and year-over-year basis. Yes, I mean, there is a lot -- there are conversations we're having on the data center side. We feel like we've got a really good solution for data centers. And we always have to remember, data centers, there's 2 types of energy they're looking for. There's the emergency response, which we are not. And then there is the operating and providing the energy for the data center, which I think we have a good fit for. We continue to work through with multiple customers, multiple opportunities and just see that this is an emerging realization of there's a lot more power demand out there, and long duration energy storage can help fit and deliver that demand requirement. And we have a solution that fits that really well.

Great. And for my follow-up question, just wanted to ask about maybe initial thoughts on the impact on Eos from the tariffs that were announced yesterday and how that might benefit Eos in your domestic content that you have.

Okay. I mean, Marty, I think from the standpoint of wanting to bring manufacturing back to the United States and wanting to invest in manufacturing and wanting to not just bring it back, but also incentivize the growth of companies like Eos, I think it's a great piece of legislation both not just for energy storage, but also for EVs. I think the timing of when it comes in for energy storage times well to when we'll be up at scale and running as it gets into 2026. I think when you take the combination of the tariff, the fact that we're above 90% on U.S. content, so the investment tax credit that the customers get and the energy security piece of this, let's not downplay that, I think you now have really good conditions for companies like Eos to grow in the future. And I've said many times, we're going to need more than 1 Eos to be able to meet this demand. We've been positioning the company very purposefully for the timeframe that we're talking about as growth hits. And I think, Marty, the other piece that I'd like to talk about is, going back -- linking your two questions together, in my nearly 6 years here with the company, the overall industry has changed dramatically. And I think, when you look at, when I first came here, we were talking about energy storage for minutes, maybe if we get 2 hours, 4 hours being the goal, to now talking about plus 6 hours, large scale, like when you look at what the team has been able to do here in transitioning from Gen 2.3, which 6 years ago would have been a product that could have met that market that was much smaller with a much more bounded use case to coming out with the Z3 and the work that the team continues to do. It positions you perfectly for the market -- for the future of the market, where the market's going to be in the future, not where it is today. And I think, we're just going to keep working on that and keep improving what we have and keep driving costs down and keep getting a U.S. supply chain to deliver the energy security and a competitive product that meet the future demand that we have for energy.

And one moment as we move on to our next question. And our next question comes from the line of Thomas Boyes with TD Cowen.

Maybe just 2 quick ones. Great to hear that you're at 90% for kind of domestic content. Can you get to 100% at some point? Is that the ultimate goal? Or there may be some things that just can't ultimately be insourced fully even over the longer term?

So, yes, you can get to 100%. It's a goal we put out there for ourselves. I think when you look at like the core portion of what we do, the components in the battery, the software and the BMS, yes, 100%. That's the goal. Other ancillary things, there may be some hardware and fans and other things that might not come from the U.S., but what we're marching to as a team is, how close can we get to 100%. And again, like part of that also is making our supply chain simple and making it easy to work and control and get quality from our suppliers versus adding the complexity of trying to do this globally when you're a small company. I mean, I think the fact that we went with the strategy of, let's look at, really when we started it was North America and then honed down into the U.S., it's made our ability to grow the company and switch over to the Z3. It's enabled us to be able to do that because everybody's close by. You can actually talk to people face to face and go to their facilities and they can come to our facility and it just allows you -- innovation requires getting in a room together and working through the challenges to get to an innovative product and having it local, makes it simpler and faster.

Excellent. I appreciate the insight there. And maybe just the last question, when you're expanding capacity for Line 1, do you need to kind of pause production at some point so that work can be done or can it occur concurrently with operations? It sounds like it can based on kind of what you had -- you laid it out on the call, but I wasn't sure.

It's concurrent. So it's not -- it's feeding parts into the main line. And we've been working on this as far as getting a conceptual design done and doing some pilot testing, and then we'll launch the full automation of the bipolar production. But that happens as an input into the line, not on the line itself.

And one moment for our next question. And our next question comes from the line of Vincent Anderson with Stifel.

It's been said already a few times, but I think it was barely a year ago when I was out in Turtle Creek watching you use a Jerry Rigg T-shirt press for prototyping the Z3 cell. So, to go from that to an automated production line in barely a year is really honestly impressive. So I wanted to echo the congratulations just 1 more time. You settled on ramping Line 1 to 2 gigawatt hours. Can you just maybe talk me through what led you to that decision versus building out a second line first? And then, you touched on this already, but maybe just initial feedback from your automation partners on the subassembly step.

So let me start at the end there, and I'll work my way back, Vincent. So, on the subassembly work, we feel confident that we'll be able to do this. Like I said, there's been some pilot work done. Part of -- we've already automated, I'd say, on our terminal manufacturing. We've already automated that process. So that is a very similar manufacturing process. We feel like automating the other subassembly is going to give us better, obviously, consistency of parts coming off of the line. We feel confident that we have a layout and solution that we can execute on, and we've done some testing on individual processes. So we followed the same playbook that got us where we are, which is, get your discrete processes within the manufacturing, get them working on an automated fashion, and figure out how to move things between their individual stations. And that's really what we're working on now with Acro for the subassembly piece of it. That's going to help us, I think, on your question of why not go for a second line? You need the subassembly to feed 2 lines. You need the subassemblies up and operating at that line rate. We've always planned that. And I think that would be a fast follow, depending on where we are with the backlog, to launching the second line and getting the profitability where it needs to be. And I think the main goal, if you go back to what we said in December, Vincent, is like continue to drive the cost-out program. We're making good progress on bill of material costs. As Nathan laid out on his page, it's now about utilizing your labor and your capacity to its fullest to get to position the company to become contribution margin positive and then go into cash flow positive as we get into 2025. The Line 2 launch comes down to allocation of capital and us getting the company to where we're generating the cash to be able to do that, tied in with the funding from the DOE loan.

The only thing I would add, Vincent, is just efficient use of capital, right? The first 1.25 gigawatt hours was $30 million. For an incremental $20 million, we can effectively double that within our existing footprint, within our existing square footage. So from a capital efficiency, it's more efficient to just increase the capacity of the first line than to go and build the second line.

Okay. That's perfect, I appreciate it. And I know we're coming up on time here, but I had a few questions all kind of related to the commercial side of things, so I'm just going to try to speed run them. When I think about the cubes that are being installed or they are installed, hopefully they'll start up soon. When I think about the marketing value of the data they're going to spit out, are we thinking about this as those customers that have received those cubes are going to turn around with that data and hopefully put in more orders or is this more about Eos collecting that data and having something to point to other customers in the pipeline in order to generate additional orders?

Yes, it's in both. Yes and yes. That's exactly how that's going to work.

Okay. And then Joe, maybe I'm misinterpreting or overinterpreting this, but you specifically pointed to FAT rather than site acceptance testing as being the stage that was really important to your potential customers. I'm curious, did you have potential customers come in and view the line while it was at Acro as part of their diligence to help accelerate the pipeline conversion?

We've had customers go visit Acro. I think my point, Vincent, is like, when you -- part of the challenge of this road that we're on is, there's been people before us that have tried and haven't gotten there. So when you talk about being able to automate production, a lot of people question, can you do it? Because we've seen a lot of other companies try and not get there. Being able to say come out and let's watch it, stand there with a stopwatch and time the individual stations. And when people start timing it, and maybe they use a stopwatch or maybe it's kind of like, flag football where they're counting 10 Mississippis and saying, all right, that's 10 seconds. I mean, it proves out to people like this can really happen. It's not just a concept. And there's a lot of people, Vincent, that have kind of where you started on the call, which is -- I came to Turtle Creek. I could see the potential of where you can take this to wow, you're doing it. And this is great. And I think that's just, it's a show me game. I've said this many times, like we've got to show people and earn the right to grow this company and showing people SAT, and when I talk to customers about this, it's along the lines of -- we've created a line. Do you think we can't take it apart and put it back together again? And that's where we are when I think about SAT.

Perfect. And then I'll just -- one last one here for you, Joe, your alma mater there over at GE Vernova. It's now kind of through the distraction of becoming an independent entity. Just curious where you view them in kind of your value chain, particularly given their position in wind energy. And if that's a pretty actionable partnership opportunity going forward?

Yes. I mean, look, I mean, hey, congratulations to Scott Strazik and the team there. Having done it on a much smaller scale, I can only imagine how excited they are to be able to be focused on the energy industry. There's always opportunities to partner with anybody that has production, whether it be wind turbines, whether it be solar modules, whether it be gas turbines, there's a ton of opportunity to be able to do that. Won't comment on any specific conversations with any players, but there's a lot of opportunity here as the market starts to evolve, and we continue to put the proof points out on the product.

Thank you. And I would now like to hand the conference back to Joe Mastrangelo for closing remarks.

Hey. Thanks, everyone, for being on the call today. I really appreciate the time. Again, proud of the team and the work that they've done. Really we've got to continue executing, and the challenge now is taking what has been a very detailed logistical plan and turn that into a line on the factory floor that's pushing batteries off that line every 10 seconds, and continuing to get the product out in the field commissioned and up and running and just continue to show the value that the Z3 brings to the market and the need that it fulfills in the future energy demands for the world. And we're just going to keep working on that every day. There's a lot of work left to do, and that's what makes the job both challenging and fun at the same time. And there's a group of people here that I couldn't be prouder of calling my colleagues because of the energy and enthusiasm and dedication they put into building a successful company.

This concludes today's conference call. Thank you for participating, and you may now disconnect.