Eos Energy Enterprises, Inc. Price & Performance (EOSE)

Today, I'm joined by EO's CEO, Joe Mastrangelo and newly appointed Chief Commercial Officer, Nathan Craeker. This call, including the Q and 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 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 of the date such statements are made. We undertake no obligation to update any forward looking statements made during this call to reflect events or circumstances after today to reflect new information or the occurrence of unanticipated events, 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 in nature 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.eosc.com. Joe and Nathan will walk you through our business highlights and financial results before we proceed to Q and A. With that, I'll now turn the call over to EO's CEO, Joe Msterangelo.

Thanks, Liz, and welcome everyone to the total year 2024 earnings call for EOS. Strong year by the I think you got to look inside of the numbers here to see really the performance in continuing to position EOS for the long term the long duration energy storage market. As we saw, we hit our revised guidance that we came out with at the end of last year. The team continues to execute we look at the operating highlights on Page four, continue to see a strong commercial pipeline specifically around long duration energy storage. Our pipeline is becoming more vibrant in My view and really positioning to where EOS wins in the marketplace. Continues to grow, we had a solid year on booked orders, with 310,700,000 orders backlog now approaching $700,000,000 and over 2.5 gigawatt hours positioning us to grow for the future. As you look at technology working out in the field, we're approaching five gigawatt hours of discharge energy out in the field. When you look at number of cycles that we're talking about, the number of cycles that we've put on the technology, is becoming immense with over 34,000 cycles out in the field really showing the strength of what the Eos technology can do revenue, as I said earlier, we hit we slightly exceeded what our guidance was, our revised guidance was at the end of last year.

Really strong performance by the operating team in Turtle Creek. And then on the cash side, Nick can give a little bit more details, [indiscernible] million dollars in the bank. That doesn't include the $40,500,000 that we drew on the last draw. For the Cerberus loan. So when you think about 2024 and really go through the year, really started off and really turned the corner in the second quarter when we closed the loan from Cerberus and created the strategic investment from them, which then flowed into closing the DOE loan which then allowed us to really bring the soda line, the state of the art line in operation and really position Eos as a strong long duration energy storage operating company. If you go to the next page on Page five, I'd like to talk a little bit about the external environment. What we're seeing and how we're positioning the company against that backdrop. Really what we're doing is scaling a company into a high growth environment. It's very exciting for all of us here at EAS on a day to day basis. When you look at the external landscape, there's a couple of truths that we really need to look at as you think about how this company will grow over time.

Reality is energy demand is going to double out into 02/1950. But inside those numbers, you got to think about there. So there's a couple of things happening here. We talk about and want to focus on the tremendous growth that we see here in The United States. Also need to think about globally Part of what we're trying to do is also there's a lot of what I would call energy poverty in the world. Have people that don't have sustainable reliable power. As we grow the company and think about positioning ourselves for long term, we can lean into that because we have such a simple easy solution to operate in the harshest environments that fit well with that growth as we look to the future. At the same time, you're seeing a 25% CAGR over the next ten years. For long duration energy storage. So strong market, really evolving towards the Eos solution that will allow us to grow over the long term. The same time, we are operating in uncertain regulatory environment. The uncertainty of that regulatory environment when you really think about it, Eos, we've been working for nearly seven years on building an American made products.

When you think about our bill of materials being 90% U. S. Sourced that protects us against the tariffs that we're seeing happening. At the same time when you think about the IRA the production tax credit and the investment tax credit, I believe and I think as people look at this, having a long term investment tax credit is only going to help us as we grow into American Energy's independence and dominance, if you will, to having that long term ITC. The same time the production tax credit is a great program, but that program needs to close loopholes around being able to utilize the production tax credit for repackaging products that are built elsewhere. What EOS does is EOS is bringing a product that has materials sourced in The United States manufacture in The United States, containerize in The United States and ship to customers. So we really look at these regulatory uncertainties and think of the way we've been positioning the company over the past seven years, we also need to remember that what we've always talked about, what I've always said is that we love having the incentives that are out there, but we've never relied on them to make the company successful.

And that more that holds true even today. Now when you think about and I think one of the big questions that everybody may have on their mind is, what's going to happen with the loan from the Department of Energy? What I would say is where we stand today and I can only talk about where we stand today, our relationship with the loan program office has not changed. We're continuing to work with them on a regular basis to go through the execution around Project Amaze and bringing our capacity online in Pennsylvania We remain confident that we'll continue that relationship as it goes forward. Because this is an American made technology that plays into a large scale need for not only United States, but The United States allies and also other parts of the world that are experiencing energy poverty and would like to get into the developed world as they think about readily available electricity for the world. When you get to the middle, you talk about commercial growth. Commercial growth, what I find the commercial growth side right now you're starting to see a consolidation in the industry. You're starting to see companies coming out and really repositioning themselves with new technologies, new durations, changing from battery companies to become solar companies Eos, we're sticking to our strategy.

We've always thought about, we spend a lot of time people talk about features and specific performance parameters of products. But what we sell as a solution, what we sell is readily available megawatt hours that customers can use.

We're not selling a battery technology per se, but underlying that solution is a very flexible battery technology that provides a levelized cost storage advantage We're not outselling the features around what an EOS battery can do, but we sell the [indiscernible] a variety of ways to meet the demand that I was talking about earlier out in the marketplace. We play into then is the fact that this is a secure technology it's compliant in every sense of the word from an energy security standpoint, [indiscernible] It's safe. It's non flammable. Thermal runaway risk is nonexistent with our product. And its reliability of the product and how it can operate in simplicity of how it can operate is accelerating the demand that I talked about on the prior page and Nathan will talk about in a few moments. The same time that you're seeing that growth, First two months, of 2025, we've set production records. In our facility in Turtle Creek. The team is now operating at a level that continues to improve on a day by day, month by month basis. That makes me feel good about how we're going to scale into the year as we think about 2025.

We're also working through and have talked about sub assembly automation and get us to our current cost out entitlement. Which then delivers a profitable product. Now what's important on the sub assembly automation is this is not something that we're talking about doing. It's something that we're doing right now. There's equipment that has been arriving in the Turtle Creek. We're performing factory factory acceptance testing to prepare for site acceptance testing to start bringing this technology online in the second and third quarter of this year. So this will allow us to achieve the two gigawatt hour capacity out of the Turtle Creek facility with one line, which allows us to grow and deliver on our backlog. At the same time, what we're seeing is projects durations are getting longer, on energy storage projects. An eight hour project, a six hour project. It's not that simple. People talk about is eight hour discharge in a twenty four hour period that could be cut up into many different discharge durations. It could be two hours in six hours, four hours and four hours, eight hours straight in a row, seven and one hour. EOS is the only readily available technology that can do that When you do those multiple cycles in a day, you're not degrading the product.

You're not causing it to lose its performance and you're not causing it to use up its useful life faster. We feel like we fit into that long term. Now what that means though is projects are getting bigger with durations longer. Is that customers come in and they look at the facility in Turtle Creek and are impressed. But then think about having a gigawatt hour project and saying, wow, if I do a gigawatt hour, that's 50% of your current capacity. So what we're doing now and this is a change in our strategy as I've always said, we'll build capacity as we get backlog.

We're going out and we're building capacity because we know the demand is there for product as we look forward. I'll talk about that on the next page. So if you go to the next page on Page six, that record production that we're seeing off the line is still with a ninety eight percent first pass yield. We've actually lowered the cycle time of the line to below ten seconds and continue to find ways to improve both of those numbers. When you look at Pennsylvania, we're finalizing where future lines will go outside of what we're going to install in our current Turtle Creek facility to continue to grow our presence in the Pittsburgh, Mont Valley area. At the same time on our capacity expansion, I was talking about on the prior page, sub assembly automation coming online in Q2 and Q3 We're really looking at containerization. So putting battery modules into the cubes or into the boxes that then get shipped to customers thinking like an automotive company and how we want to get that into a moving line versus a static line. We believe we've found ways to improve throughput that allow us to get more shipments out of our existing facility at the same time, we put out a request for quotation for three state of the art lines.

So we're going to source six gigawatt hours of capacity to be able to build into the larger orders that we're seeing, the larger potential projects. That we're seeing coming on the marketplace. When you really think about this, we want to have customers come and say, if I give an order, they're going to be able to build it. We know that the technology works on the state of the art line. We know we can continue to improve it and make it better. And at the same time, we want to go out and as we've always talked about, we don't need one massive factory. We want to build smaller facilities closer to where the demand is to be able to reduce total logistics Eos for projects. So we've gone out, we have eight states bidding on where Factory two point zero is going to go. We're negotiating state incentive packages, which I think will lower the total capital cost of being able to do this expansion. We're going to shortlist these sites here over the next few Eos. And then continue to move forward of coming out and saying where is going to be this where will be the second home Eos as we think about expanding our capacity to be able to deliver on these large scale lines.

It's exciting and the team has really done a great job here as far as finding places that we could potentially be part of look forward to keeping everybody updated on that as we progress. Go to Page seven. I want to talk about delivering a profitable Z3 product. The team did a phenomenal job of taking out direct materials. So the overall the fact that we delivered lower volume than anticipated last year impacted the financials that you see in for the company in 2024. Notwithstanding the fact that we had lower volume, so think about this for a minute, the volume was lower than what we thought. But the material Eos was lower than what we forecasted. So the entitlement of this product and continuing to really drive cost out reset the baseline, redo your funnel, come up with new opportunities and continue to take Eos out, We're just the team is going to continue to drive this and continue to take material Eos out. And we think, get on a leadership basis, like when you think about how people talk about cost of product, When you're comparing us against other technologies, other technologies talk about cells. And cell cost.

We have a module, a module that has 20 cells inside of it. If you do this on a cell basis, we're really the cost leader when you look at the market. It's a simple manufacturing process. When you look at the line that we have up and running, we met the labor plan for what we did in the state of the art line. But at the same time, given the fact that we didn't automate the sub assemblies, we had to add labor to continue to produce. That labor will come down over time. We'll get the labor cost down to where we believe it will be in a market leadership position from direct material labor. The third piece of getting to profitability is delivering on your manufacturing overhead, your footprint. The team did a great job controlling as we revised our revenue estimate prior year, but we really look at this and say, given the facility we have, given the capacity that we can drive, given the labor that's required to do this, when at scale and given the material Eos, we are we have a profitable product. And I'd like to also point out when you think about our backlog, some of the projects that are in our backlog date back to when we were launching the company, They're at lower price points than what we are selling today.

If you take where the team is selling the product today with the Eos that we have today, you have a profitable Z3 product. We've got to scale into that. And grow that over time I feel really good about the product we have, the ability to build it, and the ability to really grow this company as we look to the future. With that, I'll turn it over to Nathan to walk through the commercial portion of the presentation and the financials. Thanks, Joe, and thank you all for joining us this morning. It really has been an exciting year for us as a business. And as you may have seen last night, this is my last earnings call as the CFO here at Eos Eos. It's been an incredible couple of years and I am looking forward to spending more time with our customers as we go forward. Now with that, let's dive into our commercial growth our financial results. As we closed out 2024, our commercial pipelines stood at four As This represents 55 gigawatt hours of storage of which 36 opportunities for energy arbitrage that drives improved customer economics. Meaning these projects no longer need to be coupled with solar, wind or traditional generation to make them attractive.

We anticipate this trend to continue as we go forward. Notice that we've simplified the format of this page from what you are used to seeing. The company has matured, we've decided to consolidate our opportunity pipeline into a single metric. While each of the historical buckets experienced regular ups and downs, the ultimate measure of the commercial team's success is booked orders. We continue to see healthy turnover in both our opportunity pipeline as well as lead generation. Year over year lead generation is up 50% of which $3,400,000,000 was added in the fourth quarter alone, as we're seeing increased activity on the heels of all the progress we've made in 2024.

In addition, we have successfully moved nearly $2,200,000,000 forward into our pipeline as technical proposals or quotes are being provided to customers. The commercial activity on this page is in increasingly aligned with our value proposition of longer duration multi cycle use cases, which EOS Z3 technology was uniquely designed Where we did lose projects, I'd like to point out that nearly 100% of them were for durations of four hours or less. Storage fundamentals are moving in our favor. In fact, over the last year, we've seen a 122% increase in five plus duration projects, and we've seen the average deal size grow by 28% overall.

Projects are getting larger, and discharge needs are extending beyond historical norms. We continue to see growing opportunity in microgrids, data centers and other behind the meter applications as this segment of the business gains a better understanding of the incremental value created with our multi cycling capability. Behind these pipeline numbers are a lot of blue chip names comprised of large regulated utilities as well as domestic developers that themselves have robust pipelines of battery storage projects at various stages of development. When these customers come to the factory, they continue to be impressed by the progress and the growth that they see firsthand. All of this further reinforces our optimism about the future. While the majority of our commercial efforts are focused on domestic markets today, we excited about the developments in several international markets. A key area that I'll be focusing on in my new role. We believe The U. K. Of long duration technologies. And we continue to focus on Latin America Germany and Italy as growth markets Japan and Poland to name a few. It's clear that the world needs long duration storage and the timing is right for Eos as we now have a commercial product that is easy to manufacture when compared to other technologies.

New factories can simply be located near customer demand in order to scale this business. Our twelvethirty one backlog stands at $682,000,000 on 2.6 gigawatt hours of storage. We had some big wins in the fourth quarter and I'd like to point out that these were all standalone storage projects. And we're beginning to realize our competitive advantage in the market as customers focus on multi cycle capabilities lower operating costs and twenty plus year life without augmentation. All of this improves the levelized cost of storage and we've been working closely with customers to ensure that these benefits are being properly captured in their models these benefits are properly modeled, they regularly result in a 30 plus percent El Eos advantage. Compared to other technologies. Before we move on to the next slide, as we announced yesterday, we recently signed an important order with the naval base Fully funded by the California Energy Commission, this order provides essential energy resiliency to the U. S. Navy's Western Fleet. As the nation's focus on national security intensifies, we believe our American made technology will become the preferred solution for bases and other military applications as they increasingly rely on storage to ensure operational reliability and security.

Flipping to the next page, a lot of work has gone into the details that make up this page over the last two quarters. The left side of this page is what is going to differentiate us as an attractive solution to customers and their investors with the list of solutions you see here driving bankability for customer projects. We believe we now have all the pieces in place to support customer project financing, which should lead to additional orders as we progress [indiscernible] customers and their investors want to see several things. Number one, is their proven product performance and reliability Will the technology scale? Is the product backed by a strong warranty? Do the returns of the project clear the hurdle rates for all stakeholders? And will the company stand behind the product performance for the long term? We believe we can now successfully check the box next to all of these questions. We have fully negotiated a comprehensive insurance policy framework to enhance bankability This includes three distinct policies, an ITC bridge insurance policy, ITC clawback insurance and warranty backstop insurance, which incorporates EOS' standard warranty. These policies are important enhancements to our commercial offering that we believe should accelerate our pipeline growth and orders conversion.

In addition, we have extended our customer warranty to meet or even exceed industry standards. We are now offering our customers a three year standard warranty with the option to extend to five or ten years.

Now shifting over to the right hand side of the page, let's talk about our partnership with Flex As announced in December, we signed a teaming agreement with Flex Gen to co develop a fully integrated domestic BEST solution. This collaboration combines our patented Z3 battery storage systems with a domestic inverter and transformer package in integrated with FlexGen's EMS we have jointly identified approximately 50 gigawatt hours of opportunities that we believe would benefit from this integrated solution. Over the past two months, we have made significant progress across multiple fronts, Initial data sharing, pre engineering and system integration planning are well underway laying the groundwork for full hardware integration and testing in Q2. In addition, our business development teams have generated significant new opportunities while also merging the scope of supply in both companies' existing pipelines to deliver a fully integrated solution to each other's customer base. Specific project opportunities we are engaged in thus far total $1,400,000,000 in potential revenue. Before getting into the financials, I am proud to announce that the company has completed a significant processing controls documentation and testing project And I'm pleased to say that EOS is now SOX compliant and we have our material weakness This company wide initiative was led by the finance and accounting team, but ultimately required the support of the entire business demanding a lot of time and resources to make this happen.

Alongside our ongoing automated manufacturing line, and our financial and commercial initiatives, this is an important step toward positioning the company for long term growth and success. Moving to our capital structure, we ended the year with $103,000,000 in cash on the balance sheet, having successfully brought in $133,000,000 in gross funding in the quarter, a tremendous achievement by the team that strengthens our position as we continue to scale our operations. This included $65,000,000 from the successful achievement of the October 31, milestones with Cerberus $68,300,000 initial draw on tranche one of the Department of Energy Guaranteed loan.

We are extremely proud to be the first company who closed and funded a Title 17 loan under the prior administration. We continue to work with the DOE on a regular basis and we on schedule. This second advance is expected to include eligible Eos associated with the completion of sub assembly automation well as initial deposits and payments for items related to Line two. At the January, we also announced the successful achievement of all four of the third set of Cerberus milestones, allowing us to draw the final $40,500,000 on the term loan. As we discussed previously, this loan was structured to align with [indiscernible] be a high growth profitable energy company. Additionally, during the fourth quarter, $4,400,000 of the December 23 warrants were exercised bringing $7,000,000 in cash to the balance sheet. We expect this to continue being a source of capital at current share price levels. And lastly, customer receipts have continued to be another source of cash to fund our working capital requirements as we ramp up operations with nearly $30,000,000 coming in from customers throughout 2024. These funding sources put us in a strong financial position to continue advancing our strategic priorities to technology development.

And with that, let's get into our fourth quarter financial results.

In the fourth quarter, revenue was $7,300,000 which is 10% higher than the prior year and eight times what we recorded in the most recent [indiscernible] We were able to recover from the cube supply chain challenge we had in the third quarter and deliver to more project sites While our gross loss was essentially flat year over year, our gross margin improved by 35 points over the prior year. As Joe discussed earlier, we have made tremendous progress on our direct material cost out and we are now focusing on the fixed components of indirect labor and factory overhead well as improving the efficiency, and effectiveness of our field services and project execution teams as we scale up to get more systems and projects through COD and cycling in the field. Other operating expenses for the quarter totaled $28,200,000 an increase of 52% compared to prior year. We effectively held non labor cash operating expenses flat while seeing an 88% increase in non cash items like stock based compensation, and the PP and E write off, The largest driver of the cash expense increase was a 10% increase in product engineering and software development talent that is expected to drive better performance better margins and profitability going forward.

Net loss to shareholders was $268,100,000 compared to a net loss of $41,200,000 in the prior year, These significant differences were mainly the result of change in fair value of derivatives tied to mark to market adjustments as our share price increased in the quarter compared to the share price decrease for the fourth quarter of twenty twenty three. Adjusted EBITDA loss in the quarter was $44,600,000 compared to $37,200,000 in the prior year, The difference in this is related to higher debt issuance costs with Cerberus as well as the Gen 2.3 PP and E write offs. For the full year, we came in at $15,600,000 in revenue which is in line with our revised expectations. This was a slight decrease compared to 2023 revenue of largely driven by Q3 cube availability, which we've discussed on prior calls. As we've said previously, we began to see some recovery in late Q4 and continue to focus on supply chain diversity and cube deliveries we go into 2025. Despite the significant direct material cost improvements, which Joe discussed earlier, gross loss increased by 13% to $83,300,000 primarily due to manual sub assembly inefficiencies and ongoing commissioning Eos associated with several legacy projects.

As I mentioned earlier, we are scaling up our projects and field services capabilities to be more efficient and we believe this will yield significant financial benefits over time. Operating expenses came in at $91,000,000 for the year, a six of Eos or $7,700,000 of this increase is related to cash operating expenses as we expanded the team positioning the company for growth and scale. Over the past twelve months, we have invested in key areas of the business such as sales talent to drive future orders, sourcing expertise to continue taking material Eos out of the product, and software engineering to improve system performance. We are positioning the company for significant growth over the next few years. Net loss attributable to shareholders in 2024 was prior year was driven by the mark to market adjustments on the fair valued debt that we discussed earlier. Adjusted EBITDA loss for the full year was $156,600,000 an increase of 20% year over year as the increase was impact costs related to the strategic capital from Cerberus and $2,000,000 related to PP and E write offs as we transitioned from Gen 2.3 to Z3 manufacturing. So if you summarize everything we just talked about, we are improving the underlying Z3 related adjusted EBITDA.

We know we have work to do on labor and overhead absorption, is being addressed by our sub assembly automation. We held cash operating expenses primarily flat sequential quarter over quarter and we are investing in specific areas of the business that are driving the scale needed for us to be a profitable operating company. Lastly, before I turn things over to Joe, I want to talk about a very positive development related to our net operating losses. All of the capital raises that we've completed over the past couple of years, we previously disclosed the risk that our NOLs may be We have now completed a Section three eighty two ownership shift analysis and based on this analysis, we are confident that we will be able to realize the benefit of all $740,000,000 worth of federal NOL carryforwards with the majority of this amount coming available for use before December 31, 2029. With that, I want to thank everybody for their time today. I'll turn the call back over to Joe say a few more words before we get into Q and A. Thanks, Nathan. Just wrap up here before we get to Q and A. We're reiterating the guidance that we issued earlier this year, but $150,000,000 to $190,000,000 of revenue.

That's 10x what we're talking about last year. Again, as I talked about earlier, we feel good about our ability to scale into that, to manage the supply chain as we move forward. Be able to deliver on that We're going to be doing some big things as you think about the year coming up Feel really good about the stage sub assembly automation. Increasing containerization capacity as we get into the second half of the year, And then really as you start thinking about this, we're going to be doing more and more out in the field. So when you start thinking about our cost of goods sold line, there's both product and project costs that are going to be there. And we feel that those project costs will drive service revenue the future. So you're going to have a little bit of a ramp up of those two pieces as we go through the year. But feel really good about the guidance number that we have and positioning the company to deliver in the long term. I'll go to the last page here. And really talk about continuing to strengthen the leadership team of EOS. Continuing to build the company with aspirations to be a leader in long duration energy storage.

I'd like to start off one by thanking Nathan for all the hard work he did as a CFO. When you look back at the body of work since he came in as a CFO, closing two complex loan transactions are really positioning the company for the long term. He's been has hand in securing almost over $850,000,000 of financing for the company to position us to grow for long term. At the same time, a lot of the work that you saw in Bankability in different parts of the company and getting rid of the material weakness those that has Nathan's fingerprints all over it. But at the same time, when Nathan came to Eos, what he and I talked about was his background really wasn't as operating but as an energy operating leader. I think when you look at what he's done prior to coming to EOS, it fits perfectly in him going over into the Chief Commercial Officer role, We've also seen as we're out bringing projects to market with non utility non utilities, so developer utility scale projects. A lot of that requires a skill set that Nathan brings. One thing that we didn't really talk about we went through the second half of last year, Nathan has been wearing two hats.

All the things that have been going on in the finance side David was also acting as the commercial leader to help us grow the pipeline. And you saw the results in the orders in the second half of last year. I'm really excited as he moves over into the commercial role. At the same time, I'm very excited to bring Eric Eric Javedi on as our CFO for the company. I mean, Eric comes with a background in financial markets, a background in high growth companies, He's had multiple global CFO positions. He's fifteen years of experience in the energy industry. Think he brings us the CFO that we need for the next few years here and beyond to really position EOS as we grow. And look forward to partnering with him and continuing to strengthen the team as we move forward. It's an exciting time at EOS. As I've said many times, we have a lot of work to do, but we have the team that can get the work done. And we're really looking forward to executing here throughout 2025. With that, I'll turn it over for Q and A. Thanks. Thank you. The first question will come from Thomas Boyse with TD Cohen.

Your line is open. To be for the year. Previously, you kind of talked about positive contribution margin from Z3 being kind of the lynchpin to seeing higher volumes. Is that something that you are currently and it's just a composition of the backlog that kind of keeps that from being the case? Or is it really predicated on having sub assembly up and then you will really see it more a back half weighted type of inflection. Hey, Thomas. Good morning. So I think yes to both of your points, right? So I think there's a part of this where we wanted to get through the backlog of our early book deals in 2024. That's obviously pushed into the first quarter. If you look at the orders that we're booking now with the Eos that we have now, we're actually contribution margin positive when you think about the backlog that we're adding to the order book. I think as you think about the ramp throughout the year, I think you'll see first quarter similar to fourth quarter just because of that sub assembly timing. We the marketing team put out a video a week ago of the first equipment that's gone through factory acceptance that's now being installed in the factory in Turtle Creek.

As we ramp into that sub assembly the labor costs come down, the output will go up, which is going to impact not only labor, but also that overhead number that we talked about, which will allow us to ramp in to growth as we go through the second and third quarter to get to the run rate of the line as we hit fourth quarter. Got it. That's very helpful. And then maybe I'm just wondering about your discussions with customers just given a lot of the very dynamic tariff environment. I've seen kind of reports just for lithium ion batteries for China that cost increase could be anywhere from like 7.5% to like over 20%. And so how do you think that's induced more demand from potential customers just as they look to kind of move away from lithium ion is maybe an exposure there? Look, before I turn it over to our Chief Commercial Officer, I'd say like the African American made product is clearly an advantage right now in the environment that we're in and what's happened here over the forty eight hours. But at the same time, it's not just the tariff part that makes EOS a compelling solution it's also what we talked about as In the energy industry, everybody likes to normalize to do analysis.

Right? So you pick operating points so you can compare reality of how you actually use the equipment is very different than how you talk about it in situations like this. And our and what we have been focused on as a team because when you really look at the team that we have, you have energy, leaders in the company is how to give a technology that's going to work in real world situations. So So I think we all have to get our head around, we all have to start looking at you don't just charge a battery up for a period of time and then discharge it for a set period of time and that's it. When you look at the way that things operate and the way that the grid operates, you need technology that's going to be able to flex with the supply and demand ebb and flows that happen throughout a day and we've got [indiscernible] With that, I'll turn over to Nathan to add any color he has because he's the one out there actually talking to the customers every day. I think every customer has a different thing that they're focused on.

So every conversation is a little different. In some cases, if upfront CapEx is paramount and it's a short duration project, They're focused on tariffs on Chinese products, but that's becoming a much smaller piece of the conversations that we're having every day. Like Joe said, we're selling levelized cost of storage. We've got a significant advantage in levelized cost of storage relative to other technologies out there, particularly when you're looking at four plus hour duration. Driven by multi cycle capability, just the additional flexibility that you get out of the system and no mid no seven to ten year augmentation on the system. So we're really focused in our conversations with customers about how do we get them the economic they returns that they need to get their projects done. And I would say yes, we have conversations on Chinese tariffs, but that's all piece of the overall broader discussion that we're having with customers these days. Excellent. Really appreciate the insight. I'll hop back in queue. And the next question will come from Stephen Gengaro with Stifel. Your line is open.

Thanks. Good morning, everybody. Two things from me. Good morning. So the first, just a follow-up on the response to the first question. When we think about the kind of the revenue push out on the third quarter conference call. I thought the Enclosures sort of the biggest problem. And I was just curious, if you could comment on kind of where that supply chain stands? I know you've diversified the supply chain. [indiscernible] maybe a little more detail on why that doesn't lead to a more rapid kind of first quarter even second quarter of ramp in revenue. I'm a little I'm sort of disconnected on those two factors. [indiscernible] diversifying the the supply chain for enclosures. We've got multiple suppliers that are that are supplying to us And we're also working through with other additional suppliers to help us be able to scale capacity and not just scale the capacity, but take Eos out and simplify the product. So that's always paramount to us on number one. Obviously, as you know, you don't just turn a supply chain on and starts producing at scale on day one. There's a ramp for each individual supplier as you go through that and we're ramping into that.

At the same time, like when you think about this and we've always said this, given the timing of when we close the service loan, when we close the DOE loan. We had a push on the sub assembly automation.

That's going to happen in the first quarter. And as you scale into that is when we're going to have more batteries coming off the line. The problem is not the line itself, the line [indiscernible] Have to feed the line, you have to feed the beast and we're building up the entire supply chain to flow that and get everything operating as we go through that.

Okay, great. That helps. And the second question, just around the backlog growth [indiscernible] I'm not sure how as the backlog gets larger, I feel like maybe there's a little more is it possible to give kind of more color on sort of the the components of the backlog, even if it's by kind of addressable market, if not by kind of customer concentration?

I don't think we'd ever talk about customer concentration. I think Steve, we can certainly give metrics around like we talk about having more standalone storage. When you look at the last three orders that we've announced, they're all standalone storage orders. So when you talk about segmentation of where the use case is going to be and maybe segmentation generically between developer utility C and I type customers as we move forward. Great.

Okay.

Thanks.

And the next question will come from Chip Moore with ROTH Capital Partners. Your line is open.

Good morning. Hey, I guess first Nathan, congrats on the new role and nice job on all the heavy lifting.

I guess, Joe, I want to ask, yes, great work. Joe, I wanted to ask your comments around the demand you see and proactively looking to build capacity. Maybe expand on that. Is this a function of customers becoming maybe more strategic in longer term or or what are you seeing there? And then are there ways to ensure those commitments maybe as you get closer to deploying capital Yes, Chip, you've seen the factory with your own eyes in Turtle Creek. It's impressive. For people to come see that. Obviously, We are we become the supply chain of someone else. And they look at your supply chain and do you want to place the bet the size of the deals. When we started our strategy of how we wanted to invest in capacity A big project was 50 megawatt hours. That's an extremely small project right now. Mean, a lot of the things that we're talking about are 500 megawatt hours and higher So you start thinking about add a line add a line add a line It just didn't make sense to be doing it in a staged fashion. It made a lot more sense to come out and say, right, let's add a big chunk of capacity to feed the projects for people that Nathan and the team are bringing in.

To look at the facility and talk about the growth. We also saw the ability to diversify. We've always talked about our strategy of building out the capacity where you can build it by line. And not needing a massive mega or giga factory to make the company profitable and to really co locate near demand to lower logistics costs we started looking at what's coming in from an opportunity pipeline, where that's located. We said let's do two things at once here. Let's get more capacity online like we've always talked about in the Mont Valley and we're going to do that.

But at the same time, let's plan let's find our second home.

Like many people in Pittsburgh, I guess, we're going to have our home in Pittsburgh, but we'll have another place somewhere sunny that's closer to where all the demand is. And get a couple of lines in there and really diversify and allow us to get closer to customers and closer to new supply bases to grow the company. And it just makes sense given the demand and the size of projects that we're seeing.

Very helpful, Joe. And maybe just a follow-up, any lessons or things you've learned applicable to to future sites in terms of optimization and things like that? [indiscernible] You really look at what the team has done in Turtle Creek, right, We fit capacity into a footprint. When we look at this and as we've learned and looked at raw material warehousing into sub assembly meant sub assembly manufacturing, into building modules and then containerizing them and shipping. We want a facility that we can do that on a straight shot and really on a on a single line that moves through the factory that allows us to get [indiscernible] not as reduce the number of material moves, reduce the cost of logistics, We will as we look at this, one of the key things for us is we want to be co located near a logistics hub want to hopefully have a rail yard nearby so that you can start talking about not just trucking, but shipping. As you get larger projects, putting a lot of cubes on trains is probably cheaper in the long haul and doing the last mile by truck versus the whole thing by truck.

A lot of different things that we're looking at. We're really I'm excited about what we're seeing coming in as far as locations and states and how people want to bring us into their communities. And I think as we down select and go through this process, we'll keep everyone updated on it. But like really for us, it's just finding the place where you could build out and think big. I think what we've done up until now prior to June of last year, was everything was about conserving every dollar, doing the most we could with everything that we had to get to a point where you had the belief that the company was going to grow and thrive And once now that we have that financing behind us and that partnership, and the customers coming, we've really got to think big about how we want to grow this So although we're talking about two lines, what I would say is the building will be able to hold more than two lines. And we've got to then take that learning Like one of the how we want to grow the company and the company that we have. You can't do too many things at once.

But like you sit there and Nathan alluded to like some of the things we see going on internationally right now, At some point, we're going to have to look at like what are we going to do internationally in shipping things by boat from The U. S. Is not going to be the most cost effective way to do that. So as we get through and learn how to stand up factory number two, The U. S. There'll be factory number three that will be somewhere else. So we just got to keep growing the company and really developing it into the growth trajectory that we see in the demand curve that we see.

Great. Appreciate it. Thanks. I'll take the rest offline.

Thanks, Jim. And the next question will come from Tom Keuran with Seaport Research. Your line is open.

Good morning. Nathan, could you share anything you accomplished kudos on everything you accomplished during your tenure and best of luck as CCO.

Thank you. Thanks Tom. Curious, As we look at these three Next goals for [indiscernible] The stage sub assembly automation the increased containerization capacity and the higher project service revenue For each of those the three of those, assuming you're remaining on track for the revenue guidance range. Could you just give us an idea of what each of them when achieved could contribute to gross profit margin improvement? Well, so Tom, what I would do is like if you go back to [indiscernible] So when you think about this, we've proven out we can drive direct material Eos out of the product. What we've always said and I believe is it's still an early life cycle technology. So there's a lot of Eos that can still come out of this product. And as you learn, you get smarter and you just reset your funnel and go after more opportunities to take Eos out and that's [indiscernible] we're going to do in 2025. On the labor side, the labor required to run the state of the art line is on plan. What we thought it would be. And it's highly it's the productivity that you gain from going from a sub from doing it semi automated to automated has been tremendous To keep up with feet in line, we've had to bring in temporary workforce to be able to manufacture sub assemblies.

That's going to drive down the cost when you turn that on. At the same time, our containerization what we're talking about here is truly coming back and looking at how we put modules into trays trays in the cubes and cubes out the door, When we look at this and you start thinking about this, it's like, well, this is no different than building a car or a bus We should be thinking about it that way. So there's productivity that will get out there. Those things as you learn and do you pick up ways to take Eos out and that's what's going to drive us the gross margin positive. And continue to create the value of the product. And I feel really good about the cost entitlement that this product has. It's now up to us to get the supplier relationships in place to be able to do that. And obviously, as you gain credibility, we spend a lot of time talking about the customer side of this you also have to think about the supplier side. Somebody that's coming and wants to supply to Eos, up until June of last year, we had a lot of suppliers taking a big bet on us as far as what they were going to ship us.

When were they going to get paid. Now that you're sitting here with where we are being capitalizing, grow start looking at this and you start talking about like how do we extend terms to really get and drive working capital and that's one of the reasons why Eric came into the company given his experience is like how do we wind up where we're really driving inventory turns, payables and receivables and get that all linked up so that we get the right working capital model. With the right growth model and really position the company to grow as we move forward. Only thing I would add, you asked about service revenue. I mean, I think we had $1,000,000 in service revenue last that's high margin revenue and that's really a function of systems installed out in the field.

Significant number of our customers are are purchasing long term service agreements as well. And so as we increase the installed base out in the field, I would anticipate that line item continues to grow both in total and as well as a percentage of total revenue over time.

So that one will take some time to grow, but that's good solid margin business.

That's helpful. And then for the actual revenue guidance band of $150,000,000 to 190 Are there any swing variables that are likely to determine where you fall within that band are entirely within your control or at least in house variables? And if so, could you expand on those?

I think it's what we talked about earlier. As far as scaling in throughout the quarters. Would really the two main things are going to be getting the semi automated manufacturing up to get more throughput out line and bringing in lean principles and an assembly line approach to how we do containerization to get to the back end and get within the higher end of the guidance range. But I'd stick with the range right now as we sit here in March. Got it. So maybe I should have asked another way, Joe.

Because all that is clear, you guys have done a great job with that. But more are there any specific projects in the backlog maybe bigger ones where it's still just not entirely clear when it'll ship and therefore it'll be the customers call as to whether you come in at 160 or 175 or 180. Or is this really mainly a reflection of? Gave guidance because we feel comfortable with the range. It's a dynamic environment. Where we sit today, we're comfortable with the range.

Understood. Thanks for taking my questions guys. All right.

And the next question will come from Martin Malloy with Johnson Rice and Company. Your line is open. Ben, Thank you for taking my question. And Nathan, best of luck in your new role there. Thank you.

First, I wanted to ask about customer feedback on the early Z3 installations and how that's going and maybe with performance that you're seeing now at the manufacturing facility, could you maybe talk about level of engagement you're seeing with utility customers And larger orders from them Yes. I'd say just in general, very positive sentiment out As Joe mentioned earlier, we're seeing significant increase in overall project size, both in the pipeline and opportunities we're pursuing as well as some of the more recent transactions that we've announced. That's coming both from utilities as well as from some of the larger developers. I think the world in general as we talk about, understands there's a growing need for long duration storage. We're seeing that come through in the proposals that we're we're bidding on and the projects that we're winning. So I think the fundamentals are moving in our favor both in terms of duration as well as overall project size.

Marty, but I would just add on utility customers we talk about this on every call. We're going through and working with every major utility They're in the pipeline of opportunities. They like what they're seeing. It's a process. We'll work into that process with Great. Thank you. I'll turn it back.

Great.

I show no further questions in the audio Q and A. Would like to turn the call back over to Liz. Yes. Before we go to Liz, operator, we opened up questions to the retail base through Stays. We've got some good questions come in.

Eos, obviously, there's a lot of similar thoughts from sell side analysts and the retail base, which trade. So So what we did was we prioritized the questions on number of shares that voted the top questions, three of the top four questions were asked.

So Liz is going to just go through the two that remain open and Nathan and I will address those. Go ahead, Liz. Thanks, Joe.

And just want to say thanks for everyone for participating in this. Look forward to doing this on future calls. So for the first question, have potential customers communicated any hesitancy in placing orders due to associated with the IRA tax credits If these tax credits are reduced or removed, how does the company project it would impact your growth for Project Amaze and beyond?

Thanks, Liz. Look, I think it's a mixed bag. I mean anything that we currently have in backlog is a defined project. We've got delivery dates. I would say there's really no impact to anything that's in the backlog today.

When you look into the pipeline, are getting different feedback projects that are at NTP, close to NTP, they've got land secured, they've got interconnections secured. I'd say there's really no impact there. Those are Those are effectively committed and moving forward and they don't lose any time and so they're not slowing down. Some of the very early stage opportunities in the pipeline, I think is where we customers pausing for just a second and reflecting The one thing I would reiterate though is this business was never built on the IRA tax credits we think this business is meeting a need in the marketplace and the tax credits accelerate the path to profitability, but they're not critical to getting to profitability. They're not critical to getting to scale. If we execute on everything that we've laid out, earlier on this call, I think we're going to have a very successful business and good growth potential going forward.

And the only thing I would add, Nate, in your comments is I've seen this in my career when you look at both the solar industry and the wind industry, As far as timing around ITC and people making decisions off of what the ITC programs are. As I said in my earlier comments, I believe having a ten year program is critical here. The country needs all types of energy. I've said many times on the record that I believe having a good natural gas policy is important for not only the country, but our allies. And I think it will be good to see those large chunks of power coming on driven by gas, but at the same time, what we've been talking about and we've said this all along is it's not storage plus when you look at our last three deals being standalone storage, the grid needs the storage. We also have to think about the amount of energy that's wasted every day through curtailment of not being able to put it on the grid. That's what storage is going to do. And that's what having a flexible resource like Eos helps you accomplish. So it's going to help us make the grid more effective.

It's going to make grid investment deliver higher returns and it's going to allow us to be more effective. As the country moves towards energy independence and energy dominance.

Thanks, Nathan. Thanks, Joe. Next question, what is the current strategy on international expansion and global production scaling, particularly criteria that drive timing, geography and other key factors driving decisions on when and where to expand EOS globally.

Look, I think international markets are pretty exciting right now as we talked about earlier.

In the prepared remarks. In terms of how we're prioritizing international expansion, we're really looking at a couple of different things. Number one, where's the market opportunity?

Right? Where do we have the right regulatory framework? Where do we have the right situations on these grids, the price volatility, the things that make it an attractive long duration storage market. Look in what sort of incentives and programs are in place in each of these jurisdictions. And then look at where do we think we can get manufacturing or effective logistics costs in order to meet that need at a price point that makes economic sense for customers as well as for Eos. So there's a number of markets out there. We're evaluating them. We've got a few pilot projects that we've talked about previously. But continuing to do our work and prioritize those as we go forward. And look forward to announcing more in upcoming calls on this.

Nathan. With that, I'm going to hand the call back over to Joe.

Look, we're a couple of minutes here over time, so I'll wrap up quickly here. Just there's a lot going on inside the company every day and we've got the [indiscernible] to be able to deliver. We continue to build out a leadership team with experience in the industry that have been in high growth environments that have scaled companies and we're going to continue to stay focused on the overall goals. We'll adjust the strategy as we see things changing in the marketplace. You saw one of those adjustments Today with how we're thinking about sourcing implementing manufacturing capacity, We need to keep grinding forward and have the grit to delivering. And I think the most important thing underlying all of this when we talk about the industry consolidation that you're seeing, a lot of that begins and ends with having the right product. We felt from day one that we have the right product to meet the future demand and latent demand in the marketplace Now we've got to bring that product to market and we're laser focused on being able to do that and being able to deliver on our commitments for shareholders and [indiscernible] [indiscernible] everyone for listening.

I look forward to keeping everyone updated on the progress. [indiscernible]