Eos Energy Enterprises - Q2 2024

Transcript

Operator (participant)

Ladies and gentlemen, thank you for standing by. My name is Desiree, and I will be your conference operator today. At this time, I would like to welcome everyone to the Eos Energy second quarter 2024 earnings conference call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question-and-answer session. I would now like to turn the conference over to Liz Higley, Director of Investor Relations. Please go ahead.

Liz Higley (Director of Investor Relations)

Yeah, good morning, everyone, and thanks for joining us for Eos's financial results and conference call for the second quarter 2024. On the call today, we have Eos CEO, Joe Mastrangelo, and CFO, Nathan Kroeker. Before we begin, allow me to provide a disclaimer regarding forward-looking statements. This call, including the Q&A portion of the call, may include forward-looking statements, including but not limited to current expectations with respect to future results and outlook for our company, and statements regarding our ability to secure final approval of a loan from the Department of Energy LPO, or our anticipated use of proceeds from any loan facility provided by the U.S. Department of Energy, which are subject to certain risks, uncertainties and assumptions.

Chip Moore (Analyst)

Should any of these risks materialize or should our assumptions prove to be incorrect, our actual results may differ materially from our expectations or those implied by these forward-looking statements. The risk and uncertainty 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, or to reflect new information or the occurrence of unanticipated events, except as required by law. The conference call will be available for replay via webcast through Eos's Investor Relations website at investors.eose.com. Joe and Nathan will walk you through the company highlights, financial results and business priorities before we proceed to Q&A. With that, I'll now turn the call over to Eos CEO, Joe Mastrangelo.

Joe Mastrangelo (CEO)

Thanks, Liz. Good morning, everyone. Thanks for joining us for our second quarter earnings call. Let's start off with our operational highlights page. Just a couple of things to give context around the numbers. Upper left-hand side of the page, we talk about our commercial pipeline. That $13.8 billion represents nearly a $500 million increase over last quarter, which continues to show the opportunity that we have to position Eos's technology out in the marketplace. Nathan will walk through more on booked orders and order backlog in his section, but we continue to see traction, and I'll go through some more details about what we've seen since the end of June to today, since announcing the closing of the Cerberus financing and how that's impacting this top line on the page.

Chip Moore (Analyst)

On the bottom, you know, we've now gotten to 4 GWh of discharge energy, with the majority of that coming from out in the field. We continue to see the potential of the technology and the technology working and continuing to deliver performance for our customers. On the revenue side, in Q2, you know, revenue of $900,000, you know, really impacted and driven by two things. One, planned, which was the implementation of the state-of-the-art line, which we knew we would slow down our production rate as we were bringing the line in place.

When you really think about what the team did with the state-of-the-art line, you know, they basically took what was an empty building at the beginning of the quarter and basically transformed it into our first automated state-of-the-art production line in around 60 days. Tremendous performance there. The second piece, driving when you see where revenue is, was as we were going through and working with Cerberus, and I'll talk more about their investment thesis and the process that we went through. But, you know, we went through a very detailed due diligence process with Cerberus, and as we got into the quarter, we really made the decision to preserve capital to get us to the what we thought would be the closing point of the quarter.

So we preserved capital around bringing in working capital and really focused on getting the line up and running, and that's why you see the 900,000 revenue in the quarter. Nathan will also walk through the $52 million in cash. But what I'd say overall, really strong performance by the team. Truly, to me, amazing when you think about the implementation of the state-of-the-art line. I'll give some more details on that later. And then continuing to see the technology work out in the field, really very important things. And when you think about the three things we've always talked about as it relates to growing on orders, customers being able to come and see the state-of-the-art line, check.

Technology working out in the field, now, now at 4 GWh or 3.6 GWh, happening at customer locations. And then the third piece, that being financing. I'll talk more about how our relationship and the investment with Cerberus helps us position it to grow for the future. So we go to the next page on our recent achievements. The biggest achievement, I think, in the second quarter was securing the strategic investment from Cerberus. Really a phenomenal job by the entire team, and I'd like to recognize, you know, Nathan Kroeker and Michael Silverman, who really quarterbacked this process through and got us to the finish line, to really have a partner that now, as we've secured financing, for us to position the company to get to profitability.

We brought the state-of-the-art line into commercial production at the end of the quarter, which I talked about. I mean, this is just one of these things where what I now tell the team is, well, what was a dream is now a reality, and you find yourself when you're walking to a meeting and you walk past the line, that you somewhat get distracted just watching how the line works and the work that's been done by Chris Dillinger and the team has just been fantastic to see that line now up and producing batteries. And then the last one, something we're announcing today, you know, we are selected by Bloomberg New Energy Finance as a tier one energy storage supplier.

I think the big thing here is we're one of five U.S. companies and one of two alternate technology battery manufacturers selected to be on this list. Really shows how the team has gone from, you know, six years ago, an R&D company into an operating company recognized by one of the preeminent voices in the new energy space. I think it just can need to continue, you know, head down, getting work done. But getting this type of recognition really does motivate the team as they come in every day to go to work. Third page, you know, why Cerberus chose Eos. This is a page I think everybody should kind of read through, digest. I'm not gonna talk through the bullet points, but we wanted to share with you what Cerberus shared with us after we closed the loan and why they invested in Eos.

I think it validates many of the points that we talked about over the years that we've been a public company. I think the level of detail that Cerberus went through in their due diligence is something that we've never gone through at the company, in securing financing. Really, having them go out and talk to third parties, work with customers, talk to suppliers, just validated what the team has done and how we're positioning the company for the future.

I'd say some of the biggest things for us, and I'll talk about a little bit more on the next page, are access to not only internal expertise in Cerberus to help make Eos a better company, but also just the broader network that Cerberus has out in the marketplace, in many avenues that allows Eos to play bigger and play like that tier one supplier that BNEF recognized recently. The second piece of this, I would say, as you think about how this positions us, is, you know, we talked about that third leg to the stool on commercial orders, on financing, and Cerberus and their access to the capital markets is allowing us to really think about how do we facilitate customer projects to go from an opportunity, an LOI, a late-stage order into a booked order.

Being able to work with them and use their financial expertise to do that is gonna pay dividends as we move forward. If we go to the following page with some of the tailwinds, you know, we signed a 960 MWh letter of intent with a new customer that was brought in, and introduced to us by Cerberus, and that deal will close, subject to their final financing. But really exciting as we start to really sit down and talk about how the technology works and the use cases that the technology can deliver on. There's also been an additional 11 customer factory visits. You know, again, we talk about, come see the line, see batteries being produced, show that the company's a real operating company. We've had 11 customers come into the factory since announcing the closing of the deal.

Our short-term pipeline has gone up 6 GWh, and we've got 17+ GWh of longer-term market opportunities that we've not yet reflected in our pipeline slide that Nathan's talked about, because the majority of that has happened subsequent to closing the second quarter. But you're really starting to see activity in the marketplace around the excitement of having a long-term strategic investor in the company. On the right-hand side of the page, around operational excellence, and one of the things that we're gonna be doing is implementing an operating council, where we're gonna be bringing in expertise from Cerberus and also bringing in the experts that we have on our own board, to sit down and really work with the team to help position us to start delivering more reliably as we move forward.

I'm very excited about having the expertise in the room. It helps make our team better and will help make the company better in the short term and in the long term. We've also continued to identify new cost-out opportunities, both on design materials and looking at contract manufacturing for various components of our system as we continue to evolve and move towards that goal of 100% U.S. content over the next 18-24 months. We've also been able to accelerate the work on our proprietary software. This has been great to be able to sit down and work through how we wanna position the company for the long term.

Having secured the financing and knowing that we execute the financing is there, has allowed us, as a leadership team, to take a step back and think about the company more strategically. We've always talked about software being a key component of the long-term strategy for Eos, and now we're really focused on accelerating that and bringing that to market faster and continuing to build up the capabilities that we talked about, if you go back and think about what we talked about in our December strategic outlook, we're now accelerating on that strategy that we laid out end of last year.

And then as we've closed the financing, we're starting to work with, you know, many of our tier one suppliers on how they can expand their relationships with us on improved terms to enable us to deliver faster, deliver at lower cost, and really deliver to the marketplace. So all in all, when you really look at this, you know, work through the second quarter, I'd summarize, like, a lot of the effort of the entire company was getting to closing and on the financing from Cerberus. And then once that financing was closed and announced, we quickly shifted to getting the line into commercial production, getting customers in to see how the line works, and then how do we really position ourselves to deliver on both our growth and profitability goals that we've laid out previously.

I think we're off to a good start there, with more to come as we go through the second half of the year. Now, if we go to the next section and talk about operational scale and manufacturing capacity. If we move to the next page, just some shots of the state-of-the-art line. You know, we are rapidly approaching the 10-second cycle time, you know, as we continue to go through, and really, this is less about the mechanical performance of the line and more about the software integration around part tracking and quality metrics and being able to work through various aspects of building a high-quality battery at overall 10-second cycle time. We feel really good about the work that the team is doing. We validated all of our sub-assembly processes for quality, which is important.

You know, what goes into that box that then becomes a battery is as important as the box itself. You know, as you think about what we did in second quarter, you know, we aligned our direct labor costs to the production volume and then tried to manage through our manufacturing overhead to be able to minimize the impact of slowing down production while implementing the line and continuing to position ourselves to grow production as we scale into the capacity of the line over the second half of the year. And we achieved, and we continued to work our direct material cost out targets, and we're now at 66%, which is up around 11 points versus the last time we talked to you at the end of 1Q. So the team continues to deliver on that roadmap we laid out in December.

As we move forward, you know, you know, the biggest item here, and Nathan will talk about it in his section, is improving our labor and overhead utilization, and that labor and overhead utilization comes with volume coming through on the line, and comes with really getting to stabilize performance and normalize performance, and then getting the team to execute on the plan that we laid out. But that's critical to us as you think about the cost out targets that we laid out at the beginning of the year. We continue to fine-tune that line performance. You know, you don't stop with just implementing the line.

There's many things that we started to look at of how you can do lean manufacturing and Six Sigma around various components of the line to continue to refine and improve performance, and training the workforce for this new work environment, that we operate in. You know, good news is, in one of those 11 customer visits that we've had here in the month of July, you know, one of the customers mentioned to us that, you know, they'd never seen a factory that looked as clean and it was as safe as when they walked through and saw the state-of-the-art line in production. So we just got to train the workforce to work in this new environment as we move forward. We're also in the process of testing higher density materials for to achieve our Q4 cost out target.

If you go back and think about what Francis Richey talked about in December and the work that he was doing on the inside of the battery, and what's in the box, if you will, you know, we continue to deliver on that. Those materials are on test and some preliminary positive results, but we've got to continue working towards that and then cutting that in to production as we get into the fourth quarter. Then the big one here, as we move forward, is just automating our sub-assembly processes to then take the line capacity up from what we forecasted to what we think is entitlement around that, and then allow us to position for line number two as we continue to see the growth in the marketplace. So really, you know, great performance by the team.

Still work left to do, but very encouraging about the foundation that we've laid and what we can build around what we now have positioned in Turtle Creek to grow the company going forward. If we now move over to the commercial opportunity pipeline and orders backlog. Before I turn this over to Nathan to walk through the pipeline metrics, I just want to spend a moment on what we're seeing in the marketplace. You know, the left-hand side of this page really talks about new long-duration energy storage requirements. You know, everybody kind of thinks about this. I just want to peel back a little bit here, you know, the proverbial onion, if you will, to talk about how use cases are evolving in the marketplace.

So, you know, when we talk about long-duration energy storage, and we say going above 6-8 hours, you know, what we're starting to see in the marketplace is it's not a straight 6-8-hour discharge. It's multiple discharge cycles in a day for different durations, which our battery can handle, and actually was designed to be able to do that. So when you're looking at a deeper Duck curve or double peaks in a day, you're talking about discharging and charging the technology multiple times in a day, which is a key differentiator in our product. Now, in the middle of this, we've always talked about, you know, when you read a lot of the news, we've always talked about, you know, Eos, we're a good neighbor, right?

We're manufactured in the USA, we're NDAA compliant, which is very important from a grid and energy security standpoint. We're certified safe. Product is non-flammable. It's non-flammable from the point it's made, to when it's transported, to when it's installed, to when it's operated. We're functionally silent. You know, our units out in the field, when you stand by them, probably wouldn't be any louder than my voice right now. Whereas if you think about other technologies in the field, when they're up and running, it's like having a police siren going off continuously throughout the day. And then we're fully recyclable at the end of our useful life.

You know, this is important because we can come back and we look at, you know, what's inside the battery, and we can repurpose the electrolyte and bring it back to its original state. We can reuse the felt that's inside the battery, and the plastics can be recycled all through normal recycling processes that exist today. So what does all that mean if you're buying our technology? Well, the right-hand side of this page talks about a new way of thinking about levelized cost of storage. The dark green line is Eos, the yellow line is the incumbent technology out in the marketplace.

Given the fact of our low degradation and not having to do augmentation, and also the fact that you can multiple cycle during the day, we can deliver more revenue for our customers over the life cycle of a project over 25 years. Now, that. How does that translate? You know, everybody likes to talk about, well, your CapEx is a little higher. True, true point. It. There is higher CapEx driven by the power density that we have, but you got to weigh the power density off with the factors I talked about in the middle of the page.

Sometimes people talk about, "Well, your RT is a little bit lower than lithium-ion." Also a true statement, but because we don't augment at the midpoint of a project life cycle, because we can do peak shifting along with ancillary energy services and deliver more energy, and because we can do multiple cycles in a day, the total energy that a customer can deliver is significantly higher than what you get with an incumbent technology. So when we talk to customers and we're educating them on how this product is different, and how it delivers different benefits, and how it delivers different use cases that are emerging as the market evolves, our levelized cost of storage advantage can be up to 30% over a 25-year product project life cycle. That this page here is really what we go through when we're out selling.

When Nathan talks about the pipeline, that's what we're doing as we're moving every step of the way down that pipeline. Now, you layer on top of this, what I talked about earlier, with having access to stronger financial partners to bring financing to our customers, it becomes a very compelling offer. What I'd like to do now is take that backdrop, and I'll turn it over to Nathan to walk through our pipeline and then go through the financials. Thanks for listening.

Nathan Kroeker (CFO)

Thanks, Joe, and thanks everybody for joining us this morning. I will spend the rest of our time walking through our commercial pipeline, talk about how we've strengthened the balance sheet, along with our second quarter performance, and then we will wrap up with an outlook for the balance of 2024. Moving into our commercial pipeline, we are excited to see increased activity and corresponding growth following the announcement we made with Cerberus in late June. As of June 30th, our pipeline was nearly $14 billion, representing 52 GWh of storage, including a $1.4 billion in signed letters of intent, which are primarily waiting upon successful commercialization of first project deployment and customer financing.

Chip Moore (Analyst)

It should be noted that the commercial tailwinds we have seen following the strategic investment are just beginning to be reflected in these numbers, as there was only 4 days of the quarter remaining when we made the announcement. More specifically, the 960 MWh letter of intent that we signed in July will be included in our pipeline when we update it for the third quarter, and we expect that LOI to become a booked order upon closing of customer financing. As we've highlighted in prior quarters, we are now tracking to 2.2 GWh in late-stage approvals, which generally include projects awaiting financing, government grants, or other shortlisted projects. The 4% increase in commercial pipeline quarter-over-quarter reflects the healthy churn of new projects moving in and through the pipeline, as Joe discussed earlier.

We feel very good about our total pipeline, and we're seeing positive changes in the overall mix as we shift towards utility scale project opportunities with blue chip customers, and we continue to see positive movement towards grid scale deployment with several major utilities. Our backlog as of the quarter end, was $587 million, which is up 10% from this time last year, but slightly lower than last quarter. During the quarter, we booked an additional 25 MWh for an expansion of our Mataji project with Indian Energy, bringing the total project size up to 60 MWh, designed to enhance grid resiliency for the Viejas tribal band in Alpine, California. This is our largest order to date that is being funded by the California Energy Commission, and we look forward to continuing to deliver storage in the state of California going forward.

Now, moving into our backlog, the change you see in overall value was due to the renegotiation of an existing MSA that included several leases, where we were able to amend the terms in order to remove certain components and improve the overall economics and make better use of our balance sheet. This is a good example of how we continue to work with each of our customers to enhance the overall quality of our backlog and pipeline. Turning to the next page, I want to spend some time talking about the cash requirements to get us to profitability and fund future capacity expansion. At the end of June, we announced a strategic investment of up to $315.5 million from an affiliate of Cerberus Capital Management to support our growth plans.

This investment comes during a secular shift in global energy markets, where the demand for safe alternatives to incumbent battery technologies is increasing, and the world is facing significant energy growth, along with an increased focus on higher energy independence and security. As Joe discussed earlier, the capital investment will be instrumental in enabling us to deliver a differentiated product, a safe and simple energy storage solution with proprietary software capabilities. The investment is structured as a $210.5 million delayed draw term loan, of which $75 million was funded at closing. The remaining $135 million will be funded over the coming months as we deliver on our business plan and achieve certain operational and financial milestones.

In addition to the term loan, there is a $105 million revolver that we may draw upon, if required, at Cerberus's discretion. Given the equity interest that Cerberus has in the business, they are incentivized to ensure that we have sufficient growth capital to get to profitability, and this revolver provides that additional flexibility and growth capital should it be needed. The structure was very intentional, as we believe the $210 million is sufficient to get us to positive operating cash flow in 2025. But then we also added the revolver for added flexibility in the event that it is needed to accelerate future lines to meet customer demand. This transaction enhances our ability to continue working with the DOE to close the previously announced conditional commitment for a loan guarantee.

With our immediate capital needs met, Cerberus is now working alongside us on the DOE loan closing process. While we believe the Cerberus facility provides us with the cash needed to get to profitability, we view the DOE loan as a way to further accelerate and increase capacity at a lower cost of capital than the Cerberus revolver. As shareholders, Cerberus is motivated to assist us in getting the loan closed. One of the immediate benefits of the Cerberus investment was giving us the ability to retire our $100 million existing senior secured term loan for $27 million, of which $20 million has already been paid and the remaining $7 million will be payable over the next 12 months. This strengthens our balance sheet and puts us on a stronger foundation from which to execute on our growth plans.

Now, before getting into the second quarter financial results, let me provide an update on our cash position and a bit more detail on future funding milestones and how they're designed to operate. We ended the quarter with $52.5 million in cash on the balance sheet, not including $5.1 million in short and long-term restricted cash, which relates to the minimum liquidity on the Cerberus loan and several required escrow deposits. The initial funding of $75 million under the Cerberus loan was funded on June 21. The net amount to the balance sheet was $50 million after deal fees, original issue discount, and payments to terminate the Atlas loan.

The remaining three tranches may be drawn in the amounts of $30 million, $65 million, and $40.5 million on August 31, October 31, and then January 31, 2025, upon the achievement of certain milestones. With August 31 upon us, we are very focused on meeting and exceeding the first performance milestones, and we continue to make positive strides on all areas of the business. Lastly, while balancing the commissioning of our state-of-the-art manufacturing line and closing on the Cerberus investment, we've been very focused on minimizing cash burn and optimizing working capital to support our ongoing operations and strategic initiatives. As a proactive measure to conserve capital in the second quarter, we made the decision to scale back production volumes and prioritize shipping new product from our new line.

While we still expect to be at negative contribution margins in the short term, we have a clear path to positive contribution margins before year-end as we scale our production on the state-of-the-art line. We have also been taking measures to increase cash inflows and enhance our liquidity as we monetize our tax credits and collect on customer milestone payments. During the quarter, we entered into tax credit purchase agreements to sell our 2023 and first quarter 2024 production tax credits. We received $3.4 million in cash, representing a 10% discount on the face value of these credits. We anticipate continuing these transactions, and as we ramp up production, we have seen increased interest in future tax credit purchases at smaller discounts, which equates to more cash on the balance sheet when we sell future credits.

In addition, customer deposits and milestone payments continue to be a source of cash to fund our working capital requirements as we ramp up operations. We continue to see positive momentum with our commercial activity, and we anticipate an increase in deposits as pipeline begins to convert to booked orders. With that, let's get into our financial results. In the second quarter, revenue was $0.9 million, which is down compared to $6.6 million in Q1, but higher than the prior year period, primarily due to increased component and commissioning revenue. As we discussed in our Q1 call, we expected Q2 revenue to be significantly lower as we focused on debugging and initiating commercial production on our first state-of-the-art manufacturing line, while also transitioning to our new lower-cost battery module and scaling back production volumes to conserve capital as we closed the Cerberus transaction.

Cost of goods sold was $14.1 million, a 26% increase compared to prior year. While there are a lot of ins and outs that flow through this line item, there are really only two significant things that happened with COGS this quarter. First, we had increased project costs associated with several more customer sites that are now undergoing installation and commissioning than we had a year ago. And second, we delivered more units at a lower cost per unit than last year, with the primary deliveries being Z3 units to a 2020 customer in New Jersey that has provided access to their site as an opportunity to showcase our new Z3 system to prospective customers. While providing a valuable test case for customers, the upgrading of the energy storage systems on this demo site resulted in increased costs this quarter without any associated revenue.

As we increase our production going forward, the fixed cost components of labor and factory overhead will be absorbed across a greater number of units, driving down per unit costs and supporting our path to profitability. Other operating expenses for the quarter totaled $15.8 million, which is 33% lower than the prior year, mainly driven by a 95% decrease in asset write-downs and a 14% decrease in SG&A and R&D expenses. Other operating expenses included $2.3 million, or 14%, of non-cash items, including stock-based compensation, depreciation, amortization, and asset write-downs. Operating loss in the quarter was $29 million, a 16% improvement compared to the prior year. Excluding non-cash items such as stock-based compensation, depreciation, amortization, and PP&E write-offs, our operating loss was $25.5 million.

...Net loss to shareholders for the quarter was $28.2 million, compared to a net loss of $131.6 million in the prior year. The net loss in the quarter included a $68.5 million gain on the extinguishment of the Atlas term loan. Finally, let's shift our focus to our 2024 outlook on the next slide. Regarding our revenue estimates for 2024, we continue to expect to realize between $60-$90 million based on our current production plans and anticipated customer delivery schedules. However, with the timing of the capital investments and the ramp-up of the new line, we're probably not gonna be at the upper end of that range come year-end.

As Joe mentioned earlier, we have achieved 66% of our direct material cost out target and continue to deliver on our cost out roadmap, giving us line of sight to positive contribution margin before the end of this year. Contribution margin being defined as revenue, less direct labor and direct materials, including the benefit of the production tax credits. Before we close for today, I want to remind everybody that we have our special shareholders meeting coming up in September, and we look forward to talking to you then. With that, I want to thank everybody for their time today. I would now like to turn it over to the operator for questions. Operator?

Operator (participant)

Thank you. We will now begin the question-and-answer session. If you have dialed in and would like to ask a question, please press star one on your telephone keypad to raise your hand and join the queue. If you would like to withdraw your question, simply press star one again. If you are called upon to ask your question and are listening via speakerphone on your device, please pick up your handset to ensure that your phone is not on mute when asking your question. Again, press star one to join the queue. Your first question comes from the line of Chip Moore with ROTH. Your line is open.

Chip Moore (Analyst)

Good morning. Hey, everybody. Thanks for taking the question. Congrats on the achievements this quarter. I wanted to ask about Cerberus. You talked about their network and playing bigger. Just maybe talk about what they bring to commercial development, whether that's data center or other opportunities. And then you talked about exploring financing solutions to help drive customer adoption. Maybe just expand a bit upon that.

Joe Mastrangelo (CEO)

Hey, Chip. Good morning. How are you? Look, as it relates to data centers, there's multiple avenues that we can go through. I mean, obviously, first off, Cerberus has a large real estate portfolio that we can leverage into that tie into data centers as far as, as customers that they may have. The same time, just the, you know, at a $60+ billion company, they've got a lot of connections with a lot of different players in the marketplace that have opened up and made introductions for us as far as who we can talk to, and that's generating pipeline of opportunities.

Chip Moore (Analyst)

Then around financing, not direct financing per se from Cerberus themselves, but obviously in the network that they have with other financial players, is bringing us in to discuss the portfolio of opportunities that we have and the opportunity for other financial players to finance projects that we have. So it's really multifaceted when you think about the gateways that they bring to us. And, you know, as we've been going through here the first 30 days, we're working on all of those to see where those come out, along with continuing what we were doing before.

That's helpful, Joe. And just curious, in general, how customer tone has changed since you announced the deal, I guess, particularly for those utility-backed projects that take a bit longer and, you know, they're a little more cautious, what you're seeing there?

Joe Mastrangelo (CEO)

Yeah, I mean, you know, Chip, when you look at utility-backed projects, you know, the ones that are that we're executing on, we continue to execute on, and I think it brings a sense of, you know, somewhat surety of the company being able to deliver. At the same time, with newer projects that we might have been discussing, it now brings, you know, being able to say that you've secured financing to get to profitability now gives people the confidence that the project is gonna be delivered, where there was a question mark before. It's like what I said in my earlier remarks of what I tell the team, you know, what's once a dream or a vision is now a reality of us executing to realizing our potential.

Chip Moore (Analyst)

I think customers like that versus a lot of the uncertainty that we had surrounding the company before we got the financing from Cerberus.

That is helpful. If I could sneak one more in, just, just on the milestones.

Joe Mastrangelo (CEO)

Sure.

Chip Moore (Analyst)

Yeah, the biggest risks that you see there, or how comfortable you are with those milestones, and then remind us, I think you have, you know, sort of two shots on goal, you know, sort of getting to ultimate goals out in, I think it's April of next year. Thank you.

Joe Mastrangelo (CEO)

Yeah, I mean, obviously, we feel good about the milestones that we have. They're in line with, you know, the financial objectives that we laid out to begin with for the company. And we'll work through those to go through with the ultimate goal being of achieving the milestones in April. But we want to achieve all the milestones as we go through and we execute on the plan that we have, because that ties to the financial plan that we've had and the estimates that we've published to the market.

Chip Moore (Analyst)

Thank you.

Joe Mastrangelo (CEO)

Thanks, Chip.

Operator (participant)

Our next question comes from the line of Martin Malloy with Johnson Rice. Your line is open.

Martin Malloy (Analyst)

Good morning. Congratulations on all the progress you're making. Wanted to ask about the ramp in production capacity to the 8 GWh. Could you maybe talk about some of the factors that would influence that? And now that you've got more confidence on the financing side, any update there in terms of the pace of ramping that, and then potentially moving beyond the 8 GWh?

Joe Mastrangelo (CEO)

So, Marty, I think the one thing that doesn't change for EOS is just we'll expand capacity as we have the order book. And I think the way that we built the company was when you really look at closing orders and delivering projects, you know, you're talking about, you know, a 12- to 18-month timeline to be able to do that, where expanding capacity can be done in a lower amount of that time. Now, obviously, as we see the pipeline strengthening and orders getting close to closing, we will make a decision on adding the second, third, and fourth line as demand comes in, and that can obviously be accelerated as demand accelerates.

Chip Moore (Analyst)

Then beyond the 8 GWh, I mean, we've always said, like, we've been relatively conservative on the market share that we thought Eos would be able to gain as we've grown, and we've always thought of being bigger than an 8 GWh manufacturer. So we would go through and evaluate locations that would allow us to optimize logistics costs if we were to think about doing a factory number two. But the thing about the way the line is designed and the way the capacity costs are designed is that you don't need a massive, massive factory to gain economies of scale. Actually, doing it in smaller chunks, closer to where the demand is, lowers your logistics costs and reduces the cycle time to bring projects online. So that's how we would think about that.

We haven't really thought about, you know, factory two as of yet, but, you know, that would be the plan long term as the company continues to grow, hopefully.

Martin Malloy (Analyst)

Okay, and then as a follow-up question, just wanted to try to get your sense of as to how important the domestic content is in the customer decision-making process?

Joe Mastrangelo (CEO)

Marty, it's becoming very important. I mean, I'll let Nathan talk through that because he's been doing a lot of work on that.

Nathan Kroeker (CFO)

Yeah, I would say, Marty, good morning. I would say it depends on the customer and the use case. Everybody's focused on the domestic content and the bonus credit. I think where we really bring additional value is with our 91% domestic content tracking towards 100. You know that if a developer is putting solar and storage, you know, into a project and they're using US-made steel, we have the ability for them to unlock bonus credits on the entire project, and there's real value there that is a significant increase in the overall IRR for the project. So again, we'll work through with customers in terms of sizing every individual project and make sure they can capitalize on that value. So I think it's customer by customer, but it's a key part of the discussion.

Joe Mastrangelo (CEO)

And I think, Marty, inside of that, it's not just... I would just add, like, it's not just the total number. You know, we sit above 90% on U.S. content today. It's not just that total number that's important, it's the components within that and being NDAA compliant, because that's a, you know, a guarantee around, you know, grid security and how your software works, and all of your printed circuit boards and things that you have in your project. And I think that becomes also important as the company looks for, you know, a higher degree of energy independence in the future.

Martin Malloy (Analyst)

Thank you. I'll turn it back.

Joe Mastrangelo (CEO)

Thanks, Marty.

Operator (participant)

Again, if you would like to ask a question, press star one on your telephone keypad. We do have another one question coming in from Ryan Pfingst with B. Riley. Your line is open.

Ryan Pfingst (Analyst)

Hey, good morning, guys. Thanks for taking my question.

Joe Mastrangelo (CEO)

Sure.

Ryan Pfingst (Analyst)

Could you just talk about potential risks to certain parts of the business or to the DOE loan if we do get a change in, U.S. administration?

Joe Mastrangelo (CEO)

Ryan, I really wouldn't know how to answer that other than to say that I think both sides of the aisle agree that U.S. manufacturing is important. I think what we've laid out as far as the financing that we have in the partnership with Cerberus, that's financing that gets us to profitability and self-funding the business as we grow going forward, and I think that's what we're focused on while also focusing on closing the DOE loan.

Chip Moore (Analyst)

I think around closing the DOE loan, it's important for everyone to realize that we had a major change in the capital structure of this company, a little over 30 days ago, which have required us to go back and work through some of the terms and conditions on the loan, and we continue to work on that with the DOE LPO, along with Cerberus. And, you know, one of the things that we're really working on with them is the intercreditor agreement, now that a new creditor has come in, and we were able to retire the Atlas debt as part of the Cerberus financing.

You know, we meet regularly with the DOE, and in fact, the team will be in Washington next week to continue that work, and we're confident that we'll be able to close that loan here in the future, and we'll just continue to work on that. While at the same time, I've always said, Ryan, that we've designed this business to utilize any kind of programs that are there, but not to be dependent upon that for our success. But I think what everyone agrees with is we want more manufacturing in the United States, we want energy security as we move forward, and we need energy storage, whether you're using renewables or fossil fuel to power the future of the country, we're going to need energy storage.

Eos provides all three of those things, and that's what we just have to keep working on.

Ryan Pfingst (Analyst)

Yeah, makes sense. Thanks for that color. And I guess just one second one. Just curious what the mix looks like today, for the current pipeline from a customer type perspective, you know, between utilities, IPPs and smaller customers.

Joe Mastrangelo (CEO)

Yeah, I think it's, it's consistent with how it's been in the past. We try to maintain a portfolio, in the pipeline and in the backlog, no different from your, you know, your personal investment allocation, right? You want diversification there. Different types of customers move at different pace, have different motivators. We're very happy to have a combination of IPPs, utility-backed developers. You know, we've got smaller projects, commercial and industrial projects, microgrid applications. So it's a good portfolio. We have never given a detailed breakdown of that, but I would say the overall mix is consistent with where it's been in the past, and we continue to focus our business development efforts, across those various customer segments.

Ryan Pfingst (Analyst)

Great. Thanks for all that, and congrats on all the progress here.

Joe Mastrangelo (CEO)

Thanks, Ryan.

Operator (participant)

There are no further questions at this time. Mr. Joe Mastrangelo, our CEO, I turn the call back over to you.

Joe Mastrangelo (CEO)

Thank you. And thanks, everyone, for listening today. Again, a lot to be proud of in the second quarter. Focus moving forward, growing the business, scaling the line, driving down costs as we get through the second half of the year. You know, again, I'd like to congratulate everyone that works at Eos for all the hard work in what was a very uncertain environment. As we move forward now, we know what the path is to get to profitability, and that's delivering on the plan, to unlock the financing, to grow the company into what is a secular shift in the energy industry.

Chip Moore (Analyst)

And thank all of our customers for having the faith to place purchase orders with us and all of our shareholders for investing their money and working with us as we grow the company. We'll continue, head down, focused on the goal and getting the hard work done. As I've said many times in my more than 30-year career, this is by far the hardest thing I've ever done, but also the most rewarding when you see progress. So thanks, everyone, for listening, and we'll keep everyone updated, and look forward to talking in September at our special shareholder meeting.

Operator (participant)

Ladies and gentlemen, this concludes today's conference call. You may now disconnect.