Earnings Call Transcript - EOSE Q1 2026

Operator, Operator

Good morning, and welcome to Eos Energy Enterprises' First Quarter 2026 Conference Call. As a reminder, today's call is being recorded, and your participation implies consent to such recording. With that, I would like to turn the call over to Liz Higley, Head of Investor Relations. Thank you. You may begin.

Elizabeth Higley, Head of Investor Relations

Good morning, everyone, and welcome to Eos' First Quarter 2026 Conference Call. Today, I'm joined by Eos' CEO, Joe Mastrangelo; COO, John Mahaz; and CCO and Interim CFO, Nathan Kroeker. This call may include forward-looking statements, including, but not limited to, current expectations with respect to future results and outlook for our company. Should any of these risks materialize or should our assumptions prove to be incorrect, our actual results may differ materially from our expectations or those implied by these forward-looking statements. The risks and uncertainties that forward-looking statements are subject to are described in our SEC filings. Forward-looking statements represent our beliefs and assumptions only as of the date such statements are made. We undertake no obligation to update these 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. Today's remarks will also include references to non-GAAP financial measures. Additional information, including reconciliation between non-GAAP financial information to U.S. GAAP financial information, is provided in the press release. Non-GAAP information should be considered as supplemental and is not meant to be considered in isolation or as a substitute for the related financial information prepared in accordance with GAAP. In addition, our non-GAAP financial measures may not be the same as or comparable to similar non-GAAP measures presented by other companies. This conference call will be available for replay via webcast through Eos' Investor Relations website at investors.eose.com. Joe, John and Nathan will walk you through our business outlook and financial results before we proceed to Q&A. With that, I'll now turn the call over to Eos' CEO, Joe Mastrangelo.

Joseph Mastrangelo, Chief Executive Officer

Thanks, Liz, and good morning, everyone. We have a lot to cover today, including Frontier Power USA, which we just announced. Before reviewing the quarter, I want to set the scene on current market dynamics, because what we are announcing is designed for this environment. America is rebuilding its industrial base—in semiconductors and defense, in critical minerals and advanced manufacturing, and in the data centers that will power the next generation of AI. Every factory, every fab, every facility runs on electricity. Energy demand today is multifaceted. This is the largest reindustrialization effort the United States has seen in the last 75 years, and it is occurring as the global energy system is being rebuilt around new technologies, new fuels and new supply chains. The grid we have was built for a different economy. The grid we need must handle loads that ramp faster, swing harder and concentrate in ways the system was never engineered to absorb. That is the opportunity in front of us. The timeline for adding new capacity does not match the speed at which advanced manufacturing, electrified industry and AI are being deployed. The architecture must change, and that’s where storage comes in: deploying long-duration, dispatchable storage that brings capacity online quickly using existing infrastructure. That storage layer improves system reliability at the speed the market requires. The shift from relying on transmission buildouts to building closer to demand is one of the most consequential changes in the U.S. power market in a generation. Policy is also pushing in the same direction: tariffs, domestic content rules under the investment tax credit and Section 45X tax credits, and the 2026 National Defense Authorization Act all point toward building the energy infrastructure that powers American reindustrialization in America. This is the market Eos was built to serve: long-duration, American-made, manufactured at scale, designed to power the industries that will define the next 25 years. An example is our work with Talen Energy. Talen has been helping define how hyperscale power will be delivered in PJM. Earlier this month, Talen submitted more than 3 gigawatt-hours of new long-duration energy storage projects into the PJM interconnection queue, capacity that can be powered by American-made batteries built in Pennsylvania. Opportunities like this are one of many reasons we are expanding our manufacturing footprint in the same Pennsylvania industrial corridor. John will walk through our plan to start initial production at our new Thorn Hill facility. Right now the robots are moving and we are debugging the line to start building nonproduction battery modules. Turning to our results, in the first quarter we delivered $57 million in revenue, more than five times the same quarter last year. Combined with the fourth quarter, we delivered $115 million across the last two quarters—more revenue than we delivered in all of 2025—doing in six months what previously took a year. Underlying signals are moving in the right direction: cube output is up 17% sequentially and gross loss improved by $10 million on that higher output. We finished the quarter with $472 million in cash. Q1 looked like a company in build mode, and this cash profile was expected given our capacity expansion investments. We expect approximately $60 million of that Q1 cash to convert back onto the balance sheet with the expected next DOE loan drawdown, monetization of PTC tax credits and customer invoicing. We ended Q1 with a $645 million backlog. That number increases meaningfully with the 2-gigawatt-hour capacity reservation agreement we announced this morning with Frontier Power USA. That increase is not a one-for-one lift in backlog gross value, because a portion of the agreement is expected to execute a project already reflected in backlog that will be financed by Frontier Power USA. Our commercial pipeline now stands at over 100 gigawatt-hours, and 55% of that pipeline is at eight-hour-plus duration. That is the market segment where Eos competes on both physics and economics. There are three points I want to highlight. First, demand is structural and moving toward us. The Talen relationship and the shift in pipeline duration illustrate that customers are asking for flexible multi-hour storage paired with firm generation, sited where the grid can absorb it. That is exactly what we build. Second, our execution is becoming more consistent: record output and sequential improvements in gross margin and adjusted EBITDA. Our manufacturing line is converting input dollars into output at an improving rate each quarter. We are not yet near our entitlement, but the progress is the right trajectory for a company scaling production. Third, I’m very excited about Frontier Power USA. The single biggest barrier to long-duration storage adoption today is not technology and it is not demand—it is bankability. For every project you still must assemble the same four components: capital, insurance, project construction and an offtake agreement, usually done sequentially. On one side is Eos’ vertically integrated technology stack: the Z3 battery module, DawnOS advanced controls and Indensity system configuration. Our industrial service model underpins all three, offering fast field service with predictable maintenance and overhaul capabilities adapted from aviation and traditional power industries. We have engineered Indensity to maintain nameplate performance across the asset life, with no augmentation needed. Working together from the cell to the system for the life of the project, we are the only American manufacturer at scale with this stack. On the other side is Frontier’s project execution capability: development including site origination, permitting, interconnect and offtake, insurance-backed financing and asset operations across the full system life. Frontier is led by an independent team drawn from operators and developers who built hundreds of deployments and closed gigawatts of project finance, with the institutional discipline to execute at scale. Frontier brings these two stacks together into a single platform. Customers get accelerated deployment, guaranteed performance and a lower total cost of ownership. This platform is designed to be a self-reinforcing growth engine. Cash flow from Frontier’s operating projects is intended to be reinvested into the platform to fund new project origination, accelerate Eos equipment deployment and compound the value of the integrated technology stack. Each completed project strengthens the next: DawnOS performance data improves our technology underwriting, project returns fund expansion, and operating track records build the basis for subsequent financing rounds. Equity recycles, debt capacity grows and the platform scales. Frontier Power USA is expected to be capitalized in three layers, each addressing distinct risks and costs of capital. The first layer is equity. Cerberus is contributing $100 million in institutional capital and operating expertise to strengthen governance, underwriting and access to project finance. Eos is targeting a $150 million contribution funded through a pro rata rights offering, subject to customary closing conditions. That structure is deliberate; it allows existing shareholders to participate in the upside of the platform through their ownership in Eos. The initial structure of Frontier includes an originated pipeline, an exclusive insurance offering, a structured debt financing path and an experienced management team, and every dollar contributed accrues back to the platform. The second layer, and the structural innovation, is a technology performance insurance wrap written by Ariel Green at Lloyd’s of London. Ariel Green will wrap each project with a performance guarantee that converts what the market has historically treated as technology risk into an insurance-rated obligation. That wrap is the unlock for this offering. Because of it, the third layer becomes senior project debt, targeting more than $1 billion and positioned to be marketed with investment-grade characteristics. Equity from Cerberus and Eos, an insurance wrap from Ariel Green, and senior debt with investment-grade characteristics together are designed to expand capital availability and accelerate deployment of Eos solutions. That structure compresses project timelines and closes the bankability gap. A word on the proposed rights offering: it is structured intentionally for the shareholders who have built this company. To fund our planned equity participation in Frontier, we intend to launch a pro rata rights offering targeting $150 million. Existing shareholders, including retail, would receive transferable subscription rights to participate on a pro rata basis. The rights are transferable to broaden access and preserve flexibility. Regarding dilution, shareholders who participate increase their ownership relative to the new share count, while those who do not participate will experience some dilution. At today’s share price, with a full subscription the overall impact is accretive for shareholders who participate. We believe this is a disciplined outcome, given how the capital will be deployed: into assets, developing DawnOS and the Thorn Hill expansion. We could have raised capital from a single institutional sponsor, but chose not to so shareholders who have backed the company through development of DawnOS and Thorn Hill can participate. All of this depends on the underlying technology performing. We recently surpassed 6 gigawatt-hours of discharge energy on Eos technology, spanning roughly 3.9 million cycles. That total includes every electron our technology has discharged, from our earliest deployments through the Z3, which accounts for 0.5 gigawatt-hours of energy and over 1 million cycles. Behind these numbers is an architectural shift: we have moved from string-level battery management to module-level management under DawnOS. Previously, a single underperforming module could pull down the performance of a string or one-twelfth of a cube. Today every module is individually monitored, managed and dispatched. To give a concrete example, before DawnOS average round-trip efficiency ranged between 34% and 42% with standard deviations above 17 points. The fleet could achieve cycles above 70% on balanced cycles and around 30% on unbalanced ones. The energy was physically present in the batteries, but the control architecture could not isolate and route around modules discharging at different rates. This was not a chemistry limit or a product design change; it was a control system limitation. DawnOS paired with a module-level BMS solved this challenge. The system now balances itself dynamically and maximizes discharge across every module, producing the after results: average round-trip efficiency in the low to mid-70s, standard deviations reduced to 5 to 8 points, and maximum performance reaching 88%. There are three implications of these improvements. First, DawnOS is being deployed across systems already in the field, enabling us to meet performance commitments consistently and at scale. This work carries a cost, but it is a manageable headwind that is more than outweighed by the performance improvements for our customers. The after performance is what bankable Z3 performance looks like, and it applies to the fleet, not just new shipments. Second, our field fleet now shows a favorable pattern: across 0 to 3 hour, 3 to 6 hour and 6-plus hour discharge bands, round-trip efficiency in an operating dispatch window holds in the high 70s on average and can peak into the 90s. Efficiency does not degrade as duration extends. For other chemistries, long duration often comes with lower efficiency or reduced useful life; for Eos, it does not. The gap between average and peak at each duration band is dispatch headroom—efficiency already inside the asset waiting to be captured by DawnOS. Third, the reduction in variance makes performance financeable. The gap between an average cycle and a max cycle has compressed from roughly 30 points to around 10. Project finance and tax equity counterparties underwrite to consistency, not peaks. We are now delivering both and expect further improvements with increased DawnOS operating hours. In closing, the market we are operating in today is the market this company was built for: American-made, long-duration, bankable storage deployable at scale. We have developed the technology, are scaling manufacturing and proving the product in the field. With Frontier Power USA, we are announcing the platform we believe allows us to deliver what we have built to customers at the speed and scale the market requires, converting an industry tailwind into shareholder returns. With that, I’ll turn the call over to John to walk through operational performance.

John Mahaz, Chief Operating Officer

Thanks, Joe, and it's great to be back with everyone. Today, I want to focus on where we are operationally and how that progress is positioning us for what's ahead. The teams in Turtle Creek, and now at our new Thorn Hill facility, have made tremendous progress advancing our operations. We're beginning to see the returns on the investments we made over the last year to drive productivity. And importantly, we're doing more with less. In Turtle Creek, we've achieved quarterly records across several key operating metrics and delivered meaningful improvement compared to the fourth quarter. Cube output increased 467% versus Q1 '25 and was up 17% sequentially from Q4. Direct labor per cube is down 47% year-over-year and 25% quarter-over-quarter. The year-over-year step reflects a 16% reduction in man hours per cube from bipolar automation. The sequential step reflects a 6% reduction as yield and efficiency improvements reduced overtime and temp labor. This level of production translated into financial performance, with margins improving by approximately $10 million quarter-over-quarter as material costs came down and output scale. This is the headline, and it is a clear signal yet that the manufacturing system we have been building is beginning to deliver. Two metrics moved against that trend this quarter, and I want to address both directly because they are deliberate. Material cost is up 4% year-over-year. That is the cost of transitioning from the prior BMS to DawnOS in the middle of last year. As Joe just discussed, we're seeing the results of the operability of the system, and we are working a program to simplify the design, reduce part count and optimize manufacturing. You can see it in the sequential number. Material cost is down 5% quarter-over-quarter as supplier optimization and design improvements take hold. The trajectory is right, and the year-over-year line will follow. How we drive that trajectory matters. At the supplier level, we are running disciplined commercial performance through structured negotiations, clean sheet should-cost models and volume leverage. We are resetting legacy cost positions where needed and aligning pricing with market realities, building partnerships meant to hold up over time. We are also pursuing new suppliers where it creates structural advantage, qualifying new suppliers in competitive locations, reducing single source dependence and ensuring competition in every category of spend. At the material level, we are identifying alternate opportunities across resins, electronic components and metals, where form, fit and function can be maintained or improved at a lower cost point. The second metric, manufacturing overhead per cube, is down 43% year-over-year and up 10% sequentially. We made that choice. We invested in equipment spares and maintenance capability to increase battery line uptime, which lets us run the factory with less labor and more output per shift. The 54% reduction in direct/indirect labor man hours per cube tells you the math is working. We will continue to invest in areas where that investment takes variable cost out of every cube that follows. Now to Thorn Hill, because this is the program that scales what we have proven at Turtle Creek. Building readiness is complete. Line 2 power on is in process. Initial production is on track for the end of Q2, and we expect full production to occur in Q4. Thorn Hill matters for 3 reasons: First, it is purpose-built around the lessons we have learned. Every automation step, every layout decision, every piece of equipment builds on the progress we have made at Turtle Creek. Spending time at Thorn Hill, I see the energy and pride of what the team is creating: a world-class operation that will deliver for our customers and shareholders. Second, as we've been saying, the volume step changes the cost equation. As output ramps, fixed cost spread across more cubes, supplier pricing improves with committed volume and the labor and overhead efficiencies we are already showing on a per cube basis compound. Third, Thorn Hill positions us to compete on cost in a market that is moving fast. Our customers are sizing projects in gigawatt hours, not megawatt hours. And the asset base we are bringing online is what allows us to meet that demand at a price point that wins. Stepping back, none of this is the result of a single quarter of effort. It is the output of an organization that has made lean methodology and continuous improvement the way we work, not a program we run. Every cube coming off the line is an opportunity to take cost out, take time out and put quality in. While we have made strides in all aspects of our operations, there remains plenty of additional opportunities to drive cost out. We have a comprehensive plan and actions to continue addressing these. That is our focus. That is how we are building this company, and that is how we drive towards gross margin profitability. Thanks, everyone. With that, I'll turn it over to Nathan.

Nathan Kroeker, Chief Commercial Officer and Interim Chief Financial Officer

Thanks, John, and good morning, everybody. Starting on the commercial front, we ended the quarter with $645 million in backlog, representing 2.6 gigawatt hours of storage after converting $57 million to revenue in the quarter. There have been two important updates since quarter end that will further increase these figures. First, we entered a 2-gigawatt hour firm capacity reservation agreement with Frontier Power USA to deliver several projects in its initial pipeline. As Joe talked about, one of the key components of any project is bankability, and we have several late-stage opportunities that are at the financing stage. Frontier USA provides an attractive alternative, allowing these customers to not just move forward, but to move forward at a lower cost of capital, giving our customers an advantage while generating returns for Frontier. Second, we are expanding an existing project with a Southeast utility from 4 hours to 10 hours in duration, along with a full system upgrade to DawnOS. The customer chose to scale with Eos rather than diversify and to do so by adding additional capacity and duration. Both signals matter as more regions move toward longer duration solutions to absorb load growth and data center demand. Now turning to our pipeline. Total opportunities increased to $24 billion, representing 107 gigawatt hours, which is up 3% sequentially and up 56% year-over-year. Average pricing in the pipeline reflects the project mix, with an increased percentage of large-scale and Indensity deployments where unit economics improve with project size and where we remain competitive on a delivered cost basis. Demand remains strong in both PJM and MISO. Working with Talen Energy, we are developing several large storage projects at their existing sites ahead of PJM's reliability backstop procurement process later this year, as Joe discussed earlier. In addition, we have a few customer projects that are progressing through permitting ahead of upcoming NYSERDA submissions. Each of these projects are progressing based on their stand-alone economics, with the bulk energy storage program as additional upside. We continue to see increased engagement from utilities and utility-backed developers who are looking to own assets that support rising demand and grid reliability. At the same time, interest from hyperscalers and AI-driven projects continues to accelerate. These customers need reliable, dispatchable power and behind-the-meter solutions that respond in milliseconds to the duty cycles that AI inferencing imposes. So what does that mean? Continuous rapid charging and discharging through deep erratic swings that are sustained over hours or even days. Eos is engineered for this profile. We have fully validated it at our Edison facility, from the Z3 module through a full Indensity core system using real data center load profiles. We've demonstrated consistent responses and stable performance across every transition. That performance is why speed to power matters, and it is the foundation of our joint development agreement with TURBINE-X. Combining their access to additional gas-fired generation with our Indensity solution, we deliver fully integrated power systems for data centers and other applications. This agreement targets 2 gigawatt hours of storage over the next several years, with initial deployments in 2027. TURBINE-X's newly announced Texas manufacturing facility strengthens that execution as projects move from development to deployment. Now shifting to our financials. We delivered a strong first quarter, generating $57 million in revenue, up 445% year-over-year on more than 5.5x the production output of a year ago. In the last 2 quarters combined, we delivered $115 million in revenue, more than all of last year. Revenue was roughly flat quarter-over-quarter as project mix shifted with more cubes being delivered, while AC scope, including things like transformers and inverters, has decreased. We expected to recognize a few million dollars of AC scope and commissioning revenue in the first quarter, but customer site readiness delayed some of this revenue into future periods. On the cost side, our automated manufacturing strategy is producing real gains across productivity, capacity, quality and unit cost. Gross loss for the quarter was $44.4 million, a 157 percentage point margin improvement year-over-year, driven by higher production volumes and continued product cost out. On a dollar basis, gross loss improved 18% sequentially as production volume increased 17%, reinforcing the trajectory in unit economics and operating leverage. Excluding noncash stock-based compensation and depreciation and amortization, adjusted gross loss for the quarter was $39 million, a 133 percentage point margin improvement from the prior year. Operating expenses increased 23% year-over-year, reflecting targeted investments in supply chain, new product introduction and additional engineering talent to support scaling and product cost-out initiatives. About 17% of total OpEx was noncash-related. We reported positive net income of $509 million. Due to our capital structure, net income is heavily impacted by changes in our share price and the noncash fair value accounting adjustments, primarily mark-to-market revaluations of our warrants and our derivatives. Adjusted EBITDA is the real operating measure to focus on here, where we ended the quarter with a loss of $68 million, a 294 percentage point margin improvement from the prior year. Now as we look to the rest of the year, we remain focused on disciplined growth and continued cost reductions. Three quick things in closing. First, we are reaffirming our 2026 revenue outlook range of $300 million to $400 million. Second, our upcoming shareholder meeting is on June 3. Five proposals require shareholder support, and 1 carries a 67% approval threshold. Among the proposals is an increase in our authorized share count, which is required to support the Frontier investment. More broadly, maintaining an appropriate balance of authorized but unissued shares is standard corporate housekeeping and allows us to take advantage of strategic opportunities in the market. We are asking all shareholders to vote. And finally, I am pleased to welcome Alessandro Lagi as Eos' incoming Chief Financial Officer. Alessandro brings deep public company finance leadership and track record of scaling industrial businesses through commercial inflection. He officially joins us in June, and his arrival allows me to return my full focus to commercial growth. With that, thank you for your time today, and I'll pass it back to Joe.

Joseph Mastrangelo, Chief Executive Officer

Thanks, John. Thanks, Nathan. Thanks, everyone, for listening. I'm really excited to work again with Alessandro. We worked together earlier in our careers. I'm excited about his background in the energy industry and also very excited about his experience that he has in Johnson Controls across a multitude of global positions. I think Alessandro brings the right industrial background as a CFO to help us continue to scale the company. I'd also like to take a moment just to thank Nathan for him holding down both seats here for an extended period of time and look forward to Nathan moving back over to focus exclusively on the commercial part of the business and continuing to grow Eos. With that, we'll wrap up our prepared comments and turn it over to the operator for any questions. So let's open up for Q&A.

Operator, Operator

Our first question comes from Mark Strouse with JPMorgan.

Mark W. Strouse, Analyst

I just want to start with Frontier Power. Maybe can you talk, I just want to make sure I'm thinking about this right. The initial investment from Eos and from Cerberus, can you talk about how many gigawatt hours that would finance? And then to the extent that this does indeed grow like you envision, can you talk about the capital stack for future projects, what the equity check would look like and what Eos's potential contributions to that equity check would be? Would you continue to participate, or would the ownership percentage dwindle down over time?

Joseph Mastrangelo, Chief Executive Officer

Mark, thanks. As we discussed, the initial capital cycle we're thinking about involves leveraging with debt. We're targeting around 5x leverage, and that will depend on where we come in on the rights offering. On the incremental questions of future investment and equity and where we go from there, the program is designed to recycle capital from the returns on projects to continue to grow. It's the classic flywheel I described in my prepared comments. But it's a little too early to say what we would do as we launch the platform and what we would do in the future. We'll take that as it comes, but we're very excited about pulling everything together because it will speed up discussions as we move through the pipeline and opportunities and help us reach faster order closure.

Mark W. Strouse, Analyst

Okay. Okay. And then just a quick kind of accounting follow-up, I guess. Given the 49% equity stake, can you just talk about the revenue recognition? As you're delivering products, will you recognize that fully in the income statement? Are there any below-the-line adjustments we should be thinking about?

Nathan Kroeker, Chief Commercial Officer and Interim Chief Financial Officer

Yes. I think this would be a typical equity investment. The revenue would come through the income statement just like it would if it was a direct sale to a third-party customer. The only difference would be we will break it out as a related party line up at the top of the income statement. But otherwise, you will see the full impact of the revenue in the income statement.

Joseph Mastrangelo, Chief Executive Officer

Yes, Mark, I think it's important just to note, like it's arm's length. Frontier will have their own Board of Directors. They'll have their own management team, which we'll be announcing here shortly. I'm pretty excited about the people that we're talking to come in and run this. But everything will be fully negotiated, as was the capacity reservation agreement for the 2 gigawatt hours from a pricing standpoint, down payment and terms on that contract. It's all done as an independent company, independent third party. With our minority stake in that, like obviously, the minority stake will be treated from a Frontier standpoint, below the line.

Operator, Operator

Our next question comes from Martin Malloy with Johnson Rice & Company.

Martin Malloy, Analyst

Congratulations on all the progress. My first question is on Frontier Power. Just wanted to try to maybe get a sense of customer conversations that you've had around this and how soon we should anticipate offtake agreements or project announcements utilizing the structure?

Nathan Kroeker, Chief Commercial Officer and Interim Chief Financial Officer

I think, as Joe mentioned in his prepared remarks, we have a number of customer opportunities in our pipeline that are working on financing as a critical component of a successful project. That creates an attractive financing alternative and a lower cost of capital given how we're structuring it. We're going to make introductions to a number of customers. In the initial pipeline there are a handful of projects we're actively discussing right now. I think there's a good chance we will be delivering on volume associated with some of those initial projects in 2026, and this really builds momentum going into 2027 and beyond.

Joseph Mastrangelo, Chief Executive Officer

And Marty, I think the big thing here I'd like to talk about is the advantage that it gives us is we were doing the lion's share of this work on a lot of the opportunities in the pipeline, but doing that transactionally on a project-by-project basis. And this now gives us a structured platform with the insurance wrap, raise the debt, get investment-grade characteristics, have an equity stake, allow our shareholders to participate in the returns on financing and really accelerate the conversation. Because you're not going through the process of, let me apply, let me then pick my technology, then let me go through and understand my revenue stack, then let me go into my financing, then let me go and do how I'm going to construct and build and go through that process to get to the first discharge cycle of the system. We think with this setup, we're going to be able to accelerate all that because we'll bring a pre-structured solution to customers as they come with projects for us to be able to sell our technology into.

Martin Malloy, Analyst

Okay. That's very helpful. And then for a follow-up question, I just wanted to ask about reaching adjusted gross profit margin positive. I believe previously, you said second half '26. And with the operational improvements that you cited, can you give us an update there and degree of confidence in reaching that?

Nathan Kroeker, Chief Commercial Officer and Interim Chief Financial Officer

Yes, Marty, I mean, we're still targeting adjusted gross margin positive later this year, really driven by a lot of the things that John talked about in his remarks. He's making great progress on cost out, both on materials and direct labor. And then, as we get the Thorn Hill facility up and running, we continue to see improvements in indirect labor, overhead, and throughput as well. So that's really the driver of it, and we believe we will achieve positive adjusted EBITDA before the end of this year.

Operator, Operator

Our next question comes from Julien Dumoulin-Smith with Jefferies.

Hannah Velásquez, Analyst

This is Hannah Velasquez on for Julien. Congrats on the quarter and congrats on the Frontier Power announcement. Similar to my other peers, I had a question on that one. So just to give us a sense of the backlog impact, I realize the 2.6 gigawatt hours that you announced is as of quarter end. But what would your backlog be if we included the Frontier Power addition? Is it as simple as adding the 2 gigawatt hours? Or is it on a project-by-project basis? I'm really trying to get a sense of what 2Q could look like from a backlog expansion perspective.

Joseph Mastrangelo, Chief Executive Officer

Yes. Look, I think it's too early to give where the backlog is going to be because there's other things in motion. What we said was, you don't do it on a one-for-one basis because there's a project in backlog that will probably be converted and financed through Frontier, as I said in my prepared remarks. But we're not prepared today to give a midpoint or a forecast on backlog at the end of the quarter.

Hannah Velásquez, Analyst

Okay. And just as a follow-up question separately on ASPs. I know you talked a bit about the downward trend line being attributed to mix. But is a portion of that downward or that deflation related to the competitiveness of lithium iron phosphate? Any detail there would be helpful, especially to get a sense of where ASPs could trend longer term.

Nathan Kroeker, Chief Commercial Officer and Interim Chief Financial Officer

I think looking at the pipeline is the best indication of where we see longer-term trends, and it's really driven by larger scale projects that we're currently quoting with Indensity core and the associated efficiencies gained with those larger scale projects. But I think the best view of longer-term ASPs from our perspective is what you see in the pipeline. I mean, those are active projects that we're actively bidding on, and that's how we're looking at it.

Operator, Operator

Our next question comes from Patrick Ouellette with Stifel.

Patrick Ouellette, Analyst

It's Pat on for Stephen Gengaro. You reiterated the initial production for the second line for the end of 2Q. Just curious if you could touch on any key steps between now and then whether that's yields, throughput, things like that? And then how you're thinking about the ramp of the second line through the second half of the year?

Joseph Mastrangelo, Chief Executive Officer

Yes. And before John jumps in and goes through where we are on that, what I would say is when we go for our weekly review of progress up there, the team is making phenomenal progress in bringing the lineup together. Every week it looks like a totally different facility from the week before. In fact, this week we had a candidate come in to interview for a position at Eos who was a customer. They had been in Turtle Creek and the interview started off with, "I'm really impressed by what I saw because I was here two years ago; when can I start?" Those are the kinds of things you like to hear when people have reference points. I think John and the team have done a great job positioning us to be able to deliver, and you see it in the numbers. I'll turn it over to John to talk through where he is with the program of really implementing lean manufacturing as the way we work.

John Mahaz, Chief Operating Officer

Yes. So the line is completely installed. We're powering up all sections and doing debug currently. So we're on track to basically start production in June.

Patrick Ouellette, Analyst

Okay. And so with the second line coming online and the rollout of Frontier USA, is there a way you're thinking about production and deployment off the 2 lines together and how that gets allocated just to existing backlog and to Frontier USA?

Joseph Mastrangelo, Chief Executive Officer

Yes. So I think, look, a little bit early to comment on that one. Like we've got a range in the revenue, and that ties to how the lines ramp. What we're being very careful of is how the lines ramp up before making a commitment and really seeing what's happening. We feel really good about it. But we want to see where we're at. We have a lot of optionality that we're going through and looking at as far as running 2 lines and 2 facilities, running 1 line in 1 facility, potentially future consolidation into 1 facility. Those are things we're going to be working on here over the next couple of months, and we'll come back with news on that as we solidify our plans around what we're going to do.

Operator, Operator

And our next question comes from Jeff Osborne with TD Cowen.

Jeffrey Osborne, Analyst

Just two from my side. Nathan or Joe, I'm trying to understand, since you brought up project financing, that seems to be a big topic on the call. Can you just walk through what the historical challenges were around traditional project finance with traditional banks? And then what led you to the structure? I'm just trying to understand what those obstacles were and then if that's ever an avenue for future growth beyond the Frontier USA.

Joseph Mastrangelo, Chief Executive Officer

Jeff, we'll continue. I wouldn't call them obstacles. We're approaching this with a pre-engineered solution. The same banks we're talking to will provide the debt into Frontier Power. Instead of doing this on a transaction-by-transaction basis, we're doing it on a platform basis, where the debt is wrapped by insurance. Rather than having to go to the bank and bring in Ariel Green each time, we have all the elements in place. We're putting it into a structure so we can offer financing faster and enable customers to get to closing and start an NTP, notice to proceed, more quickly. We're excited because, in the near term, the Frontier pipeline far exceeds any implied capital raise for the platform. We have a pipeline of opportunities that lets us move faster and bring in expertise to close projects. At the same time, this lets the Eos technical team focus on running the company—executing, delivering, reducing costs, and improving our controls architecture and DawnOS—while a financial team and experts sit alongside us to accelerate customer conversations.

Jeffrey Osborne, Analyst

Got it. And then just switching gears. You mentioned the Southeast utility. I think there was a large project last summer in 2025 that went live earlier this year. Can you just walk through what's specifically involved to move an existing project that's already installed and producing electrons at a 4-hour pace, moving to 10 and then installing DawnOS? Is that a complete overhaul of the power electronics, but the battery array and systems themselves are in place and not changed? It's just unclear, what led to that change.

Joseph Mastrangelo, Chief Executive Officer

Yes. Jeff, it depends. There are a couple of things in the question, so I'll take them one by one. For a 4- to 10-hour system with Eos, there is nothing to change other than the way you operate the system — that's the beauty of the technology. The upgrade to DawnOS is a software change, and we also need the new printed circuit boards installed on the equipment. Depending on the generation of technology, we've evolved our BMS over time for the Z3, and there are three configurations in the field. For configurations 1 and 2, you have to change the wiring and the boards. For configuration 3, it's just the boards and you run the BMS. We do this on a project-by-project basis, but the performance it unlocks for the customer warrants the work. As an example, we ran a 1-hour cycle yesterday at 84% round-trip efficiency. That's the type of performance we want to deliver to the market, and it will open up new revenue stacks for our customers and allow us to deploy more product in the field.

Jeffrey Osborne, Analyst

Perfect. Very quickly, one last follow-up on Frontier. I think Bloom did something similar years ago with Southern Company and had challenges around field performance. Can you just acknowledge what the reliability requirements are as part of Frontier Power as it relates to how your units have been running the last year or so relative to the expectations of that financial structuring? Is there any material changes that need to play out as it relates to field reliability over time?

Joseph Mastrangelo, Chief Executive Officer

No, Jeff. None at all. And I think like we just got to be careful here. The technology, the underlying technology in the batteries work. As I talked about in my prepared comments, this is unlocking the performance that were in the batteries with the software that we need. Now what's interesting is we've brought some people in to work inside the company that have many years of experience owning and operating lithium-ion systems. And lithium-ion has the same thing that we're talking about. What our new project lead says is that she remembers moving lithium-ion battery packs around the balance. You don't need to do that with our system. So this is something that's there and we think our software controls and unlocks performance that isn't there for other technologies. And one of the challenges that we had in our first generation that we put on the Z3 is for speed to market, we installed an underlying printed circuit board and a core BMS that was used in lithium-ion. It just doesn't match up and it give us the level of granularity you need to maximize performance. So getting a system, Jeff, that can go from a 1-hour and 83% round-trip efficiency up to a 10-hour, 12-hour discharge that then gets up approaching the 90s, to be able to do that on one system, as far as we know, there aren't any other products out there that can do that. You're talking about like if you look at a flow battery, like a vanadium flow battery, very low footprint, power density. And what we do, 6.4 megawatt hours, a vanadium battery probably does under 0.5 megawatt at 50% round-trip efficiency. We're in the mid-80s on regular cycle. So we like the performance that we have. We like what the team is developing, and we like having Frontier Power alongside of us to accelerate decisions. And yes, as in any product, we're always going to work on improving the reliability. And what Frontier Power unlocks, Jeff, and kind of the thing for us that opened the door was like when you look at how we designed Indensity, right, you take this flexible battery module, this low ability to control each module with a controls platform within Indensity. A light bulb went off, where I was sitting there talking to Jeff Bornstein, who's on our Board and saying Indensity is like an aircraft engine. Indensity is like an aeroderivative gas turbine. We can swap out modules as you have to and maintain nameplate performance. What we're going to change with energy storage with Indensity is we'll guarantee nameplate for the life of the project. There's no more talking about augmentation. It's running it like an industrial asset like you see with a gas turbine or with an aircraft engine that you don't do the service while it's on the wing of the plane. You swap it out and keep going. That's what we've designed, and we're excited to bring that to market.

Operator, Operator

Our next question comes from Ryan Pfingst with B. Riley Securities.

Ryan Pfingst, Analyst

First, can you talk more broadly about the competitive landscape? And maybe any additional color on what customers have been indicating in terms of duration preferences?

Nathan Kroeker, Chief Commercial Officer and Interim Chief Financial Officer

Look, I think consistent with what we've said historically, and we see it increasing as customers continue to need longer duration solutions. Market fundamentals have shifted in many of the markets. You're seeing programs like the NYSERDA Bulk Storage procurement. You're seeing PJM come out with the reliability backstop, Ofgem's cap and floor program in the U.K. that we've talked about previously. I mean, markets are recognizing that they need longer duration for grid reliability as well as to service the demanding load profiles that the increase in data centers is having on the grid, and long duration is the perfect solution for that. Joe already talked about the ability to run 1-hour cycles, 12-hour cycles from the same asset. When we look at the erratic use cases of the hyperscalers being able to ramp up and ramp down within milliseconds and do that many, many times a day, I mean, it's an abusive use case, and our battery is specifically engineered to handle that. And we're very excited about the technology and how it's designed to handle that. All of that lends itself to increasing durations and flexible assets, which we've got in the Z3 technology.

Joseph Mastrangelo, Chief Executive Officer

And Ryan, what I would just add on top of Nathan's comments is that to simplify conversations, we make it sound like you're running one cycle a day, every day. That's not how the grid works and it's not how these assets will be utilized. I don't view it that way; Nathan used words like "harsh," but that's just the way AI is going to work. If we all go on our phones right now and type something into an AI engine, you're creating an inference session and a spike in power demand that has to be handled in milliseconds, and the product does that. When you do large-scale learning on AI, you need power for long periods of time. We're the buffer in the asset that can do both of those things successfully, and the way Indensity is set up we can do both on the same installation because DawnOS can be parsed into different parts of the system. You can run an inference system on one part and a large learning or long-duration system on another. It's about flexibility and giving the grid the shock absorber it needs as power demand changes over time, and it protects core fossil assets from that variability. It's not just solar plus storage or wind plus storage — it's anything plus storage that gives you frequency regulation, and we have a product proving itself every day in the field that customers are coming to us for. With Frontier Power, we now have the ability to accelerate those conversations.

Ryan Pfingst, Analyst

Appreciate that. And then maybe a follow-up on that last comment. It sounds like Frontier Power will be key for order conversion. Are there any other gating items that you feel like you've addressed with customers in recent months that should benefit order conversion this year?

Joseph Mastrangelo, Chief Executive Officer

Look, I think some of the biggest things that are going to help order conversion are the growing need for power and doing things faster than we've ever done before. Showing the product's operating performance in the field and taking customers' use cases, running them, and proving we can meet them leads to the decisions that convert orders. We feel good about the pipeline and the relationships we're building. Nathan talked about TURBINE-X. It's great to be with a partner like TURBINE-X that approaches the market by bringing aeroderivative-type technologies to different load cases. We partner with them and with companies like FlexGen because you have to remember this isn't just plugging pieces together; it's not building a LEGO set. There is a controls architecture underneath and a controls architecture on top. By aligning those controls beforehand we can get to power faster. Getting to power faster is what the market and our customers need, and that's what we're building.

Operator, Operator

Thank you. This concludes the question-and-answer session. I would now like to turn it back to Joe Mastrangelo for closing remarks.

Joseph Mastrangelo, Chief Executive Officer

Well, thanks, everyone, for listening today, the questions. We look forward to continuing to build a great company. The one thing I'll tell you that won't change about Eos is the dedication of this team to building a great company. We're really excited, obviously, about the Frontier Power partnership that we're building. The ability for our shareholders to participate in that makes me very excited personally because they've stood by us through trials and tribulations. We continue to grow the company, continue to improve performance and continue to build something that we all can be proud of. So thanks again, everybody.

Operator, Operator

This concludes today's conference call. Thank you for participating. You may now disconnect.