Earnings Call Transcript - EOSE Q4 2025

Operator, Operator

Good morning, and welcome to Eos Energy Enterprises' Full Year 2025 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' Fourth Quarter and Full Year 2025 Conference Call. Today, I'm joined by Eos' CEO, Joe Mastrangelo; COO, John Mehas; CTO, Francis Richey; 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 our 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 and U.S. GAAP financial information, is provided in the press release. Non-GAAP information should be considered 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 or as 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. Joe, John, Francis, 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, CEO

Thanks, Liz. Good morning, everyone, and thanks for joining us. This quarter, we continue to operate in an energy environment defined by one clear trend: the acceleration of demand for power, combined with constrained grid flexibility and reliability. That creates opportunity for a company like Eos. What we've been talking about over the five years that we've been a public company is being able to bring a product that was flexible, reliable, and can do multiple discharges in a day or long or short discharges with quick response times. That's exactly what the market is looking for. And although data centers are in the headlines and changing the way that we think about our grid, and data centers are requiring us to make decisions on faster time horizons than we've ever done before in the energy sector, there are other demand drivers in the industry, such as electrification and transport, along with the increased domestic production in the United States creating higher load growth for a grid. That fits perfectly with our technology. Energy storage is moving away from managing volatility to providing reliability. What we need is this buffer resource that allows you to keep the grid balanced while also adapting to quick changes in load growth. A vision of a product and a company only goes so far; execution is what counts. When you look at our quarter and our year, yes, we set records. Our volume was up, and our margins improved sequentially quarter-over-quarter and year-over-year. We had a great quarter regarding orders being booked, and Nathan will discuss how those orders align with use cases that will provide future growth for the company. However, the bottom line is we missed our guidance, and that falls on me as the CEO of the company. What John, Francis, Nathan, and I will discuss today is building out our team's capabilities, our product, and our ability to bring that product to market and install it to provide reliable performance. We believe we have the product that meets those future needs. We must continue to build the company to deliver predictable performance for our shareholders and customers. I think we have the team to do that, and we will show initial results that are beginning to demonstrate how we can deliver reliably in the future. Looking at our bottom line, we achieved 7x year-over-year growth in revenue, combined with our highest cash position that we've had in the company's history, alongside closing the gap and moving towards profitability. We've removed the going concern language inside our 10-K filing, which Nathan will discuss shortly, indicating that we are strategically operating the company. Simultaneously, we launched Indensity, which Francis will elaborate on. Indensity takes our existing product and packages it in a way that is easy to operate, service, manufacture, and allows customers to utilize it multiple times within the day. It's not starting over; it's improving upon what we have. We are responsible for ensuring our assets in the field operate reliably, and Nathan and the projects team are doing just that. Overall, I'm proud of what we've accomplished but disappointed that we didn't meet our guidance. We are actively working to ensure this does not happen again in the future. Now, let's discuss how our installed base is expanding. We currently cover 20% of the United States with 20 projects installed. Our Z3 product has discharged nearly 300 megawatt hours of power, and every cycle serves as a learning opportunity for us to better understand our customer's requirements. Despite concentration of revenue, we had deliveries to 11 customers and revenue from 18 different customers during this quarter. As we move forward, we will target to increase our footprint to cover 25% and will soon include a map of Europe as we ship to Germany. We want to provide insight into our operations and how we learn from customer feedback to enhance our offering. Let's now discuss some operational metrics. Starting with our quarterly revenue profile, we achieved significant growth from Q4 2024 to Q2 of last year, and then again in Q3 of 2025 after bringing bipolar manufacturing online. We completed our production ramp-up and achieved our 2-megawatt hour capacity from our facility in Turtle Creek. From an annualized perspective, we're still up 7x, and our capacity will support the demand we see. It's critical to consider how we are managing capacity, as John will elaborate on. We intend to create sufficient buffer capacity to manage potential fluctuations in production, which is vital in any industrial process. We recognize that we are not profitable yet, but we are structurally on the right track. Through improved efficiencies, we can look toward achieving the profitability we expect. Indensity represents a substantial step change, while our Z3 Cube product is profitable, and we will ensure it remains that way. Using the lean mindset to drive cost efficiency and productivity is key. I'm excited about the work underway to enhance customer engagement and how we collectively strive for profitability. I'll now hand it over to John.

John Mehas, COO

Thanks, Joe, and good morning, everyone. It's great to be here with you all again this morning. Q4 was my first full quarter at Eos, and I'm going to speak candidly about where we are operationally. First, there's real progress to acknowledge. We completed our subassembly automation, making our battery line fully automated. We closed out 2025 with production records across all operations and delivered our fourth consecutive quarter of record revenue. 26 key suppliers supported this ramp to achieve our 2 gigawatt hour line capacity. That doesn't happen without a committed team doing a lot of things right. However, we fell short of our operational targets, and that falls on me. When we spoke last quarter, I felt confident in our ramp plan. We had strong early results and enough excess capacity to deliver what we needed to hit our guidance. Ultimately, three very fixable issues prevented us from fulfilling our commitments. First, we experienced one isolated supplier nonperformance that cost us a week of production. We addressed this directly, working closely with our supplier to quickly identify root causes and corrective actions. We implemented better controls internally and with our suppliers, and that issue is behind us. Secondly, the automation of bipolar production took longer than anticipated to meet quality targets, which caused rework and lost revenue. We improved tooling, minimized variation in the automation process, and tightened material specifications to stabilize bipolar production. Additionally, we added laser detection for better visibility and control of any process variations. Lastly, our battery line downtime exceeded industry norms significantly, running higher than our internal forecast. Our expectations are to operate at roughly 10% equipment downtime, yet we were closer to the mid-30% range. Working closely with our automation partners, we've addressed issues surrounding our robotics, hardware, controls, maintenance schedules, and spare parts. We've also improved our technical capabilities and strengthened our team to enhance resolution time. Downtime is significantly improved in Q1, and we have a clear path to achieving world-class performance. None of these issues were related to demand or structural problems; they were challenges related to ramping first-generation automation designs. While the magnitude of these problems was unanticipated, the resulting learnings, actions, and execution are my responsibility. Since my arrival, I've focused on identifying single points of failure in the system. We've now extensively stressed our first-generation automation, allowing us to pinpoint and address weaknesses. We are systematically reinforcing our processes to prevent future failures. Early Q1 results demonstrate higher quality and predictability in operations. The biggest structural risk today is the lack of redundancy; if our primary line goes down, production ceases. Line 2 is being built with redundancy in mind. It's progressing well and preparing for factory acceptance testing in Wisconsin. We've intentionally incorporated redundancy into critical stations; once operational, it will alleviate our largest point of failure and add flexibility we currently lack. Addressing efficiency is also critical. Our materials travel across three floors and two buildings, over two miles from start to finish, which is not a cost-effective design. With Line 2 and the Thornhill expansion, we'll redesign for single-piece flow, significantly reducing material handling and complexity. We expect materials to begin arriving in Q2, targeting fully automated production by Q4. To conclude, 2025 was a year focused on automation implementation, capacity expansion, and rapid change. Day one isn't perfect, but my role is to transform new capabilities into reliable operations. We've identified gaps, addressed root causes, and are building the redundancy and process rigor necessary for scalable operations. I am confident in the path forward and in our team's ability to execute it. Let me now turn it over to our CTO, Francis Richey.

Francis Richey, CTO

Thanks, John. It's great to join the call today. I'm the Chief Technology Officer and have been with Eos for 11 years. I started at Eos when we were a 15-person company, and it has been a rewarding journey with an incredible team of scientists and engineers, developing the chemistry, battery system, and software through multiple product iterations. I'm a chemical engineer by training, passionate about scaling and optimizing technology to build profitable products, especially those using electrochemistry. The market environment has evolved significantly during my time at Eos. We started with an aqueous zinc-based battery. As our technology advanced, we found more efficient configurations for our systems and implemented better power electronics to control performance, particularly with the Eos Z3 Cube. Initially, customers wanted to buy a DC system of batteries to integrate into larger AC systems. Now, many seek a complete solution where Eos provides batteries, software, controls, AC integration, and site design, allowing for easy installation and operation. Our Z3 systems have been operating in the field and tested in extreme environments, from very cold climates to hot deserts with high winds that can impact system operation. We've used this field experience to improve resilience, reliability, and our software and controls, leading to the launch of DawnOS. DawnOS allows customers to manage and optimize system performance with individual battery monitoring and control to improve operability. This is where Indensity comes in. Developed with customer input, it meets their operating requirements while ensuring robust performance. Indensity improves serviceability, cost, and site energy density. The Indensity core enables easy service without requiring on-wing disassembly. Instead of disrupting the entire system, individual units can be serviced using a simple forklift, avoiding significant energy loss during service. The modular design allows units to be stacked vertically, significantly improving site energy density and catering to densely populated locations where safety is paramount. I am excited about Eos' evolution from cell testing to battery manufacturing, now providing integrated battery energy storage systems with advanced controls and software. I couldn't be more enthusiastic about the future and our product's alignment with customer needs. With that, I'll turn it over to Nathan.

Nathan Kroeker, CCO and Interim CFO

Thanks, Francis, and good morning, everybody. Let me start on the commercial front, where we had a very active fourth quarter. We ended the quarter with just over $701 million in backlog, booking nearly 1.1 gigawatt hours across eight customers and nine individual projects, representing a 9% sequential increase. During the quarter, we secured more than $240 million in new orders with healthy diversification across commercial and industrial, distributed generation, and utility scale applications. Let me highlight three of these orders that showcase the operational flexibility of our technology and our ability to work across different customer use cases. First, we signed a 50-megawatt hour master supply agreement with a developer in the Midwest to deliver projects supported by Commonwealth Edison's Distributed Generation Rebate program, which provides a $250 per kilowatt hour incentive for new energy storage systems. We have already executed the first purchase order under this agreement, with delivery scheduled for later this year. Secondly, we signed initial projects for systems to be installed at hotels in Florida with a developer who has a substantial pipeline of additional projects expected over the next 12 to 18 months. Lastly, we secured an order from a global power company focused on renewable and energy storage platforms to deliver a Z3 system for integration testing at a national lab. We are actively pursuing large-scale opportunities with this customer, making this a significant project showcasing Z3's performance capabilities. All three projects illustrate how we are fostering long-term partnerships that will evolve into larger growth opportunities. Shifting to the broader pipeline, we ended the quarter with a commercial pipeline of $23.6 billion, representing approximately 99 gigawatt hours of potential, marking a 4% sequential growth and 64% year-over-year growth. Hyperscaler and AI-related projects remain pivotal growth drivers as customers seek reliable dispatchable capacity and behind-the-meter load smoothing solutions. Leads for data centers increased by 50% quarter-over-quarter, and our active data center pipeline grew over 40%, with many opportunities aligned with the Indensity solution. As noted in our public filings, we have submitted for a 300-megawatt, 8-hour project in the Brooklyn Navy Yard under NYSERDA's Bulk Storage procurement program. Another project was also submitted under the same program in ConEd Zone K with the customer testing our product at the National Lab. We are seeing opportunities shift toward colocating with generation assets, including both natural gas and renewables, with 63% of our pipeline now consisting of 8-hour or longer systems. Notably, PJM's recent capacity market reforms have led to elevated clearing prices, enhancing economics for long-duration storage, which aligns well with our framework agreement with Talen. Additionally, Bimergen, a long-term partner on the New York Stock Exchange, selected the Z3 system for the 400-megawatt hour Redbird project in ERCOT. Following this, we have an additional 2 gigawatts of project development pipeline spanning ERCOT, PJM, and MISO that we are currently exploring. Overall, we are observing strong near-term backlog growth coupled with sustained long-term pipeline expansion, positioning us favorably as demand for integrated long-duration storage solutions grows. Turning to financials, we are proud of our performance. As Joe and John highlighted earlier, our focus remains on achieving profitable growth. In reviewing 2025, it was a year marked by real operational advancements, exiting the year with fully automated battery module manufacturing, executing continuous process improvements, launching DawnOS, and managing multiple product component transitions while scaling production. These foundational changes are translating into stronger financial performance. We delivered our fourth consecutive quarter of record revenue and maintained a gross margin improvement as production volumes ramped and subassembly automation came into play. In Q4, we generated $58 million in revenue, nearly double Q3, exceeding the combined revenue from the first three quarters of 2025 and all prior years since going public. Full-year revenue reached $114.2 million, reflecting more than 7x year-over-year growth. The introduction of subassembly automation marks a significant turning point in our manufacturing strategy, enhancing capacity, consistency, quality, and labor productivity which ultimately reduces overall unit costs. While we only began to see contributions late in Q3, the results in Q4 affirm our confidence in our scaling business model. Gross loss for the year amounted to $143.8 million, a 408 percentage point margin improvement year-over-year, driven by significantly higher production volumes and ongoing efforts to reduce product costs. This quarter, we introduced a new non-GAAP metric: adjusted gross profit, which excludes stock-based compensation and depreciation/amortization for clearer visibility into core operations while aligning us with industry peers. On this basis, adjusted gross loss for the year stood at $128.5 million. Operating expenses for 2025 totaled $115.4 million, a 26% increase year-over-year, tied to targeted investments for scaling and enhanced product solutions. Throughout the year, we invested in engineering, launched DawnOS and Indensity, completed multiple financing transactions, and onboarded impactful new talent. Within operating expenses, 22% comprised non-cash items primarily from stock-based compensation and depreciation/amortization. The net loss for the year amounted to $969.6 million compared to $685.9 million the previous year, driven primarily by $746.8 million in non-cash impacts related to fair value accounting adjustments, refinancings, and other non-operational items. Notably, the largest contributor to the loss was the 135% year-over-year surge in our stock price, leading to mark-to-market revaluations of warrants and derivatives. As our share price continues to fluctuate, this line item will impact our operations but isn't tied to company performance. Ultimately, we closed 2025 with a cash position of just under $625 million, the strongest cash balance in the company's history. We took intentional steps throughout the year to strengthen our balance sheet, finalizing with the refinancing completed in November, retiring 80% of our existing 2030 converts and lowering our interest rates by 500 basis points while adding $474 million in cash and freeing up an additional $11.5 million in restricted cash. Furthermore, through the exercise of public warrants, we generated approximately $80 million in gross proceeds. As a result of these actions alongside positive outlook for the company, we've removed the going concern language from our filings, which marks a significant milestone reflecting the strength of our cash position and the ongoing improvements in our operations. Together, 2025 laid a crucial foundation for the business; we expanded customer relationships, advanced key partnerships, scaled production, implemented automation, improved margins, and launched both new software and product configurations that enhance our existing technology while addressing market needs. Despite a lot of work ahead, the foundation we've built positions us well for continued growth, improved profitability, and long-term value creation. With that, I'll turn it back to Joe.

Joseph Mastrangelo, CEO

Thanks, Nathan. Let me wrap up with our outlook for 2026 as we set guidance on revenue. You can see how our guidance has progressed over time; if you take the midpoint of the guidance range for 2026, it's three times what we did in 2025. We feel confident about this guidance based on what John and Francis have discussed. $300 million is derived from our backlog, and the upper range of $400 million is connected to larger projects that will proceed through the regular approval processes with grid operators as our customers install projects. We are enthused about the NYSERDA projects Nathan outlined and our collaborations with Talen in PJM, as well as growth from data centers in states like Virginia and ERCOT. We anticipate beginning shipments of Indensity in the second half of the year, which is how we forecast reaching the upper bound of our guidance. As the year progresses, we'll provide updates on our progress against this guidance. One more point: we have not issued formal guidance regarding gross margin for the first quarter, as previous material costs pushed out into Q1 will delay our path to profitability. However, we are confident that with the innovations being introduced by Francis, John's enhanced productivity and cost efficiencies, and Nathan's commercial strategies, we will achieve gross margin positivity in the second half of 2026. We feel very assured in the guidance of $300 million to $400 million that we've provided. Thank you all for listening. Now, we will move on to the Q&A portion, starting with some questions from our retail shareholder base submitted through the SAE tool. As part of Project AMAZE's 8-gigawatt-hour annual production targets, where does Eos expect to be at the end of 2026 for annualized manufacturing nameplate capacity? Right now, we're targeting 4 gigawatt hours, aligning with customer requirements. We aim to position Thornhill for rapid expansion. Our goal is to bring capacity online aligned with customer demand, and John may have some comments on this.

John Mehas, COO

Over the past few months, we've developed several automation partnerships to decrease lead times, and we have a national building partner capable of delivering facilities promptly. We've collaborated with suppliers to understand their capacity inflection points, ensuring we can stay ahead of Nathan from an order standpoint.

Joseph Mastrangelo, CEO

We're not chasing volume; we are building capability to consistently deliver. When you flip a switch, you want the lights on, and that's our goal - delivering reliable products while being disciplined with our working capital and cash management strategies. Regarding recent operational metrics and achievements that validate our Q1 2026 positive gross margin target, structural profitability is evident; we just need to execute better. We are focused on the path to profitability. The Z3 Cube is already a profitable product, and the new Indensity core enhances performance, facilitating faster manufacturing and more competitive pricing.

John Mehas, COO

From a lean perspective, we see opportunities for improvement in all operational aspects, such as increasing fixed asset utilization, improving yields, and reducing material costs, all while striving to minimize scrap and increase run rates. The redesign for Thornhill will address these inefficiencies.

Joseph Mastrangelo, CEO

As we consolidate our operations into a more efficient facility, it will allow us to capture many of the operational synergies as we scale up production.

Operator, Operator

Our first question comes from Stephen Gengaro of Stifel.

Stephen Gengaro, Analyst

My first question is on the guidance. You had high expectations for Q4, and clearly, you fell short. How do you approach the components of guidance, and how do you plan to de-risk these parameters historically?

Joseph Mastrangelo, CEO

Stephen, thanks for your question. We developed this range with input from improvements John has made based on the backlog and the opportunities we believe we can manage without exceeding difficulty. Demand for our product remains strong, but our objective is to better control scale and ensure we deliver the quality and margin expansion required.

Stephen Gengaro, Analyst

Will Q1 growth be above Q4, starting at a low point and increasing throughout the year?

Joseph Mastrangelo, CEO

While we don't provide quarterly guidance, we're coming off a high point and delivering to customer schedules. Expectations are around the Q4 number, with plans to implement additional commissioning revenue.

Julien Dumoulin-Smith, Analyst

Regarding the $300 million to $400 million guidance, could you elaborate on the larger projects you're anticipating and how they scale into milestones this year?

Joseph Mastrangelo, CEO

We must navigate the lengthy approval processes, yet there are two large projects in NYSERDA that could deliver quickly upon approval. While some projects appear small, they possess immense growth potential.

Julien Dumoulin-Smith, Analyst

Can you discuss the defense end market and the opportunity you see there including project size and duration?

Joseph Mastrangelo, CEO

The defense sector focuses heavily on NDAA guidelines, mandating purchases of American-made products. We're working with various military branches to address their power growth needs while ensuring compliance with their requirements.

Julien Dumoulin-Smith, Analyst

As for Lines 3 and 4, how do you anticipate their ramping and scaling?

Joseph Mastrangelo, CEO

This is about disciplined execution; John is optimizing operations and automation partnerships. Our aim is to implement lines based on customer demand effectively while managing output and efficiency.

Mark Strouse, Analyst

Can you comment on the competitive environment? Other companies are discussing long-duration projects, showcasing a broader demand for the product.

Joseph Mastrangelo, CEO

We welcome competition, as it reaffirms the increasing demand for long-duration energy storage solutions. Our technology fits well within the market, and having more competitors showcases the demand.

Craig Shere, Analyst

Can you discuss gross margin dynamics between U.S. and international orders?

Joseph Mastrangelo, CEO

International interest largely stems from product performance rather than political factors. We see our product's intrinsic value attracting both domestic and international customers.

Jeff Osborne, Analyst

Can you share the yield performance on the bipolar line and any updates on field performance?

John Mehas, COO

In Q4, we achieved bipolar yields significantly above earlier levels, which we are continuing to improve upon. We expect to reach our goal of 97% first-pass yield moving forward.

Joseph Mastrangelo, CEO

We execute continually on field operations, learning from feedback and enhancing our commissioning timelines as necessary. Results have been positive across our customer interactions.

Jeff Osborne, Analyst

Are you capturing higher prices as discharge duration extends?

Joseph Mastrangelo, CEO

Pricing is influenced by the value proposition we offer; we sell on a levelized cost of storage basis, which balances capital and operational costs strategically.

Operator, Operator

I am showing no further questions at this time. I would now like to turn it back to CEO, Joe Mastrangelo, for closing remarks.

Joseph Mastrangelo, CEO

Thank you for joining today. I want to emphasize that the demand for domestically sourced long-duration energy storage is significant and growing. The grid is evolving; electrification is a reality. In 2025, we laid crucial groundwork, enhancing our balance sheet and scaling operations while delivering strong revenue growth. 2026 demands disciplined execution from our team. Our guidance reflects what we control and our capability to deliver. Just focused on improving sequential margins remains our priority as we aim for long-term structural profitability. Our liquidity allows for strategic operations, and we are building a trustworthy energy infrastructure company.

Operator, Operator

Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.