管理層發言
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'd like to begin with our operating highlights. Nathan and John will dive into the numbers shortly, but I want to take a moment to discuss the commercial pipeline, order bookings, and our recent announcements. Nathan transitioned to Chief Commercial Officer in the spring, and we are starting to see the results from him and Justin Vagnozzi, who has been with us for almost two years. The pipeline is increasing, and we are converting memorandums of understanding with customers into orders, which are now adding to our backlog and heading out the door for shipment. Additionally, we secured a few orders after the quarter closed, including a significant strategic agreement with Talen Energy, which I will elaborate on in a moment. Regarding revenue, John has been with us for 60 days and will detail his findings and actions in that time. However, our team of Jason Greggs, Josh Payne, and Jessica Troiano has been active on the ground for the past year, successfully positioning our supply chain and cost structure aimed at achieving profitability and scalability for our business. We've reported our best revenue quarter ever, demonstrating excellent performance from the team in the third quarter. John will discuss our progress in the fourth quarter, reinforcing our guidance, which I'll touch on later in the presentation. On the cash front, we achieved our latest customer cash milestone, thanks in part to Nathan's dual role as Chief Commercial Officer and CFO. We've brought in $43 million in customer cash in the fourth quarter, indicating that our business is stabilizing and setting the stage for future growth. It's an exciting time as we look ahead. Now, moving to some recent announcements, I want to explain our decision to establish a new building. When we began in Turtle Creek in 2019, we started with a low-cost facility and expanded our footprint. However, that footprint wasn't optimized. Our new building will provide an optimized space to create a world-class factory capable of reducing cycle times, lowering costs, and positioning our product as a market leader in performance and cost. I'm eager about what this new factory will enable us to achieve next year and how John is strategizing to increase our capacity to meet growing demand. Our new software hub in downtown Pittsburgh marks an important step for us and the local community, and I’m thrilled about our plans to harness the local talent and innovation to enhance our operations. With Michelle Buczkowski as our Chief People Officer, we've effectively managed turnover rates and attracted significant talent over the past two years. As we prepare to move into our new building, we have an architectural rendering available. While we’re not occupying the entire building, we will be taking three floors, and it will be branded as Eos. I look forward to the day our shareholders can see the Eos logo as they enjoy a Pirates or Steelers game. Now, let’s discuss the market. We're in the midst of a significant energy super cycle. My goal during this cycle is not to replicate past strategies of adding large capacity and waiting to see if we meet demand. Instead, I believe we can approach this more intelligently. Energy storage enhances this expansion, allowing us to take advantage of both traditional and renewable energy sources. For instance, traditional power generation often operates at a capacity factor of just 33% to 65%, which means assets are idle more than they run. Energy storage improves efficiency, boosting capacity factors, effectively powering millions of homes without the need for new generation sources. Even with current renewables, simply integrating energy storage can significantly increase efficiency and availability without adding more capacity. Energy storage can help alleviate grid congestion by acting as a buffer on both ends of the energy use chain, allowing us to deliver energy more efficiently and cost-effectively. This transition must occur alongside the rise of AI and hyperscalers driving new demand, but it needs to happen at reasonable costs for consumers. At Eos, our offering stands apart. Our traditional cube solution can deliver 100-megawatt hours on one acre, but with our in-building solution, that figure quadruples to a gigawatt hour. This capability positions us to lead in efficiency, allowing us to meet the burgeoning demand from AI innovations. Our systems boast high round-trip efficiencies and are designed to function consistently across various temperatures, responding to demand fluctuations rapidly. Our technology's speed and low degradation over time make it a leader in the industry. Let’s move on to operations. The Z3 field performance has been promising, led by Francis Richey and his team, who have been integral to Eos for nearly ten years. Initial results show strong performance across a temperature range that typically challenges competitors, reflecting positively on our product's robustness. Finally, I want to highlight our improved operating performance. We’ve seen significant revenue increases from quarter to quarter by removing production bottlenecks and optimizing manufacturing processes. As we head into the fourth quarter, I am optimistic about our performance based on the early data we are observing. More importantly, our margins are quickly approaching breakeven and profitability, indicating promising future growth. There's still much work ahead, but I am excited about our great product and the journey ahead. John and Nathan will provide further insights into operations and financials, with this quarter marking a noteworthy achievement for a team dedicated to excelling in our industry. I'll now hand it over to John to discuss 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. And as an operations leader, there's 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 worked for organizations that are recognized for world-class execution. And I not only know what world-class looks like, 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, 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 is 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, 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 the operations to enhance quality, efficiency and cost. So, let's take a look at what the team has accomplished in the 2 months I have been here, focusing on 5 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 41% better than industry average. In September, we did 4 times the production volumes that we did in August with 0 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 the total battery defects. And 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 5 buyers. The activity level on cost has not changed, whether we buy for 1 line, 10 lines, or 50 lines. The organization is already scaled in all key areas for growth. Two, our supply base consists of 9 key suppliers making up 80% of our bill of material. To date, we have never done a large buy-in buy with our suppliers because of 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. With that as the backdrop, we expect to achieve further cost reduction 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 2 gigawatt potential, limited by subassembly bipolar equipment availability. In Q4, we expect to ship 3 times the volume we did in Q3. We'll accomplish this by increasing capacity utilization by 167%, ramping additional shifts along with having all 8 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. And in just the first 4 days of November, the team has already shipped 83% of August's total volume. Let me say that again. What took us a month to accomplish just 3 months ago will now take us only 6 days. Now, looking ahead, our next big step comes with the new building and the installation of line 2 expected in spring of 2026. What excites me here is how we'll be able to utilize the layout and the opportunities we have to be even more efficient. The space is designed for single-piece flow, enabling lower cost and higher throughput. Let me give you an example of what I mean by this. Today, we're moving product across 3 floors and 2 buildings and from start to finish, which 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 gives us the ability to increase throughput. You've heard us talk about having a battery come off the line every 10 seconds. What we're focusing on now is reducing that time even further. With changes to line 2 design, we should be able to further reduce cycle time. Once validated, we will then go back and retrofit line 1. 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 in perspective, there were a total of 177 projects submitted by various developers but only 77 advanced to round 2, 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 2. 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. And just to remind everyone, under Cap-and-Floor rules, projects must deliver at least 8 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 2 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. And no surprise here, data centers are the fastest-growing part of the pipeline, now making up 22% of the volume. And perhaps even more encouraging, 64% of our pipeline volume is now at 6 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 8-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 4 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 5 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. 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 prior year. 20% of this quarter’s OpEx reflects 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. And 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. And 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, and 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, and 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. And 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 with 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 we 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 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. And 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. So, look, I mean, 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 2 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. I mean, 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, and that’s why we’re investing in a software hub here in Pittsburgh. And I think when you think about 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.
分析師問答
And your first question comes from the line of Julien Dumoulin-Smith with Jefferies.
To start things off, I know you adjusted the guidance for 2025. Considering the quarter-over-quarter run rate and trajectory, you provided more insights in operational terms during your prepared remarks. How do you view the ending of 2025, particularly the fourth quarter implied by your annual guidance, and how do you see that ramping into 2026? I'm particularly interested in how you assess the revenue trajectory from the second to the fourth quarter and what that suggests for 2026 and your commercial prospects moving forward.
No, thanks for the question. In my prepared remarks, I mentioned that in Q3, we were at 15% capacity utilization. Looking ahead, we plan to operate our entire asset base continuously in Q4. This means we expect to increase our capacity utilization from 15% to over 90%. A lot of work was done in Q3 to install capacity, train our workforce, and prepare additional shifts along with the associated costs. As we proceed, all the ramping will be completed. Therefore, at the beginning of Q1, we anticipate operating efficiencies exceeding 90% and fully utilizing our capacity.
And then Julien, on the revenue side, and I'll let Nathan kind of add some comments there because that kind of falls into his 2 hats.
Yes. No, I mean, John did a good job of laying out what we’re doing this year. I think as we look forward into 2026, we’re seeing a tremendous amount of activity in our pipeline, right? Pipeline is up 21%. 22% of that now is data center activity. We talked about kind of the sales cycle and how these things mature over a period of months, even quarters. And 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 3-month increments as the orders come in. And I think we’re going to see new orders come in. We’re going to add capacity to line up with those orders and I see consistent revenue growth over time. Yes.
Julien, on the pipeline and order side, we have always taken a conservative approach regarding our backlog and orders. Nathan is currently working on some memorandums of understanding that we can't announce yet, and he is collaborating with Justin and the whole team to convert these MOUs into firm projects involving hyperscalers. We prefer to discuss these projects only once we have finalized them and can share their names, similar to how we handle announcements with Frontier. Additionally, as we install assets, we are continuously learning. For instance, our first bipolar line took several weeks to set up, while the recent lines 6 and 7 were operational in just days. We anticipate that when we launch line 2 in the spring, we will be able to apply these learnings to further reduce the ramp-up time to full capacity. Everything we are doing now is focused on learning, which will enable us to advance more rapidly than we currently are.
Awesome. And guys, if I can take sort of the natural extension of that last question, how are you thinking about the ramp here, right? I mean it's pretty phenomenal what you've just achieved in the last 6 months here, as you just described. How do you think about the cadence of ramping further lines? And then also, related to that, how do you think about the financing side of that, right? So you've got the $43 million from Cerberus, you have the $24 million award. You've got unrestricted balance of $60 million. You've got an ability to tap DOE. How do you think about financing that against potentially what seems like an accelerated ramp on CapEx? I don't want to put words in your mouth when I say accelerated, but I'm curious on how you think about just teeing this all up and setting expectations.
I think, Julien, let’s piece together what you’re outlining. We have a loan from the Department of Energy that funds four lines, and we’re proceeding with line two. John’s goal is to reduce the time from starting a line to having it operational, so we can begin generating revenue, making the capital requirements more operational rather than purely financial. Currently, the industry and the world have a demand for our product, and we need to quickly scale to meet that demand. I have often mentioned that we do not want to have underused capacity. We are exploring all these options. With what John has arranged with various automation suppliers and breaking the project into parts to ensure everyone is aligned toward our goal, we expect to get that capacity operational in 90 days, which aligns well with Nathan's sales cycle. Some of this will come from what we already have in place, and additional contributions will come from operations and customer deposits as we finalize orders. We will also consider seeking additional growth capital if necessary.
Awesome. Excellent. 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?
Yes. We talked about this a little bit last quarter as well. So 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. And then deliveries in the quarter, I mean, it was five individual customers. They're not all equally weighted. But I would say the customer base that we delivered to in Q3 was representative of what customer base would look like going forward.
I want to add two points to what Nathan mentioned. When it comes to average selling prices, it's important not to focus on individual contracts. We are managing a portfolio, which has its ups and downs, but we aim to achieve a reasonable average. The overall average for the portfolio has improved because customers recognize the value of the technology. Regarding the strategic customer we discussed last quarter, we are receiving impressive data from their system in the field. This is part of our effort to deploy Z3 at scale and observe its performance, which is meeting our expectations. Overall, the entire order book shows that the average selling price is higher than it was before.
Yes, absolutely. I'm very curious to see some of these strategic partners in their Analyst Days in coming weeks.
Your next question comes from the line of Stephen Gengaro with Stifel. Please.
I have two points to discuss. First, I would like to follow up on the previous question. I'm not sure how much you can share, but you mentioned the average selling price across the portfolio. How does that appear in the backlog and the recent contracts you are securing compared to what you're currently achieving?
You can analyze the backlog page to see the total dollars and gigawatt hours and how they have trended over time, which has remained fairly consistent. We don’t anticipate significant changes in the revenue rates we have achieved and expect to achieve moving forward. For larger orders, we collaborate with customers to assess our cost curve and explore options for large volume purchases. The chart we presented shows improving margins over time, and we are seeing net margins strengthen as we scale our operations. We are optimistic about reaching a positive contribution margin this quarter and expect to have a positive gross margin by the end of Q1, setting us on a path towards achieving profitable positive EBITDA thereafter.
And Steve, what I would add on top of that, look, 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.
And remember, we're talking about, Stephen, that's post-quarter close that happened after the quarter, after 3Q. So that will be out in 4Q.
Yes. The other point I wanted to discuss is regarding margins and the cost structure. When we think about margin progression and some of the larger expenses associated with producing the product, what are the key factors that lead to achieving a positive gross margin? Is it improvements in the supply chain? Are we seeing a decrease in cost of goods sold per unit? Or is it simply a matter of reaching scale? Can you provide some insights on how we should understand the cost structure? This is the main question we consistently receive from investors, especially as you've seen success with the ramp-up and growth in backlog. I'm interested in any additional details you can share on this topic.
From a cost perspective, I previously mentioned asset utilization, and the same applies to our suppliers. They have invested significantly in assets to support our ramp-up. As we increase production, they are also ramping up, experiencing cost optimization and absorption, leading to reduced parts costs. Regarding labor costs, our main focus is on reducing expenses and improving efficiency. For example, we concentrated on our gate operations and analyzed travel time, material handling, and overall processes, which resulted in a major operational change over one weekend. Comparing the five days before the change to the five days afterward, we doubled our output. The improvements we are making are not just incremental but represent significant advancements. We aim for 100% utilization coming out of Q4, aligning our assets accordingly. Additionally, we are focused on reducing cycle times. In our highly automated processes, reducing time from 10 seconds to 9.8 and then to 9.6 seconds is achievable with continuous progress. Working here, I can focus on one product daily, unlike my previous experience with numerous products. Our efforts to streamline costs will always be ongoing, and we have currently launched 61 projects aimed at reducing material costs and the number of parts we handle. All of these initiatives will be completed before the end of Q2. This encapsulates my perspective on our cost structure.
And 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 for joining us. I want to highlight the project that Nathan and Justin finalized with Frontier Power, as it represents an important strategic step for our company’s growth. We first connected with Frontier in January at a trade show in the U.K. We built a relationship, signed an MOU, and established a project pipeline. Each week, we consult with Cerberus to review our financial standing and performance. We don't see Frontier merely as a transaction but as a platform for future growth. Cerberus provided financing to Frontier because we believe in their operational expertise, which will aid our expansion in Europe. We are optimistic about our collaboration with the Frontier team moving forward. I also want to acknowledge John's operational contributions, which have been impressive, and it’s a pleasure to work with him and his team. We must remain focused on growth, as the industry needs our products. It's essential that we continue to simplify and improve our business processes. We will keep everyone updated on our progress. Thank you for your time today, and I look forward to speaking with you soon.
Ladies and gentlemen, that concludes today's call. Thank you all for joining. You may now disconnect.