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

Good morning, everybody. Welcome to day 1 of the JPMorgan Natural Resources Conference. My name is Mark Strouse. I cover Clean Energy and Power Infrastructure at JPMorgan. Very happy to have Joe Mastrangelo, CEO of Eos. Joe, welcome.

Thank you. Good morning.

So I want to keep this as open as possible. So we will have mics going around. If anybody has a question, feel free to raise your hand. Joe, maybe just kind of assuming there are some people that are less initiated on the stock, just kind of give us an overview of what you're all about.

Yes. So Eos is a stationary energy storage company. We're 15 years old. We have an aqueous zinc bromine battery technology, so water-based battery that we have been developing over the past 10 years. We're in our third product iteration. We have over 6 gigawatt hours of energy that's been discharged out in the field. We are 90% U.S.-based supply chain with a factory based in Pittsburgh and a new manufacturing line coming online right now.

Great. Okay. Maybe can we start with manufacturing? Just give us an update on kind of your manufacturing processes, you ran into some issues at the end of last year. I think on the 1Q call, things did improve considerably. Kind of where does that stand today? And then kind of over the near to medium term, talk about robotics, talk about automation, how that's being utilized in your factories?

Yes. I think, Mark, the thing -- just take a step back on what the team has done. You focused on like product invention, but as part of a product invention, also invented a manufacturing process. I think the team -- like the approach that we had to this was develop the product, figure out how to make good parts because we are vertically integrated back into -- we bring raw materials in, we build all of our subassemblies and then manufacture the battery module and then manufacture the system itself to put out in the field. We -- not only did we develop a new product, we developed a new manufacturing process, which went online 18 months ago. That process of bringing that online, we've gone through the learning curve that you would do in any new process. The thing that I always like to focus on is, in 2024, we had $15 million of revenue. In 2025, we had $115 million of revenue. Great performance, but lower than what we expected to perform at. What we learned, and this is what we've built into as we think about the company moving forward in manufacturing is having the redundancies to be able to continue production. Like when you're a single SKU company, it gives you simplicity on the one hand, but at the same time, it increases your risk around what you're doing with that product. When you're a single SKU company with one manufacturing line, you're exposed to any hiccups that you have in your supply chain or in your production. And we had those challenges in the fourth quarter. Fast forward to the first quarter and what the team was able to deliver, really stabilized production, stabilize the performance of the line. And it really -- it's really not just the line itself. So you have to realize that the way the company started, we wound up in Pittsburgh because we moved into a 120-year-old facility that was $7 a square foot. Trying to build a state-of-the-art line inside of infrastructure that is that old creates challenges to keep it up and running and sustainable as you start operating and learning what you need to do to be able to operate. What we're doing now, what we announced a week ago was we've gone live on a new production line in our new facility in Thorn Hill outside of Pittsburgh, which puts us in a state-of-the-art building and takes all the learnings from Line 1 and incorporates them into Line 2. We're able to bring that Line on -- into production on schedule and are producing batteries today that when we brought Line 1 on -- it took us about 6 months to get to the level of production we are on day 5. So there's always going to be lessons learned. There's always going to be growth as you go through this. But what we're trying to do is bring the stability and the predictability that everyone expects from a company that's delivering industrial hardware.

Okay. Okay. That's great. All right. So you mentioned Thorn Hill, Line 1, Line 2, Line 3, Line 4, kind of can you talk about the cadence of kind of timing of those lines, but also kind of just a refresher just kind of the magnitude of each of those lines?

Yes. So start with like what drives a new manufacturing line is obviously orders volume, customer demand. And we're seeing demand, as you can -- as you've seen in the past week here, we're gaining traction out in the market and filling the factory. What we've done and what we've learned going from Line 1 to Line 2 is, if we place the advance orders for long lead items on our manufacturing line, we can implement a line in 6 months. So if you take a look at Thorn Hill, right, and that sounds great, but let's talk about reality and what the team has done. If you look at Thorn Hill, we moved into the Thorn Hill facility at the beginning of this year. We not only got the building ready to put a line in, put everything that you need along from a power standpoint, from exhaust, tooling, air compression, everything you need to be able to put a factory inside of a building, we got that done and brought a line up in June of this year. So we do now going forward is you place long lead material with our automation suppliers. And then once they have that long lead material, we can give them a demand signal and bring a line and bring a line into operation in less than 6 months. So John Mahaz and the team are positioning us to be able to do that. I think as you look at where we are and as we get through the Summer, we'll get Line 2 up and running. We'll continue to improve the performance of Line 1, and we'll look at Lines 3 and 4 as we look at the demand signals that we're seeing out in the market. And we are starting to see order -- opportunities convert into orders, which are filling the factory, which means we're going to have to start really thinking about placing the orders for that long lead material and positioning ourselves for incremental capacity as we grow.

Yes. Okay. All right. So Frontier Power, this is a new development this year. Just give an overview, what exactly is that? Why did you form it? What are some of the challenges that this is designed to solve?

Yes. So what we were seeing in the market, right? And I think a lot of the questions and things that we talk about as we're going through discussing the performance of the company was a pipeline that was growing and a customer base that was selecting our technology, right? The selection of the technology, although hard, started to become the easier discussion with customers. So you get to the point where the customer says, I have a project, I want to use Eos technology to be able to build out my project. From there, you basically start another sales process, which is go out and get your financing, go out and start building your product. What we started to see from a sales -- utilization from how the -- what the sales force was working on, as you started getting 10 or 15 projects that have selected cc technology, we're spending a lot of time going out trying to secure financing. When you're doing that on an ad hoc or project-by-project basis, it becomes unfocused and you wind up where you're bouncing between different financial institutions. We sat down -- this is probably back in the first quarter, we sat down and said, what can we do to accelerate the conversion of opportunities where customers have selected Eos? How do we accelerate that selection into assets out in the field and running? And we really sat down and said, let's look at companies that have side-by-side financing organizations alongside of it. And we came up with the idea of Frontier Power. We came up with a way with Cerberus to -- who's our largest shareholder. We came up with Cerberus to fund that entity through them putting equity into Frontier Power and us putting equity in through a rights offering that we're in the process of launching here at the end of this month. And when we looked at that, we said, look, if we can get $300 million of equity into that entity and lever that 5:1, we now have close to $2 billion of capital to be able to go out and close projects. And what you've seen since we've announced that is you've seen the orders announcements and the pipeline flows coming in and turning opportunities into orders. So we're excited about being able to do this. And I think from a shareholder standpoint, of which I am a shareholder of Eos, I look at this and say, before we were out shopping to different financial institutions to do financing, all that value creation was going to an entity outside of Eos. Today, the way we structure that is we do these transactions on an arm's length basis, but our Eos shareholders will be able to participate in the returns on those projects at 49%, which is the anticipated split of the equity as we look to the future.

Yes. Okay. I think the latest number is about 2 gigawatt hours of capacity reservations for Frontier. What do you define as a capacity reservation? And then how should we think about that converting into firm orders time line?

Yes. So one of the things that we looked at, and this gets back to the arm's length nature of Frontier and Eos was, you look at some of the opportunities we have coming down into the pipeline and converting into orders. So you have things like our relationship with Talen going into the PJM backstop auction. You have the relationship with Frontier U.K., which is a separate company from Frontier Power USA, who has a large bid into the U.K. Cap and Floor scheme. And you started looking at the capacity we had and we said, look, we're not going to be able to give preferential slotting to Frontier Power USA just because there are an arm's length financing where we have equity. So we said -- when we looked at it, we said we should reserve capacity. And we looked at that and said, let's place a purchase order, let's put a deposit to reserve that 2 gigawatt hours of capacity where they have to give us demand signals where we deliver. And you look at in the 3 or 4 weeks since we founded Frontier Power USA, we've announced 480 megawatt hours of orders converting under that capacity agreement. So we've already used up close to 25% of that capacity reservation agreement that we have with them that we'll continue to see projects and opportunities come into that. We think we can do more with Bimergen, which we announced an order with them a week ago. We think the relationship that Frontier Power announced with Stella gives us opportunities with their pipeline. And that's the beauty of really having Frontier Power and Eos side by side. It's about focusing our efforts. So the EOS team is focused on building and getting assets in operation out in the field and delivering that performance. And Frontier Power is out building relationships to look and secure pipeline for us to fill the factory and allow us to grow over time.

Okay. All right. So talking about pipeline, you named some specific customers. Just kind of generally, can you talk about kind of the mix of what you're seeing in your pipeline from utilities versus hyperscalers versus other customers?

Yes. So obviously, Mark, like the hyperscaler market is growing. The opportunity pipeline is expanding quickly. But the traditional and what I always like to say, and I've taken a little bit of criticism around talking about other things besides hyperscalers, there's a whole another market out there, right? I don't want to lose sight on what was traditional and was a big market before the hyperscalers came in. And when you look at stand-alone energy storage and energy storage plus, a generating asset, there's still a lot of demand out there, and there's still opportunities to grow. At the same time, we see hyperscalers growing as an opportunity set. And we feel like our technology fits well into what their use cases are. When you look at like inference learning, that's the ultimate -- if you look at it, that's the ultimate variable demand signal that you get on the electric grid. And we've tested about an hour from here in our facility in Edison, New Jersey, some of the largest battery testing facilities in the United States. We run everyday cycles as if you're running an inference session using the demand curve for the CPUs that are used in data centers to prove out that the technology can handle it. And we've issued a white paper on it. We're pretty excited about that. We continue to work through this. But like the one thing I would tell everybody is, yes, I would love to be able to give a TikTok type answer on converting orders. This stuff takes time, and it's complicated, and we continue to work through that and prove out the technology.

Okay. All right. That's great. All right. So obviously, part of this is technology, part of it is geopolitics, too. Can you just talk about OBBB, FEOC are still being interpreted by the market. Just kind of what you're hearing from customers regarding kind of policy uncertainty? And is that just driving kind of incremental business towards your American-made product?

Yes. And I think you'll continue to see that. And I think -- I mean, look, part of it is politics, and that's the world that we live in. For us, this all started off as a simplification effort and ability to scale the business. Like when we -- I'm coming up on my 8-year anniversary with Eos. When I came in 8 years ago and the strategy at the time was build the battery in China, fill it with its electrolyte in the U.S., ship it to the customer. Where we were financially, we couldn't afford to do that. And having done factories around the world in my career, you looked at the amount of effort that we had, and it was just somewhat easier to do it in the U.S. like it's easier to put a team in a rental car than it is to put a team on an airplane halfway around the world where you can't monitor your supplier performance. And what we found as we started doing that was a great U.S. supply chain that allowed us to build to 90% of our build material comes from the U.S. That's turned into a strategic advantage as people look at supply chain simplification and having domestic content in the U.S. Now the beauty of this is the way that we design this is it's U.S. manufactured for U.S. demand. But if you look at the demand in the U.K. or in Europe, as that grows, we can take the American flag that's on an Eos Cube today and put the Union Jack on it or put the EU flag on it, localize the supply chain and create jobs. The beauty of what we do is if you look at what we've done, and we've proven this in Pennsylvania as we've created close to 500 jobs, 500 good paying -- union paying manufacturing jobs. When you scale a facility at 8 gigawatt hours, you're talking about creating 1,000 jobs. That's jobs that are local, that's jobs that create a path to middle class for people. And from us as a company and as an investor base is it reduces our logistics costs because we're manufacturing where the demand is. So we have lower cost of shipping and lower cost to bring assets online.

Okay. All right. I wanted to go back to -- I think you talked about this a bit earlier, but the Talen JV that you have, can you just talk about the lead generation that you're seeing there, the types of customers and use cases that are emerging from that PJM pipeline and then kind of milestones that investors should be looking for to gauge progress?

Yes. Talen has been a great partnership for us. I think we've made each other smarter as companies. I think Talen brings the operator mindset, the existing assets that they have, the knowledge of how to bring capacity online. What we've looked at with them is both taking their existing power plants, adding energy storage to this. What I've always said like in a prior life, I led a large gas power systems business. So when you look at gas turbines and Talen is one of the largest gas turbine operators in PJM, when you look at a gas turbine, you don't want to be cycling your gas turbines day by day. Like you don't want your gas turbine to look like an airplane taking off and landing as you vary the performance of that because it reduces -- it increases your service time, reduces part life. So what you can do is you can augment that with energy storage to operate at a more optimal and efficient level in the gas turbine. And we looked at that with Mac and the team at Talen and came up with what we bid into the recent PJM auction, which will transition into the backstop auction, but also are looking at new build opportunities, greenfield that would support hyperscaling opportunities in the PJM and specifically in Pennsylvania. So there's a lot of work that we're doing together as a team, and we're excited. And I think Mac and his team are excited as well. And I think these are the type of partnerships that we like because although you kind of look at them as an IPP, it's an entrepreneurial IPP that's looking to do something different and create the use cases and the technology to be able to deliver the demand curve of the future.

Okay. Can you talk about kind of cost declines, cost per watt or -- watt hour declines? The 45x will start phasing out beginning in 2030. Kind of what does the outlook for this business look like 7 years from now without those credits?

Yes. I mean we've never planned -- we've always planned on the 45x as a bridge to becoming profitable. So we've never relied on that for being profitable. Now I always try like when you think about how we lead the business and with our new CFO coming in with his industrial background, like how we build the robust road map to profitability. So there's different components of that, right? So there's material cost. When you look at our bill of material, the team has done a great job driving out material cost on the battery module. Then outside of that, you have the electronics and the software and the firmware to be able to operate the system. We launched a new software platform, which increased the cost of the system, but improved the performance and lowered the cost of ownership for the customer. So we made a trade-off in the short term. So we can continue to drive cost down on that. When you look at our bill of material inherently, it's a very inexpensive commodity-based bill of material. Then on top of that, you layer in material -- labor and overhead. So what John Mahaz has done is he's taken the labor content down on a quarter-by-quarter basis. He's reduced the rework and the scrap that we've had, which then starts to get better leverage, which you see in our numbers when you look at our numbers. The next piece of this then becomes project building out in the field and project execution, which we have to get a lot more efficient on how we do that. We put those pieces together and have a road map to this, and this will be a profitable business in the future. We've talked about that. We've talked about where we want to land at the end of the year, and we got to continue working through that as we scale the company and work through rightsizing and optimizing the 2 factories. But if you look at everything inside the company, it's a company that will generate a profit. There's a lot of work we have to do, and we have the team that can deliver those results.

Okay. Any questions? Maybe on that point. So kind of gross margin profitability in the second half of this year. Any update you want to make at the JPMorgan conference here?

No. No. I mean we're continuing to work to what we've always discussed. As I said, we're -- like I'm really excited about what we're seeing in the new line and the production coming off that line and the optionality it gives us as we go into the second half. We've got to continue to deliver and drive performance around what we have and get to the entitlement that we have for the company as far as profit goes.

Yes. You have talked about kind of customer site readiness that you can kind of push around revenue quarter-to-quarter. Can you just talk about how that is trending recently? I mean we've seen some EPCs talking about weather and whatnot, obviously, depending on where they are in the country. But just kind of what does that look like for Eos? And then any other just kind of broader issues that you're seeing as far as permitting or financing, anything like that?

Yes. So given the growth in the industry and the build that we're seeing, there's a lot of demand on the overall energy value chain. When you think about delivering power, delivering an energy storage system, we're a part of a broader system. I think as we look at that system, we think there's opportunities for us to take on additional scope to allow us to accelerate execution of those projects. But it's not just like the site readiness is a piece of this. There's a part of like you need all the components to arrive when they have to arrive. There's a timing -- as you brought up, there's a timing around financing, which we've tried to address with Frontier Power USA. The agreement that Frontier Power USA has with Stella opens up the ability to do project execution. So what we're trying to do is derisk that process of bringing things online because what we've seen is as we plan revenue, like -- and I talked about this in our annual shareholder letter. Like as we plan capacity in the factory, we plan capacity around when the customer wants delivery, and that is going to have ebbs and flows depending on their ability to be able to execute and when they need the product. So it's not just go out and sell and you have a 2-gigawatt hour line, we want to get to the day where we're there. We're not there yet, and we're tied to when the customers' demand signals are. We've got to work through that complexity. It's something that in my background of having worked in oil and gas, I've worked on some pretty complex projects. You just got to get your project execution where it needs to be to be able to deliver on time, not just yours, but working with the customer to be able to do that. And that, as I talked about earlier, that's also an area that's going to help us as we start looking at profitability for the company on a gross profit basis.

Okay. Sorry, do you mind waiting for the mic?

On the conference call, the last conference call, you talked about the improvements in efficiency. Can you just elaborate on that for us?

Yes. So what we -- obviously, the more you run, the more you run and the more you learn. And we've learned a lot of things around how our material flows about how we operate. When we brought online our bipolar manufacturing, which is a component inside of the battery module, we gained a lot of capacity and ability to get better throughput on the assets that we have. So a lot of what we're seeing is asset utilization. But when you look at, we've always talked about the line running at 10 seconds of battery module. In the new facility, which kind of debottlenecks the layout that we have in our current factory, you go from the raw materials traveling over 2 miles from entry to shipment to customer to in the new facility, it goes 1,400 feet. So that level of efficiency drives down cost, it reduces material handling. And what we're seeing initially is that we can produce battery modules in under 9 seconds on the second line. What I'm used to in -- given my background is you should be able to drive efficiency. And every company I've ever worked for, I was leading businesses with 100-year-old products that were getting 3% to 4% productivity every year. In a new product like ours, we should do better than that, and we should do better than that for a period of time. We just keep focused on every day getting a little bit better and using the lean mindset to improve performance.

Anybody else? Okay. I think we can wrap. Joe, thank you so much.

Thanks, Mark. Thanks for the time. Thanks, everyone.