Greetings. Welcome to Eos Energy Enterprises First Quarter 2021 Earnings Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. Please note, this conference is being recorded. I will now turn the conference over to Jared Ehm, Investor Relations, Eos Energy. Thank you.

You may begin..

Thank you. Good morning, everyone, and thank you for joining us for Eos’ financial results conference call for the first quarter ending March 31, 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..

Thanks, Jared, and welcome everyone to our 1Q 2021 financial results call. I would like to thank everybody for joining us today. And jump in on page three to walk through some operating highlights.

This page I think is the snapshot that we like to use to track how we’re progressing on building the company to get all starts on the upper left-hand side of our page where we look at discharge energy and that’s how the product and the technology is operating out in the field and how it’s performing in our test facility in Edison New, Jersey.

Since our last earnings call, we’ve added 20% to the discharge energy and we’re now over 2 million cycles of operation. So this technology that’s proving itself, not only in the lab, but also out in the field. At the same time, we’re very proud of being able to report that we’re at $33 million of orders with a $51 million order backlog..

Thanks, Joe. Good morning, everyone. Over the next two pages, I’ll be discussing a summary of our first quarter 2021 reported financials. Detailed financial statements and relevant management discussions are available in our 10-Q and supplemental disclosures. Page five is a summary of our first quarter income statement.

We reached an important milestone in the quarter as we recognize revenue of $164,000 from our first container shipped out of Hi-Power to a micro grid storage solution in Nigeria, powered by Nayo and the Shell foundation.

Our cost of sales in the first quarter, with $0.1 million was favorably impacted by the reversal of $1.6 million reserved for losses on firm purchase commitments that we had recorded in Q4 2020.

We reverse this accrual because the batteries that we acquired under the firm purchase commitment in Q1 were ultimately used for R&D purposes, and therefore, we expense these costs with R&D in the first quarter. This reversal largely was offset by the cost of sale of $1.7 million that are included within disposition.

We recorded $5 million in R&D expenses for the quarter. R&D expenses increased mainly for two reasons. First, we incurred $2.2 million higher battery testing costs than prior year due to our UL Certification process, partially offset by the accrual reversal in cost of sales I discussed earlier.

Second, as we are continuing our investment in new technologies, specifically our Gen 3 or Z3 program. We increased our investment in R&D headcount and thus incurred $0.5 million of higher payroll and personnel costs..

Thanks, Sagar. Now, let’s focus for a second on UL Certification, which is critical to deliver on those growth numbers that Sagar just talked about. So moving on to page 13, there’s two UL Certifications that we go after.

One of them is on the battery module itself, which is the 9540A, which is safety for thermal runaway or the risk of fire and explosion. And we’ve completely passed that testing and I’ll walk through some results on that testing in a moment.

The second is the overall storage system, which is UL1973, which we have gone through the testing for that certification and are now just qualifying the material, the plastics that we use in our frames for the RTI, a Relative Temperature Index of 80 degrees C.

We’re halfway through that testing as we speak and we anticipate that we’ll be able to close out the UL1973 Certification by the end of June. Tremendous results by the team. A lot of this was done virtually and over Zoom and Microsoft Teams. So really great work by the team to get us to this point in this period of time.

If we flip quickly to page 14, just want to talk quickly about the results of our 9540A tests. We like to say is that our battery is inherently fireproof, in that it will not catch on fire or explode and does not need ancillary systems like HVAC cooling systems or software to manage the risk of thermal runaway.

If you look at the four main tests here, the first one is over discharge, if you over discharge the battery beyond down to zero voltage, you don’t see any degradation in the battery itself. There’s no loss of capacity or performance and you can rest the battery and get it back to continued operation.

So you’re not going to damage or destroy the battery in and of itself doing this test. The second one is shooting a 2.5 inch nail into the battery. Again, nothing happens.

These tests were relatively boring, because you’d watch the nail go in, the temperature would go up a little bit, but there’s no flame, there’s no explosion, there’s no thermal runaway. Then the two on the right-hand side, which are really critical is overcharging the battery 2 times its normal capacity. The battery gets up to 90 degrees C.

Again, no flame, no explosion, there’s a little bit of electrolyte and steam release from the battery, which we managed through a capture system to be able to knowing that this does happen if the unlikely event this should happen. And the second one is on a battery short circuit test, where we’re short circuiting the battery into itself.

And again, you see the thermal dynamics take over, the temperature rises to 80 degrees C. When you look at these two tests and the curves that come out of these two tests, and you lay them over what you would see from a lithium-ion battery, the curves look exactly the same, but there’s one important difference.

Our battery doesn’t go above 100 degrees C. But lithium-ion when you separate it out, its temperature will rise to 700 degrees Celsius or 800 degrees Celsius.

So what we see in our battery is a battery that’s inherently safe and fireproof, and allows you to operate in the harshest conditions with the simplest ancillary systems and the least amount of parasitic load or load that you need to use to protect the safety of your product to keep it operating out in the field.

So it’s something that we see as a competitive advantage and we see as something that our customers can rely upon us to provide reliable energy storage in any environment. Moving forward now shifting gears to our manufacturing capacity. So if we go to page 16, there’s four key things that we want to talk about today.

The first one is the facility or factory ourselves -- itself. We have fully repurposed the factory in 11 months and we’ll show what that looks like today we’ve been able to do.

Our equipment today, our yields coming off of the line or above 90%, tremendous amount of work done by the team to both ramp up production and improve the quality of our product. The third one is material availability and product cost.

We’ve been able to take 40% of our battery costs out in the last five months and secure multiple sources of supply to keep the factory flowing. And the last one, which is actually the most important one is bringing in great people.

And as I talked about earlier in the presentation, we’ve been able to double the size of our team over the last five months and we’re proud of the work that they’re doing. We’ll continue to recruit, hire and train the best to deliver our product to the marketplace.

If we go to page 17 and when you look at the page, the left-hand side of the page, what the facility look like 11 months ago. The right-hand side of the page are screenshots from various parts of our factory.

What the team has been able to do is ramp up production on our electrode line and improve the yields and quality to single-digit scrap rates on how we produce this critical component of our battery.

We’ve ramped up a new technology and how we build the mechanical or enclosure of the battery using infrared welders and continue to expand that production to increase throughput in the factory.

And we’re optimizing the processes of quality control and filling our battery with electrolyte and are now working on a lean manufacturing roadmap across the factory from not only manufacturing batteries, but getting batteries into the container and getting container shipped to customers.

So really a great amount of work, a ton of progress here in 11 short months from going from an empty facility into a factory that shipping product out into the field. If we look at page 18, what is always been a strength of our system is that we have abundant raw materials that can be locally sourced at a lower cost point than other technologies.

I wanted to show you how our 14 raw materials that go into our battery. When you look at where -- what they are, where else they’re used in the world, and more importantly, if we focus on the bottom two portions of the right-hand graph.

If you look at the percent of the global demand for those raw materials, if we’re producing a gigawatt of production out of our factory, you can see that we have a de minimis demand on the overall global supply chain for each one of our raw materials. But we don’t just sit back and rely upon that.

The team continues to work to be able to look at our, how we’re doing electrolytes in source the mixing process to both reduce cost and accelerate cycle time.

On titanium, although we’re a very small percentage of the global demand, we do look at this as a key component in the aerospace industry and as aerospace comes back to be able to mitigate any supply chain risk that we have, we are looking at alternate materials to titanium to be able to put into the battery.

On graphite felt, we’re testing new material specifications to be able to open ourselves up to new sources of supply to be able to reduce that 4.5% down lower as we grow the business.

And on plastics, it was critical for us here was not so much the supply of the raw material, the actual plastic itself, but was to make sure that we had multiple boulders to be able to ramp up our production as we move forward to truly keep the supply chain flowing.

And although we’re at a ramp up period in production, as we think and plan the factory, we’re planning it as though we’re at scale and making sure that we’re mitigating those risks to get to scale in our production process. If we move forward to page 19. This is a critical page that talks about how we’re ramping up production.

Today, when you look at where we are, we’re getting up to 50% capacity in our existing factory. We’re optimizing the electrode line. We’re expanding capacity on our IR welding and we’re doing increased product testing. We’re running at a lower utilization rate to make sure that the product going out into the field is of high quality.

Now as we think about the next couple of months, we’re going to continue to add resources in the factory and hire workers to work the line. We’re going to add more capacity and continue to streamline processes to get by mid-summer to 70% output.

And then from there, it’s working from July to September to get up to 100% by continuing to optimize the process of how we build and integrated batteries into containers, bringing our factory automation online and really driving lean manufacturing across the facility. This September date gets us to 100% capacity on the equipment that we have today.

And then starting in October, November, December, we start bringing online the additional capacity that we’re developing, as we bring our new Generation 3 product to the marketplace to get to the 800-megawatt hours. That is our target for 2021.

At the same time, if we move to page 20, it’s critical to think about the cost entitlement and how we’re delivering a product that will become profitable. Today, when you look at where we are? We’ve already secured two-thirds of our 2021 cost out plan by the end of the first half of 2021.

When you look at the actions that we’re doing, these are really building strategic agreements with suppliers, optimizing our equipment and manufacturing processes, delivering additional volume discounts as we continue to grow our backlog and ramp-up revenue and then we continue to look for supplier diversification with drives not only quality, but also cost out and taking cycle time out of the factory to improve throughput.

Now, the final 20% there that you see that gets us down to our target at the end of 2021 really ties into what we’re doing as you start blending the cost of the Gen 3 and the Gen 2.3 product line and getting to the next tier of pricing discounts as we hit higher volume rates and truly delivering on the investment that we’re making in automation and capacity of the factor as we move forward.

So, if we transition from a look at, the work that the team has been doing on cost out and start looking at where we are on the development of our next-gen product. So, if we go to page 22, we called the Z3 battery and how that changes the performance of our Eos Q 20-foot container, which is our primary product to the market.

We have prototypes on test right now. If you look at the lower left hand side of page 22, you see in the middle there a Z3 batteries, sitting on its left is a Gen 2 battery, it’s sitting on its right is a Gen 2.3 battery.

And although you may not be able to see in the picture the one-third smaller size, you have to remember that battery that you see there is smaller in dimensions and instead of 40 cells it has 28 cells. Those 28 cells are delivering 15% higher energy discharge out of the battery.

What does that mean for our customers, with one-third of the size with 15% higher energy out of a smaller footprint, we’re delivering 40% more power out of a container, which reduces the footprint required to deliver and doing all of them with the same safety aspects of having an inherently fireproof battery.

At the same time, because you have fewer cells and because we’ve changed the aspect ratio, we are operating the system at lower voltage with the same voltage curves as the Znyth 2.3 battery. What does that mean? It means a lower temperature footprint coming out of the battery and that’s the chart that you see on the far right-hand side.

What does that lower temperature mean to customer? It means 25% lower levelized cost of storage for an UL system. That 25% is driven by the fact that, we have lower temperatures, which simplifies our system configurations and allows us to deliver performance with a much simpler, more robust and inherently safe system.

So, we’re early days in the testing of the product, but we like what we see so far.

This can be more prototypes going on to test here over the next few weeks and we’ll come back in our next call coming out of 2Q to give you an update on where we stand on not only the product but also ramping up and developing the manufacturing process, but really great start by the team to bring this product from the drawing board to the test.

So we can see the reality of how it’s going to perform. For go to the next page on page 23. Let me just focus for a moment on the couple of key customer deals. This is where -- everything that we talk about, this is where we deliver for customers. The first one I talk about is a project that we book we signed with Hecate.

This is providing locational capacity for the ERCOT market in Texas. It’s a great project for us. First off, it’s an LOI into an order. We’ve got another 47-megawatt hours of opportunities that look like this Hecate project here, but this will be one that will be delivering here as we go through into 2022.

The middle one, that shows the shipment of the first four containers to Motor Oil in Greece. This is building a safe lower cost energy for oil refinery operations in Greece. There is another 250-megawatt hours of opportunities similar to the Motor Oil project.

We’re going to be starting the commissioning of those containers here in the next week and look to get that project online here as we get into the early summer. So last one, if you look at the picture in the background there, that’s the yields container sitting in Nigeria for the Shell Nayo project.

When you look at this, I think, the picture tells a thousand words. In that sometimes if you want to operate and bring reliable power to remote locations in a microgrid application. You can have complex systems around it. You got to deliver something that’s simple and safe.

And you could see the container sitting there ready to be commission which will be completing here over the next 30 days. And there is another 100 hours of projects that look like that Shell Nayo projects. So, three examples of a recently signed deal, recently shipped deals and a project that is going to be going live here in the next 60 days.

So things that we’re proud of as we really look at delivering and continuing to build upon those operating hours that I talked about in the beginning of the presentation. Lastly, just as a wrap up, we’re going to continue to execute on the same six priorities.

When you look at booked orders, we’ve got to expand, continue to expand the global pipeline coverage. We’re working to obtain a green bond rating, there’s we feel like that will be a competitive advantage for our customers as they look for financing of their projects. We’re on track to get to the $50 million in revenue.

We’re going to be commissioning tank containers and we’re going to be shipping $10 million of sales in the next five months as we ramp-up going back to that page you talked about earlier of ramping up the factory. An UL we’ll close out the 1973 certification and start our CE Mark certification for the European market.

We’ll come back on the 800-megawatt hours of capacity. We’ll give you an update on where we are on our raw material sources and then talk about the lean improvements that we’re making in the factory.

On the Z3 product launch, we’ll be able to show you the performance and the configurations and walk through where we are as far as ramping up production and what that will look like over time and we’ll continue to invest in the best people and build a great culture.

We’re going to build out its start our European sales team and we’re going to expand our software and systems engineering team to be able to bring multiple configurations to the marketplace.

But what I leave you with is that, all the work that we’re doing and the way that we’re investing our cash is to strengthen the company to deliver for the long-term and to be able to capture the growth that we see in the energy storage market. So, with that, I’ll turn it back over to the Operator and open up for some Q&A here this morning.

Thanks for listening..

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

Hey, guys. Thanks for taking my question here. So based on the slide deck here, we are looking at about $10 million in sales over the next five months.

I’m just curious, are all those Gen 2.3 products and then any sense to split between second quarter and third quarter recognition, and should we assume the rest of the $50 million in revenue that we’re targeting for this year will be that Z3 coming in the fourth quarter?.

Hey, Chris. Good morning. So the $10 million that we talked about here and really into the fourth quarter and also there is going to be a mix of Gen 2.3 product that will be shipping throughout the year. So there’s going to be -- it’s not going to be a hard stop. There is going to be a transition depending on customer requirements.

Sagar, I’ll let you talk a little bit about the split over the next five months but as we ramp-up the ramp page, Chris that we had earlier in the presentation is all Gen 2.0 product..

Hey, Chris. Good morning. Hope you are getting some sleep with baby and everything. So, that said, look, to answer your first question, the deliveries that we have over the next five months will all be 2.3. At this point, we are not giving any additional quarterly guidance.

So as the shipments go along, we’ll be sure to keep you posted and they’ll fall into the quarter that they go.

The rest of the year after that, i.e., the fourth quarter will be a combination to Joe’s point of 2.3 and 3.0, and to the extent that split is concerned level, it will be determined both by the customer’s needs, wants and expectations, plus our delivery schedule, but we intend to be fully functional on both products and that’s about the level of visibility we are willing to offer right now..

Okay. That makes a lot of sense. So we’ve seen nice product….

Yeah..

… progress here on building the order book, 50% of the 2021 targeted orders are booked at this point.

Can you talk about how much of the balance that you’re looking to close for revenue this year that is either late stage or LOI or firm commitments? How should we think about some of the coverage there.?.

Yeah. Look, I mean, the -- there are indicators that we can talk about. As we talked about on page either, there is $3.9 billion of pipeline of which the LOI and firm commitments are $600 million. As we discussed, $13 million of that $0.6 billion has been converted.

So there’ll be a portion of that that will continue to turning to booked orders over the course of the next few months and we feel good about that team. Secondly, the remaining portion of it will come through from our active pipeline that we are discussing. There are a variety of projects in different stages, but how transactions go.

They need to take the right time for both economic benefits to both customer and ourselves, as well as to make sure that we do the right thing for yields in totality. So, I would say that, by the end of….

And Sagar, the one, yeah, the one point I would, Sagar, Chris, the way that we build the model is, we assume a 20% to 30% transition rate from pipeline into order. So, when you think about the $50 million we have more than enough opportunities to be able to close that.

As Sagar was discussing, I think we just have to work through the timing of how projects closed, where customers are in closing out their financing and other things, and we’ll continue to work that, but we have enough in front of us to get to that $50 million revenue target..

Got it. Okay. No. That’s very helpful.

And just kind of curious, are any customers waiting on full system UL before putting in orders, is that kind of gating factor or is it the mostly kind of just typical stuff that’s going to be on the customer end to hit the $50 million and $300 million targets?.

Yeah. Look, UL testing is expected to be complete here in the second quarter of prior to the close of it. Now, all booked orders are subject to UL testing and certification. So, it’s just as a part of our overall operating rhythm from a commercial perspective today..

Okay. That makes sense. And as a pipelines continued to expand for some of those earlier stage opportunities.

How many customers through those upticks in lead generation non-binding quotes represent or is it -- would you say it’s more about having customers who are already in that pipeline just coming back with other potential project?.

Yeah. There are a few repeat customers. Of our booked orders we have new customers, which is predominantly what’s driving the improvement in backlog by 2 times between in the last 100 days.

With that said, our pipeline today is more than 90% in the U.S., and to Joe’s point, we’ll be focusing on expanding that globally and our customers are growth front of the meter, behind the meter, utilities, microgrids and they are evenly distributed.

Now, some of the larger projects will take a little bit time here to turn them into booked orders, but that’s just the nature of the course of having initiated commercial activity in the last less than one year and we are on our way to having a very balanced portfolio going forward..

Yeah. And I would just add, Chris, on your question. I do think we are seeing a good uptick in repeat customers coming back in with other projects as they work with us on the orders that we’ve closed. What I’d like to see us do here over the next few months, just to continue to expand and add more customers too.

As Sagar said, we have some traction, but I do think we can do more, particularly like and I think what we always try to balance is, we look good against ourselves. So, we’re growing the opportunity pipeline versus where we were the last time we thought.

But, we really have to focus on is, where is the market and how do we grow that pipeline vis-à-vis the available market and that’s why we’re expanding the commercial..

Okay. And as we looking at obviously there’s been a lot of discussion in the market about lithium-ion shortage issues.

I’m curious is that causing any incremental near mid-term opportunities for you guys and how it’s impacting the pricing you’re going out to the market risks? And also you highlighted the wide availability of your materials, are there any commodity or component supply chain issues you’re seeing within the market that might provide concern for you guys or is it pretty clean?.

Yeah. The….

So on the last part -- go ahead. Sagar, go ahead..

No. I was going to say, Joe, the pricing side of it. Look, our pricing hold steady and firm to what our guidance has been in the past and any improvements we see here will come through as we discuss more about pricing over the course of this year. With that said, Joe. I’ll let have you talk about the lithium side of it..

Yes. So, Chris, what I was just focus on was on our supply chain. So we don’t see any shortages today and the material inside of inside of our product. We’re trying to balance and keeping an eye out for is just around the power electronics that we have in the product to be able to run our battery management system.

But right now, we’re okay with the sources supply on that. On the lithium side, we are seeing more and more near-term projects that are out there that have commitments coming to get quotations from us and that’s one of the things that’s been driving up the pipeline.

But as you know, when we do our process, there is an education process we have to go through of explaining how we’re different and where the value is and we’re working through that with these new customers that are coming to understand how the technology works..

Okay. No. That’s very helpful. And just on the JV buyout impacts.

Can you talk a little bit about how that changes the path toward positive margins? And where do you see the gross margin breakeven points from a revenue, run rate or utilization rate based on the cost reduction efforts and bringing that production in-house?.

Yeah. So, clearly, as you know, we purchased the remaining 51%. The series of payments here are over the course of the next five years, $15 million in 2021 between paying back the contribution of $10 million plus $5 million here -- upcoming here in May and then the $5 million thereafter. So that for another four years.

As far as that impacting, I think, a large majority of the impact has been positive on having our supply chain being vertically integrated and having our focus on both the cost out that Joe spoke about and the production of both 2.3 and 3.0 batteries.

We’re very thankful for the investment and the focus Holtec has put into the company up to that point. With that said, as far as financials go, we continue to remain with our guidance on what the expected margins are from the five-year, four-year projection perspective that we had offered earlier in at the end of last year.

As we have improved guidance for 2022 later in the year or in the or closer to the fourth quarter will be sure to come back to you guys. From a cash flow perspective, look, I think, we have always reported income from JV below the line. Now it’ll just be a matter of geography where to the extent that the guidance remains the same.

It will now be reflected above the line and a lot of the cost out is going to be where the margins are going to expand here in 2022 and 2023..

Okay.

And then just last one, maybe you could walk through the CapEx cadence for the rest of the year and also maybe the expected cash burn for 2021 between losses doing the ramp-up, CapEx and the project finance, just kind of bring that together for us the last one year?.

Yeah. Of course. Of course. So we have committed capital on the project -- on the customer, so I will hit it in three parts, right? We’ll talk about customers first and then talk about the rest. From a customer’s perspective, as we discussed on page nine, we have development financing and project financing along with asset leasing.

The committed capital between development and project financing is close to about $15 million.

We will continue to meet our customer demands and expectations here with respect to that and we are actively looking for what’s the right financing strategy would be to syndicate that off our balance sheet and ensure that we continue to remain to our core competency of battery and storage facility.

With that said, we will be applying similar financing strategies on the asset leasing side. We have been continuously evaluating who our strategic partners are but will not rush into it. Now, a big part of what Joe talked about our focus being on green bond rating will also substantiate a lot of the financing here. So that’s on the customer side of it.

On the CapEx side of it the last time we spoke, look, we talked about $40 million to expand our investments in the in the manufacturing capacity. We continue to hold to that guidance. Now given that we’ve, sorry, there is a little bit of background noise. But given that we have purchased the high power facility from Holtec.

There’ll be some level of incremental investment we’ll have to make call that somewhere between $15 million or so for the portion of the JV that they would have invested in.

That along with the capital contributions that we repatriated back is on a two and a half year payback and very much in line with our capital allocation and return on investment strategy. So that’s on the CapEx side of it, but the investment in capacity continues to be a focus area for us.

And then the rest of it is really operating cash flow and to the point I made on page six with our cash, our G&A per se on a run rate basis is about $3 million burn rate, it on a quarter-over-quarter basis, call it, even $4 million but the commercial team in there.

The rest of our cash burn is really discretionary to either the CapEx we need to spend the testing we need to do and to the cost of sales, but we need to incur to produce the revenue and to commercialize the business as we are and that will continue to remain steady state from an operability point of view.

As and how that impacts our overall cash strategy, which the Board continues to evaluate on a periodic basis. We’ll be sure to come back to you and the broader group on what that means going forward..

Excellent. I appreciate all the color there guys. I’ll hop in the queue..

Yeah. Thanks, Chris. Good luck for the baby..

Thanks, Chris..

Our next question is from Subash Chandra with Northland Securities. Please proceed..

Yeah. Good morning, guys. So, just to understand the revenue there includes the service revenue.

So, I guess, the $50 million or so, should we consider say, $42 of that kind of a hard code in the revenue line and then the balance of it spread quarterly over the time frame that Sagar you’ve referenced?.

Yeah. Look, great question Subash. So, off our booked orders called out the $50 million in backlog and/or the $33 million year-to-date.

Of the $50 million about $8.5 million is service revenue and of the $33 million $6.3 million of service revenue that revenue is not contemplated to be accreted on our balance -- on our P&L from a reported earnings basis till year three and beyond.

So, that’s on a -- that’s really building to the longevity of yields as a value proposition and the margins on that will obviously be much more accretive than equipment sales as you can expect. With that said, that’s not contemplated in our current $50 million projections.

Now, as we come closer to the end of the year here, look, the service revenue will become an important part of our value proposition and our strategy, and we’ll be sure to discuss how that impacts the toggle of $50 million from the rest of the year reporting perspective, but even in our projections we never considered the service revenue to be accretive to current year recordings and will continue to hold to that guidance at this point..

Yeah. And Subash remember on the way the service model works is, it won’t kick in until year three of after shipment. So there is always -- this is always a year where revenue would be 100% product shipments..

Okay.

And just to clarify again so that is $50 million of product shipments?.

Yes. For 2021, yes..

2021. Okay. That’s supposed to be one of that. Okay. Thanks. Thanks for providing that….

Yeah. Yeah. Yeah..

And back to the gross margin question just put another way.

Should we consider that being in the positive category for understandably it wasn’t in this first quarter? But if it’s not positive when do you see gross margins flipping to positive this year?.

Yeah. Good question, Subash. In 2021, we do not expect gross margin to be positive in line with our guidance.

In 2022, in the fourth quarter on a quarter basis is when we expect to see gross margin positive and that will have its natural reflection on an year-to-date basis and 2023 is where we expect the run rate of gross margin to continue to yield positive results..

Okay..

That is exactly in line with our guidance and we are not offering, just to be clear, any revised guidance from that from what we had projected at that point..

Okay..

Okay..

And then the titanium alternatives, you talked about how you’ve been looking forward and now you’re sort of referencing there is a competitive element there that you want to anticipate.

But previously was there a cost element or that this could have a meaningful impact on your battery cost?.

Yeah. So, Subash, the thing on the titanium alternative, we’ve got some things on test that we have to work through and we’re proving out that it works in the battery. But when you start thinking through like once you get the material to work then you’ve got to get a source of supply, that you get the quality, that you get the manufacturing process.

So we’re working through with that transition plan looks like and tying that into our CapEx model.

It is a cost out opportunity for us in the long-term, but given the ramp that we have of adding capacity and bringing the factory up, we’re trying to come up with the best integrated plan to hit that target, but the ability if we have to flip a switch if something happens to accelerate that if we need -- if need be..

Okay.

So when you think of cost out in the long-term sort of, say, the Z3 kicks, where do you think that transition happens? Is that sort of 2023 events when do you think that it can have an impact on manufacturing cost?.

You mean the titanium question or sorry, that’s one...

Yeah. The substitution….

Yeah..

… of titanium..

Yeah. If you -- yeah. Yeah. Joe if it’s okay I’ll take this for you..

Sure..

Look, Subash, material substitution will always continue to remain a part of our cost out strategy. And frankly, it’s part of our optimization on manufacturing process that drives all of, right? So, from a -- if you take a step back as an -- as a technology company always looking to put the best product out there.

We’ll be looking at a variety of different materials that replace and substitute for all five of our earth abundant materials at this point. Titanium and the ultimate materials is one such category. At this point we have not really contemplated when we would go live with Gen 4 or the next version of a battery.

Our focus today is to get the manufacturability of Gen 3.0 and/or the Z3 product out in the marketplace, successfully have our customers continue to appreciate that value proposition and that cost out all of that is included in the 40% target that Joe spoke about on the page here on cost. I believe it was page 20.

And titanium growth or the substitute material will have an impact that’s incremental to what’s on page 20 and that’s a core value proposition for the company. It will come through some time when we are ready to deploy it and we will be sure let you guys know what the timing of it is when we are ready..

Yeah..

Okay..

And I think, Subash, the one thing I would say is, there is no concern with titanium today for us from a supply standpoint. It’s readily available. Our -- what we are planning for and planning ahead on is if aerospace takes off you could see price inflation, you could see tightness on supply, but there is no urgency to be able to do that switch.

But what I want to make sure everyone understands different than when you talk about other battery technologies, is we have readily available abundant raw materials and we’re building optionality supply chain to mitigate risk that we see in the future.

So not something in the short-term, but something that we’re preparing for, in case there is changes in the market, so we don’t get caught out..

Okay. Understood. And then finally on the certification just, is there anything additional versus the New York, Florida part which you working with.

Today is there additional certifications that they would require for urban placement of these batteries or does this get you over all those homes?.

No. So, Subash, there are additional certifications both with the fire department and the building department in New York City, of which we’re working through those processes as we right now. What we want to do from a communication standpoint, we’re focused on getting UL, because that ties to the orders backlog in the pipeline we have in front of us.

But we’ll give an update as we switch off to that to doing the CE marking for Europe and then also talk about where we are in the urban storage qualification process, which is well underway..

Okay. Got you. Great detail guys. Thank you..

Thanks Subash..

Thanks Subash..

We have been end of our question-and-answer session. I would like to turn the conference back over to Joe for closing comments..

Thanks and thanks everybody for listening in today. Thanks Subash and Chris for the great questions. We’re excited about the company that we’re building and the opportunity in front of us and we’ll keep everyone posted on the progress that we make and look forward to talking here at the end of the second quarter. Thanks for the time today..

Thank you. This does conclude today’s conference. You may disconnect your lines at this time and thank you for your participation..