Eos Energy Enterprises, Inc. — Q2 2021 Form 10-Q
Reporting period: Three and six months ended June 30, 2021. Unaudited results; dollar amounts below are in millions unless stated otherwise. Eos designs and manufactures zinc-based battery energy storage systems. Year-over-year comparisons reflect an early commercialization stage and a business combination completed in November 2020.
Financial performance and liquidity
| Metric | Q2 2021 | Q2 2020 | Six months 2021 | Six months 2020 |
|---|---|---|---|---|
| Revenue | $0.612 | — | $0.776 | — |
| Cost of goods sold | $12.364 | $0.053 | $12.464 | $0.110 |
| Operating loss | $(49.188) | $(4.189) | $(70.839) | $(9.181) |
| Net loss | $(54.043) | $(5.884) | $(75.499) | $(15.232) |
| Basic and diluted loss per share | $(1.04) | $(1.50) | $(1.46) | $(3.88) |
- Gross loss was approximately $11.8 million in Q2 and $11.7 million for the six-month period, as cost of goods sold substantially exceeded limited revenue. The filing gives no gross-margin percentage; management attributed the shortfall to low production volume, manufacturing overhead, process refinement, scrap and inventory adjustments.
- Cash and cash equivalents were $74.7 million at June 30, down from $121.9 million at December 31, 2020. Current assets were $91.7 million and current liabilities $24.6 million.
- Six-month operating cash use was $48.9 million; investing cash use was $15.8 million; financing provided $17.5 million. Cash declined by $47.2 million over the period.
- Debt at June 30 was $19.6 million, including $6.1 million current and $13.5 million long-term. This included $18.4 million of acquisition-related notes payable and a $1.3 million Paycheck Protection Program loan.
- Six-month capital expenditures were $7.5 million. Management estimated fiscal 2021 capital expenditures of $20–$30 million, primarily for equipment, automation and capacity.
Material changes and significant transactions
- Revenue began to emerge: the company reported $0.6 million in Q2 and $0.8 million for the first half, versus no revenue in the comparable 2020 periods. Eos said it shipped its first Gen 2.3 customer order in January and another in Q2.
- On April 9, Eos acquired Holtec’s remaining 51% interest in Hi-Power, its Pittsburgh manufacturing joint venture, making it wholly owned. The transaction added manufacturing operations and related assets and liabilities to consolidation.
- The acquisition and termination of the prior joint venture agreement resulted in a $30.4 million first-half loss on the pre-existing agreement, including $22.5 million in Q2. Remeasurement of Eos’s previously held Hi-Power interest caused a further $7.5 million loss.
- General and administrative expense rose to $11.3 million in Q2 and $20.1 million for the first half, reflecting, among other items, higher personnel, professional services and stock-based compensation. First-half stock-based compensation was $5.7 million.
- In July, after quarter-end, Eos closed a $100 million investment from Koch subsidiary Spring Creek Capital through convertible senior PIK toggle notes due 2026. The notes carry 5% interest if paid in cash or 6% if paid in additional notes and are convertible into common stock.
Outlook, risks and other notable matters
- Management expects revenue to increase as production scales, but expects cost of sales to exceed revenue in the near term. It expects margins to improve with higher volumes and manufacturing-process improvements; no specific revenue or earnings guidance was provided.
- Management said existing cash, operating cash and the July Koch financing were expected to cover capital and working-capital needs for the next 12 months. It also noted that growth plans and future investment needs may require additional funds.
- Commercialization and delivery timing faced delays tied to manufacturing scale-up, permitting, grid connections, customer site readiness and COVID-related disruptions. The company reported receiving final UL certification on August 10, 2021, after the quarter-end; manufacturing-site certification had been described as still in progress in the discussion of commercialization.
- At June 30, open firm purchase commitments were $20.6 million. Eos also had customer-loan agreements totaling $11.3 million, of which $4.2 million had been drawn; some funding depended on milestones. The filing’s estimated future-payment table listed $46.8 million of obligations, including purchase commitments, debt and leases.
- A $2.2 million gain from selling New Jersey tax attributes partly offset losses. Eos reported no income-tax provision and maintained a valuation allowance against deferred tax assets because of cumulative losses.
- The company revised certain previously reported 2020 financial statement amounts, including classifying private placement warrants as a liability. Management described the errors as immaterial. Disclosure controls were deemed ineffective due to material weaknesses in its control framework, segregation of duties, journal-entry review and management review; remediation was ongoing.
- Eos reported no material pending litigation and no material changes to the risk factors in its 2020 Form 10-K. Management cautioned that forward-looking statements are subject to risks and actual results may differ.
Important facts for investors to verify
- Whether Gen 2.3 production, manufacturing yields and delivery schedules improve as planned, and whether certification and customer site-readiness issues are resolved.
- Whether sales growth and production scale reduce scrap, overhead per unit and the large gap between revenue and cost of goods sold.
- How the $100 million convertible notes affect liquidity, interest expense and potential share dilution, and whether the stated 12-month funding expectation remains valid.
- Timing and cash requirements for the $20.6 million firm purchase commitments, acquisition-note payments and customer-loan commitments.
- Progress toward remediating material weaknesses and maintaining reliable financial reporting; also monitor final acquisition accounting, which was preliminary at June 30.