Earnings Call: Q1 2021

May 12, 2021

Greetings. Welcome to EOS Energy Enterprises First Quarter 2021 Earnings Call. At this time, all participants are in a listen only mode. A question and answer session will follow the formal presentation. Please note this conference is being recorded. I will now turn the conference over to Jared Ehme, EOS Energy. Thank you. You may begin. Thank you. Good morning, everyone, and thank you for joining us for EOS' Financial Results Conference Call for the Q1 ending March 31, 2021. On the call today, we have Eos' CEO, Joe Mastrangelo and CFO, Sagar Khurrada. Before we begin, allow me to provide a disclaimer regarding forward looking statements. This call, including the Q and A portion of the call, May include forward looking statements related to the expected future results for our company, which are subject to certain risks, uncertainties and assumptions. Should any of these risks materialize or should our assumptions prove to be incorrect, Our actual results may differ materially from our projections or those implied by these forward looking statements. The risks and uncertainties that forward looking statements are subject to are described in our earnings release and other SEC filings. Our remarks during today's discussion should be considered to incorporate this information by reference. Forward looking statements represent our beliefs and assumptions only as of the date such statements are made. We undertake no obligation To update any forward looking statements made during this call, to reflect events or circumstances after today, or to reflect new information or the occurrence of unanticipated events, except as required by law. Today's remarks will also include references to non GAAP financial measures. Additional information, including reconciliation Between non GAAP financial information to the GAAP financial information is provided in the press release. Non GAAP information should be considered as supplemental in nature and is not meant to be considered in isolation or as a substitute for the related financial information prepared in accordance with U. S. GAAP. In addition, our non GAAP financial measures may not be the same as or comparable to similar non GAAP This conference call will be available for replay via webcast through EOS's Investor Relations website at investors. Eose.com. Joe and Sagar will walk you through the company's highlights, Financial results and business priorities before we proceed with the Q and A. And with that, I'll turn the call over to Joe. Thanks, Jared, and welcome everyone to our 1Q, 2021 financial results call. I'd like to thank everybody for joining us today and Jump in on Page 3 to walk through some operating highlights. This page, I think, is the snapshot that we like to use To track how we're progressing on building the company, I think it all starts on the upper left hand side of our page where we look at discharge energy. And that's how the Product and the technology is operating out in the field and how it's performing in our test facility in Edison, New Jersey. Since our last earnings call, we've added 20% to the discharge energy, and we're now over 2,000,000 cycles of operations. So this technology that's proving itself not only in the lab but also out in the field. At the same time, we're very proud of being able to report that we're at $33,000,000 of orders with a $51,000,000 order backlog. I think what's critical here when you look at those two numbers Is that already in the 1st 5 months of the year, we've booked 33% more orders than we did in prior years. So we're starting to really see The traction gaining as we build out our commercial team and really get out and sell the product in the marketplace and in fact, same time, when you look at the lower Left hand side of the page, our opportunity pipeline now stands at $3,900,000,000 which is up $500,000,000 since our last call and represents And Sakhar will walk through in a moment, how we've been investing our cash. But I think it's critical to note that we spent $9,000,000 in building out capacity and developing our technology, and we'll walk through both of those items as we get further into the presentation. And lastly and importantly is just how those five things feed into the most important thing, which is generating revenue. We shipped Our container to Nigeria, I'll give an update on that later in the presentation, to generate $200,000 of revenue. But more importantly, the metrics that I talked about earlier, and we'll talk about where we are from a factory capacity build out, we'll see that number go up as we ramp up to our target of $50,000,000 of revenue in 2021. So today's agenda will focus around The 6 priorities that we have as a leadership team and as a company in 2021. Give a quick update on where we are versus order bookings so far this year. Importantly is that those strategic LOIs that we've been talking about since we went public are now transitioning from LOIs into We've got 6 projects booked with $13,000,000 of future revenue associated with them. On the overall revenue side, We're at $900,000 of revenues booked to date, and our backlog covers 50% of our 2021 revenue target. On the UL certification front, we're proud to say that we've achieved our UL 9540A certification. I'll walk through some details on that Katie, to march to our build out of capacity, we'll go through where we are and what we've been able to accomplish on this, but very proud of what Jody Markopolos coming in as Our Chief Operating Officer and the team have been able to accomplish here in the Q1 and looking forward to our projects team now led by Dave Lilligian, has come from us from Black and Veatch as he starts on the installation and commissioning road map that we have. At the same time, we're making Good progress on our Gen 3 product launch. We'll talk about the results of our first prototype and what that means to our customers. But right now, we're tracking ahead of schedule for that launch here in the Q4 of this year, whereas our original plan was for the second half of twenty twenty two, and we continue to build a great team. We closed the acquisition of the 51% share in our high power Manufacturing joint venture and out of the hires that we've done, 71% of those are going into engineering, technology, R and D and manufacturing, and we've actually doubled The size of our manufacturing team in our facility in Pittsburgh, Pennsylvania. So we're truly building an operating company, And we're proud of the results that we have and realize that we've got more work to do, but we're well on the way of achieving our goals and objectives for 20 With that, I'll turn it over to Sagar, who will walk us through the financials and the growth and revenue profile for the company. Thanks, Joe. Good morning, everyone. Over the next two pages, I'll be discussing a summary of our Q1 2021 reported financials. Detailed financial statements and relevant management discussions are available in our 10 Q and supplemental disclosures. Page 5 is a summary of our Q1 income statement. We reached an important milestone in the quarter as we recognize revenue of $164,000 from our first container shipped out of Highpower to a microgrid storage solution in Nigeria powered by NIO and the Shell Foundation. Our cost of sales in the first quarter With $100,000 was favorably impacted by the reversal of $1,600,000 reserve for losses on firm purchase commitments that we had recorded in Q4 2020. We reversed this accrual because the batteries that we acquired under the firm purchase commitment This reversal largely was offset by the cost of sales of $1,700,000 that are included within this position. We recorded $5,000,000 in R and D expenses for the quarter. R and D expenses increased mainly for two reasons. First, We incurred $2,200,000 higher battery testing costs than prior year due to our UL certification process, partially offset by the accrual reversal in cost of sales I discussed earlier. 2nd, as we are continuing our investment in new technologies, Specifically, our Gen 3 or Z3 program, we increased our investment in R and D headcount and thus incurred $500,000 of higher payroll and personnel costs. We also recorded G and A for $16,600,000 in 1Q 2021. General and administrative expenses included $7,800,000 expense that is non recurring in nature incurred in connection with the agreement that we and higher fees for professional services. These fees were incurred in the 1st quarter and were partially still related to our SPAC merger in the Q4 of 2020 and are also nonrecurring in nature. Lastly, we incurred higher stock compensation expense of $2,500,000 and increased payroll costs for $1,400,000 due to higher headcount and larger footprint as a public company. Moving on to Page 6. As of threethirty 1, we have $101,000,000 in cash and cash equivalents. Since year end, our invested activity included $4,000,000 in capital expenditure for future capacity financing with select customers $3,000,000 in investments. Additionally, our operating activity included $5,000,000 in cost of sale, $5,000,000 in research and development and UL testing $3,000,000 in general administrative expenses $1,000,000 in expanding our commercial team and $1,000,000 in transaction costs. In the next section, I will be reviewing our progress on commercial pipeline and booked orders to deliver on our 2021 financial commitments. Page 8 is a snapshot of our commercial activity as of May 4, 2021. This is a page you are now familiar with from previous presentations. Our customer engagements Start with the lead generation process where we work with our customers to materialize ideas and assess for feasibility, regulations, Project Plans and Economics. We today have 2,400,000,000 or 14 gigawatt hours in review within lead generation. This segment has since Q4 of 2020 earnings call in February increased by approximately 600,000,000 Our commercial pipeline is 3,900,000,000 or 23 gigawatt hours. This constitutes Two key segments, active proposals of $3,300,000,000 and customers with whom we have firm commitments of $600,000,000 Active proposals since Q4 of 2020 have increased by approximately 500,000,000 As a reminder, only a customer or a project with a clear mandate on project requirements, technical specifications and only a use case that satisfies EO's specification will be included in our pipeline. In this stage, We actively present our commercial and technical proposals to customers. Our experience indicates 30% of our pipeline over the long run with select customers and have agreed to terms with a letter of intent supported by clearly defined next steps That require actions on part of the customers, we categorize these projects as an LOI or firm commitment. Our experience indicates on average 60% within this category translates into booked orders. In 2021, we have converted 13,000,000 or 47 Megawatt Hours from 6 projects As of Fourthirty, 2021, we have $33,000,000 in booked orders year to date. We consider a project a booked order when there is an agreement for yields to procure material, manufacture and deliver On storage solution commitments, we see strong momentum in demand for the rest of 2021. Booked orders Let me review a few financing strategies that enable our ability to partner with customers delivering energy and storage solutions. Firstly, We are engaged in development financing for early stage clean energy initiatives with select customers where we currently have firm commitments. We have committed to $5,000,000 in capital to partner with independent power producers from the sale of EO Storage Solution is not currently included in the committed capital. We have to date funded $600,000 of such commitments. Progress on these projects has resulted in successfully securing land rights for projects in consideration and with interconnection approvals in queue. 2nd, we have partnered to deliver project financing for select customers and support development of comprehensive microgrid renewable energy solutions. We have committed to $9,800,000 in capital We offer financing solutions tailored to cover project costs such as engineering, predevelopment, Solar and Construction. The expected economic value creation from yield storage solution is not currently included in this committed capital. We have to date funded $2,600,000 of such commitments. Lastly, we have strategically agreed to partner in asset leasing arrangements with select customers for EOS equipment on a lease to own basis. This financing is offered at competitive rates and secured in collateral from storage assets commissioned on ground. We have $10,100,000 of asset leasing commitments. This specific segment of strategic investments is included in our booked orders. These projects and customers satisfy the criteria for booked orders highlighted on Page 8. In our $3,900,000,000 pipeline, we have more than $100,000,000 in additional opportunities with select customers ranging from development financing to project financing and asset leasing. On Page 10, I'd like to offer you more specific details on the $33,000,000 in year to date booked orders we reviewed when discussing commercial activity on Page 8. Our current booked orders constitute 9 projects with 8 customers and 141 Megawatt Hours. $18,500,000 are cash sales of EOS equipment representing 104 Megawatt Hours $8,200,000 of asset leasing represents 37 Megawatt Hours and 4 Projects. We discussed asset leasing in context of our overall financing strategies on Page 9. These two categories delivered $26,700,000 in equipment orders. Additionally, our booked orders constitute a $6,300,000 in recurring services from monitoring and maintenance obligations We expect the momentum on booked orders to continue in 2021 to deliver our forecasted commitments. I'd also like to expand on Page 11 on the details of our orders backlog, which is now a reflection of our 2021 year to date booked orders, plus 2020 year end backlog, minus Any shipment to meet customer commitments. This backlog comprises of 25 projects With 19 customers and 204 Megawatt hours. On February 25, 2021, In our 4Q earnings presentation, we reported orders and backlog of $21,200,000 Since then, we have recorded 30,400,000 new booked order activity as reflected on Page 10. Through today, we have successfully shipped 6 containers to Motoroil, Renew and Shell NIO, which Subtract the backlog by $900,000 resulting in a total of $50,500,000 in outstanding customer commitments. Delivery on these commitments is expected in 2021 'twenty 2 with approximately $25,000,000 contracted for 20 21 and an additional $17,000,000 in 2022. Expected delivery in 2021 will be Primarily ready to ship in the second half twenty twenty one and will include a combination of Gen 3.0 or our rebranded Z3 system and our current technology in production, Gen 2.3. Our progress on backlog is more than 2x our earnings call from 100 days ago. We expect this positive momentum to continue as we lean forward to invest further in our commercial team, manufacturing capacity and create market awareness of our competitive advantages. To elaborate on all of these advantages and topics, I will hand the conversation back over to Joe on Page 12. Thank you. Thanks, Sagar. Now let's focus for a second on UL certification, which is critical To deliver on those growth numbers that, Sagar just talked about. So moving on to Page 13, There's 2 UL certifications that we go after. One of them is on the battery module itself, which The 9,540 A, which is safety for thermal runaway or the risk of fire and explosion, and we've completely passed That testing and I'll walk through some results on that testing in a moment. The second is the overall storage system, which is UL1973, Which we have gone through the testing for that certification and are now just qualifying The material, the plastics that we use in our frames for the RTI or Relative Temperature Index of 80 degrees C, We're halfway through that testing as we speak, and we anticipate that we'll be able to close out the UL-nineteen seventy three certification by the end of June. Tremendous Results by the team, a lot of this was done virtually and over Zoom and Microsoft Teams. So really great work by the team to get us to this point We like to say is that our battery is inherently fireproof, in that it will not catch on fire or explode and does not need ancillary systems like HVAC cooling systems or software to manage the risk of thermal runway. If you look at the 4 main tests here, the first one is over discharge. If you over discharge the battery beyond down to 0 voltage. You don't see any degradation in the battery itself. There's no loss of capacity or performance. And you can rest the battery and get it back to continued operations. So you're not going to damage or destroy the battery in and of itself doing this test. The second one is shooting A 2.5 inches nail into the battery. Again, nothing happens. These tests were relatively boring because you'd watch the nail go in, The temperature will go up a little bit, but there's no flame, there's no explosion, there's no thermal runaway. Then the 2 on the right hand side, which are really critical, Is overcharging the battery two times its normal capacity. The battery gets up to 90 degrees C. Again, no flame, no explosion. There's a little bit of electrolyte and steam release from the battery, which We manage through a capture system to be able to knowing that this does happen if in the unlikely event this should happen. The second one is on a battery short circuit test, where we're short circuiting the battery into itself. And again, you see The thermodynamics take over the temperature rises to 80 degrees C. When you look at these two tests and the curves that come out of these two tests And you lay them over what you would see from a lithium ion battery. The curves look exactly the same, but there's one important difference. Our battery doesn't go above 100 degrees C, but lithium ion when you separate it out, its temperature will rise to 7 So what we see in our battery is a battery that's inherently safe and fireproof and allows you to operate in the harshest conditions with the simplest ancillary systems and the least amount A parasitic load or load that you need to use to protect the safety of your product to keep it operating out in the So it's something that we see as a competitive advantage and we see as something that our customers can rely upon us to provide reliable energy storage in any environment. Moving forward now shifting gears to Our manufacturing capacity. So if we go to Page 16, there's 4 key things that we want to talk about today. The first one is the facility or factory ourselves itself. We have fully repurposed the factory in 11 months and we'll show What that looks like today, we've been able to do. Our equipment today, our yields coming off of the line are above 90%, tremendous amount of work done by the team to both ramp up Production will improve the quality of our product. The third one is material availability and product cost. We've been able to take 40% of our battery cost out In the last 5 months and secure multiple sources of supply to keep the factory flowing. The last one, Which is actually the most important one is bringing in great people. And as I talked about earlier in the presentation, we've been able to double the size of our team over the last 5 months and we're proud of the work that they're doing and we'll continue to recruit, hire and train the best to deliver our product to the marketplace. We go to Page 17. When you look at the page, the left hand side of the page is what the facility looked like 11 months ago. The right hand side of the page are screenshots from various parts of our factory. What the team has been able to do is ramp up production on our electrode line and improve the yields and quality to single digit scrap rates on how we produce this critical component of our battery. We've ramped up a new technology in how we build the mechanical or Enclosure of the battery using infrared welders and continue to expand that production to increase throughput in the factory. And we're optimizing the processes of quality control and filling our battery with electrolyte and are now working on a lean manufacturing road map across the factory A great amount of work, a ton of progress here in 11 short months from going from an empty facility into a factory that's shipping product out into the field. We look at Page 18. What has always been a strength of our system is that we have Abundant raw materials that can be locally sourced at a lower cost point than other technologies. I wanted to show you how our 4 key raw materials that go into our battery. When you look at where what they are, Where else they're used in the world and more importantly, if we focus on the bottom two portions of the right hand graph. If you look at the percent of the global demand for those raw materials, if we're producing a gigawatt of production out of our factory, We have a de minimis demand on the overall global supply chain for each one of our raw materials. But we don't just sit back and rely upon that. The team continues to work to be able to look at our how we're doing electrolyte in source the mixing process to both reduce cost and accelerate cycle time. On titanium, although we're a very small percentage of the global demand, we do look at this as a key component in the aerospace industry. And as Aerospace comes back to be able to mitigate any supply chain risk that we have, we are looking at alternate materials to titanium to be able to put into the battery. On graphite felt, we're testing new material specifications to be able to open ourselves up to new sources of supply to be able to reduce that 4.5% down lower as we grow the business. And on plastics, what was critical for us here was not so much The supply of the raw material, the actual plastic itself, but was to make sure that we have multiple boulders to be able to ramp up our production as we move forward To truly keep the supply chain flowing and although we're at a ramp up period in production, as we think and plan the factory, we're planning it as though we're at scale and making sure that we're mitigating those risks to get to scale in our production process. If we move forward To Page 19. This is a critical page that talks about how we're ramping up production. Today, when you look at where we are, we're getting up to 50 percent capacity on our existing factory. We're optimizing the electrode line. We're expanding capacity on our IR welding. We're doing increased product testing. We're running at a lower utilization rate to make sure that the product going out into the field is of high quality. Now as we think about the next couple of months, we're going to continue to add resources in the factory and hire workers to work the line. We're going to add more capacity and continue to streamline processes to get by midsummer to 70% output. And then from there, it's working from July to September To get up to 100% by continuing to optimize the process of how we build and integrate batteries into containers, bringing our factory automation online and really driving lean manufacturing across the facility. This September date gets us to 100% capacity on the equipment that we have today. And then starting in October, November, December, we start bringing online the additional capacity that we're developing as we bring our new generation 3 product to the marketplace to get to the 800 megawatt hours 2 thirds of our 2021 cost out plan by the end of the first half of twenty twenty one. When you look at the actions that we're doing, these are Really building strategic agreements with suppliers, optimizing our equipment and manufacturing processes, delivering additional volume discounts as we continue to grow our backlog and ramp up revenue. And then we continue to look for diversification which drives not only quality but also cost out and taking cycle time out of the factory to improve throughput. Now the final 20% there that you see that gets us down to our target at the end of 2021 Really ties into what we're doing as you start blending the cost of the Gen 3 and the Gen 2.3 Product line and getting to the next tier of pricing discounts as we hit higher volume rates and truly delivering on The investment that we're making in automation and capacity of the factory as we move forward. So if we transition from a look at the work that the team has been doing on cost out and start looking at where we are on the development of our next gen products. So if we go to Page 22, We call the Z3 battery and how that changes the performance of our EOS cube, our 20 foot container, which is our primary product to the market. We have prototypes on test right now. If you look at the lower Left hand side of Page 22, you see in the middle there a Z3 battery sitting on its left is a Gen 2 battery that's sitting on its right is a Gen 2.3 battery. And although you may not be able to see in the picture the 1 third smaller size, you have to remember that, that battery that you see there is smaller in dimensions and instead of 40 cells, it has 28 cells. Those 28 cells are delivering 15% higher energy discharge out of the battery. What does that mean for our customers? With onethree Of the size, with 15% higher energy out of a smaller footprint, we're delivering 40% more power We are operating the system at lower voltage with the same voltage curves as the Zenith 2.3 battery. What does that mean? It means a lower temperature footprint coming out of the battery, and that's the chart that you see on the far right hand side. What does that lower temperature mean to a customer? It means 25% lower levelized cost of storage for an EO system. That 25% is driven by the fact that we have lower temperatures, which simplifies our system configurations and allows us to deliver performance with a much simpler, more robust and inherently safe system. So we're early days in the testing of the product, but we like what we see so far. There's going to be more prototypes going on to test here over the next few weeks. And we'll come back In our next call, coming out of Q2, to give you an update on where we stand on not only the product, but also ramping up and developing the But really great start by the team to bring this product from the drawing board to the test, so we can see the reality of how it's going to perform. If we go to the next page on Page 23, I'd like to just focus for a moment a couple of key customer deals. This is where everything that we talk about, this is where we deliver for customers. The first one I'd like to talk about is a project that We signed with Hecate. This is providing locational capacity for the AerCap market in Texas. It's a great project for us. First off, It's an LOI into an order. We've got another 47 megawatt hours of opportunities that look like this Hekate project here, but this will be one that we'll be delivering here as we go through into 2022. The middle one, that shows the shipment of the first four containers to motor oil in Greece. This is building a safe, Lower cost energy for oil refinery operations in Greece. There's another 2 50 megawatt hours of opportunity similar to the motor oil project. We're going to be starting the commissioning of those containers here in the next week and look to get that project online here as we get into the early Last one, if you look at the picture in the background there, that's the EOS container sitting in Nigeria for the Shell Nao project. When you look at this, I think the picture tells a 1,000 words. And that sometimes if you want to operate and bring reliable power to remote locations Microgrid application. You can't have complex systems around it. You got to deliver something that's simple and safe. And you could see The container is sitting there ready to be commissioned, which will be completing here over the next 30 days, and there's another 100 megawatt hours projects that look like that Shell Mayo project. So three examples of a recently signed deal, a recently shipped deal and a project that is going to be going live here in the next 60 days. So things that we're proud of as we really look at delivering and continuing to build upon those operating hours that I talked about Lastly, just as a wrap up, we're going to continue to execute on the same six priorities. When you look at booked orders, We've got to expand continue to expand the global pipeline coverage. We're working to obtain a green bond rating because we feel like that will be a competitive advantage For our customers as they look for financing of their projects, we're on track to get to the $50,000,000 In revenue, we're going to be commissioning 10 containers and we're going to be shipping $10,000,000 of sales in the next 5 months as we ramp up going back to Paige had talked about earlier of ramping up the factory. On UL, we'll close out the 1973 certification and start Our CE Mark certification for the European market will come back on the 800 megawatt hours of capacity. We'll give you an update on where we are on our raw material sources and then talk about the lean improvements that we're making in the factory. On the Z3 product launch, we'll be able to show you The performance of the configurations have walked through where we are as far as ramping up production and what that will look like over time, and we'll continue to invest The best people build a great culture. We're going to build out and start our European sales team, and we're going to expand our software and systems engineering team to be able to bring multiple configurations to the marketplace. But what I leave you with is that all the work that we're doing and the way that we're investing our cash With that, I'll turn it back over to the operator and open up for some Q and A here this morning. Thanks for listening. Thank you. Our first question is from Chris Souther with B. Riley. Please proceed. Hey, guys. Thanks for taking my question here. So based on the slide deck here, we're looking at about $10,000,000 in sales over the next 5 months. I'm just curious, are all those Gen 2.3 products? And then any sense of the split between 2nd and third quarter recognition, and should we assume the rest of the $50,000,000 in revenue that we're targeting This year will be that V3 coming in the 4th quarter. Thanks, Chris. Good morning. So The $10,000,000 that we talk about here and really into the Q4 and also there's going to be a mix of Gen 2.3 product that will be shipping throughout the year. So there's going to be a it's not going to be a hard stop. There's going to be a transition depending on customer requirements. Sagar, I'll let you talk a little bit about the split over the next 5 months. But as we ramp up the ramp page, Chris, that we had earlier in the presentation, This is all Gen 2.3 product. Hey, Chris. Good morning. Hope you're getting some sleep with the baby and everything. So That said, look, to answer your first question, the deliveries that we have over Next 5 months will all be 2.3. At this point, we are not giving any additional quarterly guidance. So as the shipments go along, we'll be Sure to keep you posted and they'll fall into the quarter that they will. The rest of the year after that, I. E, the 4th quarter Will be a combination, to Joe's point, of 2.3 and 3.0. And to the extent That split is concerned. It will be determined both by the customers' needs, wants and expectations, plus our delivery schedule, But we intend to be fully functional on both products and that's about the level of visibility we are willing to offer right now. Okay. Got it. That makes a lot of sense. So we've seen some nice progress here on building the order book. 50 percent of the 2021 targeted orders are booked at this point. Can you talk about how much of the balance that you're looking to close For revenue this year, that is either late stage or LOI or firm commitments, how should we think about kind of the coverage there? Yes. Look, I mean, there are indicators that we can talk about. As we talked about on Page 8, there is $3,900,000,000 of pipeline, Of which the LOIs and firm commitments are $600,000,000 As we discussed, $13,000,000 of that $600,000,000 has been converted. So there'll be a portion of that, that will continue to turn into booked orders over the course of the pipeline that we are discussing. There are a variety of projects in different stages, but you know how Transactions go, they need to take the right time for both economic benefits to both customer and ourselves as well as to ensure that We do the right thing for yields in totality. So I would say that by the end of And Sagar, the one Yes. The one point I would add, Sagar, Chris, the way that we build the model is, we assume a 20% to 30% Transition rate from pipeline into order. So when you think about the $50,000,000 we have more than enough opportunities To be able to close that, as Sagar was discussing, I think we just have to work through The timing of how projects close, where customers are in closing out their financing and other things, and we'll continue to work that. But we have enough in front of us to get to that $50,000,000 revenue target. Got it. Okay. No, that's very helpful. And I'm just kind of curious, are Any customers waiting on full system UL before putting in orders? Is that kind of a gating factor? Or is it So mostly kind of just typical stuff that's going to be on the customer end to hit the $50,000,000 $300,000,000 targets. Yes. Look, UL testing is expected to be complete here in the Q2 prior to the close of it. Now all booked orders from a commercial perspective today. Okay. That makes sense. And then as the pipeline continues to expand for some of those earlier How many customers do those upticks in lead generation non binding quotes represent? Or is it would you say it's more about So having customers who are already in that pipeline, just coming back with other potential projects. Yes. There are a few repeat customers. Of our booked orders, we have new customers, which Predominantly, what's driving the improvement in backlog by 2x between in the last 100 days. With that said, Our pipeline today is more than 90% in the U. S. And to Joe's point, we'll be focusing on And our customers are both front of the meter, behind the meter, utilities, micro grids, and they are Evenly distributed. Now some of the larger projects will take a little bit time here to turn them into booked orders, but that's just the nature Of having initiated commercial activity in the last less than 1 year, and we are on our way to having a very balanced portfolio going forward. Yes. And I would just add, Chris, on your question. I do think we are seeing a good uptake in repeat customers coming back in with other projects as they work with us On the orders that we've closed, what I'd like to see us do here over the next few months is to continue to expand that and add more customers to it. As Sagar said, We have some traction, but I do think we can do more. Particularly like and I think what we always try to balance is, we look good against ourselves, So we're growing the opportunity pipeline versus where we were the last time we talked. What we really have to focus on is where is the market and how do we grow that pipeline visavis the available market, and that's why we're expanding the commercial team. Okay. And As we look at, obviously, there's been a lot of discussion in the market about lithium ion shortage issues. I'm curious, is that causing any incremental near or mid term for you guys and how it's impacting the pricing you're going out to the market with. And also you highlighted the wide availability Of your materials, are there any commodity or component supply chain issues you're seeing within the market that might provide No, I was going to say, Joe, the pricing side of it, look, our pricing holds steady and firm to what our guidance has been in Yes. So Chris, what I was going to focus on was on our supply chain. So we don't see any shortages Today and the material inside of our product, we're trying to balance and keeping an eye out for is just around the power electronics that we have in the product to be able to run our battery management system. But right now, we're okay with sources of supply on that. On the lithium side, we are seeing more and more near term projects that are out there that have commitments coming to get quotations from us, and that's one of the things that's been driving up the pipeline. But as you know, when we do our process, there's this There's an education process we have to go through of explaining how we're different and where the value is, and we're working through that with these new customers that are coming to understand how the technology works. Okay. No, that's very helpful. And just on the JV buyout impact, can you talk a little bit about how that changes the path toward positive margins? And Where do you see the gross margin breakeven points from a revenue run rate or utilization rate based on the cost reduction efforts And bringing that production in house. Yes. So, JV, as you know, we purchased the remaining 51%. The series of payments here are over the course of the next 5 years, dollars 15,000,000 in 2021 between paying back the contribution of $10,000,000 plus $5,000,000 here upcoming here in May and then $5,000,000 thereafter for another 4 years. As far as that impacting, I think a large majority of the impact has been positive on having our Supply chain being vertically integrated and having our focus on both the cost out that Joe spoke about and the production of both 2.33.0 batteries. We are very thankful for the investment and the focus Poltek has put into the company up to that point. With that said, as far as financials go, we continue to remain with our guidance Dear, as we have improved guidance for 2022, later in the year or closer Q4, we'll be sure to come back to you guys. From a cash flow perspective, look, I think we have always reported income from JV Below the line, now it will just be a matter of geography, where to the extent that the guidance remains the same, it will now be reflected above the line. And a lot of the cost out is going to be where the margins are going to expand here in 2022 and 2023. Okay. And then just the last one, maybe you can walk through the CapEx cadence for the rest of the year and also maybe the expected cash burn for 2021 So, losses during the ramp up, CapEx and the project financing, just kind of bring that together for us is The last one here. Yes, of course. So we have committed capital on project on the customer. So I'll hit it in 3 parts, We'll talk about customers first and then talk about the rest. From a customer's perspective, as we discussed On Page 9, we have development financing and project financing along with asset leasing. The committed capital between development and project financing is close to about $15,000,000 We'll continue to meet our customer demands and expectations here With respect to that, and we are actively looking for what the right financing strategy would be to syndicate that off our balance sheet and ensure that We continue to remain to our core competency of battery and storage facilities. With that said, we'll be applying similar financing strategies on the asset leasing side. We have been continuously evaluating who our strategic partners are, but will not rush into it. Now A big part of what Joe talked about, our focus being on green bond rating will also substantiate a lot of the financing here. So that's on the customer side of it. On the CapEx side of it, the last time we spoke, look, we talked about $40,000,000 to expand our investments In the manufacturing capacity, we continue to hold to that guidance. Now given that we've Sorry, there's a little bit of background noise. But given that we have Purchase the high power facility from Oltek. There'll be some level of incremental investment we'll have to make, call that Capital contributions that we repatriated back is on a 2.5 year payback and very much in line with our capital allocation and return on investment strategy. So that's on CapEx side of it, but the investment in capacity continues to be a focus area for us. And then, the rest of it is really operating cash flow. And to the point I made on Page 6 with our cash, Our G and A per se on a run rate basis is about $3,000,000 burn rate on a quarter over quarter basis, I'll call it even $4,000,000 with the commercial team in there. The rest of our cash is really discretionary to either the CapEx we need to spend, the testing we need to do and to the cost of sales that we need to incur From an operability point of view, as and how that impacts our overall cash strategy, which the Board continues to evaluate on a periodic basis, We'll be sure to come back to you and the broader group on what that means going forward. Excellent. I appreciate all the color there guys. I'll hop in the queue. Yes. Thanks, Chris. Good luck with the business. Thanks, Chris. Our next question is from Subash Chandra with Northland Securities. Please proceed. Yes. Good morning, guys. So just to understand the revenue there, it includes the service revenue. So I guess, the $50,000,000 or so, should we consider, say, dollars 42,000,000 of that kind of a hard in the revenue line and then the balance of it spread quarterly over The timeframes, Sagar, that you referenced? Yes. Look, great question, Subash. So of Of the $50,000,000 about $8,500,000 of service revenue and of the $33,600,000 of service revenue, That revenue is not contemplated to be accreted on our P and L from a reported earnings basis till year 3 and beyond. So that's really building to the longevity of deals as a value proposition and the margins on that will obviously be much more accretive than Equipment sales, as you can expect, but that said, that's not contemplated in our current $50,000,000 projection. Now as we come closer to the end of the year here, look, the service revenue will become an important part of our value proposition and our strategy, and we'll be sure to discuss how that impacts the toggle of the $50,000,000 from the rest of the year reporting perspective. But even in our projections, we never considered the service revenue to be accretive to current year recordings and we'll continue to hold to that guidance at this point. Yes. And Subash, remember, the way the service model works is It won't kick in until year 3 of after shipment. So there was always this was always a year where Revenue would be 100 percent product shipments. Okay. And just to clarify again, so that is $50,000,000 of product shipments? Yes. For 2021, yes. 2020, okay. That's essentially why I was asking. Okay, thanks. And back to the gross margin question, just put it another way. Should we consider that being In the positive category, understandably, it wasn't in the first Quarter. But if it's not positive, when do you see gross margins flipping a positive this year? Good question, Subash. In 2021, we do not expect gross margin to be positive in line with our guidance. In 2022, in the Q4, on a quarter basis is when we expect to see Gross margin positive and that will have its natural reflection on a year to date basis. And 2023 is where we expect run rate of gross margin to continue to yield positive results. Okay. That is exactly in line with our guidance and we are not offering Just to be clear, any revised guidance from that from what we had projected at that point? Okay. Not yet. Brett? And then on the titanium alternatives, you talked about how you've been looking for it and now You're sort of referencing is a competitive element there that you want to anticipate. But Previously, was there a cost element or that this could have a meaningful impact on your battery costs? Yes. So, Subash, the thing on the titanium alternative, we've got some things On tests that we have to work through and we're proving out that it works in the battery. But when you start thinking through like once you get the material to work, then you've got to get a source of You've got to get the quality, you've got to get the manufacturing process. So we're working through what that transition plan looks like and tying that into our CapEx model. It is a cost out opportunity for us in the long term, but given the ramp that we have of adding capacity and bringing the factory up, we're Trying to come up with the best integrated plan to hit that target, but the ability if we have to flip a switch if something happens to accelerate that if we need Okay. So When you think of the cost out in the long term, sort of say, the Z3 kicks up, when do you think that transition happens? Is that sort of a 23 events, when you think that it can have an impact on manufacturing costs? You mean the titanium question or sorry, I just wanted to Yes, the substitution of titanium. Yes. Joe, if it's okay, I'll take this here. Sure. Look, Subash, material substitution will always continue to a part of our cost out strategy. And frankly, it's part of our optimization on manufacturing process That drives all of it, right? So from a if you take a step back as a technology company always looking to put the best product out there, We'll be looking at a variety of different materials that replace and substitute for all 5 of our At this point, we have not really contemplated when we would go live with Gen 4 or The next version of a battery, our focus today is to get the manufacturability of Gen 3.0 and or the Z3 product Out in the marketplace successfully, have our customers continue to appreciate that value proposition and the cost out of All of that is included in the 40% target that Joe spoke about Yes. And I think, Subash, the one thing I would say is, there is no concern with titanium today for us from a supply standpoint. It's readily available. What we're planning for and planning ahead on is if aerospace takes off, you could see price Inflationary, you could see tightness on supply, but there's no urgency to be able to do that switch. But what I want to make sure everyone understands, Different than when you talk about other battery technologies is we have readily available abundant raw materials and we're building optionality into the supply chain to mitigate risks that we see in the future. So not something in the short term, but something that we're preparing for in case there's changes in the market, so we don't get caught out. Okay. Understood. And then finally, on the certifications, just Is there anything additional, for instance, the New York Fire Department, which you've been working with, do they Is there additional certifications that they would require for urban placement of these batteries? Or does this get you over All those homes? No. So Subash, there are additional certifications both with the fire department And the building department in New York City, of which we're working through those processes as we right now, What we want to do from a communication standpoint is we're focused on getting UL because that ties to the orders backlog in the pipeline we have in front of us. We'll give an update as we switch off to that to doing the CE Marking for Europe and then also talk about where we are In the urban storage qualification process, which is well underway. Okay, got you. Great detail, guys. Thank you. Thanks, Subash. Thanks, Subash. We have reached the end of our question and answer session. I would like to turn the conference back over to Joe for closing comments. Thanks. And look, thanks everybody for listening in today. Thanks, Subash and Chris for the great questions. We're excited about the company that we're building Thank you. This does conclude today's conference. You may disconnect your lines at this