EOSE - NASDAQ

Good morning, and welcome to Eos Energy Enterprises' Second Quarter 2025 Conference Call. As a reminder, today's call is being recorded, and your participation implies consent to such recording. [Operator Instructions] With that, I would like to turn the call over to Liz Higley, Head of Investor Relations. Thank you. You may begin.

Good morning, everyone, and welcome to Eos' Second Quarter 2025 Conference Call. Today, I'm joined by Eos CEO, Joseph Mastrangelo; and CCO and Interim CFO, Nathan Kroeker. 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. Should any of these risks materialize or should our assumptions prove to be incorrect, our actual results may differ materially from our expectations or those implied by these forward-looking statements. The risks, 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 these 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 U.S. GAAP financial information, is provided in the press release. Non-GAAP information should be considered as supplemental and is not meant to be considered in isolation or as a substitute for the related financial information prepared in accordance with 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 Nathan will walk you through our business outlook and financial results before we proceed to Q&A. With that, I'll now turn the call over to Eos CEO, Joseph Mastrangelo.

Thanks, Liz. Welcome, everyone, to the 2Q earnings call. I want to start off with our operating highlights page. Nathan will walk through the details of the numbers on the page. I want to talk about a couple of themes. Last month, I was able to attend the Pennsylvania Energy and Innovation Summit hosted by Senator McCormick and attended by the President. It was a great 2 days that we had here. What it proved to me is that energy is at the forefront of everything that we want to do as a country to grow the country, and Eos plays a very important role in how we position the United States for its energy future. A modern grid is going to require bulk stationary storage. It eases congestion. The easiest way to think about congestion is when there's too many electrons trying to get onto the grid and there's not enough electrons getting off the grid. So we are able to take those park them in our system and put them back on to better match supply and demand curves in the market. And one of the most important things I've learned through my 35-year career in the energy industry is every electron counts and any efficiency you can bring to the system makes the system more robust and also allows you to avoid costly new investments and make what you have produce better. And that's what curtailment is about. Curtailment is when you take existing generating assets and stop them from operating because you can't put them on the grid. Again, an Eos solution, stand-alone energy storage, Nathan will talk about how 50% of what's in our pipeline today is stand-alone energy storage, allows you to keep running those assets, put the electrons in a parking lot, if you will, and then put them back on the grid. So think of the grid like a highway when there's a lot of traffic and you can't get on that on-ramp, park in your Eos energy storage system. And when there's -- when it frees up and one of the exit ramps wants power, we'll put it back on that highway and get it delivered cost-effectively to the people that use it. The other piece that I would say on the Summit is really, you saw the strength of the company being in Pittsburgh. I think what you see is this ecosystem of technology, ability to manufacture the infrastructure around universities, which allows us -- which is allowing us to build a great company. What you saw in Q2, I'll get into some more details, is we had record revenue, 122% higher quarter-over-quarter shipments, great performance by the operating team here. I'll go into some details in a couple of pages, but like really proud of our ability to scale the enterprise. And when you think about that 122% increased shipments, it was with the same processes and labor that we had in the first quarter. So the team is finding ways to do things better, bringing efficiency into our operations every day, and getting better output and throughput over the assets that we have. And we are continuing to scale operations. I will talk about the ramp in bringing on subassemblies, which unlocks the full capacity of our first state-of-the-art manufacturing line. And at the same time, we announced signing and ordering our second line as we start to position the company for the growth that we see flowing through the pipeline. What I would say before we move to the next page is as it comes to the pipeline and orders backlog, things are moving, the operating dials and the steps that we work through with customers to get to an order are progressing. There was a little bit of a pause here as the OBB was approved. I think we're seeing now an acceleration. That acceleration was no more evident than what we saw here in Pittsburgh back at Senator McCormick's Energy and Innovation Summit. So I think Nathan will walk through the progress that he's making, but we see projects evolving. We see big hyperscalers and developers coming to Eos because of the things we've been working on for the last 7 years of developing an American supply chain, coming up with a cost-effective, reliable, and safe solution. So if we move to the next page, I want to talk about that solution for a second. So our systems are built for resiliency. We've talked about the leadership team that we have in this company and my background. I spent half of my career in the oil and gas industry and the other half in traditional fossil generation. So what you learn being in those industries is the fact that the grid requires robust solutions that can survive the harshest environments and the things that you don't plan for. So that all starts on the left-hand side of the page at our Edison proving ground, where we test our technology beyond the operating conditions that you see out in the field. What we've been doing over the past months is testing the

Thanks, Joe, and good morning, everyone. Echoing what Joe said, we're gaining momentum in the second quarter with a lot more to look forward to in the back half of the year. First, I wanted to touch on the One Big Beautiful Bill Act and its impact to Eos and the broader long-duration energy storage market as we see it. At a high level, the bill was extremely positive for us. It completely preserves the Section 45X production tax credits with full stackability and transferability through 2029. Just to remind you, we can generate over $90 million on each one of our manufacturing lines annually when we run them at capacity. This is a direct result of all of the hard work that we've done over the past 7 years to localize our supply chain and build an American manufacturing company. Continued stackability means we qualify for the full $45 per kilowatt hour for our batteries as well as the 10% credit for the electrode active materials. Ongoing transferability means that we can continue to monetize these credits as they are generated. The good news is that we're seeing higher bids on larger volumes of credits, which means we should get smaller discounts than the 10% we've done on initial transactions. We have generated $14.3 million in credits since they came into effect, of which we've collected $6.3 million in cash to date, and we expect to sell first half 2025 credits later this year. Now shifting our focus to our customers on the ITC side of the page. While customers with wind and solar projects saw eligibility dates pulled forward compared to prior legislation, energy storage was explicitly excluded from these changes. We'll cover pipeline in more detail later, but I want to highlight that with most of our renewable coupled projects scheduled to come online in the next 30 months, we have not seen a meaningful impact from this change to date. Additionally, the FIAC language in the bill is yet another tailwind as it creates new demand for our American-made product as we source, manufacture, and procure more than 90% of our materials domestically. Overall, we view the bill's passage as an important referendum on the need for American-made energy storage systems to meet the country's growing demand for energy. Moving to our commercial pipeline. Since our last update, we've continued to see important advancements across our commercial business. An emerging theme is the increasing scale and sophistication of opportunities, particularly with large counterparties. Q2 marked a strong growth period. We ended the quarter with opportunities valued at $18.8 billion, representing 77 gigawatt hours, a 37% year-over-year increase and a 21% improvement quarter-over-quarter as we added $3.2 billion. Notably, we saw a 15% quarter-over-quarter increase in 8-plus hour projects, validating what we have been saying for the past few quarters, market fundamentals are changing, and there is growing demand for longer duration solutions. While many of our early projects were co-located with generation, 50% of our pipeline now consists of stand-alone storage projects, reinforcing the need for storage on existing electricity grid infrastructure. As Joe mentioned earlier, the market is increasingly leveraging battery technology to maximize grid efficiency, which includes stand-alone storage near highly congested load zones where wholesale prices are more volatile and energy arbitrage is a real opportunity regardless of the generation source. One of the more exciting developments we are seeing for our flexible technology is the rapid emergence of data centers. They are one of the fastest-growing opportunities in front of us, representing over 20% of our pipeline today. Now how you really need to think about this is in 2 main ways. The first is direct demand from developers, building fully integrated data center campuses. These projects combine multiple generation sources with our storage solutions to deliver reliable power. This approach reduces the time to power and can serve as a bridge to interconnection, accelerating revenue generation, reducing peak demand charges, and derisking the long-term reliance on traditional grid infrastructure. The second is indirect demand, where developers are building generation plus storage projects in utility regions serving data centers. In this case, data center operators are supporting the addition of incremental capacity to the grid to offset their energy consumption, reducing their total energy costs and maximizing renewable credit capture. Last quarter, we announced a 750-megawatt-hour MOU with a developer, which is a very good example of an indirect project. We have advanced this initiative and are currently finalizing contract terms for our first 10-hour project supporting a well-known hyperscaler in the PJM service territory. We've also made significant progress on several other MOUs discussed last quarter. In April, we signed a 5 gigawatt-hour MOU with Frontier Power to deliver projects across the U.K. through submissions in Ofgem's cap and floor program. Frontier has now submitted over 10 gigawatt hours of storage projects utilizing Eos technology, more than double the original MOU, highlighting their strong confidence in our technology. And importantly, cap and floor requires eligible technologies to deliver a minimum of 8-hour discharge, which is a strong fit with our capabilities. Additionally, we are actively co-developing a broader pipeline with Frontier, targeting data center growth in Europe and long-duration storage needs in the Asia Pacific region. We continue to expand our presence in Puerto Rico and have identified several other storage projects that we are pursuing on the island with a local developer. The list of projects should significantly increase the 400-megawatt hours currently under MOU. Transitioning to backlog. We ended Q2 with a backlog of $672 million, representing 2.6 gigawatt hours of storage. During the quarter, we delivered over $15 million in revenue and booked 2 strategically important orders. The first was with a large regulated utility in the Southeast for a microgrid project supporting 2 schools in Florida. And the second was a repeat order with an existing customer for a renewable energy microgrid on California tribal land. As many of you know, the industry has been highly focused on the final outcome of the big beautiful bill over the first half of this year. We saw several months of customer uncertainty as customers were waiting to see what was going to happen with the final language. With that uncertainty behind us, we feel really good about the increased activity we are seeing on a number of large projects, as customers are reaching out to us as they try to navigate these new requirements. This shift towards larger project opportunities means we work with more stakeholders. This includes developers, offtakers, project finance investors, lenders, technical experts, which sometimes increases time to order. While we saw a slight decrease in backlog from the prior quarter as a result of the things we've just talked about, there are strong demand signals ahead of us. As we bring customers to the factory to give them an up-close view of our manufacturing expansion, share our latest

Thanks, Nathan. Before we turn it over to our sell-side analysts for questions, I'd like to -- Nathan and I are going to answer the first -- the top 4 questions that came in through Say Technologies from our retail base. I'm going to start off with 2, and then Nathan will wrap up with 2, and then we'll go over to questions from sell side. First question, when is Line 2 expected to be fully operational? Will this include the subassembly line? Yes, we're forecasting Line 2 coming online in the first half of next year. Line 2 will share some of the subassembly capacity that we have for Line 1, and then eventually, we'll add to that subassembly capacity as we ramp up capacity on Line 2. On what lessons from Line 1 are being applied to Line 2, and are those improvements resulting in meaningful changes to line design throughput or cost? We're planning on when we did Line 1, Line 1 is designed in the U because that's what fit into the building that we had. As we look to Line 2, it will be a straight line where material will come in one side, raw materials will come in one side, and a cube will go out the back end of the other side. So we're really designing the Line 2 for total throughput and efficiency of the facility. As we think about what we've done, like we've learned a lot about operating Line 1 over the last year, and designs are being incorporated to get better quality, better reliability and availability of the line, and improved throughput. So we have some things that we've learned about where we had some single-point areas that when we do maintenance, we have to slow the line down that we're going to put in backup capacity in specific stations. And at the same time, we're going to deliver the cost of that line in line with what we did on Line 1. So we're pretty happy with how we wound up there, given the environment that we're in from an inflationary standpoint and also from the changes that we're making. But what we're really excited about is doing this line in a straight line so that we get the full efficiencies and fewer material moves than what we're seeing right now in Turtle Creek. Second question for me is in the Q4 2024 earnings call in March 2025, it was mentioned that 8 states were bidding for Factory 2.0. What is the current status of finalizing the site for Factory 2.0? We're still in negotiations with multiple states. We're not going to negotiate that in public. The response to people wanting to have a facility like Eos has been tremendous. We're working through to get the right facility with the right long-term landlord that we can partner with over time. And then as we get through those discussions with -- you got to remember like you're doing this not just on a state level, but on a county level and in some instances, the town or city level to really get the best positioned factory workforce cost for Eos and long-term partnership that we want to have. Not something that you do rushing through. We're happy with the progress that we're having, and we'll update people when we have news to share. Thanks, and I'll turn it over to Nathan.

For the next question, last quarter, tax uncertainty was cited as delaying deals. Post BBB law, how have customer timelines or urgency shifted? And are there any major barriers still preventing deal commitments? Right. So we'll break that down one piece at a time. I think we spent quite a bit of time earlier in the call talking through the impacts of the big beautiful bill. Just to recap, I mean, I think we did see some delay as customers were working through the uncertainty before the final language was adopted. Now that we have the final language adopted, I think with some of the accelerated timelines around solar and renewable credits on the customer side, we are seeing some of those customers wanting to move very quickly to make sure that their projects get placed in service. So to the extent that we have co-located storage associated with those projects, that can accelerate things for us. So overall, I think getting rid of some of that uncertainty is really, really good for the industry. Projects are starting to move forward, and we're very excited about that. Second thing that we talk about is as we work through some of the larger deals, we're getting a lot of inbound calls from folks that say, "Hey, I was thinking of using a different technology," but because of the FIAC restrictions or some other challenge, they're reaching out to us asking if they can change their interconnection, change their permits and go with the non-lithium technology. We're working through some of those. As we talked about, those take time because there are always multiple stakeholders, and we've got to work through with all of the stakeholders. But as we bring customers in for factory tours, show them that we are scaling up the business, as Joe has talked about in detail, and then also walk them through some of the latest

[Operator Instructions] And I show our first question comes from the line of Stephen Gengaro from Stifel.

So 2 things for me. The first, you touched on a bit in the prepared remarks. But when we think about the bridge to the second half revenue, and you did a good job, I think, talking about production growth versus revenue growth in the second quarter, but that's clearly a topic that's come up pretty frequently. Can you add some color to how we sort of bridge the revenue? And I don't know if you'll go into this much detail, but I thought you guys were pretty clear about what the second quarter was going to look like, although I think some people may have been a bit higher than that. But could you -- if there's anything you could talk about in the third quarter, that would be helpful, too.

Thanks for the question. Yes, when you look 4Q to 1Q, 1Q to 2Q, if you look at the page that we had in there, where we tried to mute out the 13-week quarterly movements, we're doubling production quarter-over-quarter for the last 9 months. Double it again, double it again, and you're firmly in the middle of our guidance range. And that's what makes us feel like we'll get there. Now inside of that doubling, I think there's a couple of things that everybody has to realize is like we doubled that production with the same production processes, the same supply chain, and the same headcount. And we've been talking about this for quite some time, that as you double production and get more throughput through the factory, you start to see margin rates improving. You see the margin rates improving. We're going to continue that trend as we get through the year. But I think that's really what we have to do is we have to just keep doing what we've been doing, which is a doubling effect of production out of the factory. Now what gets you from like, I think you can get intimidated by the bump up of saying, wow, doubling from where you are, is not going to be tough. And we've been doing it without the benefit of the automation of our subassemblies. And that is starting to produce and feed the line. As we look at the capacity of the line, the capacity of the line has always been limited by the flow of parts that have come from our semi-automated subassembly process. I'm very encouraged by the results that we're seeing off of those subassemblies as we talked about. Parts are flatter, throughput is faster. That's resulting in better output out of the batteries that we build batteries and then test them before we -- to make sure everything works, and you start looking at that, you're saying, wow, better output battery, higher quality, higher throughput, run the line at its capacity. We've doubled, doubled, doubled, doubled and doubled again, and you're in guidance, and that's what we're shooting for.

And the other thing I wanted to ask about is when you talk about incremental production lines, and you addressed this, I think, on one of the questions from the retail side. But how do you balance -- and I know the opportunity pipeline looks very good, but how do you balance sort of order flow and visibility on order flow with expansion?

Yes. So Steve, we talked on this on the last call, and I think I want to reiterate this, like the customers that Nathan has talked about in his remarks come in and they like what they see, but they want to see more. So Line 2 is built with what we think is going to be happening here over the next few months, from the demand side that we're seeing as we move through our production capacity. What I said in the beginning was, I myself was very conservative on how we made those investments of wanting backlog in place. But when you start looking at the size of the projects we're talking about, you've got to build it and have it ready to go when those projects come in. And that's why we started and placed the order for Line 2. And we're timing that -- like I know people will say, well, when is Line 2 coming in? You said before that it was going to be late this year. Now you're saying first half next year. It's all timed to when we think orders are going to come in and when we need the ramp. and how we utilize capital as effectively as we can, and that's when we need that capacity. And what we really want to do, I mean, you've personally been here to see the factory. It's inefficient because it's on multiple floors, getting everything running on a straight line reduces the material moves, reduces the overall cycle time from raw material in to cube out the door, and that's what gets us really excited about how we can ramp the business going forward.

And I show our next question comes from the line of Martin Malloy from Johnson Rice & Company.

Congratulations on all your accomplishments. I wanted to ask, you've got a significant improvement in the round-trip efficiency. It sounds like the lower cost and time to install. Is there any way to quantify the improvements that are going on in terms of an LCOE or IRR for the customer?

Yes. I mean I think those efficiency -- we're still working through that with customers on individual projects. But what we're seeing here between the reduced cost on the commissioning and the improvements in the performance, should translate into a couple of percentage points on IRR on a typical project. Every project is going to be different, but it's a meaningful difference in the amount of upfront CapEx, both from the installation side as well as the cost of the equipment. So I think that's going to translate into better economics for customers. And we'll provide more detail on that as we go forward and have more granularity on that.

Martin, one thing I just would put on top of Nathan's comments is like when we talk about anything that has to do, and I've seen this throughout my career, many different technologies, we try to simplify the way we talk about things to give people that headline, and it's only gotten worse as we start living in a society where we have 30-second attention spans at best. So we try to come up with headlines that make people understand. But the -- every project has its own calculus to it. And every project has its own operating and every project has its own cost curve, and we work through project by project. That's when we see and what we're seeing on the performance on the field, how we're driving down the cost curve of the product, how we're putting software on top of the battery itself to get better performance, that absolutely improves LCOS. But there is no headline number that we can give somebody. There's no TikTok answer to this. It's a project-by-project basis that you work with customers to make sure that you give them an advantage. And by the way, I've said this many times, I'd love to say 100% of the time, Eos has the advantage over other technologies. We don't 100% of the time. So we prioritize around where we do and giving the customer the benefit of an asset that delivers them higher returns.

And just for my second question, I just wanted to ask about the second line and the ramp-up time. And you did share that the second line is going to share some of the assembly -- some of the subassembly automation. You've got multiple suppliers on the containerization side. Could you maybe talk a little bit about the time to ramp to that full 2 gigawatt hours of annual capacity with the second line?

So Marty, what we said was we're going to bring the line in. I would assume that we are going to have lessons learned from bringing in the subassemblies. As I said in the prepared comments, we're going to share subassemblies to start and then bring on from there. But it's also going to be dependent upon what we need to do and the capital we need to allocate for customer demand. So we'll update everybody on when that's going to happen, but it depends on when the orders come in. And as the orders come in, it may accelerate or we may slow it down depending on what's happening. So I don't have a very specific date, not going to give a date or commit to a date here, Marty, on the call, but we have a plan to be able to do this that it will ramp into production in the first half of next year.

And I show our next question comes from the line of Ryan Pfingst from B. Riley.

You gave good insight into what it will take on the Eos end to achieve guidance for the year. Wondering if there are items on the customer side or otherwise that are somewhat out of your control that we should be aware of that could impact second-half sales here.

Yes, Ryan, thanks. We talked about some of them on the call, right? I mean I think some of the uncertainty around the bill has been alleviated. There are some customers that are trying to accelerate. Other customers are trying to raise financing. So I think we're -- every -- again, like Joe said earlier, every customer, every project is different. We're working through them. We talked about a number of different large opportunities that we are working on that we're progressing that we've got confidence on. We just got to work through those project by project. I don't know that there's one single thing that's holding back orders at this point. I think we're delivering on everything that customers need, and they're working through their timelines and their financing in order to be able to place firm orders. So we're excited about what the future holds on that front.

And then service revenue increased to over $1 million in the second quarter. How should we be thinking about that piece of the business, maybe both near term and then longer term as installations scale?

Yes. Service revenue, if you think about it, it's really tied -- today, it's really tied to our commissioning efforts and balance of plant equipment. As we grow a portfolio of assets in the field, that will have more long-term service revenue coming from legacy projects, right? So that should grow as a percentage of the total revenue mix over time as we get a larger installed base out in the field.

And I show our next question comes from the line of Jeff Osborne from TD Cowen.

Just a couple of questions on my side. I might have missed this, but the strategic customer, was the majority of the revenue for that project attributed to 2Q? Or is that going to linger into the third quarter?

No, the majority of it was in Q2. We've talked about this on previous calls. If you think about our revenue recognition, a large portion of the revenue is recognized at the time of delivery. There's a portion related to final commissioning, but the vast majority of it occurs at the time of delivery, which is -- the shipments are behind us on that project. It's out in the field. It's a beautiful site to see all the cubes lined up and getting ready and going through hot commissioning to start operating. But from a shipment standpoint, we've delivered that project.

And then now that the capacity in Pittsburgh is ramped up or ramping, how do we think about the typical lag from order to delivery? Like, what are you quoting, Nathan, as it relates to that? And then how does that relay for investors thinking about the backlog?

So we work with the customer and their delivery windows. And customers, in some cases, have some flexibility, and we can deliver to a storage yard while they get their final site preparations ready. But we'll work together with the factory to figure out what capacity do we have, what's the delivery window for the customer, and how do we bring those bring those together. So every customer has got an agreed-upon delivery window at the time that we sign the order.

Is it fair to say that those are within--

From a quoting standpoint, I would also say like this is somewhat slot to the factory and selling seats on an airplane. And we work with customers. Going back to the earlier question around what's out of our control. I mean, the good thing with Eos is we're a single SKU company. We've designed the product so that we build to a single spec to meet the requirements of every customer, and we can move things around. So we have a lot of flexibility around that. And depending on customer needs, we can do trade-offs as we go.

I'm showing no further questions in the queue at this time. I'd like to turn the call back over to Joe for closing remarks.

Thanks, everyone. Thanks for listening. Thanks for the questions from both retail side and sell side. Again, when I -- if you take a look back over the past 9 months, operational team delivered doubling output in the factory over the prior 3 quarters, continue to double. We're solidly into our revenue guidance. That's the path forward for the company and what we're focused on. I think Nathan has been clear on the movement as we move things through the pipeline and continue to work with customers to pull together the Alkami to get orders closed and then turn that into subsequent revenue. We'll keep everyone updated as we go through on the capacity expansion. And again, from an overall ability to deliver, excited about seeing good product come off the automated subassembly that's higher quality that delivers better performance, which we will continue to iterate our not only the physical product, but the software around the product to give people -- to give customers the performance that they need to power America's energy future. Thanks for listening, everyone.