Eos Energy Enterprises Inc.
11/05/2026 | Press release | Distributed by Public on 11/05/2026 05:50
Quarterly Report for Quarter Ending September 30, 2026 (Form 10-Q)
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the accompanying Unaudited Condensed Consolidated Financial Statements for the nine months ended September 30, 2026 and 2025 and the Company's Annual Report on Form 10-K for the year ended December 31, 2025, including the financial statements and notes thereto.
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 U.S. 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, C&I companies and government contracts.
Strategy
Eos's core business is to design, manufacture and sell proprietary zinc-based battery storage systems for stationary energy storage applications. Building on this foundation, our strategy is to evolve beyond a traditional battery original equipment manufacturer ("OEM") into a systems-integrated energy company.
The Company continues to invest in the design, development and production of its next-generation product, the Eos Z3 battery. The Z3 builds upon the same underlying electrochemistry the Company has utilized for over a decade. The Eos Z3 is engineered to reduce cost and weight while improving manufacturability and overall system performance. Compared to the Company's prior Gen 2.3 product, the Z3 incorporates a more cost-effective design, including a simplified tub structure, approximately 50% fewer cells and approximately 98% fewer welds per battery module. The Company believes the Eos Z3 will provide customers with approximately twice the energy density per square foot while maintaining the safety and reliability characteristics of the previous generation.
The Company has successfully transitioned to the Eos Z3 platform, enabled by the commissioning and commercial operation of its first fully automated battery manufacturing line. Building on the same proven chemistry that has demonstrated durability over more than 3 million cycles, the Z3 incorporates a redesigned mechanical architecture that enhances performance, reduces costs and improves manufacturability. Since commencing shipments of Z3 battery modules in the third quarter of 2023, the Company has continued to leverage more than fifteen years of accumulated operational experience to drive manufacturing efficiencies as production scales and its state-of-the-art operations expand. In 2025, the Company further enhanced its product offering with the introduction of DawnOS, a software platform that serves as the intelligence layer of its battery energy storage system ("BESS"). Fully integrated with the Z3 architecture, DawnOS is designed to manage large numbers of battery modules in real time through advanced balancing, dynamic switching, automation and embedded security capabilities. The platform is intended to increase usable energy per cycle, improve system reliability and resilience, reduce field service requirements and enable continuous operation even when individual modules become imbalanced. The Company expects DawnOS to be an integral component of its product portfolio going forward, supporting enhanced efficiency, safety and overall system performance.
In 2026, the Company introduced Eos Indensity, an energy storage architecture that uses a spatial intelligence design framework to provide high-density storage with flexibility and safety in constrained as well as traditional sites. The system targets up to 1 GWh per acre, roughly four times most incumbent footprints, through stackable Indensity Core units that integrate Eos Z3 battery modules with the Eos DawnOS controls platform. The modular self contained form factor enables efficient transport, simplified installation and long-term serviceability. Eos Indensity can be deployed indoors or outdoors, including inside existing buildings. It addresses long duration, response driven use cases across data centers, military bases, manufacturing facilities and critical infrastructure, supported by a domestic FEOC compliant supply chain. The Company expects Indensity to be an integral component of its product portfolio going forward.
The Company believes that the simplicity, flexibility and safety characteristics of its products represent important attributes valued by the market. In addition, the Company benefits from legislative incentives, including the Inflation Reduction Act and the One Big Beautiful Bill Act ("OBBBA"), which provide production tax credits ("PTC") for domestically manufactured battery components, as well as tax credits available to customers for projects that satisfy domestic content requirements. The Company also intends to continue working with a consortium of community organizations, universities and supply chain partners to pursue available funding opportunities under the Bipartisan Infrastructure Law of 2021.
Business Update
Strategic Energy Management System ("EMS") Collaboration with WATTMORE, Inc.
In August 2026, the Company entered into a non-exclusive strategic collaboration agreement with WATTMORE, Inc. to integrate WATTMORE's Intellect Operate energy management and power plant control platform with the Company's Z3 long-duration energy storage systems and DawnOS software. Under the agreement, Eos will deploy WATTMORE's platform on select customer projects, expanding the controls ecosystem for the Company's energy storage solutions and supporting streamlined project deployment.
Management believes the integrated platform will simplify project deployment, reduce implementation complexity and enhance the overall customer value proposition by offering a more comprehensive energy storage solution.
Manufacturing Consolidation
In August 2026, the Company announced plans to consolidate its battery manufacturing operations at its Thorn Hill facility in Warrendale, Pennsylvania. Commercial production at the 432,000-square-foot facility commenced in June 2026, and our battery manufacturing activities have now been centralized into a single location. Both the Thorn Hill and Turtle Creek facilities will continue to support cube assembly, testing, and shipping operations.
The Thorn Hill facility is expected to provide approximately 4 GWh of annual nameplate manufacturing capacity when both production lines are fully operational, supporting the Company's anticipated growth and expansion of customer deployments.
This consolidation represents a key component of the Company's ongoing efforts to enhance manufacturing scalability and become profitable. Management believes the consolidation will improve manufacturing efficiency by reducing material handling and streamlining production workflows. Upon completion of the transition, the Company expects to achieve conversion cost reductions, with benefits anticipated to begin in 2027. The Company currently expects to complete the transition without impacting customer delivery commitments.
DOE Funding
In September 2026, the Company. received an $87.0 million advance under the DOE Loan Facility, bringing total borrowings under the facility to approximately $178.0 million. The advance reimbursed 80% of eligible costs associated with the Company's Thorn Hill manufacturing facility and supports the ramp-up of its second manufacturing line, which has a designed annual capacity of approximately 2 GWh.
Results of Operations
Revenue
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||||||||||||||||||||||||||
| ($ in thousands) |
2026
|
2025
|
$ Change | % Change |
2026
|
2025
|
$ Change | % Change | |||||||||||||||||||||||||||||||||||||||
| Revenue | $ | 14,284 | $ | 30,512 | $ | (16,228) | (53) | % | $ | 84,988 | $ | 56,205 | $ | 28,783 | 51 | % | |||||||||||||||||||||||||||||||
| Revenue - related party | 68,447 | - | $ | 68,447 | - | % | 123,481 | - | $ | 123,481 | - | % | |||||||||||||||||||||||||||||||||||
| Total revenue | $ | 82,731 | $ | 30,512 | $ | 52,219 | 171 | % | $ | 208,469 | $ | 56,205 | $ | 152,264 | 271 | % | |||||||||||||||||||||||||||||||
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.
For the three months ended September 30, 2026, Total revenue increased by $52.2 million or 171% from $30.5 million. For the nine months ended September 30, 2026, Total revenue increased by $152.3 million or 271% from $56.2 million.
The increase for the three months ended September 30, 2026 was primarily driven by a 229% increase in deliveries, higher revenue from third-party materials and an increase in service revenue. The increase for the nine months ended September 30, 2026 was primarily driven by a 260% increase in deliveries, an increase in third-party materials and an increase in service revenue.
The Company's revenue profile is influenced by the timing of project deployments. As a result, revenue and customer concentration may fluctuate significantly between reporting periods, depending on shipment schedules and project execution milestones. For the three months ended September 30, 2026, approximately 83% of the Company's revenue was attributable to deliveries associated with related party projects. For the nine months ended September 30, 2026, approximately 59% of revenue attributable to deliveries associated with related-party projects.
The Company expects revenue concentration to vary from period to period as individual projects advance through their delivery schedules. We expect the Company's revenue mix to align generally with the composition of its backlog and the timing of project deliveries. Accordingly, revenue and customer concentration in any given reporting period may be influenced by the timing and scale of specific project deliveries rather than changes in underlying customer demand.
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||||||||||||||||||||||||||
| ($ in thousands) |
2026
|
2025
|
$ Change | % Change |
2026
|
2025
|
$ Change | % Change | |||||||||||||||||||||||||||||||||||||||
| Cost of goods sold | $ | 126,934 | $ | 64,437 | $ | 62,497 | 97 | % | $ | 345,900 | $ | 145,622 | 200,278 | 138 | % | ||||||||||||||||||||||||||||||||
Cost of goods sold primarily consists of direct labor, materials and overhead associated with product assembly as well as project delivery, commissioning and field installation activities prior to projects becoming operational. 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.
For the three months ended September 30, 2026, Cost of goods sold increased $62.5 million or 97% compared to the three months ended September 30, 2025. For the nine months ended September 30, 2026, Cost of goods sold increased $200.3 million or 138% compared to the nine months ended September 30, 2025. The increase primarily relates to raw materials and outside labor as the Company continues to ramp production.
The increase in Cost of goods sold for the three and nine months ended September 30, 2026 was less than the growth of revenue allowing the Company to generate gross margin improvements. For the three months ended September 30, 2026, gross margin improved to approximately (53)% from (111)% from the three months ended September 30, 2025, an improvement of 58 percentage points. For the nine months ended September 30, 2026, gross margin improved to approximately (66)% from (159)% for the nine months ended September 30, 2025, an improvement of 93 percentage points. The Company is currently executing a fully deployed margin improvement program across the organization. For direct material, engineering and procurement are partnering in bundle buy negotiations, product redesign and supplier collaboration programs to deliver cheaper solutions. For conversion costs, the Company is beginning to realize savings from the more efficient lay out and automated process at Thorn Hill as volume is ramping. As the cost structure initiatives are implemented and operational efficiencies continue to improve, management expects further gross margin improvement in future periods.
Research and development expenses
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||||||||||||||||||||||||||
| ($ in thousands) |
2026
|
2025
|
$ Change | % Change | 2026 | 2025 | $ Change | % Change | |||||||||||||||||||||||||||||||||||||||
| R&D expenses | $ | 10,910 | $ | 6,925 | $ | 3,985 | 58 | % | $ | 32,134 | $ | 20,963 | 11,171 | 53 | % | ||||||||||||||||||||||||||||||||
Research and development expenses consist primarily of salaries and other personnel-related costs, materials, third-party services, depreciation and amortization of intangible assets.
For the three months ended September 30, 2026 Research and development expenses increased $4.0 million or 58%, compared to the three months ended September 30, 2025. For the nine months ended September 30, 2026, Research and development expenses increased $11.2 million or 53% compared to the nine months ended September 30, 2025. The increase primarily relates to payroll, outside services and material costs.
The Company has continued to strategically invest in research and development initiatives designed to reduce production costs, improve product performance and further vertically integrate its battery solution. Key areas of investment include simplifying the Z3 battery design, qualifying alternative materials, increasing manufacturing efficiency and enhancing control systems to improve site monitoring capabilities, optimize system performance and improve automated system operation. From a cost category standpoint, the increase in R&D was primarily related to costs of material and supplies, outside services and payroll related costs.
Selling, general and administrative expenses
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||||||||||||||||||||||||||
| ($ in thousands) |
2026
|
2025
|
$ Change | % Change | 2026 | 2025 | $ Change | % Change | |||||||||||||||||||||||||||||||||||||||
| SG&A expenses | $ | 23,819 | $ | 19,786 | $ | 4,033 | 20 | % | $ | 72,414 | $ | 66,269 | 6,145 | 9 | % | ||||||||||||||||||||||||||||||||
Selling, general and administrative expenses primarily consist of payroll and personnel-related, outside professional services, facilities, depreciation, travel, marketing and public company costs.
For the three months ended September 30, 2026 Selling, general and administrative expenses increased $4.0 million or 20% compared to the three months ended September 30, 2025. For the nine months ended September 30, 2026, Selling, general and administrative expenses increased $6.1 million or 9% compared to the nine months ended September 30, 2025. The increases in SG&A was primarily related to an increase in payroll and outside services.
The Company has invested ahead of expected growth by building the team, systems and capabilities required to support a significantly larger revenue base. As revenue grows, management expects SG&A expenses to grow at a slower pace than revenue, allowing SG&A to become a smaller percentage of revenue over time. As a result, SG&A expenses as a percentage of revenue improved to approximately 29% for the three months ended September 30, 2026, compared to 65% for the same period in the prior year, representing a 36 percentage point improvement. For the nine months ended September 30, 2026, SG&A expenses improved to approximately 35% of revenue compared to 118% of revenue in the prior-year period, representing an 83 percentage point improvement.
Loss from write-down of property, plant and equipment
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
| ($ in thousands) |
2026
|
2025
|
2026
|
2025
|
|||||||||||||||||||
| Loss from write-down of property, plant and equipment | $ | 108 | $ | 585 | $ | 184 | $ | 1,351 | |||||||||||||||
For the three and nine months ended September 30, 2026, the Company incurred a loss of $0.1 million and $0.2 million, respectively, from write-down of property, plant and equipment. The write-downs were mainly attributable to the disposal of miscellaneous equipment and tooling.
For the three and nine months ended September 30, 2025, the Company incurred a loss of $0.6 million and $1.4 million, respectively, from write-down of property, plant and equipment. The write-downs were mainly attributable to design changes from the Z3-Phase 1 to Z3-Phase 2 production in which the Phase 1 production assets could not be utilized or repurposed for
Phase 2 production. Additionally, the loss from write-down of property, plant and equipment contains costs for disposal of miscellaneous equipment and tooling that cannot be repurposed for more automated processes.
Restructuring expense
|
Three Months Ended September 30, |
Nine Months Ended September 30, |
||||||||||||||||||||||
| ($ in thousands) | 2026 | 2025 | 2026 | 2025 | |||||||||||||||||||
| Restructuring expense | $ | 281 | $ | - | $ | 281 | $ | - | |||||||||||||||
For the three and nine months ended September 30, 2026, Restructuring expense was $0.3 million, primarily attributable to site preparation work for moving the production line from Turtle Creek to the Thorn Hill facility.
Interest expense
|
Three Months Ended September 30, |
Nine Months Ended September 30, |
||||||||||||||||||||||
| ($ in thousands) | 2026 | 2025 | 2026 | 2025 | |||||||||||||||||||
| Interest expense | $ | (12,989) | $ | (6,007) | $ | (37,203) | $ | (9,965) | |||||||||||||||
Interest expense includes expenses for contractual interest, amortization of debt issuance costs and debt discounts, partially offset by capitalized interest costs on CIP assets.
Interest expense increased $7.0 million and $27.2 million for the three and nine months ended September 30, 2026, respectively, compared to the three and nine months ended September 30, 2025, primarily attributable to an increased principal balance under the DOE Loan Facility and interest associated with the May 2025 Convertible Notes and November 2025 Convertible Notes, which were outstanding for the entire period for the three and nine months ended September 30, 2026. See Note 12, Borrowings, for further discussion.
Interest expense - related party
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
| ($ in thousands) | 2026 | 2025 | 2026 | 2025 | |||||||||||||||||||
|
2021 Convertible Note Payable interest and amortization
|
$ | - | $ | - | $ | - | $ | (6,613) | |||||||||||||||
|
AFG Convertible Note interest and amortization
|
- | 840 | - | (2,838) | |||||||||||||||||||
|
Interest expense, related party
|
$ | - | $ | 840 | $ | - | $ | (9,451) | |||||||||||||||
Interest expense - related party decreased $0.8 million and $9.5 million for the three and nine months ended September 30, 2026, respectively, compared to the three and nine months ended September 30, 2025, attributable to the fact that the 2021 Convertible Note Payable and the AFG Convertible Note were no longer outstanding during the three and nine months ended September 30, 2026. See Note 12, Borrowings, for further discussion.
Interest income
|
Three Months Ended September 30, |
Nine Months Ended September 30, |
||||||||||||||||||||||
| ($ in thousands) | 2026 | 2025 | 2026 | 2025 | |||||||||||||||||||
| Interest income | $ | 2,930 | $ | 1,161 | $ | 9,371 | $ | 2,826 | |||||||||||||||
Interest income increased $1.8 million and $6.5 million for the three and nine months ended September 30, 2026, respectively, compared to the three and nine months ended September 30, 2025. The increase is mainly attributable to the increase in Cash and cash equivalents held by the Company for the respective periods.
Change in fair value of debt - related party
|
Three Months Ended September 30, |
Nine Months Ended September 30, |
||||||||||||||||||||||
| ($ in thousands) | 2026 | 2025 | 2026 | 2025 | |||||||||||||||||||
| Change in fair value of debt - related party | $ | (4,534) | $ | (3,570) | $ | (13,300) | $ | 22,112 | |||||||||||||||
The Change in fair value of debt - related party is related to the DDTL. The Change in fair value of debt - related party was $4.5 million expense and $3.6 million expense for the three months ended September 30, 2026 and September 30, 2025, respectively, and $13.3 million expense and $22.1 million income for the nine months ended September 30, 2026 and September 30, 2025, respectively.
For the three and nine months ended September 30, 2026, the primary factor contributing to the change in fair value is the accretion of the DDTL resulting from the passage of time.
For the three months ended September 30, 2025, the primary factor contributing to the change in fair value is the accretion of the DDTL resulting from the passage of time. For the nine months ended September 30, 2025, the primary factor contributing to the change in fair value was a decrease in the DDTL interest rate from 15% to 7% per annum (as amended), as a result of the modification of the DDTL, partially offset by the accretion of the DDTL resulting in the passage of time. See Note 12, Borrowings, for further discussion.
Change in fair value of warrants
For the three and nine months ended September 30, 2026 and 2025, the change in fair value of warrants was composed of the items below:
|
Three Months Ended September 30, |
Nine Months Ended September 30, |
||||||||||||||||||||||
| ($ in thousands) | 2026 | 2025 | 2026 | 2025 | |||||||||||||||||||
| IPO warrants | $ | - | $ | (292) | $ | - | $ | (193) | |||||||||||||||
|
April 2023 warrants
|
41,280 | (91,840) | 124,800 | (95,921) | |||||||||||||||||||
|
May 2023 warrants
|
9,473 | (21,036) | 28,600 | (21,921) | |||||||||||||||||||
|
December 2023 warrants
|
26,993 | (127,657) | 70,486 | (134,801) | |||||||||||||||||||
|
Change in fair value of warrants
|
$ | 77,746 | $ | (240,825) | $ | 223,886 | $ | (252,836) | |||||||||||||||
The change in the fair value of the warrants for the three and nine months ended September 30, 2026 and September 30, 2025 is largely driven by the Company's common stock price movement for the periods presented.
Change in fair value of derivatives
|
Three Months Ended September 30, |
Nine Months Ended September 30, |
||||||||||||||||||||||
| ($ in thousands) | 2026 | 2025 | 2026 | 2025 | |||||||||||||||||||
| Change in fair value of derivatives | $ | 13,222 | $ | - | $ | 108,710 | $ | - | |||||||||||||||
For the three months ended September 30, 2026, the Change in fair value of derivatives of $13.2 million is related to the change in fair value of securities issued as part of the Registered Direct Offering. The change is largely driven by the Company's common stock price movement for the periods presented.
For the nine months ended September 30, 2026, the Change in fair value of derivatives of $108.7 million related to the change in fair value of securities issued as part of the Registered Direct Offering and the change in fair value of the embedded derivative associated with the November 2025 Convertible Notes. The change is largely driven by the Company's common stock price movement for the periods presented.
On June 3, 2026, the Company's stockholders approved an amendment to increase authorized common shares from 600 million to 800 million. As a result, the November 2025 Convertible Notes became convertible into the Company's common stock, allowing the conversion feature to qualify for the derivative scope exception under ASC 815 as of that date and eliminating the requirement for subsequent fair value remeasurement.
On July 21, 2026, upon expiration of the Rights Offering, the Company reclassified the contingently issuable securities liability to equity. As a result, the instrument is no longer subject to remeasurement.
Change in fair value of derivatives - related parties
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
| ($ in thousands) |
2026
|
2025
|
2026 | 2025 | |||||||||||||||||||
|
Change in fair value of embedded derivatives - related parties
|
$ | - | $ | (58,988) | $ | - | $ | (66,318) | |||||||||||||||
|
Change in fair value of warrants - related parties
|
118,281 | (268,853) | 334,965 | (303,392) | |||||||||||||||||||
|
Change in fair value of HBC Exchange Right/CCM Call Option
|
$ | 11,270 | $ | - | $ | 11,270 | $ | - | |||||||||||||||
|
Change in fair value of derivatives - related parties
|
$ | 129,551 | $ | (327,841) | $ | 346,235 | $ | (369,710) | |||||||||||||||
The Change in the fair value of derivatives - related parties, was attributable to the 2021 Convertible Note Payable and AFG Convertible Notes (See Note 12, Borrowings). The 2021 Convertible Note Payable and AFG Convertible Notes were not outstanding for the comparable period for the three and nine months ended September 30, 2026.
The Change in fair value of warrants - related parties was attributable to changes in fair value of our SPA Warrant and Contingent Warrants (See Note 13, Warrants Liability). The change is largely driven by the Company's common stock price movement for the periods presented.
The Change in fair value of HBC Exchange Right/CCM Call Option was attributable to the HBC Exchange Right and CCM Call Option. The HBC Exchange Right and CCM Call Option do not qualify for equity classification under ASC 815-40 and are measured at fair value at each reporting period. The change is largely driven by the Company's common stock price movement for the periods presented.
Loss on contingently issuable securities
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
| ($ in thousands) | 2026 | 2025 | 2026 | 2025 | |||||||||||||||||||
| Loss on contingently issuable securities | $ | - | $ | - | $ | (35,662) | $ | - | |||||||||||||||
The Loss on contingently issuable securities for the nine months ended September 30, 2026, was attributable to the securities issued in connection with the Registered Direct Offering (See Note 14, Fair Value Measurement). The loss is driven by the fair value of securities to be issued compared to the consideration to be received. The contingently issuable securities do not impact the three and nine months ended September 30, 2025 or three months ended September 30, 2026.
Other expense
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
| ($ in thousands) |
2026
|
2025
|
2026 | 2025 | |||||||||||||||||||
| Other expense | $ | (100) | $ | (337) | $ | 103 | $ | (1,503) | |||||||||||||||
For the three months ended September 30, 2026, Other expense of $0.1 million primarily relates to fees related to the Registered Direct Offering and Rights Offering. For the nine months ended September 30, 2026, Other expense of $0.1 million primarily relates to fees related to the Registered Direct Offering and Rights Offering, partially offset by insurance claims.
For the three months ended September 30, 2025, Other expense of $0.3 million primarily relates to costs associated with professional fees related to the amendment of the AFG Convertible Notes.
For the nine months ended September 30, 2025, Other expense of $1.5 million primarily relates to costs associated with professional fees related to the Cerberus Amendments, extinguishment of the 2021 Convertible Notes, recognition of financing issuance costs from the Credit and Securities Purchase Transaction and professional fees associated with the amendment of the AFG Convertible Notes.
Income tax expense (benefit)
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
| ($ in thousands) |
2026
|
2025
|
2026 | 2025 | |||||||||||||||||||
|
Income tax expense (benefit)
|
$ | 1,462 | $ | 4 | $ | 1,480 | $ | 15 | |||||||||||||||
The Company incurred income tax expense for the three and nine months ended September 30, 2026, was attributable to taxable earnings from the Company's foreign operations and income tax expense recognized from the Company's difference in tax basis for the FPUSA formation.
The Company incurred income tax expense for the three and nine month ended September 30, 2025 was attributable to taxable earnings from the Company's foreign operations.
Liquidity and Capital Resources
During the nine months ended September 30, 2026, the Company incurred Net income of $358.2 million. Adjustments to reconcile the net income to cash used in operations are primarily from non-cash items on the Unaudited Condensed Consolidated Statements of Cash Flows. The non-cash items totaled $571.5 million. The Company incurred negative cash flows from operations of $261.6 million and had an accumulated deficit of $2,193.7 million as of September 30, 2026.
As of September 30, 2026, the Company had $271.2 million of unrestricted cash and cash equivalents available to fund the Company's operations, and working capital of $358.9 million on the Unaudited Condensed Consolidated Balance Sheets. Additionally, the Company had $72.9 million of restricted cash, refer to Note 4, Cash, Cash Equivalents and Restricted Cash, for further discussion.
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. During the three and nine months ended September 30, 2026, the Company closed the following capital transactions:
In July 2026, the Company closed its Registered Direct Offering pursuant to which it issued 13,683,634 shares of common stock and 6,004,378 warrants, each warrant exercisable for one share of common stock at an exercise price of $5.481 per share, to HBMF. The Company received aggregate net proceeds from the Registered Direct Offering of approximately $74.9 million.
In August 2026, the Company closed the Rights Offering pursuant to which the Company issued 6,885,218 Units which separated upon closing and were issued separately as 6,885,218 shares of common stock and 3,019,242 warrants, each warrant exercisable for one share of common stock at an exercise price of $5.481 per share. The Company received aggregate gross proceeds from the Rights Offering of approximately $37.7 million.
Proceeds from the Registered Direct Offering and Rights Offering were used to fund the Company's investment in FPUSA.
In August 2026, the Company delivered to the DOE and the FFB a third advance request, and on September 10, 2026, the FFB funded $87.0 million under the FFB Promissory Note (the "third loan advance").
Through September 30, 2026, under the DOE Loan Facility, the Company drew down approximately $178.0 million for the eligible project costs that the Company had incurred. These costs represent Tranche 1 and a portion of Tranche 2 of the DOE Loan Facility for eligible costs in connection with the design, construction, installation, startup and shakedown of a battery automation line and related tools. The Company has approximately $99.5 million of availability under the DOE Loan Facility. In the event the Company does not achieve certain funding conditions and the DOE chooses not to continue funding, the Company may need to seek alternative sources of capital, which may not be available on favorable terms or at all.
Capital Expenditures
The Company expects capital expenditures and working capital requirements to increase as it seeks to execute its growth strategy. Total capital expenditures for the nine months ended September 30, 2026 and September 30, 2025 were $105.9 million and $29.7 million, respectively. See Note 6, Property, Plant and Equipment, and Note 7, Intangible Assets, for further discussion.
Investment in joint venture
The Company made an investment in FPUSA during the nine months ended September 30, 2026 for $112.6 million in cash contributions. See Note 8, Equity Method Investment, for further discussion.
Discussion and Analysis of Cash Flows
The Company relies heavily on private placements of convertible notes, term loans and issuance of common stock and warrants. Our short-term working capital needs are primarily related to funding of debt interest payments, product manufacturing, research and development and general corporate expenses. The Company's long-term working capital needs are primarily related to repayment of long-term debt obligations and capital expenses for capacity expansion and maintenance, equipment upgrades and repair of equipment.
The following table summarizes the Company's cash flows from operating, investing and financing activities for the periods presented.
|
Nine Months Ended September 30, |
||||||||||||||||||||||||||
| ($ in thousands) | 2026 | 2025 | $ Change | % Change | ||||||||||||||||||||||
| Net cash used in operating activities | $ | (261,591) | $ | (160,926) | $ | (100,665) | 63 | % | ||||||||||||||||||
| Net cash used in investing activities | $ | (218,955) | $ | (29,716) | $ | (189,239) | 637 | % | ||||||||||||||||||
| Net cash provided by financing activities | $ | 200,065 | $ | 214,079 | $ | (14,014) | (7) | % | ||||||||||||||||||
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 was $261.6 million for the nine months ended September 30, 2026, adjusted for non-cash items of $571.5 million, primarily related to changes in fair value of warrants and derivatives, with offsets of stock compensation expense, depreciation and amortization, non-cash interest expense, loss on contingently issuable securities and change in fair value of debt - related party. The net cash outflows from changes in operating assets and liabilities was $48.3 million, primarily driven by an increase in grant receivable of $28.3 million attributable to increased volumes of production, an increase in inventory of $21.8 million to support anticipated customer demand and future shipments, decrease in contract liabilities of $6.2 million and increase in contract assets and contract assets related party of $9.5 million and $4.4 million, respectively, driven by revenue recognition and production, an increase in vendor deposits of $5.1 million to support anticipated customer demand, an increase in accounts receivable related party and accounts receivable of $0.1 million and $2.0 million, respectively, attributable to the increase in total sales and timing of customer payments and an increase in other of $5.0 million mainly related to tax credits. This was partially offset by an increase of accounts payable of $3.7 million relating to increased production and timing of vendor payments, an increase in accrued expenses of $16.7 million which is attributable to timing of payroll, accruals for legal and professional fees, volume-related warranty accruals, an increase in contract liabilities related party of $9.8 million driven by timing on revenue recognition for established contracts and cash receipts and an increase in the deferred tax liability of $4.7 million from the Company's difference in tax basis for the FPUSA formation.
Net cash used in operating activities was $160.9 million for the nine months ended September 30, 2025, adjusted for non-cash items of $691.7 million, primarily related to stock compensation expense, loss on debt extinguishment and changes in fair value of debt, warrants and derivatives. The net cash outflows from changes in operating assets and liabilities was $3.4 million primarily driven by an increase in grant receivable of $10.0 million, decrease in contract liabilities of $7.2 million attributable to customer cash receipts and increase in inventory of $6.7 million and an increase in vendor deposits of $5.0 million, partially offset by increase in accounts payable of $22.2 million.
Cash flows from investing activities:
Net cash flows used in investing activities for the nine months ended September 30, 2026 were composed of payments made for purchases of property, plant and equipment of $105.7 million and minor investments in internally developed software. The increase in cash flows used for the purchase of property, plant and equipment are primarily to support the growth of manufacturing facilities at our Warrendale location. The Company had net cash used for the FPUSA equity method investment of $112.6 million as part of the strategic investment and partnership.
Net cash flows used in investing activities for the nine months ended September 30, 2025 $29.7 million, primarily related to $28.8 million of payments made for purchases of property, plant and equipment for the improvement of manufacturing facilities and $0.9 million of investment made for internally developed software.
Cash flows from financing activities:
Net cash provided by financing activities was $200.1 million for the nine months ended September 30, 2026, primarily attributable to the proceeds received from the issuance of common stock of $112.7 million, the proceeds received from the DOE Loan of $87.0 million and the exercise of warrants during the period of $3.3 million. The proceeds were partially offset by debt issuance costs of $0.9 million and share repurchases from employees for tax withholding of $2.0 million.
Net cash provided by financing activities was $214.1 million for the nine months ended September 30, 2025, primarily attributable to the proceeds received from the following transactions: issuance of 2025 Convertible Notes of $240.0 million, public offering of $81.1 million, Credit and Securities Purchase Transaction of $38.5 million, DOE Loan of $22.7 million, and exercise of warrants of $14.2 million. The proceeds were partially offset by payoff of the 2021 Convertible Notes Payable and Delayed Draw Term Loan of $180.9 million, debt and equity issuance costs of $4.6 million and payments on the equipment financing facility of $1.3 million. Proceeds from the public offering and issuance of the 2025 Convertible Notes were used to repurchase the 2021 Convertible Notes and prepay a portion of the DDTL.
Contractual Obligations
The Company has certain obligations and commitments to make future payments under contracts. As of September 30, 2026, this is composed of the following:
•Future lease payments, including interest, under non-cancellable operating and financing leases of $70.4 million. The leases expire at various dates prior to 2039.
•Principal and Interest payments related to the following debt obligations (see Note 12, Borrowings, for further discussion):
| Future Debt Payments | |||||
|
Delayed Draw Term Loan - due June 2034 (1) (2)
|
$ | 348,386 | |||
|
DOE Loan Facility - due June 2034 (1) (2)
|
228,463 | ||||
| May 2025 Convertible Notes - due June 2030 | 63,500 | ||||
| November 2025 Convertible Notes - due December 2031 | 657,750 | ||||
| Total | $ | 1,298,099 | |||
(1) As of September 30, 2026, the Company is obligated to repay future contractual interest payments for these borrowings in-kind.
(2) The DDTL and DOE Loan Facility contain Springing Maturity Dates that could make the debt due March 14, 2030.
Critical Accounting Estimates ("CAE")
The Company's Unaudited Condensed Consolidated Financial Statements are prepared in conformity with U.S. generally accepted accounting principles (U.S. GAAP). In preparing the Company's Unaudited Condensed Consolidated Financial Statements, management makes 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. The Company's significant accounting policies are described in the Company's Annual Report on Form 10-K for the year ended December 31, 2025.
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.
There have been no material changes in the CAE's in the Company's Annual Report on Form 10-K for the year ended December 31, 2025.
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