Eos Energy Enterprises, Inc. (EOSE) Earnings Call Transcript & Summary

Good morning. I'm Julian Triscott, Battery Utilities and Alternatives, Sector Specials. On behalf of the firm, thank you so much for joining our Battery and Energy Storage Conference. I'm stepping in for the better looking join for the session, and we're truly delighted to have Joe Mastrangelo, the CEO of Eos Energy Enterprises join us today. [Operator Instructions] With that, Joe, the floor is yours for quick comments, and then we'll go to Q&A. Thank you, mate.

Yes. Thanks, Julian, and thanks, everyone, for joining today. It's always great to be able to talk about where we are as Eos in our trajectory of growing into a fully-fledged operating company. It's a very exciting time in the energy storage industry, and I think in Eos, we continue to make progress and build a differentiated technology, and we love what's happening out in our factory. Outside of Pittsburgh, here, as we continue to ship product to our customers. And although it is cold here, in New York today, I was just outside looking at one of our test systems, which is operating in these frigid temperatures with no heating. So proving once again, in real world conditions, that we have a robust technology. So looking forward to the discussion here, back to you, Julian, for the Q&A. You're on mute.

Thanks, as I was saying, like, I'd love to get your thoughts on how you see the market dynamics shifting, as it pertains to duration?

Yes. So I think, Julian, what we see in the market is, over the last 10 years I've seen this march from minutes to hours. And I think, now, when we're looking at where we're going, we're seeing an expansion of the use cases where energy storage is required from multiple hours to beyond -- into intraday trading. We like about our technology and where the market is going is, I think, the #1 challenge that we're trying to solve here is the intermittency of renewables and to really solve that problem or enable the full utilization of renewables in our power grid, is you need flexibility, you need flexibility to be able to operate across multiple use cases. As I've said since I've come to Eos, energy has always been a mix, will always be a mix, and there are multiple technologies required for us to be successful in the challenge of decarbonizing our power generation. And I think Eos plays into a large segment of that requirement as we look to the future.

Right. It'd be also fantastic if you could talk us through where you see capacity to compete with your product versus lithium ion in the medium-term storage market. As a follow-up, do you see your technology as a competitor or more of a complement?

Yes. Actually, I'll start with the second part of that -- of your question, the follow-up, because I think it leads into the first part. Look, again, I go back to multiple use case -- many use cases, multiple technologies required. I think, we're a complement to what lithium-ion does. I think, lithium-ion is very good at specific use cases, and we are very good at very different use cases. What we do well is, we operate across a wide temperature range. And being temperature range, as I said, we can go down to minus 15 degrees C and up to 50 degrees C ambient operating temperature without any additional heating or cooling, and we can charge and discharge our batteries anywhere from 3 hours up to 13 hours. And with the same system, you can do cycles back-to-back where you do a 3-hour, a 5-hour, a 9-hour or 13-hour. We've run the system that way. So we provide flexibility across a wider operating range. What we've been working with our customers on is, showing them how that flexibility generates revenue for them and gives them incremental use cases to increase the utilization of the energy storage assets center and small down in the marketplace. So although we both do the same thing, we do that same thing very differently for very different use cases.

Right. And let's shift gears and start to discuss how recent market dynamics on storage has impacted your firm's position. Can you talk us through what you're seeing with regard to increase in input cost standpoint, whether it's related to logistics or even inflation on the lithium hydroxide, from a competitive perspective?

Yes. So, look, Julian, I've been in the industry for 30 years. And what I would say is, from a supply chain standpoint, this is one of the more complex challenges that I've seen as we continue to manage and maintain a steady production out of our factory. What it requires is, there are some instances where we are going out and finding multiple suppliers for our raw materials input into our system to give us flexibility. And at the same time, we've gone long on some inventory items to make sure that we have supply on hand to keep our factory producing. There's inflation across the board when you think about what's happening in the marketplace. And what we've been trying to do, as we scale, is make sure that we're building long-term strategic relationship with partners that want to grow with us. What I would say, when I think about where we're going to be headed is, I don't see this letting up anytime soon. And what it just requires is a laser-like focus in how you plan your supply chain, but not just your own individual factory, but how you plan back into your supply base and forward into how you execute into the field. And what you've got to be prepared for in a hallmark of our company is being able to react to circumstances, adapt and overcome the challenges. And we've been able do that with a very flexible supply chain strategy, which we've had in the company since day 1.

All right. And what about -- with regard to the competitive intensity, increasing with the lithium-ion integrators whether it be Fluence Energy, Stem, which may lead to ultimate pricing pressure on batteries?

Yes. I mean, look, it's a large and growing market. Again, I think, when you look at the segment of the market that we're addressing, there is overlap between what those companies do. I think, there's also complementary when you think about what -- as we look to the future, what Fluence does is different than what we do. They are packaging lithium-ion technology and the systems and putting them out into the field and Stem is operating and coming at it from a software standpoint. We look at it, we have our own proprietary battery technology that has differentiated performance. We package that into a world-class operating system and then we have a software stack that operates that technology. And we think, when we look at what our technology brings to the market, it brings higher flexibility, it brings the ability to scale faster. And when you go back to your question on raw materials and supply chain, we are using all earth abundant nontoxic materials in our battery. So it's a fundamentally different supply chain, technology that operates differently and really expands the types of use cases that you can use to use energy storage. So it's different and differentiated, and has a great ability to scale. We like those aspects of how we can address the market.

Sure. And as you noted, clearly, we're seeing upward pressure on pricing of conventional technology. Has that changed any of your discussions with regard to your backlog?

From the standpoint, Julian, of -- just to clarify, from what standpoint are you thinking about that question, so I make sure I answer it correctly?

Yes, sure. Just more from the standpoint of, given the pressure on pricing of the conventional ones, has that changed any of your conversations as it pertains to your clients with your backlog at all?

Yes. Look, what we find is, we've got great relationships with our customers and what it requires, back to what I said before, you've got to give good transparency as to where you are and when we need to place material orders or if we're doing a full AC system, when we need to buy AC equipment. And then on the logistics side, it's really working with them to time everything, because not only is the raw material supply chain and logistics kind of bunched up a little bit, but you've also got to work with them on their approvals and their civil works to be ready for the equipment to the field. So it just requires a heightened amount of transparency in how we execute and transparency around what we're seeing in the marketplace and how do we cooperate and work together to bring the lowest landed cost to the project. Now the good news around the projects that we're executing on is, these are firm projects that are moving forward. And we look at 2022 as the year that we execute on our backlog.

Sure. And let's discuss your current manufacturing capacity. What can you deliver today? And where do you expect to be in 1 to 2 years out?

Yes. So today, we're -- our facility in Turtle Creek outside Pittsburgh, it has an annualized capacity of around 250-megawatt hours, today. By the end of the year, we project that we'll be above 800-megawatt hours of production outside of that facility. And with optimization, we think, over time, we can grow that to be a gigawatt hour factory. So think about the manufacturing model of Eos, 1 gigawatt hour, 120,000 square feet of standard manufacturing space. No clean rooms, nothing special as far as what we need to be able to execute for around a $50 million CapEx build depending on where you start from the facility. What you -- I think you'll see us in a few years, as the company grows, is we believe with the way we design our supply chain and that low CapEx to expand, it's easier for us to co-locate facilities close to where demand is. So I think, what you'll see in 2 to 3 years with us, there's a couple more factories operating in the United States and probably some sort of international expansion as we see markets grow outside the United States.

Sure. And just as a follow-up, you sort of touched on the inflationary impact that you're seeing. Has that changed the economics with regard to capacity expansion?

No. So economic -- no. So, when you look at like that $50 million, we forecasted $50 million from when we went public, and we've delivered on that. Delivered to the point of we show the equipment that we bought and the purchase orders and how we develop that capacity. What we've seen, the more the challenges are, again, the timing around when you need to make those purchases, because the way that we built our factory was we took mostly standard manufacturing equipment with specialized tooling for our product to be able to manufacture. So you can get the standard manufacturing equipment, the infrared welders, the fill stations and the test stations for the batteries themselves. And then the specialized tooling is where we need new planning around that. And we just plan ahead of time, but really, when you think about it, what's happened is like, if we were talking 2 years ago, I would say to you, we could build a gigawatt hour factory in 6 to 9 months. Today, I would tell you that time frame is between 9 to 18 months depending on the starting point with the facility we have. So again, it just comes back down to better planning around how you execute.

Great. So let's move on to policy. It'd be great if you can talk us through the current policy dynamics as a U.S. manufacturer given what we're seeing.

Yes. Look, I mean, right now, it's a mixed bag. And what I would say, we're seeing a large shift and I think, we saw yesterday, coming out of California and the budget for California and allocating $380 million to long-duration storage in California, is a great step in the right direction, as California targets 100% renewable power generation. I think, our technology plays a big role in that mix and in that allocation. We saw the same thing coming out of New York recently. So state-by-state, we're starting to see traction in people realizing that you need assets that can do more than what we're doing today around the traditional 2- to 4-hour duration and get into longer duration. On a federal level, look, the BIF that was approved at the end of last year, it's critical for us to be able to continue to develop technology and bring in domestic technologies. I think, the shame of all this would be as energy storage becomes an important technology in the energy mix, we as a country, have always led in that technology development until you get to recent times when you look at things like solar. I think, this is an opportunity for us as a country to reestablish that technology leadership in the longer-duration storage. And there's more than just Eos out there as a company that can do this. So when I look at what we're debating right now, Build Back Better, we don't need Build Back Better to necessarily grow our company, as we look at the market dynamics, but Build Back Better is going to help us establish a domestic supply chain around an important technology. Our product today is 80% U.S. sourced raw materials into our technology. And I think, us being able to establish ourselves, along with others, as technology leaders in the space is going to be critical. So I would love to see the investment tax credit move forward for stand-alone storage, because I think that's going to be an accelerator for this technology, like we saw in solar 5, 10 years ago, what we saw in wind going back 15, 20 years ago. This is what we need to really accelerate the growth of these technologies and establish a clear domestic supply chain for them. And that we can export to the world, like we've historically done in this country when you look at energy technology development.

Sure. And as it pertains to the BBB, what benefits do you see your business -- that are obvious and not so obvious?

Yes. So the biggest one is investment tax credit to accelerate stand-alone storage. And I think, the other piece of this is, we are an American company with a predominant American supply chain, and we strengthened that American supply chain. At the end of last year, we signed our supply agreement for zinc bromine with Tetra, another U.S. company moving into the clean energy technology space. And I think, the way the bill is structured, it allows companies like Eos or ESS, is another one that you can think about, grow and jump that gap from a technology development company into a full-scale operating technology. And then, the way that we've designed our manufacturing, going back to what I talked about before, we can take that U.S. technology to the world and really have a product that was invented, designed, tested and built in the U.S. provide a better decarbonized future in the energy value chain. So it's pretty exciting when you think about what it could do for this country as we continue to look for energy independence and what it can do as we look to move to a lower carbon footprint and power generation.

And given your conversations, do you have any sort of sense of where things sit with regard to BBB on that front? And anything you're hearing?

Nothing that I think anybody -- I mean, I'm not hearing anything that anybody else isn't hearing or reading about. I think, we've got to go through the legislative process here and the debate that has to happen. But I just hope that we don't lose sight of the opportunity that we have, as a country right now, to establish a leadership position. And what I would say is, when we look at what we're trying to do and what this bill does for us, it does for the country. When we took a facility in East Pittsburgh that was a former Westinghouse facility that was empty. And at 250 megawatts, we created over 100 jobs. So, this is real job creation in an area of the country that needs it. Now all of our suppliers, when you look at them, go back to this U.S. supply base, the majority of our suppliers are within a 5-hour truck ride from our facility. So we're creating jobs directly and indirectly around what the future of energy is going to be. So what I hope is that we can have the debate move forward and realize that there is a real opportunity, right now, for us to create clean energy tech jobs in areas of the country that need them. And when you come and talk to the people on the shop floor, what I love about working with that team out in Turtle Creek, is they value the job that they have. They value the challenge in front of them, and they love creating this new company in an area where you probably wouldn't have thought about, surrounded by old steel mills and old manufacturing facilities, you now have this bud, this little shoot of green tech coming out of it, and there's more to come if we handle how we want to bring this forward for the future.

I just got a question come in. Could you please discuss the number and operating record of units deployed. Follow-up would be number of units being manufactured and then discuss the pipeline.

Yes. So we talked about -- we have discharged over 330-megawatt hours of power. We have millions of cycles on our systems. We have systems installed out in the field, both of our current technology and prior technology and continue to ship. And as we talked about it before, we have a 250-megawatt hour capacity coming out of our factory. We are not operating at that full capacity. So there's room for us to grow as we ramp up and deliver our backlog. And when you look at our pipeline, what I would say is, the way that we define our pipeline is a little bit different. We don't include -- we look at things we're working on, is idea generation. And then what we call pipeline are things where you have a use case that you can provide a technical and financial proposal to a customer, and that stands today at over $3 billion. And we continue to grow that and develop that for the future, and we're going to see that, I think, over time, as the dynamic shift and people realize that you need more than one technology to deliver on the use cases. You'll see that pipeline grow as we move to the future. But we like what we see. And we spent a lot of time over the last 2 years educating customers around the capability of what our product can do. And I think, we're just going to grow that pipeline over time.

Great. So let's pivot on to technology and manufacturing front. It'd be great if you could give us a rundown on your Gen 3 offering.

Yes. So Gen 3 is an evolution of what we have. So the raw materials that go into Gen 3 today are the same as what's in our Gen 2.3. Basically, what we've done is, the last 18 months have been spent around ensuring quality product coming out of our factory. In order to be able to do that, you've got to ensure that you've got quality raw materials or input going into the factory. And as we've done that, we've realized that one of the sacrifices that was made early on in the development of our product, is the surface area or size of our product is larger than what we need to be able to deliver the energy that customers are requesting. So really, what we're doing on our Gen 3 product, or Z3 product, is shrinking the size. So behind me, is a cutaway of a Gen 2.3 container. There's 144 batteries that go into a 20-foot shipping container. They're about the size of a window air conditioner. The Z3 then shrinks down to the same form factor that you see with lithium ion. It also looks like a computer server, and you can then fit a higher-performing battery, more of them into the same space. So you go from 144 batteries to over 400 batteries in the space. So container output goes out. And when you look at on a 40-foot footprint, we then double our output. So it just allows us to deliver more with less as we move forward. But again, evolving the technology, not revolutionizing the technology of how we deliver performance to our customers.

Great. When do you expect to be making sales on these units?

So the plan is to begin to manufacture as we get into the second half of this year. As we've previously discussed, we have product on test, and we've manufactured product, which we showed in our last earnings release sales. It's pretty exciting because we had a concept of what the product could look like in March, and we have product on test in December, which is a phenomenal performance by our technology team.

Sure. And as a final question, I'd love to get your thoughts on what your strategic priority is going to be over the next 18 months.

Yes. Look, we want to continue to work with customers to grow our installed base. The biggest challenges for us, on the things that we control that allow that to happen is, to increase the capacity of our factory and reduce the cost of the product to compete. We feel like, given our raw materials and our bill of material for our product, we have a product that competes both on performance and total life cycle costs, both on a CapEx and operating side. And just continue to tell that story to customers and investors and show them that we're an operating company with a factory that's shipping product every day.

Well, Joe, thank you so much for your time. It's certainly been insightful. Best of luck this weekend with [Indiscernible]. I hope they do really well. And to the audience, thanks very much for tuning in. Go get some lunch and be ready for our next panel session. What role does a very long-duration [Indiscernible]. Joe, thank you again for your time.

Thanks, Julian. Thanks, everyone, for listening.

Okay. Thank you.

Bye.