Eos Energy Enterprises, Inc. — Q1 2021 Form 10-Q
Reporting period: Three months ended March 31, 2021; financial statements are unaudited. Unless noted otherwise, amounts are in thousands of dollars. The company designs and sells zinc-based energy storage systems. The November 2020 SPAC transaction was accounted for as a reverse recapitalization, so historical results reflect Eos Energy Storage LLC, the accounting predecessor.
Financial results and liquidity
| Metric | Q1 2021 | Q1 2020 |
|---|---|---|
| Revenue | $164 | $0 |
| Cost of goods sold | $100 | $57 |
| Gross profit | $64 | $(57) |
| Research and development | $5,053 | $2,230 |
| General and administrative | $16,654 | $2,359 |
| Operating loss | $(21,651) | $(4,992) |
| Net loss | $(21,456) | $(9,348) |
| Basic and diluted loss per share | $(0.42) | $(2.38) |
| Cash used in operating activities | $(9,703) | $(321) |
| Cash used in investing activities | $(11,360) | $(1,579) |
Revenue was from limited sales; the company shipped its first Gen 2.3 customer order in January. The resulting gross profit is small and not indicative of scaled economics. G&A included $2,478 of stock-based compensation and $7,852 accrued for payments to related-party joint venture partner Holtec. Operating cash use was partly offset by working-capital inflows, including higher accrued payables.
At March 31, cash and equivalents were $100,717, down from $121,853 at year-end 2020. Total assets were $127,800; total liabilities were $25,993; and shareholders’ equity was $101,807. Debt totaled $1,281, including $1,176 current, principally a $1,257 Paycheck Protection Program loan. The company reported $827 in contract liabilities. It also had $11,348 of customer loan commitments, of which $2,970 had been drawn.
Material changes versus the prior period
- Net loss increased by $12,108 year over year, while operating loss increased by $16,659. G&A rose by $14,295 and R&D by $2,823 as the company expanded and prepared for commercialization.
- Cash used in operations rose to $9,703 from $321; investing outflows rose to $11,360, including $4,490 for property and equipment, $4,000 invested in the joint venture, and $2,870 advanced through customer notes.
- Prior-year related-party convertible-note interest expense of $3,715 did not recur because the notes converted to common stock in the November 2020 merger.
- Related-party accounts payable and accrued expenses increased to $11,236 from $2,517 at year-end, including amounts payable to Holtec and Hi-Power.
Outlook, risks, and unusual items
- Management expected fiscal 2021 capital expenditures of approximately $35–$40 million, primarily for equipment, automation, and capacity. It believed cash, together with operating cash, would fund capital and working-capital needs for the next 12 months, but also said additional equity or debt financing may be necessary and may not be available on acceptable terms.
- The company was ramping Gen 2.3 production; its manufacturing line was still being tested. Management said product performance remained subject to validation at commercial scale and that production could slow if systems did not meet specifications. UL certification was anticipated in Q2 2021. The filing gives no revenue or earnings guidance.
- After quarter-end, on April 9, the company acquired Holtec’s remaining 51% of Hi-Power. Consideration included a $25 million secured promissory note payable in five annual $5 million installments, with the first due May 31, 2021, and approximately $10.2 million in cash for returned Holtec contributions. These obligations are additional to the March 31 balance sheet and scheduled cash requirements.
- COVID-19 had delayed UL testing and a customer delivery; management said it had not otherwise materially affected operations or financial condition to date, but the ultimate impact was uncertain.
- Private placement warrants were reclassified as a $2,925 liability at March 31, with a $224 fair-value loss recorded in Q1. The company also revised its 2020 financial statements for warrant accounting and other immaterial errors, which management said were not material to the previously reported statements.
- Management concluded disclosure controls were ineffective due to material weaknesses, including the lack of a formalized control framework, segregation of duties, journal-entry review, and management review controls. The weaknesses had not been remediated as of the filing.
Important facts for investors to verify
- Whether Gen 2.3 achieves UL certification, meets performance expectations at commercial scale, and can be produced and delivered on schedule.
- Cash use and funding needs against the $35–$40 million capital expenditure plan, including the approximately $10.2 million Holtec cash payment and the secured $25 million note obligations.
- How much of the reported G&A increase reflects ongoing costs, related-party charges, and noncash stock compensation, and whether related-party balances are settled as expected.
- Progress in remediating the disclosed internal-control material weaknesses and the effect of warrant-liability accounting on future reported earnings.
- Conversion of limited early sales into sustained revenue and evidence of improving unit economics; Q1 revenue was only $164.