Prepared remarks
Hello and welcome to the Eos Energy Third Quarter 2025 Earnings Conference Call. Please note that this call is being recorded. Thank you. Now, I would like to turn the call over to Liz Higley, Vice President of Investor Relations. You may begin.
Good morning, everyone, and welcome to Eos' third quarter 2025 conference call. Today, I'm joined by Eos' CEO, Joe Mastrangelo; COO, John Mahaz; and CCO and Interim CFO, Nathan Kroeker. This call, including Q&A, may include forward-looking statements, including, but not limited to, current expectations with respect to future results and outlook for our company. Should any of these risks materialize or should our assumptions prove to be incorrect, our actual results may differ materially from our expectations 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 these statements made during this call to reflect events or circumstances after today or to reflect new information or the occurrence of unanticipated events, except as required by law.
Today's remarks will also include references to non-GAAP financial measures. Additional information, including reconciliation between non-GAAP financial information to U.S. GAAP financial information is provided in the press release. Non-GAAP information should be considered as supplemental and is not meant to be considered in isolation or as a substitute for the related financial information prepared in accordance with GAAP. In addition, our non-GAAP financial measures may not be the same as or comparable to similar non-GAAP measures presented by other companies. This conference call will be available for replay via webcast through Eos' Investor Relations website at investors.eose.com. Joe, John and Nathan will walk you through our business outlook and financial results before we proceed to Q&A. With that, I'll now turn the call over to Eos CEO, Joe Mastrangelo.
Thanks, Liz, and welcome, everyone, to our third quarter earnings meeting. I want to kick things off by discussing our operating highlights. Nathan and John will provide more details on the numbers shortly, but I’d like to focus on our commercial pipeline, the orders we've booked, and our recent announcements. Nathan transitioned to Chief Commercial Officer in the spring, and we’re beginning to see the positive impact of his and Justin Vagnozzi’s efforts. The pipeline is growing, with memorandums of understanding converting into orders that are now in our backlog and shipping. Additionally, after the quarter ended, we secured a significant strategic agreement with Talen Energy, which I will elaborate on later. Regarding revenue, John, who has been with us for 60 days, will discuss his findings and actions. Our team, including Jason Greggs, Josh Payne, and Jessica Troiano, has been diligently working to enhance our supply chain and cost efficiency, paving the way for profitability and scalability.
This quarter marked our most successful revenue performance in company history. John will also touch on our fourth quarter kickoff, allowing us to reaffirm our guidance, which I will outline at the end of the presentation. On the cash front, we've successfully met our last cash milestone involving customer cash. This achievement can be credited to Nathan's dual role as Chief Commercial Officer and CFO, as we brought in $43 million in customer cash this fourth quarter. The business is stabilizing and positioning itself for future growth, which is an exhilarating prospect. Moving on, I want to highlight some recent announcements. When we discuss our new building, it’s natural to question the timing and why we didn’t do this sooner. Let me clarify our journey. We began in Turtle Creek in 2019, acquiring a cost-effective space and expanding with our landlord. However, that space wasn't optimal.
Our new building will provide an improved footprint for a world-class factory, reducing cycle times, lowering costs, and enhancing our product's market performance. I'm eager about the capabilities our new factory will support as we prepare for next year, and how John is setting us up to boost capacity to meet demand. Our new software hub in downtown Pittsburgh signifies our commitment to revitalizing the area. We're excited to now be part of Pittsburgh, enabling us to leverage local talent and innovation. Over the past two years, particularly the last 12 months, we have attracted valuable talent to improve our company, aided by Michelle Buczkowski, our Chief People Officer. As we transition to the new building, you can see a rendering of its design. We're occupying three floors, which will be branded as an Eos building. We look forward to the day when our shareholders can enjoy a Pirates or Steelers game and see the Eos logo in the skyline.
Reflecting on our journey is humbling, yet looking ahead is equally thrilling. Now, let's discuss the market. I want to underscore our industry's efforts to meet the future power requirements globally. We are in the third energy super cycle of my career. My hope is that this time, we don't simply add capacity in large increments and wait to see if it satisfies demand. We can take a smarter approach. Energy storage enhances this expansion. Our systems effectively store electrons, whether they come from traditional power generation or renewables. Traditional power generation often builds capacity for infrequent peak times, leading to underutilization. Energy storage can significantly raise the capacity factor of these plants, translating to substantial power delivery improvements. For every 5% increase in a facility’s capacity factor, we effectively power millions of homes. The demand for power and energy storage is urgent—this is a key focus for our company’s strategy.
Similarly, even without adding new renewable capacity, integrating energy storage into our current renewable infrastructure could generate significant energy savings. This would make our energy system more efficient and available when needed. We also face grid congestion, which acts like a traffic jam, and energy storage can alleviate these bottlenecks, ultimately reducing costs. Addressing both new demands from AI and hyperscaler growth requires us to deliver power cost-effectively to avoid rising consumer energy prices. Our value proposition at Eos is known for various energy storage solutions. For instance, using our traditional cube storage, one acre can offer 100 megawatt-hours, but with our in-building solution, we can provide one gigawatt-hour per acre, four times the market’s current capacity. We can compete effectively while maintaining exceptional round-trip efficiency across a wide operational range, reacting quickly to demand fluctuations.
Our systems also have low degradation rates and consume minimal auxiliary energy during operations. Importantly, our technology is safe and non-flammable, meaning any operational issues do not pose a fire risk. Moving to our operations, I’m pleased to report encouraging results from the Z3 field performance as of late October, thanks to Francis Richey and his team. They have created an impressive product that performs admirably across a broad temperature range. We are encouraged by the product’s ability to meet the demands I outlined previously. As for our improved operating performance, we’ve seen significant revenue growth from the second to the third quarter by resolving production challenges and enhancing manufacturing processes. We’re optimistic about continuing this momentum into the fourth quarter, based on initial performance. It’s crucial for everyone to notice the narrowing gap between our gross margin and adjusted EBITDA margin, which reflects our strategy to scale effectively while maintaining profitability.
We have much work ahead, but I’m excited about our strong product and progress. John and Nathan will now detail our operations, commercial approach, and financials. This quarter was a significant achievement driven by a dedicated team eager to excel in our industry. With that, I’ll hand it over to John for further insights into operations.
Thanks, Joe, and good morning, everyone. Really excited to be here today to talk to you about Eos. It's been just over 60 days since I joined Eos. As an operations leader, there is truly no better time to join a company than when it is set up for large-scale growth. Before diving into what the team has accomplished and what we're focused on going forward, I just want to briefly introduce myself. I bring more than 35 years of experience leading large-scale, high-quality, efficient, and cost-effective operations around the world. I have worked for organizations that are recognized for world-class execution. I not only know what world-class looks like, but I have also built and led teams to deliver it. My experience has taught me how to drive operational excellence, building systems that are efficient, repeatable, and cost-effective at scale. Those lessons translate directly into what we're doing here at Eos.
What's impressed me most about Eos is the simplicity and scalability of the product, a single product SKU, and a highly automated manufacturing process tailored around it. The team has done the hard work in improving the process, tightening the supply chain, and hitting cycle time milestones that demonstrate this technology can scale. As we move into the next phase of growth, my focus is on driving consistency and repeatability, creating a global playbook that allows us to replicate this model wherever our customers need long-duration energy storage. We see meaningful opportunities to take cost out of every aspect of the product, not just materials, but labor efficiency and overhead, as Joe has discussed many times on prior calls. Through process optimization, automation, layout design, and lean principles, we'll be able to increase revenue per head, square foot, and CapEx. But before I get into what's next, I want to acknowledge the environment I walked into.
The foundation of any company is its people, and it's clear that we have at Eos a team that's hungry to win. I inherited an operations team that's intelligent, experienced, and driven to take care of their employees, delight their customers, and deliver for their shareholders. This team has a culture of teamwork, winning the day, and continuous improvement; a design team that has built an exceptional product and continues to work closely with operations to enhance quality, efficiency, and cost. Let's take a look at what the team has accomplished in the 2 months I have been here, focusing on five key areas: safety, quality, cost, output, and capacity expansion. Safety is our top priority. We reduced safety incidents by 84% from Q2 to Q3 and year-to-date are performing 41% better than the industry average. In September, we accomplished four times the production volumes that we did in August, with zero lost time safety incidents.
My goal is clear. I'm entrusted to keep our people safe and send them home to their families each and every day. Quality. We have made significant progress and decreased battery defects by 45% from Q2 to Q3. Bipolars account for about 70% of total battery defects. With a complete cutover from manual to 100% automated bipolar production at the beginning of Q4, we expect to drive that down by another 63%. With cost, we have a single product to focus on. What does that mean? I'll give you a couple of examples. One, we have five buyers. The activity level on cost has not changed, whether we buy for one line, ten lines, or fifty lines. The organization is already scaled in all key areas for growth. Two, our supply base consists of nine key suppliers making up 80% of our bill of material. To date, we have never done a large buy-in buy with our suppliers due to uncertainty around capacity installation and production ramp.
We are now in the position to do so. We hosted these suppliers in Turtle Creek a few weeks ago, where we reviewed our capacity forecast and opportunity pipeline. As they ramp their production, they will have the ability to get more efficient and realize cost absorption. Backdrop, we expect to achieve further cost reductions in sync with the volume increases. With this and other cost initiatives, we expect to exit Q1 gross margin positive. Moving to production output, we're now positioned to deliver a significant step change in Q4. In Q3, our automated battery line operated at 15% capacity utilization of its full two-gigawatt potential, limited by subassembly bipolar equipment availability. In Q4, we expect to ship three times the volume we did in Q3. We'll accomplish this by increasing capacity utilization by 167%, ramping additional shifts along with having all eight bipolar cells in full production.
My team is laser-focused on hitting the output to achieve our revenue guidance, and we're set up to do just that. In October alone, we've already shipped 179% more tubes than we did in the first month of Q3. In just the first four days of November, the team has already shipped 83% of August's total volume. What took us a month to accomplish just three months ago will now take us only six days. Looking ahead, our next big step comes with the new building and the installation of line two expected in spring of 2026. What excites me here is how we'll utilize the layout and opportunities we have to be even more efficient. The space is designed for single-piece flow, enabling lower costs and higher throughput. Today, we're moving product across three floors and two buildings and from start to finish translates to materials traveling 2.1 miles. There are significant material handling costs associated with this.
In the new building, we expect this cost to decrease by 86% as we will have a one-floor single-piece flow in our end-to-end operation. This not only improves cost but also gives us the ability to increase throughput. You've heard us talk about having a battery come off the line every 10 seconds. We're focusing on reducing that time even further. With changes to line two design, we should be able to further reduce cycle time. Once validated, we will then go back and retrofit line one. We will continue to implement enhancements to the automation equipment to reduce cycle time. Finally, we're preparing to scale by diversifying our operations' supply base. With multiple partners in place, we're positioned to have our suppliers build the line every 90 days if needed. That flexibility gives us the ability to stay ahead of demand and deliver for our customers when I get the green light from Nathan. With that, I want to thank everyone for their time, and I'll let Nathan talk through the commercial highlights.
Thanks, John. It's been great working with you and having you as part of the Eos team. Look, I've been looking forward to being on the call with you today and sharing what's been going on commercially. It's been an exciting few weeks since John has joined us, and you can feel the momentum building across the organization. Let's start with the commercial front where we've made significant progress since we last updated you. Just last week, we announced our first purchase order with Frontier Power, a 228-megawatt-hour deal supporting several long-duration storage demonstrations across multiple markets. This first order is the initial movement of Frontier MOU volumes from pipeline into backlog. This PO is very strategic as it is for deployments ahead of Frontier's U.K. Cap-and-Floor projects. That means we're getting systems in the ground early and showing the market what our technology can do ahead of the Cap-and-Floor projects as we continue to support Frontier on their submissions.
To put the Cap-and-Floor program into perspective, there were a total of 177 projects submitted by various developers but only 77 advanced to round two, and every single one of the 16 projects that Frontier submitted using our technology moved forward. That means Eos is represented in over 20% of the projects that made it to round two. We have nearly 11 gigawatt-hours in the second phase, more than double what was anticipated when we signed the MOU with Frontier earlier this year. That's a powerful endorsement of our technology and our ability to deliver at scale. Just to remind everyone, under Cap-and-Floor rules, projects must deliver at least eight hours of discharge, which plays directly to our strengths in long-duration storage. We recently announced a 750-megawatt-hour supply contract or MSA with MN8 Energy, one of the largest independent renewable energy operators in the U.S. We began our relationship with MN8 in 2023.
Earlier this year, we announced an MOU where our two companies were working together to develop an opportunity pipeline. That MOU has now transitioned from pipeline into backlog as an order for 750 megawatt-hours. This illustrates how our commercial process works. The first couple of 10-hour projects are expected to total 200-megawatt hours and uniquely pair solar with long-duration storage in support of hyperscaler offtake requirements. This is a strong signal that the market is shifting and that customers want not just long-duration storage, but an American-made solution to power data centers and industrial operations. Zooming out for a moment, our commercial pipeline continues to grow as we ended the quarter at $22.6 billion, a net increase of 21% quarter-over-quarter, representing about 91 gigawatt-hours of potential projects. No surprise here, data centers are the fastest-growing part of the pipeline, now making up 22% of the volume.
Perhaps even more encouraging, 64% of our pipeline volume is now at six hours or more in duration, validating what we've been saying: the world needs longer duration solutions. Geographically, we're beginning to see a significant increase in activity in PJM and New York ISO, along with the existing growth we've previously highlighted in SPP and MISO. For example, the NYSERDA bulk storage RFP, which is similar to the U.K. Cap-and-Floor mechanism, requires that 20% of the procurement be eight-hour systems and 20% be in Zone J, which includes Manhattan. This is exciting for us as this aligns exceptionally well with our technology and our ability to be deployed in populated areas. With the rising demand from data centers and electrification, customers are focused on speed to power, high-density energy delivery, and derisking supply chains with U.S.-made technology, all areas where Eos is uniquely positioned to deliver.
Finally, on backlog, we ended the quarter at $644 million with 2.5 gigawatt hours of storage, not including nearly 1 gigawatt hour in new orders that we've booked since the end of the quarter. This is down slightly quarter-over-quarter as we continue converting backlog into revenue on shipments. During the quarter, we delivered over $30 million in revenue while adding an initial order for behind-the-meter storage for a large client in Germany. While Q3 may appear slower on paper, Q4 is already off to a strong start with more than $220 million in new orders booked and significant forward momentum on several large pipeline opportunities. We've built strong partnerships with leaders like Frontier and MN8, and we continue working on additional opportunities to support the large and growing hyperscaler demand for reliable power. Moving to our financials. We again delivered record quarterly revenue as production volumes continued to ramp with gross margins improving sequentially for the past four quarters.
We're really encouraged by our progress and remain confident in our ability to scale, now that subassembly automation is nearing completion and delivering increased manufacturing capacity and quality, as John highlighted earlier. Revenue for the quarter was $30.5 million, double what we reported in Q2, supported by shipments to five different customers. To put that in perspective, we nearly doubled our 2024 revenue in the third quarter, showing how quickly production is accelerating in Turtle Creek as our automation efforts take hold. The average selling price was also higher and more in line with our expectations going forward. You'll recall that in Q2, 50% of our production volume was delivered to a single strategic customer at a lower ASP, which was a drag on revenue for that quarter. I'd like to highlight that, as Joe mentioned earlier, this system has begun cycling and running in the field at some of the highest RTEs we've ever seen.
Gross loss for the quarter was $33.9 million, just slightly more than last quarter as revenue doubled on increased volume, driving a 92-point improvement in gross margin and demonstrating the scalability of our operations as we ramp. We're continuing to see steady quarter-over-quarter margin improvements and remain on track to reach positive contribution margin in the fourth quarter and positive gross margin as we exit the first quarter of 2026, as John previously said. Building on the improvements in gross margin, operating expenses for the quarter totaled $27.3 million, an improvement of $5.6 million from Q2 and 4% better than the prior year. 20% of this quarter's OpEx reflect noncash items such as stock-based compensation. We ended the quarter with a net loss of $641.1 million, which was primarily driven by noncash fair value adjustments of approximately $569 million related to warrants and derivatives on our balance sheet.
To be clear, this is not an operating loss. The adjustments are largely driven by a 122% increase in our stock price quarter-over-quarter and the corresponding mark-to-market revaluation. These stock price fluctuations can and will continue to drive volatility below the line, but they have no impact on our operating results or our cash position. Adjusted EBITDA loss was $52.7 million compared to $51.6 million in Q2. Importantly, net margin improved by 166 basis points, reinforcing that the efficiency gains we're achieving in production are scaling across the business. The continued increase in production volumes that both John and Joe talked about should be moving us to positive contribution margins in the fourth quarter. After that important milestone, we'll start closing the gap on EBITDA margins and continue moving toward profitability. Turning to the balance sheet, we ended the third quarter with $126.8 million in total cash.
A couple of things on cash post-quarter close. First, you heard Joe talk about the customer receipts we received in October. Second, we just completed another sale of our production tax credits, monetizing $11.8 million of 45X credits that were generated in the first few quarters of this year. Consistent with prior transactions, we realized $0.90 on the dollar on this sale. Lastly, we've seen an increasing number of exercises in both our public and private warrants as all warrants are now in the money. The last day to trade these public warrants is November 17. Just as importantly, we've completed the final Cerberus milestone tied to customer cash receipts under our term loan. This means that we've achieved all 16 milestones, with no additional equity, preferred stock, or warrants being issued to Cerberus. I want to thank all of the Eos employees for making this happen. With that, I want to thank everyone for joining us this morning, and I'll now turn it over to Joe before heading into Q&A.
Thanks, Nathan. Before we move into Q&A, I'd like to reiterate guidance to the low end of our range. Nathan and the commercial team have positioned us with the backlog that allows us to deliver. You've heard from John and the impact he's making on improving our operations performance that are keeping us on track to earn between $150 million and $160 million in revenue for the total year. I also feel compelled to make a few comments about the short report that was issued about Eos last week. When the report surfaced last Thursday, I was in a meeting in New York with the CEO of a large independent power producer, the North American CEO of a large energy storage operator, and the CEO of one of Eos' largest financial investors. We were discussing a strategy to meet America's accelerating power demands with a mix of generating technologies combined with Eos Z3 systems. While I was finishing up the meeting, our team quickly mobilized to review what's being said about our company.
We take these issues very seriously and immediately engaged our outside SEC counsel and our external auditors in this review. We are certain that the allegations in the short report are without any merit. Short reports are a fact of life these days, but the silver lining is that I am humbled by the support we received over the prior week from the Department of Energy to the California Energy Commission, to the Edison Fire Department, our customers, large institutional investors, and our vast retail investor base. I'm proud to say that I work at Eos. We're a team of 750 people who are building a great company. Collectively, we own 11% of the company's equity. When I got back to Turtle Creek, I found a galvanized team with a singular focus to finish what we started and prove that great and innovative products can still be designed and manufactured in the United States. We are a team that is wired to win. With that, let's start by taking a few questions submitted online. I'll turn it over to Liz. Thanks.
Thanks, Joe. So, moving to a few of the questions we've received online, the first question being, can you provide an update on the timeline around Factory 2 outside TA? And if Project AMAZE will need to be completed before Factory 2 lines go live?
Thanks for the question. As discussed earlier in my opening remarks, we now have building partners and automation partners that can deliver a line every 90 days. This work can all be done simultaneously going forward.
Thanks, John. Next question. As the company navigates a capital-intensive scale-up phase, how are you balancing the need for fresh funding with the imperative to avoid excessive shareholder dilution? And what milestones might unlock access to lower-cost capital?
Thanks, Liz. As you just heard John say, we're positioned to add manufacturing capacity to meet this growing demand. We're in an energy super cycle and it's my job to deliver the orders and the capital to support this growth. I'm committed to doing this in the most cost-effective way possible for the company.
Thanks, Nathan. I think the next one here is for Joe. What is the long-term vision? And how do you plan to surpass or match the competition?
Thanks, Liz. Look, you heard John talk about positioning us to be able to add capacity in a 90-day rhythm. That's great when you talk about being in an energy super cycle. Nathan is out there with his two hats, winning the orders to fill the factory and securing the capital to drive growth. I'm just excited about the product that the team has delivered. We've got some things that we're working on that we're really excited about that will position us to be the energy storage product to help meet the needs of this energy super cycle. We've got some work to do to continue to close the gap on profitability, and I feel really good about the playbook the team has to be able to do that. But at the same time, we've got to make this the easiest technology to work with out in the field, which is why we're investing in a software hub here in Pittsburgh. What we want to do is take a great technology, build it quickly, and operate it easily out in the field. That's the simple strategy of this company and what everybody is executing on. With that, we'll turn it back over to the operator and see if there are any questions from our sell-side analysts. Thanks.
Questions and answers
And your first question comes from the line of Julien Dumoulin-Smith with Jefferies.
To start off, I see you adjusted the 2025 guidance. Considering the quarter-over-quarter performance and progression, you've discussed this in operational terms in your prepared remarks. As you approach the fourth quarter of 2025, as suggested by your full-year guidance, how do you expect the progression into 2026 to unfold? I'm particularly interested in your thoughts on the revenue trajectory for the second, third, and fourth quarters and how you envision that impacting 2026 and your commercial outlook moving forward.
No, thanks for the question. So, in my prepared remarks, I talked about Q3, we were at 15% capacity utilization. If we look at going forward, we'll exit Q4 running our complete asset base 24/7. You're looking at going from a 15% capacity utilization to 90-plus from a capacity utilization standpoint. A lot of work was done in Q3, installing capacity, training our workforce, training the additional shifts and all the costs associated with it. As you fast forward, all the ramping will be done. As we enter Q1 at the very start, we'll be at OEs higher than 90% and will be fully realizing and utilizing the capacity.
On the revenue side, I'll let Nathan add some comments there because that kind of falls into his two hats.
Yes. No, I mean, John did a good job of laying out what we're doing this year. As we look forward into 2026, we're seeing a tremendous amount of activity in our pipeline. The pipeline is up 21%. 22% of that now is data center activity. We talked about the sales cycle and how these things mature over a period of months, even quarters. We continue to see very strong activity in the pipeline as we move forward. Good news is John's capacity expansion now can be moved in three-month increments as the orders come in. We're seeing new orders come in; we're going to add capacity to line up with those orders. I see consistent revenue growth over time.
I want to mention that we are very cautious about our backlog and orders pipeline. Nathan is working on some MOUs that we cannot disclose yet, but he is collaborating with Justin and the entire team to convert these MOUs into firm projects. We prefer to discuss them once they are finalized and we have project names, similar to how we did with Frontier. Additionally, as we install new assets, we are learning continuously. The first bipolar line took us several weeks to start up, while the sixth and seventh lines took just days. We expect to apply these learnings when we launch the second line in the spring, allowing us to reduce ramp-up time and reach full capacity more quickly. Overall, our current efforts are focused on learning and using that data to accelerate our progress.
Awesome. One last tweak here. You talked a lot about operational metrics improving, but it seems like the latest quarter ASPs went up materially. Again, you tell me if we're reading that right. And you also flagged, I think, in the Q here, a concentration with like 80-plus percent tied to a single customer. This is not the same customer as you guys have been concentrated to in the past, I presume. Can you talk to that just a little bit about the ASP dynamics and the customer maybe of late?
We talked about this a little bit last quarter as well. In Q2, I think, was the anomaly because we had one strategic customer that was a drag on revenue in Q2. What we're seeing in Q3 was revenue rates reverting back to what we view as a more normal run rate. Deliveries in the quarter were to five individual customers. They are not all equally weighted, but I would say the customer base that we delivered to in Q3 was representative of what our customer base would look like going forward.
I want to add two points on top of what Nathan just said. ASP, we try not to pick individual contracts. We're managing a portfolio. Like any portfolio, there are highs and lows, but you got to get your average where it makes sense, and the average of the portfolio is up because people are seeing the value of the technology. On this strategic customer that we talked about last quarter, we're getting data from that system out in the field and it's phenomenal. So, I look at that as kind of an investment in our future where we needed to get Z3 out in the field at scale and see it operate, and it's delivering on those results. It's a mix of all things. But the overall portfolio of the order book, ASP is higher than what it was.
Yes, absolutely. I'm very curious to see some of these strategic partners in their Analyst Days in the coming weeks.
Your next question comes from the line of Stephen Gengaro with Stifel. Please.
So I think two things for me. One is just a follow-up on the last question. I'm not sure how much you want to say, but you talked about sort of the average selling price kind of across the portfolio. How does that look in the backlog and the recent awards that you're booking relative to kind of what you're realizing now?
Look, I mean, you can do the math on the backlog page. You can see total dollars and total gigawatt hours and how that's trended over time. It has stayed pretty consistent. We're not seeing long-term revenue rates that we've realized and expect to realize going forward to be pretty consistent. When you get larger orders, we're working with customers to say, okay, what is our cost curve doing, what can we do from a large volume buy perspective? You saw the chart we showed where you see margins improving over time. You see net margins improving over time as we continue to scale the business. We think we're going to turn the corner here and get to positive contribution margin into this quarter, positive gross margin exiting Q1 on a path to profitable positive EBITDA after that.
What I would add on top of that is part of my job is handing out the targets to people, and the orders that were recently closed are well within the ASP portfolio target that Nathan has as CCO.
Remember, we're talking about post-quarter close that happened after Q3. So that will be out in Q4.
Yes. I wanted to ask about the margins, specifically related to costs. As we consider the progression of margins and some of the major expenses involved in producing the product, could you explain the key factors that will lead to positive gross margins? Is it improvements in the supply chain, reductions in cost of goods sold per unit, or simply achieving scale? Many investors are curious about how your cost structure will look as you gain momentum and grow your backlog, particularly from a profitability standpoint. I would appreciate any additional insights you can provide.
From a cost perspective, I already talked about asset utilization. The same thing is true with our suppliers. They have had to put a lot of assets in place to be able to support this ramp. As we ramp, they will also ramp. They are seeing cost optimization and cost absorption, which will translate into cost reduction from a parts situation. Then you look at labor costs. A lot of what we're focused on right now is taking cost out and making things more efficient. I'll give you one example. We were focused on our gate and looking at travel time, material, and the way they're presented. Basically, all aspects of that operation came in on one weekend and completely changed the way we were doing that operation. In the five days prior to what we did versus the five days ahead, we doubled the output. The work we're doing is not just having incremental gains; it's having step function gains. We talked about labor, and you mentioned utilization.
We'll be at 100% utilization coming out of Q4. You will match the asset. Then it's about taking cycle times out. We've got a heavy automated process, so if I can take 10 seconds down to 9.8 seconds, down to 9.6 seconds, that work is absolutely doable. You keep moving it forward. I like being here; I came from thousands of different products. The focus shifts every day. Now, I come in every day and focus on the one product. This journey never ends. We will continue to look at all of our cost buckets and continue to put projects together that will close those out. Right now, just on taking material cost out, forget cost savings, we've got 61 different projects that we're doing to take the amount of parts that we have out and take the cost out. 61 projects, and all of those projects will be closed before we exit Q2. That's how I think about it.
There are no further questions at this time. I will now turn the call back over to Joe Mastrangelo, CEO, for closing remarks.
Thank you. Thanks, everyone, for listening. One thing I want to talk about here in the closing is the project that Nathan and Justin closed with Frontier Power because this kind of lays out another strategic puzzle piece for us as we grow the company. We met Frontier back in January. Nathan and Justin met them at a trade show in the U.K. We developed a relationship, signed an MOU, and got a project pipeline. Every week, we meet with Cerberus, and we go through where we are in cash, how we're doing financially, and how are we performing. We look at Frontier not as a transaction, but as a platform. Cerberus financed Frontier because we view this as experienced operational leadership in the industry that can help us build a platform to expand out in Europe. We're excited about how that's going to look as we move forward and really look forward to partnering with the team at Frontier. At the same time, we're looking at what John is doing operationally. It's fun working with him. It's great having him on the team and seeing what he's been able to deliver and the whole team underneath him. We just have to keep growing, keep focused, and know that the industry needs our product. We got to continue executing and make this simpler and easier to do business with. We look forward to keeping everyone updated on the progress. Thank you for listening today. Talk to you soon.
Ladies and gentlemen, that concludes today's call. Thank you all for joining. You may now disconnect.