Eos Energy Enterprises, Inc. — Q1 2024 Form 10-Q
Reporting period: Three months ended March 31, 2024. Eos designs and manufactures battery energy storage systems, principally its Z3 product. Amounts below are in millions unless otherwise stated.
Financial performance and position
| Metric | Q1 2024 | Q1 2023 / prior period |
|---|---|---|
| Revenue | $6.6 | $8.8; down 25% year over year |
| Gross loss | $21.6; gross margin approximately (327)% | $18.1; approximately (205)% |
| Operating loss | $41.1 | $38.3 |
| Net loss | $46.7; loss per share $0.23 | $71.6; loss per share $0.82 |
| Net cash used in operating activities | $40.5 | $30.5 |
| Capital expenditures | $4.0 | $2.9 |
| Cash and liquidity at March 31 | Unrestricted cash $31.8; working capital $22.1 | Cash at December 31, 2023: $69.5 |
Total cash, cash equivalents and restricted cash was $46.3 million at March 31, including $14.5 million of restricted cash. Total borrowings had a carrying value of $205.6 million; contractual principal outstanding was $238.2 million. The senior secured term loan carried a 14.11% interest rate at quarter-end. Accumulated deficit was $922.6 million and shareholders’ deficit was $147.7 million.
Changes and operating developments
- Revenue fell primarily because production and deliveries were reduced during the transition to the next-generation Z3 system. Cost of goods sold rose 5%, contributing to a larger gross loss.
- Net loss narrowed year over year, mainly reflecting substantially lower related-party interest expense and more favorable changes in the fair value of derivatives and warrants; operating loss increased.
- Operating cash use increased by $10.0 million year over year. Financing cash provided was $6.1 million, including $7.2 million net proceeds from issuing 7.24 million shares through the ATM program at an average $1.03 per share.
- The first semi-automated Z3 manufacturing line entered commercial production; the company reported “Power On” status for motion systems on its first state-of-the-art line. Z3 deliveries began in Q3 2023. Eos cited design aims including lower cost and weight and improved manufacturability.
- One customer represented 88.1% of Q1 revenue, compared with 97.0% in Q1 2023.
Outlook, risks, and unusual items
- Going concern: Management concluded substantial doubt exists about Eos’s ability to continue as a going concern. The company says it may be unable to meet obligations over the next 12 months without additional capital. It had no further borrowing capacity under existing financing arrangements and expects it may fail its minimum liquidity covenant beginning June 30, 2024 absent a waiver or new capital. Potential lender remedies and cross-default consequences are disclosed.
- Funding: The DOE issued a conditional commitment for a loan of up to $398.6 million in August 2023, but technical, legal, financial and due diligence conditions remain; funding is not assured. Eos also has remaining ATM capacity, but access depends on market conditions and investor demand. No numerical revenue or profitability guidance is provided.
- Manufacturing and demand: Eos expects near-term cost of goods sold to exceed revenue while it scales production and prepares systems for customer operation. Risks include execution of the Z3 transition, manufacturing efficiencies, converting backlog and pipeline into revenue, customer project financing, and continued access to capital.
- Government incentives: Eos recognized $1.5 million of IRA production tax credits in Q1, recorded a $4.8 million grant receivable at March 31, and received $2.3 million in cash on April 22, 2024 from monetizing part of its 2023 credits.
- Other matters: A Delaware class-action settlement term sheet provides for an $8.5 million payment, including approximately $7.5 million expected to be funded by D&O insurance; final documentation and court approval were pending. Eos is also defending a federal securities class action alleging misleading statements about a customer relationship, backlog and pipeline. The company reported material weaknesses in disclosure controls, including deficiencies in its control framework, segregation of duties, journal-entry review and management review; remediation is underway.
Key facts investors should verify
- Progress and final terms of the DOE loan, the timing of any funding, and Eos’s ability to raise additional capital.
- Cash burn, unrestricted liquidity, covenant compliance and any lender waiver or other financing arrangement.
- Z3 production ramp, manufacturing yields and costs, customer deliveries, and conversion of backlog into recognized revenue and cash.
- Customer concentration and the status and collectability of contract assets and grant receivables.
- Developments in the securities litigation, settlement approval, and remediation of disclosed internal-control weaknesses.