Eos Energy Enterprises, Inc. (NASDAQ:EOSE) Q2 2023 Earnings Call Transcript

Eos Energy Enterprises, Inc. (NASDAQ:EOSE) Q2 2023 Earnings Call Transcript August 15, 2023

Operator: Hi. Good morning, and welcome to Eos Energy Enterprises Second Quarter 2023 Conference Call. As a reminder, today’s call is being recorded and your participation implies consent to such recording. At this time, all participants are in a listen-only mode. A brief question and answer session will follow the formal presentation. With that, I would like to turn the call over to Liz Higley, Acting Director of Investor Relations. Thank you. You may begin.

Liz Higley: Thank you. Good morning, everyone, and thank you for joining us for Eos’s financial results and conference call for the second quarter 2023. On the call today, we have Eos CEO, Joe Mastrangelo, and CFO, Nathan Kroeker. Before we begin, allow me to provide a disclaimer regarding forward-looking statements. This call, including the Q&A portion of the call may include forward-looking statements, including but not limited to current expectations with respect to 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 expectation or those implied by these forward-looking statements.

The risks and uncertainties that forward-looking statements are subject to are described in our SEC filings. 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. This conference call will be available for replay via webcast through Eos’s Investor Relations website at investors.eose.com. Joe and Nathan will walk you through the company highlights, financial results and business priorities before we proceed to Q&A. With that, I’ll now turn the call over to Eos CEO, Joe Mastrangelo.

Joe Mastrangelo: On behalf of the 300 plus employees at Eos, I want to welcome everyone to our Q2 earnings call. It’s a very important moment in time for both Eos and for our industry. As I said before, I’ve been in the energy industry for nearly 30 years and Eos has been in existence for 15 years. We’re at an important inflection point as you look at what the world needs to power its future. When you look right now in the United States, the Texas, the ERCOT market is operating at record highs. California is experiencing high temperatures, which are straining their ability to produce on the grid. You see numerous fires on energy storage projects, which has caused a significant concern about how we can deliver and integrate renewable safely into our grid.

Nathan’s going to go through later on the details around our order pipeline, backlog and some specific customer examples. But what I wanted to talk about is what’s required to truly grow our business and ultimately what’s required to help decarbonize our energy — our energy grid. What’s important here is not just the intent of decarbonization. It’s having the policies in place to deliver that. At the same time, as you have the policy framework in place, which I believe we do in the United States with the IRA legislation, it’s then taking those policies and acting. And where we need to work on as an industry and as a company is acting and moving faster to deliver on that demand. What the world is asking for right now is not a two-hour energy storage solution, but a flexible energy storage solution provides the safety and reliability that we all demand from our power grid.

We believe that we have that solution over time to deliver into that market and it’s no more evidenced by that number on the lower left-hand side of the page. The fact that we’ve discharged 1.4 gigawatt hours of energy over the lifetime of our product. It’s — we still have work to do. We still have things that we need to fix, improve, and refine, but we have a technology that can deliver upon the need in the marketplace that we see every day and talk about every day. At the same time, we’re focused on being able to deliver that product out of the state-of-the-art factory that we like to say it’s a technology that was designed with American minds, it’s built with American hands using predominantly American materials on American manufacturing equipment.

That’s important to note as we talk about also energy security and our ability to deliver the future growth of our country. If you flip to Page 4, look, a picture tells a 1,000 stories. Here’s a picture of our semi-automated manufacturing line in Turtle Creek, Pennsylvania, with our employees manning their stations and building batteries. Now we are in early days of commercial production, but we feel really good about where we are we are very proud of what the team is doing and delivering on a day-by-day basis. So if we move to Page 5, I just want to hit on three core concepts here as to why we feel like we have a product that can deliver the future needs of our industry and our and the world. First one is, we’ve taken a product that has been around for 15 years.

We’ve used the basic same core chemistry and our challenge technologically has always been, how do you do that and seal that battery so that the battery can perform over a 20-year life span? How do you do that at a cost where you can deliver a product and how do you do that at a cycle time that you can scale into a fast-growing market. We’ve learned a lot over the various generations of our technology. And in every step of the way, we’ve incorporated that into this new Z3 design. This new Z3 design that the team has developed, the initial results are very promising, but you have to realize like what technological team was able to do in Edison, New Jersey, is take out the highest cost component in our battery that being titanium and replacing it with conducted polymer, learning from the ceiling challenges that we had on leaking batteries and taking that and incorporating it into the design of the Z3 battery.

which enables us to both reduce cycle time and improve performance. If you move to the center of the page, our initial battery performance is very promising. Now here, I think what we have to do is take an insider’s view of what performance means. So I heard people say and talk about, well, EOS’s round trip efficiency is lower than what else — lithium ion. And that’s true. We sacrifice a couple points of round trip efficiency for the safety and to reduce the fire risk around our technology that you see in lithium-ion. But at the same time, if you measure us at two hours of energy delivery against lithium ion, we also need to then take lithium ion and measure them at four, six, eight, 10, and 12 hours discharge time. That same performance that an Eos battery can do with that same round trip efficiency without requiring the HVAC systems to be able to operate, you get that with an Eos solution.

And that’s important when you think about these systems are operating in higher temperature environments. That’s why you have the high power demand here this summer. So you need something that’s going to be safe, that doesn’t require sophisticated complex cooling systems to allow them to perform. That’s the product that the team has been able to develop. And when you look at the performance of nine modules. So this is a small subset of technology, but that technology is performing exactly as it was designed in the lab. Now there are going to be challenges as we move forward. I’ve done numerous new product introductions throughout my 30-year career. You don’t know what you don’t know until you start building and executing on your on your roadmap.

But what we’ve seen from our initial performance is really promising as we look to deliver in the future. And then on the on the on the far right hand side of the page, you don’t sell an individual battery cell. You don’t even sell an individual battery. You sell a system. And inside that system, you got to look at how you make that cost effective. and how you make that operate. And the team here has done a fantastic job of coming up and simplifying our system. Our whole goal here is reduce the amount of wires that you have out in the field, reduce the complexity that you have on the field, allow more energy cubes to operate off of the same power electronics to reduce cost, to simplify the system and allow it to perform in a difficult operating environment and deliver what’s expected of the industry and of this product.

So we take those three fundamentals and then flip to Page 6 and talk about the — our line launch. Look, I’m proud to say that I work at Eos. I’m proud to be part of this team. The team amazes me every day with the work that they do. And if you start off on the left hand side of this page, that’s day one of commercial production that happened a few weeks ago. Now we’ve been very purposeful about turning on commercial production because of the speed that you manufacture. If you have an inherent problem inside your battery, inside the production process, the compounding cost that it would be to shareholders of cash burn, and we’ve been very, very cautious about how we’ve launched this product to make sure that we’re spending every dollar we have wisely.

And we’ve learned at every step of the way how to improve how we build the battery. We started off, you remember, I’ve said this before, Gen 2.3 had a 90 minute cycle time to build a battery. First day, we built batteries, we’re at four minutes on the semi-automated line and we believe we have a path to take that down to two minutes of cycle time as we move forward. And this initial production comes with less than 1% scrap. And the batteries that are coming off of the line are performing like the ones that we showed on the prior page, meeting specification. Now we’re going to put these batteries to the test. We’re going to get them out in the field and start operating them. But what the team is doing out in Turtle Creek is nothing short of amazing in my viewpoint.

At the same time, I talked about this before, you don’t just sell batteries, you sell an overall system. We call that Eos Z3 cube. If you look at that middle picture, that’s us starting to run our strings inside of a cube that would go out into the field. Now we’re finding out as we spent a lot of time here again in Edison, New Jersey in our R&D facility, in our software facility, developing a simpler battery management system. What we do differently than other technologies is we allow our battery to operate across a wide temperature range, we allow it to operate charge and discharge over a wide number of hours, but we do that with a very simple battery management system that allows flexibility for the end users. And what we’ve been trying to do and the whole trick here is reduce voltage in the system to increase throughput and to increase — decrease output of the system.

It’s not just about what your individual battery does, but how your system performed. The team has spent a lot of time doing that. At the same time, I get a lot of questions about where are we on the state-of-the-art manufacturing process. Well, the far right, that’s the design of the new line that’s going to go into our factory in Turtle Creek. We’re in the midst of developing the software and controls logic around that. We’ve made some purchases of long lead items around robotics. We feel really good about the progress that we’re making around this, but this all comes back to again how we manage the timing of investment in that line versus the timing and spend on getting product out in the field. What everybody has to remember here before I turn this over to Nathan to talk about becoming profitable in the commercial pipeline is, this is an industry where you have to prove yourself out in the field.

It’s not prove yourself in the laboratory. So we’ve got to get the Z3 out in the field operating on customer sites. And at the same time, perfect what we’re doing, then automate, then scale, and we’re trying to do that in a very compressed cycle time. I feel really good about where we are. We’ll keep everyone updated on the challenges as we move forward, but I want to turn it over to Nathan, who’s going to walk you through some more details around our pipeline, around our path to profitability and then also around the financials for the second quarter. Thanks for listening today.

Nathan Kroeker: Thanks, Joe. Good morning, everybody. I want to take a moment to explain how we’re thinking about our path to profitability. Not only are we improving our bottom line, but we are also focused on improving our top-line. As you know, the first step to profitability is getting to positive gross profit. From this point, we can begin to cover our operating expenses which tend to be more fixed in nature as we achieve economies of scale. Looking at this graph, what you see here is sales prices are currently expected to increase over time. This is a result of increased market demand for long duration storage combined with a shortage of manufacturing capacity in the market. Some of these price increases are already baked into our backlog and are expected to be realized following the delivery of some of the earlier projects which were sold at lower prices in order to secure a foothold in a lithium dominated marketplace.

As we establish our technology and credibility in the market and secure the needed financing to expand our manufacturing capacity, we expect to see our pricing increase over time. The IRA’s 10% domestic content bonus credit is an added tailwind. With our domestic content levels, we expect customers to see this benefit not only for their storage assets, but potentially in helping their overall projects to qualify for this added 10% credit. Moving on to COGS, while sales prices are increasing, one of the top priorities of the company is continue focusing on taking cost out of the product. With our planned cost-out initiatives in place, we expect to reach gross profit breakeven as we scale our first automated line. This would enable higher throughput, allowing us to absorb more of our fixed costs and gain operating leverage.

Our cost program for 2023 includes seven discrete projects that are anticipated to either lower our supply costs, increase energy density or improve the manufacturability of our product. All three of these goals are essential to getting Eos to profitability. On top of taking cost out, another benefit available to us is the $45 per kilowatt hour production tax credit. As we produce storage systems, we are able to realize this benefit as an offset to COGS, which we have already begun accounting for in the first half of the year. While this $45 tax credit will help to accelerate our path to breakeven, we do not believe it is essential to achieve profitability. We believe this business makes economic sense even without the tax credit, but it certainly acts as an added benefit to us over time.

Georgejmclittle/Shutterstock.com

Despite the progress we are making on improving our backlog and driving out costs, we still expect to see negative margins as we come down our cost curve and deliver on early backlog orders. Moving on to Slide 9. I’m now going to walk you through our classic pipeline page that I’m sure many of you are familiar with. This page is broken out into three key buckets, lead generation, current pipeline and backlog. Starting on the left side of the page is lead generation, which, at the end of the quarter, was $10.9 billion, representing 59 gigawatt hours of storage, up $1.2 billion from the previous quarter. You should think about this stage as customers coming to us with an idea for a project in which they do not yet have a technical use case for us to quote on.

We do not count lead generation in our current pipeline. And generally, there is a lot of churn here as things drop out or progress into our pipeline. Moving to the right, we get to our pipeline. And we define pipeline in three segments. One, does it have a technical use case? Two, have we provided a non-binding quote? And three, do we have a signed letter of intent? We do not call something current pipeline unless we have a technical use case where we can provide a technical proposal to the customer, which then leads us to giving them a non-binding quote. Our goal from there is to then get customers to sign an LOI with us, which represents a non-binding agreement, and if the project materializes, they plan to choose Eos as their technology.

Our current pipeline is now at $9.7 billion and is up $1.1 billion from the prior quarter. We have $1.6 billion in signed LOIs, an increase of $93 million versus last quarter, representing over 7 gigawatt hours. From there, the intention is to materialize projects into booked orders, which then get added to our backlog. We currently expect roughly 30% to be converted from LOIs into booked orders over time. The backlog stands at $534 million as of June 30, including some long-term service revenue, which represents less than 6% of the total value of our backlog. We expect to grow service revenue as more projects become operational in the field. During Q2, we booked a new industrial order in California, and we removed two small projects that no longer met our qualifications to be considered in backlog.

While we didn’t see a large increase in orders during the quarter, we continue to feel our pipeline is strong, and we believe many potential customers may be waiting to see our state-of-the-art factory in operation as well as additional clarity on the IRA tax credits. Each quarter, we assess the health of our reported backlog. Doing so requires us to exercise judgment about uncertain factors. We sometimes come to a view that a project that was booked in the past is unlikely to materialize or a change order has been executed, in which case, we may adjust our backlog. This assessment has resulted in projects being removed from our backlog in each of the last two quarters. While we’ve previously shipped products to 12 customers, our current backlog consists of 13 customers, representing 2.2 gigawatt hours, which includes a mix of utilities, developers, IPPs and industrial customers.

Over 50% of our backlog is in the California and ERCOT markets, with the remaining 50% spread across other US and international markets. Now let’s take a deeper dive on a few of the larger customers that we have in our backlog, beginning with Bridgelink. We first signed an MSA with Bridgelink Commodities LLC back in March of last year. This was a multiyear MSA where Bridgelink locked in the price of 240-megawatt hours of storage over a three-year period and then increased the overall size of the MSA to 1 gigawatt hour in June of last year. Bridgelink is a developer of solar and storage projects and has informed us that [Technical Difficulty] in its pipeline and some of these projects have received interconnects, while others are well into the interconnection queue.

This is important because an interconnect approval is essential for a project to be able to deliver power to the grid. In today’s environment, an interconnect can take years to secure, meaning that these types of projects have a certain amount of intrinsic value, and we believe a number of them will ultimately be built. We were informed by Bridgelink management that its affiliate has reached a confidential settlement with its lender, and the related assets were not sold at auction. Bridgelink recently confirmed that they are actively seeking alternative financing for these projects. Moving on to IEP. In 2020, we entered into an agreement to supply 1 gigawatt hour of storage, which was added to the pipeline as a letter of intent. Of this, we have two Texas projects totaling 100-megawatt hours in the backlog, with the remaining 900-megawatt hours included in LOIs. Control of the two Texas projects was transferred to a large North American infrastructure fund, and we currently anticipate breaking ground on the first project later this summer, with delivery scheduled for Q4 of this year.

Carson Hybrid is another significant customer for us. We have a project in California that is co-located with an active gas turbine peaker plant that is delivering power to the California grid to meet the high summer demand. Construction is expected to begin this fall as soon as we can access the construction site to deliver our products. In addition, we have a 300-megawatt hour project with Carson that has recently received its interconnection approval and is included in our backlog. We have received a deposit or down payment on both contracts. Next, we have a confidential customer that is a leading Northeast developer of solar and storage projects that has signed a multiyear MSA with us to lock-in the price of our storage systems. The customer is actively pursuing permitting in New York.

And given the safety of our product relative to other alternatives and the recent fires that have been in the news, we currently expect this market to have significant growth potential. We anticipate cash coming in as POs are issued and production schedules are set under this MSA. And finally, we have another confidential customer that has a very large utility and one of the largest operators of energy storage in the US. This utility has signed a long-term framework agreement for up to 4 gigawatt hours of energy storage volume, which is included in our pipeline in the LOIs/firm commitment category, along with the PO for their first 47-megawatt hour project, which is in our backlog and we expect to deliver later this year. This is an important project for the team as it represents our opportunity to demonstrate the capability of Eos’ technology to one of the largest utilities in the world.

The balance of our backlog is a combination of smaller deals, both front of the meter and behind the meter with developers, IPPs and investment-grade utilities. Now moving on to Slide 10. This is a page where we want to walk through the structure of our standard form customer contract as it relates to expected cash flows going forward. In order to offset the high working capital needs of the business, we strive to receive cash early to fund raw material purchases. Generally speaking, our template customer supply contracts are structured so that as we begin to manufacture and deliver storage systems, we expect to receive approximately 60% of cash prior to customer delivery. Amounts received are, of course, subject to the final negotiated terms in each individual agreement.

Now looking at the page, I want to walk you through the process of what we generally see from a signed letter of intent, all the way to commercial operation on the right-hand side of the page. As mentioned earlier, a letter of intent represents the last stage in our pipeline before a deal gets into backlog. You should think about this stage as a non-binding agreement that aligns our interests with the customers and has us on the same side of the table, especially in the case of a developer as they pursue projects out in the marketplace. If the customer wins, Eos wins. To clarify, LOIs never meet our criteria for a booked order. What you see next is that an LOI or any active proposal can be formalized into a master supply agreement or MSA. Alternatively, a customer can skip the MSA and go directly to a definitive supply agreement with a PO, which sometimes happens for smaller, more discrete projects.

MSAs and POs can be considered booked orders provided they meet certain internal qualifications, and each agreement can have different cash milestones, which are detailed in the contract. We typically require each of our customers to pay a deposit or downpayment before they are allocated a slot in our production schedule. You should think of an MSA as a multiyear agreement that defines a commitment to a specific amount of storage capacity being purchased over a defined period of time. As time progresses and specific projects are identified, individual POs would then be executed under those MSAs. We often get a small deposit of up to 5% and/or a cancellation fee with our multiyear MSAs. Even if an MSA does not have a specific project identified, it helps us with long-term capacity planning.

In the case of multiyear MSAs, POs are then issued when individual projects materialize. When we receive a purchase order, we usually expect to receive 10% to 30% of the total contract price as a downpayment. We expect such payments to be a significant source of cash to offset increased working capital needs of some portion of our active proposals, LOIs and MSAs eventually result in purchase orders. Next, we expect to receive another 20% to 30% of the contract price during the manufacturing stage. During this stage, we’re sourcing the raw materials, and we ask that our customers pay a cash milestone prior to manufacturing their systems and/or additional cash when the product is ready to ship. Revenue recognition does not necessarily follow the cash flows or the manufacturing cycle, but rather is determined based on our fulfillment of obligations to the customer.

A meaningful portion of revenue is recognized when control passes to the customer, again, determined by the specific terms of the applicable agreement. Next, we expect to receive another 25% to 30% when systems are fully delivered. At this point, Eos begins site installation and commissioning, and the last 5% to 10% would be received after commissioning is complete and the system is placed in operation. I’d like to point out that an item we have mentioned briefly in the past is the opportunity for long-term service revenue. While our contracts generally offer a standard two-year warranty, we also provide customers with the option to purchase a long-term service agreement, which can go out as long as 20 years. As we begin to get more systems in operation, we expect this to be an increasing source of cash and revenue in the future.

Now let’s move into our second quarter financial results. Overall, the second quarter was an important quarter for the team, and I’m very proud of our employees as we continue to keep our heads down and focus on getting the Z3 systems into the market. Each day, we become better than the day before and we expect our financials to begin to reflect these improvements over time. Revenue for the quarter was $0.2 million as we recognized revenue on our last Gen 2.3 systems before beginning the transition of our factory to Z3 production. Cost of goods sold for the quarter was $11.2 million, of which, $2.3 million is a non-cash related item, a decrease of $25.6 million compared to the second quarter of 2022, primarily driven by a decrease in unit volume, partially offset by increases in commissioning costs associated with the Pine Gate project.

R&D investment was $5 million, a slight decrease compared to the second quarter last year, driven by a reduction in third-party services, partially offset by ongoing Z3 development. $0.3 million was non-cash stock compensation and depreciation. SG&A for the quarter was $13.1 million, including $2.2 million of non-cash items, which is $6 million lower than the second quarter of the prior year, driven primarily by decreases in outside consulting expense as we brought several of these functions in-house. Interest expense was $19.6 million for the quarter, of which $4.9 million was driven by the senior secured term loan and the equipment financing facility with Trinity Capital. The other $14.8 million was non-cash related to the interest expense and amortization from our convertible notes.

The resulting operating loss was $34.6 million with a net loss of $131.6 million or $28.9 million, excluding non-cash items, which is a year-over-year improvement of 44%. Lastly, I will give you an update on our progress against our full year company objectives. Second quarter was very much a transitional quarter, and there’s still a lot of work for us to do in order to reach our goals. We increased our opportunity pipeline by $1.1 billion in the second quarter. And during the first half of 2023, we had $86.9 million in booked orders with three customers. While three customers may not sound like a lot, the largest order was with a repeat customer and another one was for an initial project accompanied by a larger framework agreement of up to 4 gigawatt [Technical Difficulty] which is included in our pipeline.

We also signed five new letters of intent for a total of 1.2 gigawatt hours during the first half of 2023. We believe there is a line of sight to achieving our booked orders objective for 2023 with nearly $10 billion in our pipeline. If we receive a positive outcome on our loan application, we expect to see increased customer confidence in our product and our ability to deliver long-duration energy storage projects. Next, we remain on track towards our $30 million to $50 million revenue objective. If you recall, we said that the upper end of the range was contingent on getting our automated line up and running in Q4, while the lower end was if the automated line pushed into next year. We are now tracking for the lower end of the range. In the first half of 2023, we had revenue of $9.1 million.

As we think about the rest of the year, we currently expect remaining revenue to be back-end weighted in Q4. With the majority of our revenue recognition occurring at the time of delivery as opposed to when product is produced, our revenue objective for the year can be somewhat binary depending on the exact delivery timing of one or two large projects. While we believe we will be able to achieve our revenue objective for the year, the specific revenue recognition criteria could potentially push some of this revenue into early 2024. Lastly, the team continues to stay focused on cost-out. And while we have discussed the key projects for 2023, it should be noted, we have line of sight into further cost-out initiatives that will come in 2024. Thus far, we have achieved two of seven key projects for our year-end cost objective, and we believe we remain on track to hit this metric.

With that, I want to thank everybody for their time and for listening today. I would now like to turn it over to the operator for questions. Operator, please open the line for questions.

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Q&A Session

Operator: [Operator Instructions] Our first question comes from Joseph Osha with Guggenheim. Your line is open.

Hilary Cauley: Good morning. This is actually Hilary on for Joe. I just wanted to first touch on some of your earlier comments on the transition to the Z3. And if you could just share any more detail on kind of key learnings thus far, if there’s been any kind of key manufacturing challenges that you’ve come across?

Joe Mastrangelo: Hey, Hilary. Good morning. Yeah, I mean, look, at every phase of this, there’s been learnings. I think what accelerated the development of the Z3 and at the same time, at a lower cost position was doing the discrete manufacturing processes first. So if you look at where we started on our line and like building our bipolars, integrating the bipolars into the hub and then filling the battery, we’ve changed each one of those technologies as we’ve gone through. So as we learn things, we found other technologies that either gave us a higher process capability or a better yield coming out of the overall process at a faster cycle time. So we made a lot of changes there. And then inside of this was a lot of the design work that the technology team has done.

A lot of that work is done here in Edison where we’re prototyping product. When you bring it out and do it at production scale, you start learning things when you’re trying to transport batteries. So there were certain things in the way that we designed the tops of the bipolars that were causing a potential slashing, where electrolyte could go between cells and causing imbalance in the batteries when you’re transporting it on truck or by sea that we wound up having it fixed. And then the last one, which is the most important one is as you lay out the material flow in the factory, we start to learn of where do you want people positioned, where do you want the material positioned, how much [backs] (ph) do you want to have going into each one of your manufacturing processes to reduce cycle time.

So as we’ve gone through and done this, as I said — as we said on the page, the continuous flow of the battery to the line is four minutes. We think we can half that on the semi-automated line with some of the things that the team is finding. So it truly is where, every shift, we start off and end with what did you learn? What do we need to change? What do you need to make your job better? Because this is truly a learning process. I mean, we’ve only been at commercial production here for a little bit over a week when you really think about in earnest. So every day, where you’re going to learn the most from the people on the factory floor that are building the batteries, and that’s going to make us better.

Hilary Cauley: Great. And then just as you look to transition to the buying and execute on some of the cost-out initiatives, I was just wondering if you could provide some context for how quickly we’ll see that start to drive positive gross margin?

Nathan Kroeker: So — sure, happy to elaborate on that a little bit. If you look at the different cost-out initiatives that we’ve got identified, really touch on three different areas. It’s supply chain and some efficiencies in our supply chain. It’s improving the energy density of the battery, and then also improving the manufacturability. And some of these, we are putting into effect now, like we said, with two of these have already been accomplished. And specifically, it’s around volume discounts on our cube. So that’s a supply chain-related item. Second one is improving the overall power density of the battery. So that falls in the second category of improving the energy efficiency. These are things that we can do now even on our semi-automated line. There are other cost-out initiatives that are dependent on getting to a fully automated line. You won’t really see us fully achieve the cost-out into [Technical Difficulty] next year.