# Eos Energy Enterprises, Inc. (EOSE) FY 2024 MD&A

Verbatim Item 7 Management's Discussion and Analysis from Eos Energy Enterprises, Inc.'s 10-K for fiscal year 2024.

SEC filing source: https://www.sec.gov/Archives/edgar/data/1805077/000180507725000015/eose-20241231.htm
Accession: 0001805077-25-000015
Filing date: 2025-03-04
Report date: 2024-12-31
Extracted structurally from real Item 7 body heading to real Item 7A/8 boundary.
Confidence: high

Company profile: /company/EOSE/
All MD&A years: /company/EOSE/mda/
Previous year: /company/EOSE/mda/fy2023/ (FY 2023)
Next year: /company/EOSE/mda/fy2025/ (FY 2025)

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion should be read in conjunction with our Consolidated Financial Statements and related notes thereto included elsewhere in this Annual Report. In addition to historical information, this discussion contains forward-looking statements that involve risks, uncertainties and assumptions that could cause actual results to differ materially from management’s expectations. Factors that could cause such differences are discussed in “Forward-Looking Statements” and “Risk Factors.”

Overview

The Company offers an innovative Znyth™ technology battery energy storage system ("BESS") designed to provide the operating flexibility to manage increased grid complexity and price volatility resulting from an overall increase in renewable energy generation and a congested grid coming from an increase in electricity demand growth. The Company’s BESS is a validated chemistry with accessible non-precious earth components in a durable design that is intended to deliver results in even the most extreme temperatures and conditions. The system is designed to be safe, flexible, scalable, sustainable and manufactured in the United States, using raw materials primarily sourced in the United States. We believe the Company’s Z3™ battery module is the core of its innovative systems. The Z3 battery module is the only US designed and manufactured battery module that today provide utilities, independent power producers, renewables developers, and C&I customers with an alternative to lithium-ion and lead-acid monopolar batteries for critical 3- to 12-hour discharge duration applications. We believe the Z3 battery will transform how utility, industrial, and commercial customers store power.

In addition to its BESS, the Company currently offers: (a) a BMS which provides a remote asset monitoring capability and service to track the performance and health of the Company’s BESS and to proactively identify future system performance issues through predictive analytics; (b) project management services to ensure the process of implementing the Company’s BESS are coordinated in conjunction with the customer’s overall project plans; (c) commissioning services that ensure the customer’s installation of the BESS meets the performance expected by the customer; and (d) long-term maintenance plans to maintain optimal operating performance of the Company’s systems.

The Company’s growth strategy contemplates increasing sales of battery energy storage systems and related software and services through a direct sales team and sales channel partners. The Company’s current and target customers include utilities, project developers, independent power producers and commercial and industrial companies.

Business Trends

As an SEC-registered and Nasdaq-listed company, we are required to implement procedures and processes to address public company regulatory requirements and customary practices and have, and will continue to, hire additional personnel in this context. We have incurred additional annual expenses as a public company for, among other things, directors’ and officers’ liability insurance, director fees, internal and external accounting, legal, administrative resources, including increased personnel costs, and audit and other professional service fees.

Inflation and cost factors - During 2024, the effects of the Federal Reserve’s interest rate hikes in 2022 and in the first half of 2023 had an impact on reducing inflation back towards normal levels. This eased many investor concerns and worked to stabilize the cost of purchasing supplies and raw materials for the Company.

DOE Loan Facility

On November 26, 2024, the Company entered into the DOE Loan Facility. The DOE Loan Facility is a key step in advancing the Company's Project American Made Zinc Energy ("AMAZE") and is expected to fund the expansion of Eos’ manufacturing capacity to 8 GWh by 2027 to meet the growing demand for longer duration battery energy storage systems. The DOE Loan Facility provides for up to $303.5 million in funding, including capitalized interest.

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The DOE Loan Facility provides for a multi draw term loan facility under a series of at least two and, if the Company elects, up to four tranches of the loan (each, a “Tranche”), subject to the achievement of certain funding conditions, with each Tranche corresponding to the production, maintenance and development, and operation of a given production line to be funded using the proceeds of such Tranche and the principal amount of each Tranche consisting of a maximum principal amount designated for such Tranche in the DOE Loan Facility. Each Tranche provides the Company funding for 80% of the Eligible Project Costs (as defined in the DOE Loan Facility) associated with the corresponding production line, with the Company responsible for funding the remaining 20% of the Eligible Project Costs.

Through December 31, 2024, the Company has received funding under the DOE Loan Facility for an aggregate amount of $68.3 million, at an interest rate of 4.791% for eligible project costs incurred through December 6, 2024. These costs are a portion of Tranche 1 of the DOE Loan Facility. Tranche 1 provides up to $102.0 million for eligible costs in connection with the design, construction, installation, startup and shakedown of a battery automation line and related tools, with a projected annual production capacity of approximately 1.25 GWh ("Line 1").

Inflation Reduction Act of 2022 (“IRA”)

On August 16, 2022, President Biden signed the Inflation Reduction Act of 2022 into law. The IRA has significant economic incentives for both energy storage customers and manufacturers for projects placed in service after December 31, 2022. One of the most important features of the IRA is that it offers a 10-year term tax credit, whereas historically similar industrial credits have been shorter in duration. Customers placing new energy storage facilities in service, which include our Gen 2.3 and Z3™ BESS, could qualify for an investment tax credit (“ITC”). The IRA also offers an extra ten percent credit if the project is in an “energy community” and another ten percent credit if the project satisfies domestic content requirements. The ten percent bonus for domestic content could represent a strategic advantage for the Company resulting from the Company’s near-sourcing and Made in America strategy, and we believe that projects utilizing Eos batteries qualify for the bonus.

Production Tax Credits under Internal Revenue Code 45X (“PTC”) can be claimed on battery components manufactured in the U.S. and sold to U.S. or foreign customers. These tax credits available to manufacturers include a credit for ten percent of the cost incurred to make electrode active materials in addition to credits of $35 per kWh of capacity of battery cells and $10 per kWh of capacity of battery modules. These credits are cumulative, meaning that companies will be able to claim each of the available tax credits based on the battery components produced and sold through 2029, after which the PTC will begin to gradually phase down through 2032. In April 2024, the IRS issued final regulations related to applicable tax credit transferability and direct pay provisions of the Inflation Reduction Act. The Company has reviewed these regulations and believes they do not have a material impact on the financial statements.

Company Highlights

•In January 2024, the Company entered into a supply agreement with TETRA Technologies, Inc (“TETRA”) that further expanded this partnership. TETRA is a leading global energy services and solutions company. This supply agreement designates TETRA as the preferred strategic supplier of electrolyte products for the Company’s Eos Z3™ long duration energy storage cube.

•In February 2024, the Company entered into a multiyear pricing agreement with SHPP US LLC, a Saudi Basic Industries Corporation (“SABIC”) affiliate, to supply conductive composite thermoplastic for the Eos Z3™ battery module. The Company and SABIC have worked collaboratively to develop a solution using one of SABIC’s new resin materials to replace the titanium used in prior Eos battery iterations.

•In February 2024, the Company achieved “Power On” status of all motion systems on its first state-of-the-art manufacturing line. Reaching this milestone is a significant step in achieving the state-of-the-art manufacturing line being installed and commissioned in the Company’s Turtle Creek facility.

•In April 2024, the Company and Pine Gate Renewables signed an agreement to expand its existing relationship. The new Master Supply Agreement (“MSA”) is for 500 MWh of energy storage systems to be delivered over the next five years.

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•In May 2024, the Company successfully completed its Factory Acceptance Testing on State of the Art (“SotA”) manufacturing line.

•In June 2024, the Company announced a strategic investment of up to $315.5 million from an affiliate of Cerberus Capital Management LP (“Cerberus”), to support the Company’s growth plans.

•In June 2024, the Company recognized a gain on debt extinguishment of $68.5 million from the payoff of the Senior Secured Term Loan.

•In June 2024, the Company completed the installation of the first state of the art line in its Turtle Creek facility and began commercial production of batteries off the new line to be delivered to customer sites.

•In June 2024, the Company announced that Nick Robinson, Senior Managing Director on the Supply Chain and Strategic Opportunities team of Cerberus, joined the Company’s Board of Directors.

•In July 2024, the Company and Indian Energy announced an agreement to expand its existing relationship. The expanded agreement with Indian Energy added 25 MWh of storage to the existing 35 MWh order for an overall project size of 60 MWh.

•In July 2024, the Company regained compliance with the minimum continued listing criteria set forth in Nasdaq Listing Rule 5550(a)(2) as of July 9, 2024, based on the closing bid price of the Company’s common stock being at or above $1.00 per share for the 10 consecutive business days from June 24, 2024 to July 8, 2024. The Company's stock price has performed well above the minimum listing throughout the remainder of 2024 and closed at $4.86 at December 31, 2024.

•In July 2024, the Company announced that Gregory Nixon, Head of Strategic Investments for Cerberus, joined the Company’s Board of Directors.

•In August 2024, the Company successfully achieved all four of the first performance milestones previously agreed upon between Eos and Cerberus as part of Cerberus’s strategic investment in the Company. Achieving these specific performance milestones allowed the Company to draw an additional $30 million on the Delayed Draw Term Loan from Cerberus to fund ongoing operations and production expansion to meet the growing demand for long duration energy storage solutions.

•In October 2024, the Company successfully achieved all four of the performance milestones for the October Draw previously agreed upon between Eos and Cerberus as part of Cerberus’s strategic investment in the Company. Achieving these specific performance milestones allowed the Company to draw an additional $65.0 million on the Delayed Draw Term Loan from Cerberus.

•In November 2024, the Company announced a new customer agreement with City Utilities (CU) to provide 216 MWh of energy storage for two project sites in Missouri.

•In November 2024, the Company signed a Memorandum of Understanding (MOU) with Wabash (NYSE: WNC), a world-class provider of advanced engineering and operational solutions for the transportation, logistics, and distribution industries. The proposed partnership would accelerate Eos’ ability to deliver large-scale battery energy storage systems (BESS) through Wabash’s manufacturing and supply chain expertise and national distribution network.

•In November 2024, the Company entered into the DOE Loan Facility which provides an aggregate principal amount of up to $277.5 million and an aggregate capitalized interest of up to $26.0 million. Through December 31, 2024, the Company has drawn down an aggregate of $68.3 million of principal under the DOE Loan Facility, at an interest rate of 4.791%, for eligible project costs that the Company has incurred or is expected to incur through December 6, 2024. These costs are a portion of Tranche 1 of the DOE Loan Facility, which are related to Line 1.

•In December 2024, the Company announced a 400 MWh standalone storage order with International Electric Power (“IEP”). This marks the second agreement and third project with IEP, a leading developer in the energy space deploying multiple technologies, and builds on Eos’ successful prior delivery of its battery systems to a Texas-based IEP project earlier this year.

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•In December 2024, the Company and FlexGen Power Systems (“FlexGen”) announced they have signed a Joint Development Agreement (JDA) to develop and introduce America’s first fully-integrated, domestic BESS solution to the market by combining Eos’ Z3™ batteries with the FlexGen HybridOS™ Energy Management System (EMS). The agreement is mutually beneficial as it complements each company’s opportunity pipeline and advances their commitment to commercializing safe and reliable, U.S. manufactured, BESS solutions to customers.

•In December 2024, the Company announced its search for a new manufacturing facility in addition to the Mon Valley Works expansion under Project AMAZE. This expansion is part of the Company’s broader strategy to scale up its operations to meet the rapidly growing demand for renewable energy solutions and to further its commitment to American manufacturing and energy independence.

•In December 2024, the Company announced that David Urban, Managing Director at BGR Group and Of Counsel at Torridon Law PLLC, joined the Company’s Board of Directors.

•The Company conducted a Section 382 ownership shift analysis through December 31, 2024. Based on the analysis, the Company expects to be able to utilize approximately $741.2 million of Federal Net Operating Loss Carryforwards, with the majority being available for use by December 31, 2029. The remaining balance will become available over time.

•In January 2025, the Company successfully achieved all operational milestones that guarantees final $40.5 million under the $210.5 million Delayed Draw Term Loan to further solidify its position as a leader in American energy storage systems. Successfully meeting these performance milestones will enable the Company to fuel its ongoing operations, U.S. production expansion, and the creation of an American energy storage powerhouse, without the need to raise additional capital via debt or additional equity offerings.

•With the Delayed Draw Term Loan fully funded, combined with DOE loan facility's first disbursement in December 2024, Eos has a strong foundation and sufficient capital to continue implementing Project AMAZE. The Company is executing its strategy to scale production into strong customer demand for long duration energy storage. Cash from customer projects now play an important role in funding working capital and our American-made system can play a critical role in America achieving energy independence. The $210.5 million Delayed Draw Term Loan ("DDTL") is now fully funded, driven by the Company consistently achieving key operational milestones related to the Company’s state-of-the-art manufacturing line, raw materials cost-out, Z3 technology performance improvement and orders backlog cash conversion. The Company surpassed its January raw materials cost-out target by 6% while delivering manufacturing cycle times below 10 seconds to further demonstrate continued operational efficiency and progress.

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Results of Operations

Revenue

[[GREPCENT_TABLE]]
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[[/GREPCENT_TABLE]]

The Company generates revenues from the delivery of its BESS and service-related solutions. The Company expects revenues to increase as it scales production to meet customer demand.

Revenue slightly decreased for the year ended December 31, 2024 compared to the year ended December 31, 2023, due to reduced production and deliveries due to the installation of the Company’s new manufacturing line.

Cost of goods sold

[[GREPCENT_TABLE]]
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[[/GREPCENT_TABLE]]

Cost of goods sold primarily consists of direct costs relating to labor, material and overhead directly tied to product assembly, procurement and construction (“EPC”), project delivery, commissioning and start-up test procedures. Indirect costs included in cost of goods sold are manufacturing overhead such as equipment maintenance, environmental health and safety, quality and production control procurement, transportation, logistics, depreciation and facility-related costs. As a nascent technology with a new manufacturing process that is early in its product lifecycle, the Company still faces significant costs associated with production start-up, commissioning of various components, modules and subsystems and other related costs. For the year ended December 31, 2024, the Company recognized $3.8 million reduction of cost of goods sold related to the IRA PTC. The Company expects its cost of goods sold to exceed revenues in the near term as it continues to scale production and prepares battery energy storage systems delivered to customers to go-live.

Cost of goods sold increased by $9.1 million, or 10% from $89.8 million for the year ended December 31, 2023 to $98.9 million for the year ended December 31, 2024. The increase in cost of goods sold from 2023 to 2024 was primarily due to an increase in project commissioning costs on previously delivered projects, revaluations of inventory balances, along with the underutilization and absorption of labor and overhead associated with implementing the new line.

Research and development expenses

[[GREPCENT_TABLE]]
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[[/GREPCENT_TABLE]]

Research and development expenses consist primarily of salaries and other personnel-related costs, materials, third-party services, depreciation and amortization of intangible assets.

Research and development costs increased by $4.1 million or 22% from $18.7 million for the year ended December 31, 2023, to $22.8 million for the year ended December 31, 2024. The increase in research and development costs was driven by higher spending on materials and supplies related to the implementation of the automated line, as well as an increase in payroll and personnel costs.

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Selling, general and administrative expenses

[[GREPCENT_TABLE]]
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[[/GREPCENT_TABLE]]

Selling, general and administrative expenses primarily consist of payroll and personnel-related, outside professional services, facilities, depreciation, travel, marketing, and public company costs.

Selling, general and administrative expenses increased by $6.4 million or 12%, from $53.7 million for the year ended December 31, 2023 to $60.0 million for the year ended December 31, 2024. The increase was primarily driven by higher consulting fees and payroll, partially offset by decrease in legal fees.

Loss from write-down on property, plant and equipment

[[GREPCENT_TABLE]]
[["","For the Years Ended December 31,"],["($ in thousands)","2024","","2023"],["Loss from write-down on property, plant and equipment","$","9,133","","","$","7,159"]]
[[/GREPCENT_TABLE]]

The Company incurred losses of $9.1 million and $7.2 million from write-downs of property, plant and equipment for the years ended December 31, 2024 and 2023, respectively. The 2023 write-downs were mainly due to replacement of equipment, outsourcing of certain production processes and the shift in production from the Gen 2.3 battery system to the Z3™ battery system. The 2024 write-downs were primarily related to design changes from the Z3™-Phase 1 to Z3™-Phase 2 production in which the Phase 1 production assets could not be utilized or repurposed for Phase 2 production. Additionally, the 2024 amount contains costs for disposal of equipment and tooling that was used for manufacturing of the Gen 2.3 battery, but cannot be repurposed for the Eos Z3 battery production.

Interest expense, net

[[GREPCENT_TABLE]]
[["","For the Years Ended December 31,"],["($ in thousands)","2024","","2023"],["Interest expense, net","$","(8,718)","","","$","(18,770)"]]
[[/GREPCENT_TABLE]]

Interest expense, net includes expenses for accrued interest, amortization of debt issuance costs and debt discounts.

Interest expense, net decreased by $10.1 million for the year ended December 31, 2024, compared to the year ended December 31, 2023. This was mainly due to lower interest expense recognized from the Senior Secured Term Loan due to the loan's extinguishment in June 2024. See Note 13, Borrowings for detail of interest expense recognized for the Senior Secured Term Loan.

Interest expense - related parties

[[GREPCENT_TABLE]]
[["","For the Years Ended December 31,"],["($ in thousands)","2024","","2023"],["2021 Convertible Note Payable interest and amortization","$","(14,299)","","","$","(12,393)"],["AFG Convertible Note interest and amortization","(6,114)","","","(4,631)"],["AFG Convertible Note loss on issuance","\u2014","","","(2,873)"],["Yorkville Promissory Notes loss on issuance","\u2014","","","(17,569)"],["Capitalized interest from construction in progress assets","914","","","\u2014"],["Interest expense, related parties","$","(19,499)","","","$","(37,466)"]]
[[/GREPCENT_TABLE]]

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See Note 13, Borrowings for further discussion.

Change in fair value of debt - related party

The change in the fair value of debt - related party of $33.8 million for the year ended December 31, 2024, related to the Delayed Draw Term Loan. The primary factors contributing to the fair value change was the extension of the maturity date and timing of future cash flows of the DDTL netting with a debt yield reduction which decreased from 47.5% to 30.0% during the year ended December 31, 2024. The change in fair value applicable to the debt yield reduction is included in Change in fair value of debt - credit risk in Accumulated other comprehensive (loss) income.

For the years ended December 31, 2024 and 2023, the change in fair value of warrants was composed of the items below:

[[GREPCENT_TABLE]]
[["","For the Year Ended December 31, 2024"],["($ in thousands)","Change in Fair Value"],["IPO warrants","$","(214)"],["April 2023 Transaction","(50,124)"],["May 2023 Transaction","(11,582)"],["December 2023 Public Offering","(109,306)"],["Change in fair value of warrants","$","(171,226)"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","For the Year Ended December 31, 2023"],["($ in thousands)","Loss on issuance","","Change in Fair Value","","Net (Loss) Gain"],["IPO warrants","$","\u2014","","","$","23","","","$","23"],["April 2023 Transaction","(26,366)","","","18,330","","","(8,036)"],["May 2023 Transaction","(5,267)","","","3,403","","","(1,864)"],["December 2023 Public Offering","(21,294)","","","6,191","","","(15,103)"],["Change in fair value of warrants","$","(52,927)","","","$","27,947","","","$","(24,980)"]]
[[/GREPCENT_TABLE]]

Change in fair value of derivatives - related parties

[[GREPCENT_TABLE]]
[["","For the Years Ended December 31,"],["($ in thousands)","2024","","2023"],["Change in fair value of embedded derivatives - related parties","$","(39,932)","","","$","9,983"],["Change in fair value of warrants - related parties","(365,456)","","","\u2014"],["Change in fair value of derivatives - related parties","$","(405,388)","","","$","9,983"]]
[[/GREPCENT_TABLE]]

The change in the fair value of embedded derivatives - related parties, was due to our convertible debt (See Note 13, Borrowings) and the change in fair value of warrants - related parties was due to changes in fair value of our SPA Warrant and contingent warrants (See Note 14, Warrants Liability).

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Gain (loss) on debt extinguishment

[[GREPCENT_TABLE]]
[["","For the Years Ended December 31,"],["($ in thousands)","2024","","2023"],["Gain (loss) on debt extinguishment","$","68,478","","","$","(3,510)"]]
[[/GREPCENT_TABLE]]

The Company recognized a gain on debt extinguishment of $68.5 million for the year ended December 31, 2024 from the payoff of the Senior Secured Term Loan.

The Company recognized a loss on debt extinguishment of $3.5 million for the year ended December 31, 2023 from the issuance of common stock upon Yorkville's redemption of their convertible promissory notes.

Other expense

[[GREPCENT_TABLE]]
[["","For the Years Ended December 31,"],["($ in thousands)","2024","","2023"],["Other expense","$","(8,120)","","","$","(1,795)"]]
[[/GREPCENT_TABLE]]

Other expense of $8.1 million for the year ended December 31, 2024 primarily included loss from derecognition of loan commitment assets during 2024 from the Credit and Securities Purchase Transaction. See Note 3, Credit and Securities Purchase Transaction, for more information.

Other expense of $1.8 million for the year ended December 31, 2023 included equity issuance costs from the April, May, and December 2023 equity and warrant issuances.

Income tax expense

[[GREPCENT_TABLE]]
[["","For the Years Ended December 31,"],["($ in thousands)","2024","","2023"],["Income tax expense","$","21","","","$","31"]]
[[/GREPCENT_TABLE]]

Income tax expense of approximately $0.02 million and $0.03 million was recorded for the years ended December 31, 2024 and 2023. The taxes are attributable to taxable earnings from the Company’s foreign operations which were insignificant for all periods presented.

Liquidity and Capital Resources

Liquidity and Going Concern

As a growth company in the early commercialization stage of its lifecycle, Eos is subject to inherent risks and uncertainties associated with the development of an enterprise. In this regard, substantially all of the Company’s efforts to date have been devoted to the development and manufacturing of battery energy storage systems and complementary products and services, recruitment of management and technical staff, deployment of capital to expand the Company’s operations to meet customer demand and raising capital to fund the Company’s development. However, as a result of these efforts, the Company has incurred significant losses and negative cash flows from operations since its inception and expects to continue to incur such losses and negative cash flows for the foreseeable future until such time that the Company can reach a scale of profitability to sustain its operations.

In order to execute its development strategy, the Company has historically relied on outside capital through the issuance of equity, debt and borrowings under financing arrangements (collectively “outside capital”) to fund its cost structure. While the Company believes its recent entry into new credit facilities as discussed below has significantly improved its capital position and provides a path to sustainable operations and profitability, there can be no assurance the Company will be able to achieve such profitability or do so in a manner that does not require additional outside capital. Moreover, while the Company has historically been successful in raising outside capital, there can be no assurance the Company will be able to continue to obtain outside capital in the future or do so on terms that are acceptable to the Company.

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As disclosed in Note 3, Credit and Securities Purchase Transaction, on June 21, 2024, the Company entered into a financing transaction with CCM Denali Debt Holdings, LP, an affiliate of Cerberus Capital Management LP (herein after referred to as “Cerberus”, “Denali”, “Lender”, “Holder”). As a result of this transaction, Cerberus agreed to provide a $210.5 million secured multi-draw facility to be made in four installments (the “Delayed Draw Term Loan”) as well as a $105.0 million revolving credit facility (“Revolving Facility”), to be made available beginning June 21, 2026, at Cerberus’ sole discretion and only if the Delayed Draw Term Loan is fully funded. As of the issuance date, the Delayed Draw Term Loan was fully funded. As part of the Credit and Securities Purchase Transaction, Cerberus received warrants and preferred stock resulting in a 33% ownership position in the Company as of the issuance date. This ownership percentage represents $644.8 million in market capitalization based on the February 27, 2025 closing share price of the Company’s common stock.

As disclosed in Note 13, Borrowings, on November 26, 2024, the Company successfully closed on the DOE Loan Facility, which provides the Company with up to $303.5 million in funding, including capitalized interest, subject to the achievement of certain funding conditions. The DOE Loan Facility provides for a multi draw term loan facility under a series of at least two and, if the Company elects, up to four tranches, subject to the achievement of certain conditions, with each tranche corresponding to the production, maintenance and development, and operation of a given production line to be funded using the proceeds of such tranche. The DOE Loan Facility specifies the maximum amount subject to each tranche (Tranche 1: $102.0 million; Tranche 2: $117.3 million; Tranche 3: $71.8 million; and Tranche 4: $12.3 million), and any amounts which are not withdrawn under a specified tranche cannot be allocated to another tranche. Through December 31, 2024, the Company had drawn down $68.3 million under Tranche 1.

As of the date the accompanying Consolidated Financial Statements were issued (the “issuance date”), management evaluated the significance of the following negative financial conditions in accordance with Accounting Standard Codification 205-40, Going Concern:

•Since its inception, the Company has incurred significant losses and negative cash from operations in order to fund its development. During the year ended December 31, 2024, the Company incurred a net loss of $685.9 million. Adjustments to reconcile the net loss to cash used in operations are primarily from non-cash items on the Consolidated Statements of Cash Flows. The non-cash items totaled $549.2 million. The Company incurred negative cash flows from operations of $153.9 million and had an accumulated deficit of $1,561.7 million as of December 31, 2024.

•As of December 31, 2024, the Company had $74.3 million of unrestricted cash and cash equivalents available to fund the Company’s operations, and working capital of $114.9 million, which includes loan commitment assets of $21.7 million classified as current assets on the Consolidated Balance Sheets.

•On June 21, 2024, upon closing of the Credit and Securities Purchase Transaction, Cerberus funded the Company $$75.0 million of the initial draw, and the Company received $71.3 million, net of the 5.0% original issue discount. On August 29, 2024, Cerberus funded the Company $30.0 million (“August Draw”), and the Company received $28.5 million, net of the 5.0% original issue discount. On November 1, 2024, Cerberus funded the Company $65.0 million related to the October 31, 2024 tranche (“October Draw” or “October Tranche”), and the Company received $61.8 million, which is net of the 5.0% original issue discount. On January 24, 2025, Cerberus funded the Company the final $40.5 million related to the January 31, 2025 tranche (“January 2025 Draw”). Subsequent to the January 2025 Draw, the Delayed Draw Term Loan has been fully funded.

•Through December 31, 2024, under the DOE Loan Facility, the Company drew down $68.3 million for the eligible project cost that the Company had incurred through December 6, 2024. These costs are a portion of Tranche 1 of the DOE Loan Facility. Tranche 1 provides up to $102.0 million for eligible costs in connection with the design, construction, installation, startup and shakedown of a battery automation line and related tools. In the event the Company does not achieve certain funding conditions and the DOE chooses not to continue funding, the Company would need to seek alternative sources of capital, which may not be available on favorable terms or at all.

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•The Credit and Securities Purchase Transaction and the DOE Loan Facility contain certain quarterly financial covenants, which include (a) Minimum Liquidity, (b) Minimum Consolidated EBITDA, and (c) Minimum Consolidated Revenue (collectively, the “financial covenants”). As of the fiscal quarter ended December 31, 2024, the only financial covenant in effect was Minimum Liquidity. As of December 31, 2024, the Company was in compliance with this covenant, as well as all non-financial covenants and expects to remain in compliance with the Minimum Liquidity covenant over the next twelve month beyond the issuance date. The Minimum Consolidated EBITDA and Minimum Consolidated Revenue financial covenants are effective starting fiscal quarter ending December 31, 2025. As of December 31, 2024, the Company expects that it may be unable to remain in compliance with the Minimum Consolidated EBITDA and Minimum Consolidated Revenue financial covenant beginning December 31, 2025, absent the Company’s ability to secure a waiver or amend the Credit and Securities Purchase Transaction and the DOE Loan Facility. In the event the Company is unable to comply with the financial and non-financial covenants as of December 31, 2025, and the Company is unable to secure a waiver, Cerberus and DOE may, at their discretion, enter into a forbearance agreement with the Company and/or exercise any and all of their existing rights and remedies, which may include, among other things, asserting their rights in the Company’s assets securing the loans. Moreover, the Company’s other lenders may exercise similar rights and remedies under the cross-default provisions of their respective borrowing agreements with the Company.

•In the event the Company’s ongoing efforts to raise additional outside capital are unsuccessful, the Company will be unable to meet its obligations as they come due over the next twelve month beyond the issuance date. In such an event, management will be required to seek other strategic alternatives, which may include, among others, a significant curtailment in the Company’s operations, a sale of certain of the Company’s assets, a sale of the entire Company to strategic or financial investors and/or allowing the Company to become insolvent.

These uncertainties raise substantial doubt about the Company’s ability to continue as a going concern. The accompanying Consolidated Financial Statements have been prepared on the basis that the Company will continue to operate as a going concern, which contemplates that the Company will be able to realize assets and settle liabilities and commitments in the normal course of business for the foreseeable future. Accordingly, the accompanying Consolidated Financial Statements do not include any adjustments that may result from the outcome of these uncertainties.

Financing Arrangements

The Company has historically relied on outside capital to fund its cost structure and expects this reliance to continue for the foreseeable future until the Company reaches profitability through its planned revenue generating activities. During 2024, the Company closed on the following capital transactions:

•Under the ATM offering program, for the year ended December 31, 2024, the Company sold 16,627,523 shares raising proceeds of $14.1 million, net of fees paid to Cowen, at an average selling price of $0.87 per share.

•The Company secured a strategic investment of up to $315.5 million from Cerberus. The investment by Cerberus is structured as a $210.5 million Delayed Draw Term Loan to be made in four installments. On June 21, 2024 the first installment of $75.0 million was funded, on August 29, 2024, the second draw of $30.0 million was funded, on October 31, 2024 the third draw of $65.0 million was funded, and on January 24, 2025, the final draw of $40.5 million was funded. As part of the strategic investment, a $105.0 million Revolving Facility can be made available to the Company at the Lenders’ sole discretion and only if the Delayed Draw Term Loan is fully funded.

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•On November 26, 2024, the Company entered into the DOE Loan Facility which provides for an aggregate principal amount of up to $277.5 million of borrowings and an aggregate capitalized interest of up to $26.0 million. Through December 31, 2024, the Company has drawn down $68.3 million under the DOE Loan Facility, at an interest rate of 4.791% for eligible project costs that the Company has incurred through December 6, 2024. These costs are a portion of Tranche 1 of the DOE Loan Facility, which are related to Line 1. Additional draws under the DOE Loan Facility are subject to our achievement of certain funding conditions, with each Tranche corresponding to the production, maintenance and development, and operation of a given production line to be funded using the proceeds of such Tranche and the principal amount of each Tranche consisting of a maximum principal amount designated for such Tranche in the DOE Loan Facility. Each Tranche provides the Company funding for 80% of the Eligible Project Costs (as defined in the DOE Loan Facility) associated with the corresponding production line, with the Company responsible for funding the remaining 20% of the Project Costs.

See Note 13, Borrowings, and Note 20, Shareholders' Equity for all of the Company’s outstanding debt and equity transactions.

Capital Expenditures

Although the Company expects capital expenditures and working capital requirements to increase as it seeks to execute its growth strategy, total capital expenditures for the years ended December 31, 2024 and December 31, 2023 were $33.2 million and $29.3 million, respectively. The increase in capital expenditures in 2024 was primarily driven by costs incurred for Phase 2 production of the Z3™ battery system. See Note 7, Property, Plant and Equipment for further discussion.

Discussion and Analysis of Cash Flows

The Company relies heavily on private placement of convertible notes, term loans, equipment financing and issuance of common stock and warrants. Our short-term working capital needs are primarily related to funding of debt interest payments, repayment of debt principal, product manufacturing, research and development, and general corporate expenses. The Company’s long-term working capital needs are primarily related to repayment of long-term debt obligations and capital expenses for capacity expansion and maintenance, equipment upgrades and repair of equipment.

The following table summarizes our cash flows from operating, investing and financing activities for the periods presented.

[[GREPCENT_TABLE]]
[["","","For the Years Ended December 31,"],["($ in thousands)","","2024","","2023"],["Net cash used in operating activities","","$","(153,936)","","","$","(145,018)"],["Net cash used in investing activities","","(33,186)","","","(29,461)"],["Net cash provided by financing activities","","205,834","","","227,918"]]
[[/GREPCENT_TABLE]]

Cash flows from operating activities:

Cash flows used in operating activities primarily comprise of costs related to research and development, manufacturing of products, project commissioning and other general and administrative activities.

Net cash used in operating activities of $153.9 million for the year ended December 31, 2024 was primarily driven by a net loss of $685.9 million, adjusted for non-cash items of $549.2 million. Non-cash items primarily related to stock compensation expense, depreciation and amortization, non-cash interest expense, gain on debt extinguishment, loss from the write-down of property, plant and equipment, and changes in fair value of debt, warrants and derivatives. The net cash outflows from changes in operating assets and liabilities of $17.2 million was primarily driven by an increase in inventory of $20.5 million, decrease in accrued expenses of $14.7 million, and increase in contract assets of $5.7 million, partially offset by an increase in contract liabilities of $19.7 million.

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Net cash used in operating activities of $145.0 million for the year ended December 31, 2023 was primarily driven by a net loss of $229.5 million, adjusted for non-cash items of $94.2 million. Non-cash items included stock-based compensation expense, depreciation and amortization, non-cash interest expense, changes in fair value of warrants and derivatives, and loss from the write-down of property, plant and equipment. The net cash outflows from changes in operating assets and liabilities of $9.7 million was primarily driven by decrease in accounts payable of $11.5 million, increase in contract assets of $6.3 million, increase in other receivables of $7.5 million, and increase in grant receivables of $3.0 million, partially offset by an increase in accrued expenses of $19.3 million.

Cash flows from investing activities:

Net cash flows used in investing activities for the year ended December 31, 2024 were primarily composed of payments made for purchases of property, plant and equipment of $33.2 million.

Net cash flows used in investing activities for the year ended December 31, 2023 were primarily composed of payments made for purchases of property, plant and equipment of $29.3 million, which included costs incurred for development and construction of a fully automated manufacturing line for the Z3™ battery.

Cash flows from financing activities:

Net cash provided by financing activities was $205.8 million for the year ended December 31, 2024. This was primarily due to the proceeds received from the Credit and Securities Purchase Transaction of $160.3 million, DOE Loan of $66.6 million, and issuance of common stock of $14.1 million. The proceeds were partially offset by payoff of the Senior Secured Term Loan of $19.9 million, debt issuance costs related to the Credit and Securities Purchase Transaction and DOE Loan of $18.1 million, payments on the equipment financing facility of $3.3 million and share repurchases from employees for tax withholding of $1.2 million.

Net cash provided by financing activities was $227.9 million for the year ended December 31, 2023. This was primarily from the issuance of common stock and warrants in the amount of $192.2 million, as well net proceeds received from the issuance of Yorkville Convertible Promissory Notes and AFG Convertible Notes, totaling $48.1 million. The proceeds were partially offset by equity issuance costs of $5.0 million, debt issuance costs related to the Yorkville Convertible Promissory Notes, AFG Convertible Notes and Senior Secured Term Loan of $4.2 million, payments on the equipment financing facility of $2.9 million and share repurchases from employees for tax withholding purposes of $0.6 million.

Contractual Obligations

The Company has certain obligations and commitments to make future payments under contracts. As of December 31, 2024, this is comprised of the following:

•Future lease payments, including interest, under non-cancellable operating and financing leases of $4.2 million. The leases expire at various dates prior to 2028. See Note 15, Leases to our Consolidated Financial Statements included elsewhere in this Annual Report.

•In accordance with the Insurer Letter Agreement, the Company shall pay to the Atlas Insurers $4.0 million on June 30, 2025, subject to the absence of certain events of default under the Credit Agreement.

•Principal and Interest payments related to the following debt obligations. See Note 13, Borrowings to our Consolidated Financial Statements included elsewhere in this Annual Report.

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[[GREPCENT_TABLE]]
[["","Future Debt Payments"],["AFG Convertible Notes - due June 2026 (1)","$","32,468"],["2021 Convertible Notes Payable \u2013 due June 2026","134,261"],["Delayed Draw Term Loan - due June 2034 (1)","701,508"],["Equipment financing facility - due April 2025 and April 2026","2,596"],["DOE Loan Facility - due June 2034 (1)","91,470"],["Total","$","962,303"]]
[[/GREPCENT_TABLE]]

(1) As of December 31, 2024, the Company is obligated to repay future contractual interest payments for these borrowings in-kind.

Critical Accounting Estimates    

Our Consolidated Financial Statements are prepared in conformity with U.S. generally accepted accounting principles. In preparing our Consolidated Financial Statements, we make assumptions, judgments, and estimates on historical experience and various other factors that we believe to be reasonable under the circumstances. Actual results could differ materially from these estimates under different assumptions or conditions. We regularly reevaluate our assumptions, judgments, and estimates.

Critical accounting estimates are those estimates that involve a significant level of estimation uncertainty and could have a material impact on our financial condition or results of operations.

Warranty Liability

The Company generally provides a standard warranty for a period of two years. We also provide extended warranties and performance guarantees, which are identified as separate performance obligations in the Company's contracts with customers. We accrue warranty reserves at the time of recording the sale. Warranty reserves include management’s best estimate of the projected costs to repair or to replace any items under warranty, which is based on various factors including actual claim data to date, results of lab testing, factory quality data, and field monitoring. Due to limited claim experience since commercialization of our product, and the potential for variability in these underlying factors, the difference between our estimated costs and our actual costs could be material to our Consolidated Financial Statements. If actual product failure rates or the frequency or severity of reported claims differ from our estimates, we may be required to revise our estimated warranty liability. We will also update actual warranty experience to determine warranty reserves as such experience becomes available. We review our reserves at least quarterly, seeking to ensure that our accruals are adequate in meeting expected future warranty obligations, and we will adjust our estimates as needed. Initial warranty data can be limited at the early stage in the commercialization of our products and, the adjustments that we record may be material. Thus, it is likely that as we sell additional BESS, we will acquire additional information on the projected costs to repair or replace items under warranty and may need to make additional adjustments (See Note 10, Accrued Expenses to our Consolidated Financial Statements included elsewhere in this Annual Report).

Warrants Liability

The Company estimated the fair value of the April 2023 warrants, the May 2023 warrants, and the December 2023 warrants using the Black-Scholes model at inception and on subsequent valuation dates. This model incorporates inputs such as the stock price of the Company, exercise price, risk-free interest rate, expected volatility, and time to expiration. The expected volatility involves unobservable inputs classified as Level 3 of the fair value hierarchy. The sensitivity of the fair value calculation to this assumption could create materially different results under different conditions or using different assumptions. See Note 16, Fair Value Measurement to our Consolidated Financial Statements included elsewhere in this Annual Report.

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Convertible Notes and Embedded Derivatives

The Company estimated the fair value of the embedded conversion features in the 2021 Convertible Notes and the AFG Convertible Notes using a binomial lattice model at inception and on subsequent valuation dates. This model incorporates inputs such as the stock price of the Company, dividend yield, risk-free interest rate, the effective debt yield and expected volatility. The effective debt yield and volatility involve unobservable inputs classified as Level 3 of the fair value hierarchy. The sensitivity of the fair value calculation to these methods, assumptions, and estimates included could create materially different results under different conditions or using different assumptions. See Note 16, Fair Value Measurements to our Consolidated Financial Statements included elsewhere in this Annual Report.

Instruments issued under the Credit and Securities Purchase Transaction (see Note 16, Fair Value Measurement)

The fair value of the Delayed Draw Term Loan was estimated using a discounted cash flow (“DCF”) method, based on the contractual cash flows discounted at an effective debt yield. The fair value of the loan commitment asset was estimated using the discounted cash flow model, based on the contractual cash flows discounted at the effective debt yield and considering the probability of achieving certain milestones. The fair value for the SPA Warrant is estimated based on its intrinsic value, using the Eos common stock closing price adjusted by a discount for lack of marketability (“DLOM”), less the exercise price of $0.01 for the SPA Warrant. A DLOM was applied considering the underlying shares of the SPA Warrants are unregistered. The fair value of the Contingent Warrants is estimated based on the underlying Eos common stock closing price adjusted by a DLOM using a Black-Scholes model, considering the probability of achieving certain milestones. A DLOM was applied considering the underlying shares of the Contingent Warrants are unregistered. The fair values for all these instruments are designated as level 3 measurements as they rely on significant unobservable inputs. The significant unobservable inputs for each of these instruments are detailed in Note 16, Fair Value Measurement), which include debt yield, DLOM, and milestones achievement expectations. The sensitivity of the fair value calculation to debt yield, DLOM, and milestones achievement expectations could create materially different results under different conditions or using different assumptions.

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