Good morning, and welcome to Eos Energy Enterprises Fourth Quarter and Full Year 2023 Conference Call. As a reminder, today's call is being recorded and your participation implies consent to such recording. At this time, all participants are in listen-only mode. A brief question-and-answer session will follow the formal presentation. With that, I would like to turn the call over to Liz Higley, Director of Investor Relations. You may begin.

Good morning, everyone, and thank you for joining us for Eos's financial results and conference call for the fourth quarter and full year 2023. On the call today we have Eos’s 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 our assumptions prove to be incorrect, our actual results may differ materially from our expectation 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 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. This conference call will be available for replay via webcast through Eos's investor relations website at investors.eose.com. Joe and Nathan will walk you through the company highlights, financial results, and business priorities before we proceed to Q&A. With that, I'll now turn the call over to Eos CEO, Joe Mastrangelo.

Thanks Liz, and welcome, everybody. Great to have everyone on the call here this morning. Let's jump right to Page 3 and go through some highlights from last year. First, I think the first place I’d start off is just the improvement that we've seen on gross margins as we've launched the Z3 product. Now year-over-year, we see a 41% improvement in the fourth quarter alone, when we really saw production of the Z3 ramp, we had a 66% gross margin improvement versus the prior year period. It just goes to show all the things that we've been saying about the Z3 are starting to show themselves in the financials as we move forward and start putting product out into the field. When you look at the year in and of itself, it was kind of a bookend year where Q1 was our last full quarter of Gen 2.3 production and in Q4 was our first quarter of Z3 production. Those are our two highest quarters in revenue for the company. I think when you look at how Nathan will talk about the year, I think you're going to see some similar dynamics when you look at 2024, just because, as we do the transition to some cost out and also the new state-of-the-art manufacturing line. I think you're going to see a similar quarterly profile as you move forward throughout the year, and I think what the Z3 is showing is, the ability to generate revenue off of the semi-automated line, drive down cost, and improve gross margins, just show why we've been so positive about getting the Z3 out to customers. Also, I think one of the major accomplishments for the team was being the first non-lithium-ion battery company to qualify for a Title 17 loan with the…

Thanks, Joe. And thanks, everyone, for joining us this morning. Let me start with an update on cash. We ended 2023 with $69.5 million in cash on the balance sheet. And since year end, we have collected some customer deposits and milestone payments and we have current line of sight to collecting on three or four significant customer payments in the next couple of months as we continue to work towards getting the first advance on the DOE loan. We are also in the process of finalizing negotiations with the expectation to monetize our 2023 production tax credits in the coming weeks, and we also expect to monetize our 24 credits on a monthly or quarterly basis going forward. Consistent with previously announced transactions in the market, we anticipate there to be a 5% to 10% discount on these credits upon monetization, with the economics improving as the size of the credits increases over time. With that, let's get to our financial results. Turning to the next few slides, I will walk through the fourth quarter and full-year financial performance along with an outlook for 2024. Now for the fourth quarter, revenue in the quarter was $6.6 million, up 148% compared to revenue of $2.7 million in Q4 of 2022, and up 866% compared to revenue of $0.7 million in Q3 of 2023. The year-over-year growth in revenue was a result of our transition from Gen 2.3 to the Eos Z3 Cube, while the sequential quarterly growth was driven by higher production volumes off the semi-automated manufacturing line as we ramped up production. We shipped our first Eos Z3 cubes at the end of September to two different customers and we are in the process of delivering a much larger project in Orchard, Texas to a key customer owned by…

Thank you. [Operator Instructions] Our first question comes from Christopher Souther with B. Riley. Your line is open.

Hey, guys. Thanks for taking my questions and congrats on the continued progress here. Maybe just the first one on the guidance of $60 million to $90 million versus the -- I think you've called out like $75 million to $100 million that you had visibility on between backlog and LOI back in September. Is there a slight delta? Is the slight delta there, this stuff that was -- you're only including stuff that's only in the backlog for the guidance? Is there any timing shift on production or customer timing? Or is it conservatism on wither production or customer timing? We just wanted to get a sense of what's based into the $60 million to $90 million. Thanks.

Yes, Chris. Good morning. So look, it's all the above. So there's a piece of this here where we're looking at the pipeline of opportunities when customers need to execute on projects at the same time the ramp of the line and coming up with a range of revenue that makes sense for us to be able to handle as we execute on ramping the line up in the second half of this year. Along with timing the customers and we'll keep everybody updated on how that evolves throughout the year.

Got it. Okay. And then maybe just -- I appreciate all the details around the cost out progress. Can you square the two different -- Slide 5 charts there between the 4Q 2023 COGS and the breakdown with the cost out reduction. Should we just back out the Gen 2.3 from COGS to get like a clean sense of what we'd include in the cost reduction to date and for kind of go forward purposes? Is that kind of the best way to look at that or should we take out any of the other, either launch costs or labor, etc.?

So Chris, I would look at it as a couple different things going on here. If you look at the top chart on Slide 5, we're walking you through 29% cost out reduction that has been achieved to date. That's what we achieved in the fourth quarter. And it comes from both, operations, as well as supply chain components to get there. Then we give you the line of sight of where we think we're going to end the year based on continued efforts from both R&D, supply chain operations, really all aspects of our cost out program. I think we'll get down 76% of the total 80% that we highlighted back in December. More work to do in the first part of 2025, but as you can see on the chart, the lion share of the cost out that we have line of sight into today, we expect to occur in 2024. On the bottom of the page, we were trying to give you a sense of how far we have left to go in order to get to positive contribution margin. If you take our $30.4 million in COGS for the quarter, and you back out the stuff that really doesn't have to do with the cost out program at hand, right? So Gen 2.3, that's a legacy stuff, so take that out. Z3 launch costs, that's -- again, that occurs once when you launch, but that's not really indicative of the future run rate. Labor and overhead under absorption, as Joe talked about, we have a big factory, big cost associated with that, that are being absorbed by a few units. So if you normalize that for the actual units of production in the quarter, that's about 25% that you can take out. So you're left with 60% of that number, call it $18 million. That's the focus when we shift to cost out going forward in both materials and labor, labor being tied to the automation. That's the $18 million number that we're starting on in order to drive costs out in 2024. And with the cost out program that you see on the chart above, we think we get to positive contribution margin in the fourth quarter.

Okay. [Multiple Speakers]

An I think, Chris, the only thing I would add to Nathan's commentary is, this page also not only shows the progress and the underlying positives around the Z3 as a product. It also shows the strategy of how we want to scale and the capital efficiency of the way we've designed the manufacturing process. So, we've been doing this shift of where Gen 2.3 is being built is where the Z3 line will come in. So on 150,000 square feet, you had 50,000 square feet that wasn't producing. So therefore, as you put more volume through that, you get better absorption. What you don't want to do, right, there's people who have asked us, why don't you do all four lines at once? Well, I think you've got to watch a lot of the lithium companies that are trying to scale up production and the amount of capital it's going to take to do their factory, because they are not cost efficient at the lower volumes that like we are. So this -- when you look at this, we're saying, let's get line one in place, let's normalize, absorb, drive to profitability, then expand so that you don't wind up with a lot of under absorbed costs that you have to deal with that causes you to drain down your capital as you're trying to grow your company.

Got it. Okay. Yeah, so that $18 or so million is what you're using for that kind of top of the chart as well. The other stuff is not included up there it sounds like, right?

I'm saying that's the area that we're focused on which is driving down the labor and the materials costs.

Yes. Okay.

Everything except for Gen 2.3 is in the chart above.

Yes. Okay. Got it.

[indiscernible] in there, including the launch costs and the under absorption and that's why when you look at -- when you go from $75 million down to the end of the year, what we're saying is that $25 million eventually goes away on the under absorption, because you're putting enough volume in to get your per unit cost down, because you're utilizing more of your factory.

Yes. It is. We don't have to do anything other than increase production to achieve those savings.

Yes, that's great. Thanks for all the time there. I'll hop in the queue.

Thanks, Chris.

Thank you. Our Next question comes from Chip Moore with ROTH MKM. Your line is open. Chip, if your telephone is muted, please unmute.

Can you hear me?

Yes, we can hear you.

There we go. Hi, Chip.

Hey, thanks for taking the question. Hey, Joe. Hey, Nathan. I'm wondering if you can expand a bit on the energy density improvements you've got coming along for Q4. Any changes on the automation side you need to take into account and maybe you can help us put a bit of a finer point on that ramp in that quarter.

Yes. So Chip, great question around the automation. So we're not -- the way we've developed an envelope that we don't want to change so that you don't need to go back and change the lines. So everything that we're talking about shifts into the existing line. What you may need to do, depending on how this develops is, we may need to change on a couple of workstations some end of arm tooling, but not long cycle time and not expensive to do given the benefit that we're going to get. We've got a list of projects that get us to that higher performance. We talked about -- when we did the 12/12 strategy call, Francis Richey and Pranesh Rao walked through some of the work that we're doing to get there. And it's a mix of things as far as changing materials inside of the battery which are already in progress if you look at the picture I showed and on test, while at the same time looking at how we containerize the batteries to get more output out of the container itself or the cube itself. So we've got a list of projects that we have risk-weighted and we've come up with a number and feel good about where we stand today as far as the work that the teams have been doing that we talked about on 12/12.

Got it. That's helpful. Appreciate it. And for a follow-up, maybe on the cash side, right? I think maybe you could talk about current cash positions. I think it sounds like you've collected some money since year end and you've got line of sight on some more. Just help us there. And then I think you've got another $15 million or so to deploy in the new line. Just give us an update on the financing side?

Yeah, I mean, I don't know that there's a whole lot more to add than what I talked about. We ended the year with $69.5 million. We've had some customer deposits come in. We've got customer milestone payments that are scheduled over the next couple of weeks and months, and we also anticipate additional customer deposits on some large orders that we're working on. Our focus really, in addition to those customer payments and customer deposits is really focusing on meeting the CPs and closing on the DOE loan. So that's where our focus is from a capital raise standpoint at this time.

Perfect, and maybe one more related. On the international side, you talked about developing some of those markets. Have you explored any strategic potential there, licensing models or anything like that? Thanks, guys.

Yes, Chip. We're not going to comment specifically on that. Obviously, beyond what we said, I think when we look at this, the product was designed, and this goes back a little bit to what we were explaining on the conversation with Chris. The way we designed this manufacturing model is, you can put a line in, you don't need a complex factory, there's no clean rooms. With the way we've designed the new product now you don't even need a crane. So you can localize capacity as markets grow and that's what we're talking about. And I think we're early innings here to say what that's going to look like, but we'll keep everyone updated as it evolves.

Understood. Appreciate it. Thanks.

Thanks, Chip.

Thanks, Chip. Thank you. Our next question comes from Martin Malloy with Johnson Rice. Your line is open.

Good morning. Congratulations on all the progress and the cost reductions already achieved to date. I did want to follow-up on the financing and funding. And I appreciate what you said about the customer deposits. So will you need additional funding now, given the customer deposit outlook here this year, or until you get the DOE loan proceeds coming in?

So Marty, I wouldn't go beyond what Nathan said on the call today. We're working through a bunch of different things. We're finalizing the agreement to monetize the tax credits. We're starting to see operations where receivables are coming in from customers, and we continue to drive the orders book to bring deposits in. To bridge us to the line, I wouldn't say yes, and I wouldn't say no from where we are today. And as it evolves, we'll give more details as we see them.

Okay, and then just for a follow-up question, you mentioned that you've had two Z3 installations online, I think since September. Any -- is there time enough that you've gotten any feedback from customers on how those are operating?

So Marty, what we said was they're under installation and commissioning right now. We never said they were up and running. There's a little confusion on that. And that's -- when you look at Page 5, when you go halfway down, they're all -- and again, there's a lot of things that we control, there's some things that we don't control on the customer side. The most important thing now is to get the units that have been shipped out in the field up and running so we get that field data.

Okay. Thank you very much.

Thanks, Marti.

Thank you. Our next question comes from Thomas Boyes with TD Cowan. Your line is open.

I appreciate you taking the questions. Maybe just following up on that point, in your mind for companies that are awaiting field data before they kind of move forward with booked orders, how much data do they require? I mean, I have these, it's different for every customer, but I'm just wondering what you think would be a sufficient amount of operating data for units in the field before it kind of moves more individuals off the sideline. Is it months? Is it quarters? How should we think about that?

It depends. I mean, the answer is yes. It depends on the profile of the customer that you're talking to. Thomas, if you think about what we said previously, if you're dealing with an independent power producer or developer, they'll take risk sooner on new tech. If you're talking to a utility, it takes a little bit longer. We are in various stages with all different kinds of players that have laid out and done different things. We're not going to comment specifically on those conversations, but we have a roadmap of what we need to take people and convert them from opportunities into orders.

Got it, understood. And then maybe great to see the first cube shipped to Italy. I know it's early innings with respect to kind of standing at the manufacturing base still, but what are the kind of the international work plans for Europe specifically? Are there other countries that you find interesting that have market support mechanisms that make them attractive? And then, of the 1.9 gigawatt hours late-stage pipeline, is some of that international or is this more of a kind of [indiscernible] bucket?

So, I think we outlined in the presentation three areas that we're focused on. We can't, given the size of the company and evolution of the company, you can't go everywhere all at once, because you'll stretch yourself too thin and we don't want to do that. So I stick with what we said in the presentation as the three geographies that we're working with. What I would say is, we talked specifically about Italy because of the [TETRA] (ph) auction and where we are. There are other countries in Italy -- in Europe, excuse me, that we're talking to, but those are the three right now that we're focused on. And on your second question, the majority of what we're talking about in the late stage is domestic, US-based.

Great. And so if I could sneak one more in just on the monetization for the 2023 credits, how are you seeing the kind of transferability market develop? I've seen some reports where you're looking at like $0.90 cents on the $1 and your comm term is modest. I'm just kind of wondering if that's in shooting distance.

Yes. And that's what we said. There's a range that we're seeing kind of $0.90, $0.95. Obviously you take a bigger discount if you're monetizing a smaller number of credits, you take a lesser discount if you have more credits. We've recorded these at $0.90. We believe that's where the market is for a company of our size. And we anticipate that discount tightening up over time as their volume of credits to sell increases.

Great. I appreciate the call. I’ll hop back in the queue.

Thank you. Our next question comes from Tom Curran with Seaport Research Partners. Your line is open.

Good morning. Thanks for taking my questions. I believe an earlier commercial version of your Z3 container featured -- the number I have is a total of 672 modules. Would you tell us how many modules are in the current long duration offering at rate energy of 695 kilowatt hours? And then what that module count should be with the target or target ranges when you get to 800 kilowatt?

672 kilowatt. [Multiple Speakers] the product is the product. The cube has the same amount. When we talk about long duration, short duration, you're talking about how you're utilizing that same product and there's different levels of energy you can get in and out of a system depending on how you discharge and what power you discharge at. And that's true for any battery technology. So when you talk about any battery going from a two hour to a two hour to a six hour to an eight hour, there's going to be that impact on performance. It doesn't stay the same and we're just being clear on how our technology performs at the different durations. As we move forward, the goal is to keep the module count in the cube the same.

[Multiple Speakers] A lot of the energy density improvements we walked through, Francis and Pranesh walked through in December, are within the battery module itself.

Right. And that was clear and I assume that. I just wanted to make sure we weren't also missing another variable where the configuration or physical density of the actual modules was increasing as well within the container, but very clear.

[Technical Difficulty] So, just to clarify, right? That's a great point, right? The clarification is like, you think about our battery module, it's in a box, right? And then you have the internals that then perform. What we're doing is, the outer aspect ratio of that battery module box stays the same, the inner performs better. So like if you go to that last page that we had on cost out and you look at the left-hand side, that left-hand side, if you look closely, there's more active surface area inside the battery, and that's what's driving the improved performance.

Crystal clear. Thank you. And then, when it comes to the scheduled deliveries that underpin your expected volume scale up over the second half of this year. Are there any major external gating items that you're aware of in monitoring? Or for most of those scheduled deliveries, does it really just come down to staying on track for your own SotA 1 line ramp at this point?

Yeah. I think it's a combination of staying on track with the line ramp and then coordinating with customers on customer deliveries. And so, yes, I don't think there's any one single big gating item. I think it's just focusing on executing against that plan.

[Technical Difficulty] Part of the reason why there's a range, Tom, is I think the $60 million to $90 million range is not all line risk that's in there, so that's why we gave the range [Technical Difficulty].

That's sort of what I was alluding to, is that when it comes to the swing factors within that range, you're not 100% internal. They're not all variables you would expect to be have control over.

Right. And when you look at the industry in general right now and the risk you have around finalizing permits, getting the civil works done in a timely manner, we're being prudent in how we're forecasting that risk to make sure that we get within the range this year. I think that's very important.

Yeah, as you should be. Perfectly fair. I appreciate all the transparency and thoughtful detailed presentation.

Thanks, Thomas.

Thank you. Our next question comes from Joseph Osha with Guggenheim. Your line is open.

Hey guys, good morning. A couple of questions. First, wondering if you can give us maybe a slightly more detailed walk through the milestones for the LPO draw to the extent that you can. And then I've got one or two others.

Yeah, like we've said in the past, Joe, it's one of the ones that we're focused on is getting the first state-of-the-art line up and running and implement it. Beyond that, we really haven't commented on what some of the other ones are, but that's the one that we're focused on. That's the one that's likely to drive the timing.

But to be clear, because you've got the line, it's coming up in Wisconsin, then you're going to take it apart and you're going to move to Turtle Creek. We -- you are implying that that line needs to be up and running at some level of scale, is that what you're saying, or does it just need to be on the ground so they can look at it?

It needs to pass a performance test. So we constantly refer to SAT on that line. SAT is expected to occur in the second quarter. That's effectively what -- there is -- the DOE has their own test, but it's effectively tied to SAT.

All right. So remind me what that acronym stands for. I'm guessing the T is test. What's the…

[indiscernible] test.

Okay. Thanks. Second question, just looking at your chart on Slide 5 there in the upper right and your scale at the end of -- coming out of 2024. At that point, obviously, you'd hope that the margin, the cost continues to go down, but can we think about the levers as you get into 2025 and beyond being pretty much straightforward, just scale and cost absorption because your design is going to be nailed down by that point. And a lot of the R&D tweaks are done. So is it pretty much going from there, just straightforward fixed cost absorption?

Look, Joe, my experience has always been, even if you have a 200-year-old product, you can continue to take costs out of it by improving the way you package it, by improving the way you manufacture it. So I think you'll continue to see an evolution of the product that we have. We think we have a product that we can continue to drive cost out beyond that. A large part of it is scale, but there's other things you can continue to do around software to improve performance, around packaging and how you containerize, and also continue to drive like we're doing right now. We'll learn more and continue to learn more about the battery and just improve performance by keeping it inside the same aspect ratio.

Yes, okay. And then that kind of leads me to my third question, following on some of the other earlier lines of questioning. As your, I'll call it, functional density improves, is there any kind of set of thermal limitations you run up against, like where you said, hey, you don't have an HVAC and that's great, but I guess I'll just ask that simply. Are there any thermal limitations that you can run up against or those not relevant?

No. Look, I think, Joe, what we've looked at, the theoretical round-trip efficiency when you back out thermodynamics and the inherent zinc-plating bromine absorption that happens with the chemical reaction in the battery, the theoretical round-trip efficiency that you can achieve is the high 80s, low 90s. There's a lot of things that you need to go in there to be able to do that, but when you look at how the battery performs and the temperature range that we have, we're not going to exceed that temperature range that we have right now. I mean, you're talking about going down to minus 20 up to plus 65 degrees C. That's a pretty wide range, and we don't see ourselves exceeding that as we continue to work on the product.

Okay. Thank you.

Great. Thanks, Joe.

Thank you.

Thank you. There are no further questions at this time. I'd like to turn the call back over to CEO, Joe Mastrangelo for any closing remarks.

Thanks. Thanks everyone for listening. We'll keep everyone updated here as we progress through. I know there's a lot of important topics that everyone wants to hear about and learn about as we move forward. The most important thing here for us right now, when you think about this is getting the FAT successfully completed, then on to SAT, continuing to scale up production, and continuing to work that pipeline from opportunity into order closure. We'll keep everyone updated as we make progress on that. But thanks, everyone, for the time today.

Thank you for your participation. This does conclude the program and you may now disconnect. Everyone, have a great day.