Eos Energy Enterprises, Inc. (NASDAQ:EOSE, EOSEW) provides zinc-based energy storage solutions, saw its shares take a hit when a shortseller outfit called Iceberg Research raised questions about the validity of the company’s $535.1 million backlog. This led to a significant drop in share price, but it did recover a bit during Thursday’s session.
However, things didn’t get any better on Friday when Eos Energy reported disappointing preliminary Q2 results and issued a response to Iceberg Research’s allegations. The report mentioned some legal proceedings involving a customer that represents 45% of the company’s backlog, but Eos Energy insists this customer is not involved in the legal matters highlighted in the report.
To add to the trouble, there’s potential delay in the Department of Energy loan guarantee that the company was eagerly awaiting. This might take longer than expected due to recent rule changes. Furthermore, Eos Energy only managed to book $0.6 million in new orders for the entire quarter, a significant drop from the previous quarter.
Cash-wise, things aren’t looking great either. Eos Energy’s cash and cash equivalents at the end of Q2 were just $23.2 million, despite raising at least $63 million in capital during the quarter. With the current rate of cash burn, the company will likely need to raise additional capital next month to keep from running out of funds.
On the bright side, the company’s manufacturing transition to its new Z3 battery product seems to be on track. The first semi-automated battery manufacturing line is ready to start commercial production, and Eos Energy expects to deliver its first customer orders from this line in the third quarter.
However, to achieve positive gross margins, Eos Energy plans to move to fully-automated manufacturing by Q4, which would require up to $50 million in capital expenditures. Even if some of the recently raised funds are used for automation equipment, it looks like Eos Energy will still need to raise more funds to complete the line.
Amidst all this uncertainty, the CEO of Eos Energy made a small insider purchase, buying 31,199 shares at an average price of $2.23. While this might provide some short-term support to the stock price, it’s clear that the company will likely have to raise additional capital soon.
Things don’t look too promising for Eos Energy Enterprises at the moment. With the weak Q2 results, potential funding needs, and uncertainties surrounding its backlog, investors might want to steer clear of the shares for now.
