Eos Energy Enterprises Inc

Previous wording

The following discussion should be read in conjunction with the accompanying Unaudited Condensed Consolidated Financial Statements for the three months ended March 31, 2024 and 2023 and the Company’s Annual Report on Form 10-K for the year ended December 31, 2023, including the financial statements and notes thereto.

Current wording

The following discussion should be read in conjunction with the accompanying Unaudited Condensed Consolidated Financial Statements for the six months ended June 30, 2024 and 2023 and the Company’s Annual Report on Form 10-K for the year ended December 31, 2023, including the financial statements and notes thereto.

Previous wording

The Company continues to invest in the refinement and production of its Z3 battery, which builds off the same electrochemistry that has not fundamentally changed for the better part of a decade. The next Z3 battery is designed to reduce cost and weight while improving manufacturability and system performance. The Eos Z3 battery is more cost-effective and has a simpler tub design with 50% fewer cells and 98% fewer welds per battery module than the Gen 2.3. The Company currently expects that the Z3 battery will give customers the benefit of two times the energy density per square foot with the same safety and reliability. The Z3 transition is fully underway and the first semi-automated battery manufacturing line is installed and has started commercial production. The Z3 batteries utilize the same chemistry, which has over 3 million cycles, and incorporate a new mechanical design aimed at improving performance, lowering cost and increasing manufacturability.

Current wording

The Company continues to invest in the refinement and production of its Z3 battery, which builds off the same electrochemistry that has not fundamentally changed for the better part of a decade. The next Z3 battery is designed to reduce cost and weight while improving manufacturability and system performance. The Eos Z3 battery is more cost-effective and has a simpler tub design with 50% fewer cells and 98% fewer welds per battery module than the Gen 2.3. The Company currently expects that the Z3 battery will give customers the benefit of two times the energy density per square foot, along with the ability to cycle multiple times per day, all with the same safety, reliability, security and recyclability. The Z3 transition is fully underway and the first semi-automated battery manufacturing line is installed and has started commercial production. The Z3 batteries utilize the same chemistry, which has over 3 million cycles, and incorporate a new mechanical design aimed at improving performance, lowering cost and increasing manufacturability.

Previous wording

•In January 2024, the Company entered into a supply agreement with TETRA Technologies, Inc (“TETRA”) that further expanded this partnership. TETRA is a leading global energy services and solutions company. This supply agreement designates TETRA as the preferred strategic supplier of electrolyte products for the Company’s Eos Z3 TM long duration energy storage cube.

Current wording

•In January 2024, the Company entered into a supply agreement with TETRA Technologies, Inc (“TETRA”) that further expanded this partnership. TETRA is a leading global energy services and solutions company. This supply agreement designates TETRA as the preferred strategic supplier of electrolyte products for the Company’s Eos Z3TM long duration energy storage cube.

Previous wording

•In February 2024, the Company entered into a multiyear pricing agreement with SHPP US LLC, a Saudi Basic Industries Corporation (“SABIC”) affiliate, to supply conductive composite thermoplastic for the Eos Z3 TM battery module. The Company and SABIC have worked collaboratively to develop a solution using one of SABIC’s new resin materials to replace the titanium used in prior Eos battery iterations.

Current wording

•In February 2024, the Company entered into a multiyear pricing agreement with SHPP US LLC, a Saudi Basic Industries Corporation (“SABIC”) affiliate, to supply conductive composite thermoplastic for the Eos Z3TM battery module. The Company and SABIC have worked collaboratively to develop a solution using one of SABIC’s new resin materials to replace the titanium used in prior Eos battery iterations.

Previous wording

•For the three months ended March 31, 2024, the Company recognized $1.5 million of grant income related to the IRA PTC.

Current wording

•For the three months ended June 30, 2024, the Company recognized $0.1 million of grant income related to the IRA PTC.

Previous wording

The Company generates revenues from the delivery of its battery energy storage systems (“BESS”) and service-related solutions. The Company expects revenues to increase as it scales production to meet customer demand.

Current wording

The Company generates revenues from the delivery of its BESS and service-related solutions. The Company expects revenues to increase as it scales production to meet customer demand.

Previous wording

Research and development costs decreased by $0.2 million or 4% from $5.4 million for the three months ended March 31, 2023 to $5.2 million for the three months ended March 31, 2024. The decrease was driven by lower spending on materials and supplies, partially offset by an increase in payroll and personnel costs and stock compensation costs.

Current wording

For the three months ended June 30, 2024, Research and development costs decreased by $0.8 million or 15% from $5.0 million. For the six months ended June 30, 2024, Research and development costs decreased by $1.0 million or 10% from $10.5 million. The decrease for the three and six months was driven by lower spending on materials and supplies, partially offset by an increase in payroll and personnel costs and stock compensation costs.

Previous wording

The Company incurred a loss of $0.1 million and $0.8 million from write-down of property, plant and equipment for the three months ended March 31, 2024 and 2023, respectively, due to write-offs for disposal of equipment and tooling that was used to manufacture the Gen 2.3 BESS, but cannot be repurposed for the next generation Eos Z3 battery.

Current wording

The Company incurred a loss of $0.3 million and $5.4 million from write-down of property, plant and equipment for the three months ended June 30, 2024 and 2023, respectively, and a loss of $0.3 million and $6.2 million for the six months ended June 30, 2024 and 2023, respectively. The write-down is due to obsolete equipment and tooling that was used to manufacture the Gen 2.3 BESS but cannot be repurposed for the next generation Eos Z3 battery.

Previous wording

Interest expense, net includes expenses for accrued interest, amortization of debt issuance costs and debt discounts, partially offset by capitalized interest costs on CIP assets (see Note 6, Property, Plant and Equipment for further discussion). Interest expense, net decreased slightly by $0.6 million for the three months ended March 31, 2024, primarily due to the capitalized interest on CIP assets recognized in 2024, offset by increased interest expense recognized from the Senior Secured Term Loan.

Current wording

Interest expense, net includes expenses for accrued interest, amortization of debt issuance costs and debt discounts, partially offset by capitalized interest costs on CIP assets (see Note 7, Property, Plant and Equipment for further discussion). For the three and six months ended June 30, 2024, Interest expense, net decreased $1.4 million and $1.9 million, respectively, due to the capitalized interest on CIP assets recognized in 2024 and lower interest expense recognized from the Senior Secured Term Loan.

Previous wording

The Company recognized a loss on debt extinguishment of $1.6 million for the three months ended March 31, 2023 from the issuance of common stock upon Yorkville's redemption of their Convertible Promissory Notes.

Current wording

For the three and six months ended June 30, 2023, the Company recognized a loss on debt extinguishment of $1.9 million and $3.5 million, respectively, from the issuance of common stock upon Yorkville's redemption of their convertible promissory notes.

Previous wording

The Company incurred income tax expense for the three months ended March 31, 2024 and 2023 in relation to the pre-tax income from the Company’s international subsidiaries.

Current wording

The Company incurred income tax expense for the three and six months ended June 30, 2024 and 2023 in relation to the pre-tax income from the Company’s international subsidiaries.

Previous wording

As a growth company in the early commercialization stage of its lifecycle, Eos is subject to inherent risks and uncertainties associated with the development of an enterprise. In this regard, substantially all of the Company’s efforts to date have been devoted to the development and manufacturing of battery energy storage systems and complimentary products and services, recruitment of management and technical staff, deployment of capital to expand the Company’s operations to meet customer demand and raising capital to fund the Company’s development. As a result of these efforts, the Company has incurred significant losses and negative cash flows from operations since its inception and expects to continue to incur such losses and negative cash flows for the foreseeable future until such time that the Company can reach a scale of profitability to sustain its operations.

Current wording

As a growth company in the early commercialization stage of its lifecycle, Eos is subject to inherent risks and uncertainties associated with the development of an enterprise. In this regard, substantially all of the Company’s efforts to date have been devoted to the development and manufacturing of battery energy storage systems and complimentary products and services, recruitment of management and technical staff, deployment of capital to expand the Company’s operations to meet customer demand and raising capital to fund the Company’s development. However, as a result of these efforts, the Company has incurred significant losses and negative cash flows from operations since its inception and expects to continue to incur such losses and negative cash flows for the foreseeable future until such time that the Company can reach a scale of profitability to sustain its operations.

Previous wording

In order to execute its development strategy, the Company has historically relied on outside capital through the issuance of equity, debt and borrowings under financing arrangements (collectively “outside capital”) to fund its cost structure and expects to continue to rely on outside capital for the foreseeable future. While the Company believes it will eventually reach a scale of profitability to sustain its operations, there can be no assurance the Company will be able to achieve such profitability or do so in a manner that does not require its continued reliance on outside capital. Moreover, while the Company has historically been successful in raising outside capital, there can be no assurance the Company will be able to continue to obtain outside capital in the future or do so on terms that are acceptable to the Company.

Current wording

In order to execute its development strategy, the Company has historically relied on outside capital through the issuance of equity, debt and borrowings under financing arrangements (collectively “outside capital”) to fund its cost structure. While the Company believes its recent entry into new credit facilities as discussed below has significantly improved its capital position and provides a path to sustainable operations and profitability, there can be no assurance the Company will be able to achieve such profitability or do so in a manner that does not require additional outside capital. Moreover, while the Company has historically been successful in raising outside capital, there can be no assurance the Company will be able to continue to obtain outside capital in the future or do so on terms that are acceptable to the Company, should it be needed.

Previous wording

As of the date the accompanying Condensed Consolidated Financial Statements were issued (the “issuance date”), management evaluated the significance of the following negative financial conditions in accordance with Accounting Standard Codification 205-40, Going Concern:

Current wording

As of the date the accompanying Unaudited Condensed Consolidated Financial Statements were issued (the “issuance date”), management evaluated the significance of the following negative financial conditions in accordance with Accounting Standard Codification 205-40, Going Concern:

Previous wording

•Since its inception, the Company has incurred significant losses and negative cash from operations in order to fund its development. During the three months ended March 31, 2024, the Company incurred a net loss of $46.7 million, incurred negative cash flows from operations of $40.5 million and had an accumulated deficit of $922.6 million as of March 31, 2024.

Current wording

•Since its inception, the Company has incurred significant losses and negative cash from operations in order to fund its development. During the six months ended June 30, 2024, the Company incurred a net loss of $74.9 million, incurred negative cash flows from operations of $66.8 million and had an accumulated deficit of $950.7 million as of June 30, 2024.

Previous wording

•Similarly, while the Company has historically been successful in raising additional outside capital to fund the Company’s operations, as of the issuance date no assurance can be provided the Company will be successful in obtaining additional outside capital or on terms that are acceptable to the Company. In this regard, the Company continues to progress through the Department of Energy (“DOE”) Loan Programs Office’s (“LPO”) process for its Title XVII loan. In August 2023, the DOE issued a conditional commitment letter to the Company for a loan of an aggregate principal amount of up to $398.6 million through the DOE’s Clean Energy Financing Program. Certain technical, legal and financial conditions must be met and due diligence to the satisfaction of the DOE must be completed before the DOE enters into definitive financing documents with the Company and funds the loan. There can be no assurance that the Company will be able to secure such a loan or on terms that are acceptable to the Company.

Current wording

•Additionally, the Company continues to progress through the Department of Energy (DOE) Loan Programs Office’s (LPO) process for its Title XVII loan. In August 2023, the DOE issued a conditional commitment letter to the Company for a loan of an aggregate principal amount of up to $398.6 million through the DOE’s Clean Energy Financing Program. Certain technical, legal and financial conditions must be met and due diligence to the satisfaction of the DOE must be completed before the DOE enters into definitive financing documents with the Company and funds the loan. The Company continues to work with the DOE to meet these conditions and close the loan, however, there can be no assurance that the Company will be able to secure such a loan or on terms that are acceptable to the Company.

Previous wording

•The Company is required to remain in compliance with a quarterly minimum financial liquidity covenant under its Senior Secured Term Loan Credit Agreement (“Senior Secured Term Loan”). While the Company was in compliance with this covenant as of March 31, 2024, the Company expects it may be unable to remain in compliance with this covenant beginning on June 30, 2024 and thereafter absent the Company’s ability to secure a waiver or raise additional outside capital. In the event the Company is unable to remain in compliance with the minimum financial liquidity covenant and the other nonfinancial covenants required by the Senior Secured Term Loan and the Company is further unable to cure such noncompliance or secure a waiver, Lender - Atlas Credit Partners (ACP) Post Oak Credit I LLC (“Atlas”) may, at its discretion, exercise any and all of its existing rights and remedies, which may include, among other things, entering into a forbearance agreement with the Company and/or asserting its rights in the Company’s assets securing the loan. Moreover, the Company’s other lenders may exercise similar rights and remedies under the cross-default provisions of their respective borrowing arrangements with the Company.

Current wording

•The Company is required to remain in compliance with certain quarterly financial covenants under its Credit Agreement. These financial covenants include (a) minimum EBITDA, (b) Revenue, and (c) a Liquidity covenant (collectively, the “financial covenants”). While the Company was in compliance with these covenants as of June 30, 2024, the Company may be unable to remain in compliance with these covenants as of September 30, 2024, and thereafter, absent the Company’s ability to draw under the Delayed Draw Term Loan or secure a waiver from the Lender. In the event the Company is unable to remain in compliance with the financial covenants and the other nonfinancial covenants required by Credit Agreement and the Company is further unable to cure such noncompliance or secure a waiver, the Lender may, at its discretion, exercise any and all of its existing rights and remedies, which may include, among other things, entering into a forbearance agreement with the Company and/or asserting its rights in the Company’s assets securing the loan. Moreover, the Company’s other lenders may exercise similar rights and remedies under the cross-default provisions of their respective borrowing arrangements with the Company.

Previous wording

•In the event the Company’s ongoing efforts to raise additional outside capital prove unsuccessful, management will be required to seek other strategic alternatives, which may include, among others, a significant curtailment in the Company’s operations, a sale of certain of the Company’s assets, a sale of the entire Company to strategic or financial investors and/or allowing the Company to become insolvent.

Current wording

•In the event the Company does not achieve the funding milestones, the Lender chooses not to continue funding, and the Company’s ongoing efforts to raise additional outside capital prove unsuccessful, the Company will be unable to meet its obligations as they become due over the next twelve months beyond the issuance date. In such an event, management will be required to seek other strategic alternatives, which may include, among others, a significant curtailment in the Company’s operations, a sale of certain of the Company’s assets, a sale of the entire Company to strategic or financial investors and/or allowing the Company to become insolvent.

Previous wording

The Company has historically relied on outside capital to fund its cost structure and expects this reliance to continue for the foreseeable future until the Company reaches profitability through its planned revenue generating activities. During the three months ended March 31, 2024, the Company closed on the following capital transactions:

Current wording

The Company has historically relied on outside capital to fund its cost structure and expects this reliance to continue for the foreseeable future until the Company reaches profitability through its planned revenue generating activities. During the six months ended June 30, 2024, the Company closed on the following capital transactions:

Previous wording

•Under the ATM offering program, for the three months ended March 31, 2024, the Company sold 7,239,982 shares raising proceeds of $7.2 million, net of fees paid to Cowen, at an average selling price of $1.03 per share, included in the Condensed Consolidated Statement of Shareholders' Deficit.

Current wording

•Under the ATM offering program, for the six months ended June 30, 2024, the Company sold 16,627,523 shares raising proceeds of $14.1 million, net of fees paid to Cowen, at an average selling price of $0.87 per share, included in the Condensed Consolidated Statement of Shareholders' Deficit.

Previous wording

The Company expects capital expenditures and working capital requirements to increase as it executes its growth strategy. Total capital expenditures for the three months ended March 31, 2024 and March 31, 2023 were $4.0 million and $2.9 million, respectively. The increase in capital expenditures in 2024 was primarily driven by costs incurred for development and construction of a fully automated manufacturing line that will be used for the Z3™ battery in 2024 and years thereafter. These costs are classified as Construction in Progress (see Note 6, Property, Plant and Equipment for further discussion).

Current wording

The Company expects capital expenditures and working capital requirements to increase as it executes its growth strategy. Total capital expenditures for the six months ended June 30, 2024 and June 30, 2023 were $10.3 million and $10.1 million, respectively. See Note 7, Property, Plant and Equipment for further discussion.

Previous wording

Net cash used in operating activities of $40.5 million for the three months ended March 31, 2024 was primarily driven by a net loss of $46.7 million, adjusted for non-cash items of $3.5 million, primarily related to stock compensation expense, depreciation and amortization, non-cash interest expense and changes in fair value of warrants and derivatives. The net cash inflows from changes in operating assets and liabilities was $2.7 million, primarily driven by increase in accrued expenses of $6.2 million, increase in interest payable of $2.9 million, decrease in inventory of $2.7 million, partially offset by increase in contract assets of $4.6 million, decrease in accounts payable of $2.6 million and increase in grant receivable of $1.5 million.

Current wording

Net cash used in operating activities of $66.8 million for the six months ended June 30, 2024 was primarily driven by a net loss of $74.9 million, adjusted for non-cash items of $9.7 million, primarily related to stock compensation expense, depreciation and amortization, non-cash interest expense, gain on debt extinguishment, changes in fair value of debt, warrants and derivatives. The net cash outflows from changes in operating assets and liabilities was $1.6 million, primarily driven by an increase in contract assets of $4.6 million, decrease in accrued expenses of $2.0 million, increase in accounts receivable of $1.2 million, partially offset by increase in contract liabilities of $2.6 million and decrease in grant receivable of $1.8 million.

Previous wording

Net cash used in operating activities was $30.5 million for the three months ended March 31, 2023, primarily driven by a net loss of $71.6 million, adjusted for non-cash items of $34.0 million, primarily related to stock compensation expense, depreciation and amortization, non-cash interest expense, changes in fair value of warrants and derivatives and loss from the write-down of property, plant and equipment. The net cash inflows from changes in operating assets and liabilities was $7.1 million, primarily driven by a decrease in inventory of $9.2 million, increase in accounts payable and accrued expenses of $4.8 million and increase in interest payable of $2.4 million, offset by decrease in contract liabilities of $3.5 million, increase in accounts receivable of $2.0 million and increase in contract assets of $1.9 million.

Current wording

Net cash used in operating activities was $75.6 million for the six months ended June 30, 2023, primarily driven by a net loss of $203.2 million, adjusted for non-cash items of $140.3 million, primarily related to stock compensation expense, depreciation and amortization, non-cash interest expense, changes in fair value of warrants and derivatives and loss from the write-down of property, plant and equipment. The net cash outflows from changes in operating assets and liabilities was $12.7 million, primarily driven by an increase in accounts payable and accrued expenses of $11.0 million, increase in vendor deposits of $5.4 million, and decrease in contract liabilities of $1.5 million, partially offset by decrease in inventory of $6.6 million.

Previous wording

Net cash flows used in investing activities for the three months ended March 31, 2023 were primarily composed of payments made for purchases of property, plant and equipment of $2.9 million.

Current wording

Net cash flows used in investing activities for the six months ended June 30, 2024 were mainly composed of payments made for purchases of property, plant and equipment of $10.3 million.

Previous wording

Net cash flows used in investing activities for the three months ended March 31, 2024 were composed of payments made for purchases of property, plant and equipment of $4.0 million.

Current wording

Net cash flows used in investing activities for the six months ended June 30, 2023 were composed of payments made for purchases of property, plant and equipment of $10.1 million.

Previous wording

Net cash provided by financing activities was $6.1 million for the three months ended March 31, 2024, primarily due to the issuance of common stock of $7.2 million. The proceeds were partially offset by payments on the equipment financing facility of $0.8 million and share repurchases from employees for tax withholding purposes of $0.3 million.

Current wording

Net cash provided by financing activities was $50.0 million for the six months ended June 30, 2024, primarily due to the proceeds received from the Credit and Securities Purchase Transaction of $70.1 million and from the issuance of common stock of $14.1 million. The proceeds were partially offset by payoff of the Senior Secured Term Loan of $19.9 million, debt issuance costs - related party of $12.2 million, payments on the equipment financing facility of $1.6 million and share repurchases from employees for tax withholding of $0.4 million.

Previous wording

Net cash provided by financing activities was $32.5 million for the three months ended March 31, 2023, primarily due to the net proceeds received from the Yorkville Convertible Promissory Notes and AFG Convertible Notes of $33.4 million and the issuance of common stock of $1.3 million. The proceeds were partially offset by debt issuance costs related to the Yorkville Convertible Promissory Notes and AFG Convertible Notes of $1.1 million, payments on the equipment financing facility of $0.7 million and share repurchases from employees for tax withholding purposes of $0.3 million.

Current wording

Net cash provided by financing activities was $92.6 million for the six months ended June 30, 2023, primarily due to the net proceeds received from the Yorkville Convertible Promissory Notes and AFG Convertible Notes of $48.1 million and from the issuance of common stock and warrants of $49.3 million. The proceeds were partially offset by equity issuance costs of $2.1 million, debt issuance costs related to the Yorkville Convertible Promissory Notes and AFG Convertible Notes of $1.1 million, payments on the equipment financing facility of $1.4 million and share repurchases from employees for tax withholding of $0.5 million.

Previous wording

•Future lease payments, including interest, under non-cancellable operating and financing leases of $5.6 million. The leases expire at various dates prior to 2028. See Note 15, Commitments and Contingenciesto our Unaudited Condensed Consolidated Financial Statements included elsewhere in this Quarterly Report.

Current wording

•Future lease payments, including interest, under non-cancellable operating and financing leases of $5.0 million. The leases expire at various dates prior to 2028.

Previous wording

(1) As of March 31, 2024, the Company is obligated to repay future contractual interest payments for the 2021 Convertible Note and AFG Convertible Notes in-kind.

Current wording

(1) As of June 30, 2024, the Company is obligated to repay future contractual interest payments for the 2021 Convertible Note and AFG Convertible Notes in-kind. The Company also has the option to repay the Delayed Draw Term Loan in-kind.