Greetings and welcome to Eos Energy Enterprises Second Quarter 2021 Conference Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Jared Ehm, Investor Relations for Eos Energy. Thank you, Jared. You may begin.

Thank you. Good morning, everyone and thank you for joining us for Eos’ financial results conference call for the second quarter ending June 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 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. 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’s highlights, financial results and business priorities before we proceed to Q&A. With that, I will now turn the call over to Joe.

Thanks, Jared and thanks everybody for joining us here this morning. We want to start off with our normal operating highlight page. The top half of the page talks about the progress that we are making commercially. You can see our pipeline is now approaching $4 billion with 18 gigawatt hours of opportunities in the pipeline and reminding everybody as Sagar talks about this moving forward. To get into the pipeline, we need to have a use case to be able to model. Our orders backlog is above $95 million, getting close to $100 million and getting close to 400 megawatt hours of orders and backlog. The commercial team is doing a great job of going out finding opportunities for us to win in the marketplace and adding to our backlog. And you can see year-to-date, we are approaching $80 million in orders and backlog. So really, we are seeing a great uptick commercially and how the team is executing what we are delivering. On the bottom, this is operational highlights where we are approaching 300 megawatt hours of discharge energy either out in the field or in our test facility. We have shipped $2 million of shipments year-to-date to Greece, Nigeria, India and California. And right now, we have $175 million of cash on hand. That includes the recent $100 million investment from Koch, which I will talk about in a moment. But as you can see another quarter where we continue to build momentum and improve the company and deliver out in the marketplace. We go to the next page on today’s agenda just up against our six priorities for 2021. I talked about where we are versus the $300 million in booked orders. What I would say is we are starting to see some great conversion on…

Thank you, Joe. Good morning, everyone. In the next few pages, I will talk you through the second quarter financials. Let’s start here with Page 6. We delivered $600,000 in revenue from the quarter. As you know, Motor Oil was one of our first commercial orders. This revenue accounts for the partial shipment with the second shipment recognizable here in the third quarter. Our cost of sales in the quarter, were $12.4 million. They included $5 million of expense due to fair market value adjustments on future booked orders, $3 million in costs related to improved current manufacturing yields, $1.7 million in base cost as we bring the factory up to capacity and entitlement, $0.7 million in one-time transportation costs. Our R&D expenses were $2.2 million lower versus Q1. As we finalized our UL testing, which were partially offset by our continued investment in new technology specifically our Z3 product. General and administrative expenses included $0.6 million in one-time transaction fees and $3 million in stock compensation expenses. $22.5 million loss on preexisting agreement reflects fair market value of acquisition of the remaining 51% in HI-POWER partnership we described at the last quarter earnings call. We also recorded $2.2 million from the sale of New Jersey state tax credits and $0.6 million gain on fair market value of our private warrants. The latter reflects the mark-to-market valuation, which we will continue to have on our warrants from the improved guidance recently issued by the SEC earlier this year. I would like to move on to the next page and talk you through our current cash balance. As of 6/30, on a pro forma basis, we have $175 million in cash balance. As Joe mentioned earlier, we finalized a strategic investment from Koch Industries, resulting in $100 million of cash inflow.…

Thanks, Sagar. Just a quick drilldown on something that we have talked about since we have gone public and that is taking projects, proving the value proposition of Eos technology, getting our customers to commit to the technology, selective technology and then signing a Letter of Intent, which allows us to close out projects and bring them to commercial success for ourselves and for our customers. And we are starting to see a lot of traction over the last couple months in that bucket of opportunities that we have been working on here for the last 9 months and really the last 3 months an acceleration of those projects starting to close. Starting off with IT, projects in ERCOT, we are very proud of getting two projects that are about 100 megawatt hours of opportunities with IT having to fully finance and starting to work with them now through the permitting process to really start looking at deliveries probably in 2022. On EnerSmart, we have closed 8 projects. This has become a really strong strategic partnership for us and we love working with that team. And this is working in the case of California markets across various different operating sites where we are delivering some projects at the end of next year and the majority of the projects into 2022. Z-Global, another operator in the CAISO, California market, where we have won two projects with them for 80 megawatt hours and starting to work with them on execution and implementation and grid connection to start looking at delivering those projects. And then Hecate, which we have a large LOI with them and we closed our first project in the ERCOT market. It’s a small projects for 4-megawatt hours, but really allows us to start working together on execution and delivering…

Thank you. Thank you. Our first question comes from Chris Souther with B. Riley. Please proceed with your question.

Hey, guys. Thanks for taking my question here. Maybe just on the project delays from 2021 to 2022, last call you seem fairly confident in about $10 million expected over through the end of the third quarter, maybe you could talk about those projects in particular, what the delays were you have now? So, it seems like its more customer end at this point or delays that were resulting in the UL delay, are there permitting issues, other components in the supply chain that they need for the projects that are pushing things back into 2022 now and what’s the cadence of these delayed projects, the timing now or the bulk of them going to be first quarter of ‘22, some push up further in that? Thanks.

Hey, Chris. Thanks. Good morning. Yes, so a couple of components there in your question. So, we are seeing on the project delays, we had out of the $45 million, you could directly link about $5 million of it to the delay in UL certification. The good news on UL is, late last night we got approval for our manufacturing facilities. So as of today, product that comes out of the factory will be marked with UL. So, it’s a big milestone for the team. When you look at other delays that are happening, these are not that the project will move forward delays, these are more just getting approval for permits on construction, getting the actual civil works done so that we can install equipment on-site. We have got now containers in Pittsburgh waiting to ship out. And finally, you got to work through the grid interconnections and getting everything lined up to do that. And we have seen some – we have seen I think these are systemic across the industry that you have heard from other companies that they have gone through their earnings estimates. On the – when they are going to fall, I will let Sagar give some more color here. But what I would say is that you are really looking at them falling out in the first half of next year shipping some of it. You will see all of them go in first quarter, but I think you will see them go over the first six months of 2022. I don’t know Sagar, if you have anything you want to add to that?

Yes. Thanks Joe. Hi, Chris. Yes, I would agree with everything you said. As we get more clarity, we will be sure to come back to you. But we are actively working with our customers to match their expectations and our timelines in the first half of next year.

Okay. And so more than half the backlog here is in T&D deferral/locational capacity, do you get a sense projects, they are going to wait for standalone ITC. And it seems like you have had good dialogue going with some folks in the Federal government here, Congress people and Secretary Granholm. How are you and customers handicapping some kind of standalone ITC, by the year-end? And what is the dialogue right there? I would love to hear about that.

Yes. Because I think there is a lot of progress being made, particularly over the last couple of days here around the infrastructure building, and where the ITC for standalone storage resides. So, we are pretty hopeful here. As you know, everybody in Washington works through this that will have something. I do think you have some people, I think there is some people waiting to see ITC come through before making decisions on projects. And as we see that, we just see the opportunity pipeline to continue to grow for us, as people look at wanting to have safe, reliable power with longer duration – longer duration and flexible discharge times. We just have more and more people coming to us with their project opportunities, which in this kind of timeframe of waiting to see what’s happening on the ITC, it gives us a lot of time to be able to sell the value proposition. And that’s why you see the backlog growing the way that you do and also why you see the opportunity pipeline going up way you do.

Got it. And then looking at kind of the targeted backlog of $300 million by year-end, what’s the expected split there between 2022 projects, 2023 projects or even beyond that? And I am just kind of curious how you guys think that’s looking to shape out at this point?

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

Yes, absolutely. Look, our focus right now is continuing to deliver. We have about $455 million in core opportunities that we are working on with expectations currently from our customers of second half ‘22 and ‘23. That’s about the pipeline that we would like to focus on to meet the $300 million target in the short-term.

Okay. Got it. Thanks a lot. And I will hop in the queue.

Thank you. Our next question comes from Subash Chandra with Northland Securities. Please proceed with your question.

Hey, Joe. Good morning. Just wanted to – get an understanding of so $5 million was the UL certification? And then how does the rest of it sort of link to Slide 18, where you have those manufacturing objectives that you are working towards? Is there a number you can kind of put to the sales deferral that was related to your manufacturing issues?

Yes. So going – so Subash, going back to Chris’s question, when you look at the $45 million, $5 million of it was directly related to the timing on the UL, the remaining amount was all tied to permitting delays and grid connections, so things out of our control. So, I wouldn’t say that any of the – that when you look at how we are profiling revenue, we didn’t push out revenue because of challenges we are having on the manufacturing side, it was more systemic. With that being said, we need to work on Page 18 and really get the yield up, particularly in infrared welding. And we are using this time period here to take what we have learned and improve upon what we have. And we will be able to come back and show everybody what we have done to make the factory better and get better output as we move forward.

Okay. Got it. And then on Slide 15, can you discuss maybe some of the new names on this list from what you might have talked about in the prior LOI slides? Seems to be a couple of new ones and maybe on our new customer engagement, any other color there?

Sure. Sagar, do you want to start and I can jump in?

Yes, for sure. Subash, just to be clear, you are talking about Slide 15, correct?

Correct.

Yes. On this page, this is more than just LOIs. This is all our booked orders plus some of our customers that we have delivered to. So as you know, as far as LOIs are concerned Hecate and IEP are two prominent names along with EnerSmart, but you would have seen us talk about as LOIs. The rest of them are booked orders that just match organically came out of our pipeline directly into booked orders.

Okay, got it. And then…

Yes. And Subash, what I would say just on names you see here, winning the projects and which were announced this morning with Enel in Spain was a big one for us just working through that and working through and getting the technology qualified, walking through the use case, showing them the revenue stack we can gain with the flexibility was a big one, Charge Bliss, Z-Global, working in the CAISO region. I think this was a big area for us when you look at what’s in our pipeline. So, to prove out, again, the use case with those customers is very important. And ReNew and Azure Power, that’s just been working with them as they develop their business plans and building off of really what we did on our first pilot project in India, 2 years ago, showing those operating results on the field, showing the improvements we made to the product, and now having launch projects with them, which will lead to future larger projects as we move forward here in the future. We are pretty excited about the names that we have on this page and the work that we are doing with them.

So, Enel was also refinery-related use case.

No, Enel is a straight storage project in Spain. But it’s our second big project, our second big project in Europe along with Motor Oil.

Got it. Okay. And then the final one, for me the $5.3 million fair market value adjustment, I assume that has nothing to do with the Hi-Power reversal. But if that’s true and then can you characterize that charge further?

Yes, Sagar, do you want to start off there?

Yes. Thanks Joe. Subash, the $5.3 million, you are correct. It has less to do with Hi-Power from an accounting treatment perspective, or the way I would think about it is, it’s an accounting treatment on loss contracts for the expected value of what we are purchasing as inventory and vice versa, the expected selling price on it. As you know, we continued to work towards having a breakeven on our financials by the end of next year on a pro forma basis, because Hi-Power was an acquisition that is more recent in our history. This fair market value adjustment is now recorded in our books versus the joint venture books, which you would not have had – we would not have had transparency to because we only previously owned 49%.

Okay, I think I got it. Okay. And one final accounting issue as well. So, what do you think cash run rate G&A is at this point and what do you think it will be give or take in ‘22?

Yes, the business is built towards having a minimal structural cost. So, the fixed structural costs for the company are round about $10 million, a quarter. The rest is variable. So, what we manage in volume and how that volume ramps up with our customer deliveries. So, that’s we have $175 million of cash today on the balance sheet and we expect to manage it very prudently on both the fixed and the variable cost due to – on a cash flow.

Okay. Thanks everybody.

Thanks Subash.

Thank you. Our next question comes from Tom Curran with Seaport Research Partners. Please proceed with your question.

Good morning.

Good morning Tom.

So since the 1Q call the $41.7 million of orders you have booked under asset leasing agreements have taken asset leasings portion of backlog from 20% at the last call to 54% today. Could you speak to why asset leasing surged to 90% of this period’s orders and tell us what percentages should represent of this year’s remaining expected bookings of $200 million?

Look – Joe I will take that and…?

Yes, go ahead Sagar.

Yes. Look on that Tom, what I would expect is in the long run that number should be about 25% on a recurring basis of our total backlog. From period-to-period that number may vary plus or minus. In this particular case, we have a larger transaction that is currently in our asset leasing. And as we finalize our financing strategies in the second half of the year, you will see that number transferred from a risk perspective and hover – continue to hover as 25% for ongoing future bookings.

Okay. And then, within that balance of $200 million orders you expect to book over the rest of the year, what is the single largest project as measured in megawatt hours and the nature of that project?

Yes, happy to. Look, we have today projects that range from less than 1 megawatt hour to 10 megawatt hour projects. I would refer you to Page 14 and say off for the 389 megawatt hours we have in booked orders. 340 megawatt hours of it is 10 plus megawatt hours as we continue to evolve as a business that’s segmentation will steer more towards the 10 plus megawatt hours. The 455 megawatt hours of core opportunities we are working on have a wide variety in range, but the median would be somewhere between 10 megawatt hours and 50 megawatt hours.

Yes. Tom, we are working – there are larger projects in the pipeline. But I don’t anticipate those closing here and in over the course of this year. And we will be looking at larger projects happening probably beginning into 2022. So, I think you will see a mix of continued mix like we have today with a mix-up to getting towards the 50 megawatt hours that Sagar discussed.

Would you expect, say the average project size for the remaining $200 million to be closer to that 10 megawatt hour size or just a bigger average project within the $200 million than the $95 million to-date?

Yes. Tom, I think we see in the opportunity pipeline is the size of the projects that we are working with customers on skewing up probably I don’t know exactly where the number gets, where the number winds up. But if you were to plot out quarter-by-quarter, it is growing as we continue to show and prove out the technology and people becoming comfortable with using us as their partner.

Great. And then last one for me. Turning to the supply chain and labor pool, could you speak – just update us on how you are positioned for sourcing your five main battery inputs and then hiring. Have you encountered or do you anticipate any bottlenecks, inflationary spikes or other challenges?

Yes. So, inflationary spikes, what I would say we are working through now as a team is we are not getting the cost out as fast as we anticipated. So, part of that is due to the ramp. And part of that is just due to the inflationary pressure that you see in the marketplace from constraints on the supply chain to getting material. I don’t anticipate any concerns there. I mean, we have worked through and have secured the ability to source product from our suppliers. And we have – and we are adding sources of supply as we ramp up and the organization matures. And then from a labor pool standpoint, we have designed the factory right now in Turtle Creek. The team has designed, where it’s a flexible workforce that we can shift people around between different operations. And then at the same time, hiring and bringing in the right level of operators to be able to operate the equipment. It’s in – the environment that we are in right now, there are challenges, you have to work through just what we are seeing happening with the Delta varriant. But the team has managed through this over the last year and we will just have to continue to manage that as we move forward. I don’t know Sagar, if you want to add anything.

Yes. It sounds good.

Great. Thanks for taking my questions.

Thanks Tom.

Thank you. There are no further questions at this time. I would like to turn the floor back over to Joe Mastrangelo for any closing comments.

Thanks. Just to close out today, the team is continuing to work through the challenges of growing and building the company. Proud of the work that everyone is doing. Particularly, pleased with how the traction we see commercially. We have got our work cut out for us and I think we are prepared to deliver on the execution side as we move forward. And just look forward to keeping everybody updated on how we progress and where the company continues to grow for the future. So, thanks for the time this morning and look forward to talking to everybody in the future.

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