Eos Energy Enterprises, Inc. — Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2021. Amounts below are in U.S. dollars; financial statement amounts are generally shown in millions unless otherwise noted.
Business context
Eos designs and manufactures zinc-based energy storage systems for utility, commercial, and industrial customers. The company was scaling production of its Gen 2.3 battery system. In April 2021, it acquired Holtec’s remaining 51% interest in Hi-Power, its Pittsburgh manufacturing operation, which became a wholly owned subsidiary. The filing says the Gen 2.3 system and Hi-Power facility had received UL certifications.
Financial performance and liquidity
| Metric | Q3 2021 | Q3 2020 | Nine months 2021 | Nine months 2020 |
|---|---|---|---|---|
| Revenue | $0.718 | $0.035 | $1.494 | $0.035 |
| Cost of goods sold | $12.904 | $6.051 | $25.368 | $6.161 |
| Operating loss | $(26.286) | $(14.274) | $(97.125) | $(23.455) |
| Net loss | $(18.124) | $(30.116) | $(93.623) | $(45.348) |
| Operating cash flow | Not provided by quarter | $(80.605) | $(10.421) |
Revenue remained limited despite increasing year over year. Cost of goods sold substantially exceeded revenue: the implied gross loss was approximately $12.2 million for Q3 and $23.9 million for the nine-month period. Management attributed elevated production costs to low manufacturing volumes, overhead, process refinement, and scrap. The nine-month net loss also included a $30.4 million loss related to terminating the prior Hi-Power agreement and a $7.5 million loss on remeasuring the previously held investment.
Net loss improved year over year in Q3, but included a $9.9 million gain from remeasuring the convertible-note embedded derivative and a $1.3 million PPP loan-forgiveness gain. For the nine months, net loss more than doubled year over year. Other favorable non-operating items included a $2.2 million gain from selling state tax attributes. These items make reported net loss less representative of ongoing operating performance.
At September 30, cash and cash equivalents were $144.2 million, restricted cash was $0.5 million, current assets were $169.1 million, and current liabilities were $20.9 million. Total liabilities were $131.7 million. Long-term debt, including its current portion, was $25.4 million; the Koch convertible notes had $100 million principal and a $88.0 million carrying value. Shareholders’ equity was $58.4 million, down from $120.8 million at year-end 2020. Nine-month investing cash outflow was $20.2 million and financing cash inflow was $123.7 million. Management believed available resources would meet capital expenditure and working-capital needs for the next 12 months.
Material changes and outlook
- Cash used in operations rose to $80.6 million from $10.4 million in the prior-year period, including $15.1 million of payments to Holtec related to the Hi-Power transaction and substantial spending on manufacturing and R&D.
- The company raised $100 million through five-year convertible notes issued to Koch affiliate Spring Creek Capital. Notes bear 5% interest if paid in cash or 6% if paid in kind, and are convertible at an initial effective price of about $20 per share. The company also entered a $25 million equipment financing facility and drew $7 million.
- Management estimated 2021 capital expenditures of approximately $15–25 million, primarily for equipment, automation, and capacity and efficiency improvements. It expected costs to exceed revenue in the near term and gross margins to improve as production scales and processes improve; no specific revenue or earnings guidance was provided.
- Commercialization and deliveries faced delays tied to customer permitting, grid connections, site readiness, and COVID-related disruptions. Management also cited inflation, supply-chain constraints, and labor shortages. Production scaling, quality, yield, customer acceptance, and the ability to secure future funding remain important execution risks.
- The company reported material weaknesses in financial reporting controls and concluded disclosure controls were ineffective. Remediation was underway but not complete. The filing also revised previously reported 2020 figures for warrant accounting and other immaterial errors; management said those corrections were not material to the 2020 financial statements.
Important facts for investors to verify
- Whether production scale, yields, scrap levels, and delivery schedules improve enough to reduce the large gap between revenue and cost of goods sold.
- Whether the $144.2 million cash balance and available financing cover ongoing operating cash use, planned capital spending, and customer-loan commitments.
- The full economic and dilution implications of the Koch convertible notes, including in-kind interest, conversion rights, and the embedded derivative valuation.
- Progress in remediating the disclosed material weaknesses and whether controls operate effectively over a sufficient period.
- Whether customer permitting, grid interconnection, supply-chain, and labor delays affect backlog conversion and future results; the filing does not provide a clear quantified delivery outlook.