Eos Energy Enterprises, Inc. — Q2 2022 Form 10-Q
Reporting period: Three and six months ended June 30, 2022; unaudited. Eos designs and manufactures zinc-based energy-storage systems for utility, microgrid, and commercial and industrial customers.
Financial performance and position
| Metric | Q2 2022 | Six months 2022 |
|---|---|---|
| Revenue | $5.9 million | $9.2 million |
| Cost of goods sold | $36.9 million | $72.4 million |
| Gross loss and approximate gross margin | $31.0 million; -525% | $63.3 million; -688% |
| Operating loss | $57.4 million | $109.1 million |
| Net loss | $56.7 million | $102.5 million |
| Loss per share, basic and diluted | $1.01 | $1.86 |
| Cash used in operations | $87.0 million for the six months | |
| Cash and cash equivalents at June 30 | $16.3 million; $17.5 million including restricted cash |
At June 30, total assets were $97.7 million and liabilities were $155.6 million; shareholders’ deficit was $57.8 million. Current assets of $60.5 million slightly exceeded current liabilities of $59.6 million. Carrying amounts included $84.5 million of convertible notes, $14.0 million of notes payable, and $5.6 million of long-term debt.
Changes versus the prior-year period
Revenue rose 863% in Q2 and 1,085% in the first half, primarily as more systems were delivered from backlog. However, cost of goods sold substantially exceeded revenue, and operating losses widened. First-half net loss increased from $75.5 million to $102.5 million, while operating cash outflow increased from $48.9 million to $87.0 million. Comparisons are affected by prior-year one-time items, including the $30.4 million first-half loss on termination of the Holtec joint-venture agreement and a $2.2 million gain from sale of state tax attributes.
Liquidity, outlook, and risks
- Management stated it lacked sufficient capital at issuance of the statements to fund its current cost structure for the following year. The filing concludes that substantial doubt exists about the company’s ability to continue as a going concern; additional funding or reduced spending would be needed to continue operations.
- After quarter-end, Eos received an $85.1 million senior secured term loan, funded July 29, 2022. It bears interest at a benchmark rate plus a margin of 8.5% for SOFR loans or 7.5% for base-rate loans, matures no later than July 2026 subject to the stated earlier-maturity condition, and is secured by substantially all company and subsidiary assets other than Hi-Power’s assets. The agreement requires minimum quarterly liquidity of $9.6 million and includes restrictive covenants.
- Eos repaid the $7.5 million Yorkville convertible note after quarter-end by issuing 3.39 million shares under the SEPA. By June 30, the company had already raised $5.0 million under the $200 million equity purchase agreement; use of the full facility is not assured and share sales may dilute existing holders.
- Management expects continued losses, operating cash outflows, and need for capital. Fiscal 2022 capital expenditures were estimated at $25–35 million. The company expected its Turtle Creek expansion to raise annualized capacity to 800 MWh and be completed by December 2022; these are expectations, not reported outcomes.
- Management cited improving manufacturing yield and throughput, but said the company had not reached its expected product-cost level. Supply-chain disruption, inflation, customer project delays, and scaling execution may affect costs and deliveries. Q2 revenue was highly concentrated: one customer represented 89.6% of revenue.
- Commercial announcements included a Bridgelink agreement increased to 1 GWh over three years and a separate 40 MWh order, plus a 300 MWh agreement with a Northeast solar developer. Announced capacity and potential order value are not equivalent to recognized revenue.
- The company settled a DOJ customs-duty matter in July for approximately $1.1 million, accrued at June 30. It also disclosed an early-stage SEC subpoena concerning customer negotiations and agreements and investor disclosures; the company said it was cooperating.
- Disclosure controls were deemed ineffective at June 30 due to material weaknesses involving the control framework, segregation of duties, journal-entry review, and management review controls. Management reported additional post-closing procedures to support the financial statements.
Most important facts for investors to verify
- Cash runway, actual use and cost of the Atlas loan, compliance with its liquidity covenant, and whether additional financing or spending reductions are required.
- Equity issuance under the SEPA, resulting dilution, and the company’s remaining access to that facility.
- Manufacturing yields, product cost, gross-margin improvement, delivery performance, and conversion of announced orders and backlog into revenue and cash.
- Progress and outcome of the DOE loan application, the SEC inquiry, and remediation of material weaknesses in disclosure controls.
- Customer concentration and exposure to supply-chain, inflation, and project-timing risks.