Edgewell Personal’s Thornhill Timelines, Margin Signals, and FPUSA Profitability Don’t Match in Q3 2026 Earnings Call

Date of Call: Aug 5, 2026

Financials Results

• Revenue: $68.8M, up 351% YOY and 21% sequentially
• Gross Margin: -62% adjusted gross margin, improving 132 points YOY and 7 points sequentially
• Operating Margin: -104% adjusted EBITDA margin, improving 235 points YOY and 16 points sequentially

Guidance:

• Revenue for 2026 tightened to $300M-$350M range.
• Adjusted gross margin expected to improve over 72 points to over 10% over the next 12 months.
• Expect ~25% point reduction in material cost as % of revenue.
• Expect ~20 point reduction in conversion costs.
• Expect ~20 point reduction from project and field services.
• Expect ~8 point improvement from yield improvements.
• First projects under Frontier Power USA expected online by Q3 2027.

Business Commentary:

Revenue Growth and Manufacturing Strategy:

• EOS Energy Enterprises reported record revenue for the first half of 2026, surpassing $126 million, which already exceeds all of last year's revenue.
• The company tightened its 2026 revenue outlook range to $300-$350 million, reflecting strategic decisions to consolidate manufacturing operations.
• This growth and strategic adjustment were driven by increased product shipments, a growing backlog, and a focus on operational efficiency through manufacturing consolidation.

Operational Efficiency and Cost Reduction:

• The company achieved a 20% sequential increase in cube output at Turtle Creek, reaching an annualized production rate of approximately 1.5 gigawatt hours.
• Material costs improved by 10% sequentially, with expectations for further reductions as inventory is worked through and cost reduction initiatives are implemented.
• These improvements were attributed to increased labor productivity, better execution, and the implementation of cost-saving measures, despite challenges in scaling operations.

Backlog and Pipeline Growth:

• EOS reported a record backlog and a pipeline of $24.6 billion, up 31% year-over-year, with 51% of the pipeline requiring eight hours or more of duration.
• The backlog was driven by six new customer orders and growing demand across multiple customer types, including energy providers, consumers, and assurance buyers.
• The strategic focus on projects that align with the company's duration advantages contributed to this growth, supported by a strong installed base and increasing market demand.

Strategic Partnerships and Market Positioning:

• The company announced strategic partnership agreements, including a 750 megawatt-hour master supply agreement with KPAC and a capacity reservation agreement with Frontier Power USA.
• These partnerships are aimed at securing capital, accelerating project deployment, and leveraging the company's domestic supply chain advantage.
• The focus on strategic partnerships is part of a broader effort to streamline the customer experience and accelerate the conversion of the large project pipeline into orders and operational assets.

Financial Management and Cash Position:

• EOS ended the quarter with $364 million in total cash, with operating cash use closely matching adjusted EBITDA loss, indicating improved cash flow management.
• Initiatives to drive down cash burn and turn it positive are underway, supported by a strong operational cash flow and working capital management.
• The company is focused on disciplined cash management, which positions it well as it continues to improve margins and execute its growth strategy.

Sentiment Analysis:

Overall Tone: Positive

• "This quarter comes down to three simple things. We ship more product than we have in any prior quarter. We grew our backlog..." "We achieved record backlog, record revenue, record cube shipments, and a significant improvement in adjusted EBITDA margin." "We're starting to see the operating leverage we've been talking about." "We are encouraged by the continued improvement in how operating cash flow track adjusted EBITDA..."

Q&A:

• Question from Christopher Suther (Truist): So just to kind of unpack, you know, the updated revenue guidance and the path here, the low end is, you know, essentially one and a half gigawatt hours for the rest of the year at just Thornhill. And the high end, are we assuming that Line one comes back online at Thornhill and is producing as well.
  Response: The low end assumes continuing June's run rate; the high end assumes full 24-7 operation at Thornhill by end of Q4, not Line 1 in Thornhill.

• Question from Christopher Suther (Truist): If Thornhill is just 1% of 2Q production, what kind of throughput are we seeing today and how close are we to kind of ramping that up towards the one and a half gigawatt hour rate we need for the low end there?
  Response: Line 1 is running well at nameplate; Thornhill Line 2 is performing phenomenally but ramping carefully with one shift, training staff, with full ramp expected.

• Question from Christopher Suther (Truist): Can you provide a bit more detail on some of the material cost and project drivers? I think the conversion and scrap are pretty clear, but would love to get a better sense on what the cost out initiatives are and the Don OS and third-party labor...
  Response: Material costs will be driven by longer-term supplier agreements and over 90 active cost reduction initiatives. Dawn OS simplification and scaling suppliers will reduce firmware costs. Field labor is transitioning from third-party to EOS employees to lower costs.

• Question from Stephen Gangaro (Stifel): Can you talk about the customer concentration that we see in the 2Q REV and the backlog... how we should expect and what you expect to see from sort of a diversification of the customer base going forward?
  Response: Frontier Power USA provides returns and builds a project pool; over time, there will be a blend of FPUSA projects and third-party deals to grow the overall backlog pie.

• Question from Stephen Gangaro (Stifel): The follow-up was, I understand the FPUSA side, but in your pipeline of opportunities and the customers you're talking to, How should we expect that right now 50% of your backlog is from that single entity? How should we think about that customer diversification evolving?
  Response: Goal is to grow the overall backlog pie, with FPUSA delivering returns and enabling faster execution; a 50/50 split would mean FPUSA is succeeding and the other half is growing.

• Question from Stephen Gangaro (Stifel): When you think about the mobilization of Line 1 over time and consolidating the Thornhill, there's sort of two questions behind that. One is, are you doing it now versus waiting because of just the timing of backlog, delivering your ability to meet delivery obligations and mobile line? Or is it because you've seen such higher efficiency out of Thornhill and it's critical to driving margin expansion.
  Response: Consolidating simplifies operations, focuses on scale for 2027, and drives margin expansion due to Thornhill's superior efficiency and automation.

• Question from Stephen Gangaro (Stifel): And then maybe one quick one, and I don't know if you're going to be able to address this yet, but when we think about FPUSA and your ownership position in that business, what do we think about the profitability of FPUSA? When does that business become profitable and then those profits kind of, you then obtain a third of those profits?
  Response: Profitability will be below the line as other income; initial projects are expected online in H2 2027, with returns accruing thereafter.

• Question from Joseph Osha (Guggenheim): One of the things you talked about last year we haven't heard as much about recently is the data center opportunity... I'm just wondering if we might be able to get an update there. And I'm curious to, to the extent you are doing anything, what kind of durations you're seeing your customers ask for.
  Response: 32% of pipeline is data center related; customers want reliability and performance for cost of goods sold. Duration requests vary, but EOS's ability to cycle multiple times in a day is a strength.

• Question from Joseph Osha (Guggenheim): And just on that other point I made about duration... are going to suppliers and saying, hey, we want rapid response time and all that, but we want pretty short duration of an hour or two.
  Response: Customers often require multiple short-duration cycles adding up to longer total discharge; this plays to EOS's strength in cycling without thermal runaway risk.

Contradiction Point 1

Revenue Guidance Drivers

Contradiction on what operational milestones drive the high-end revenue forecast.

Christopher Suther (Truist) - Christopher Suther (Truist)

2026Q3: High end (350M): Achieved by fully ramping Thornhill to 24/7 operation by the end of Q4 2026, not by restarting Line 1 at Turtle Creek. - [Joe Mastrangelo](CEO), [John Mahas](COO)

Does the high end of the updated revenue guidance assume Line 1 comes back online at Thornhill? - Olivia Tong (Raymond James)

2026Q3: The company feels confident in the Q4 acceleration as all branded segments are growing. ... Increased A&P spend in Q4, strong brand momentum ... and improved commercial capabilities support the outlook. - [Rod Little](CEO), [Fran Weissman](CFO)

Contradiction Point 2

Gross Margin Drivers and Timeline

Conflicting signals on margin improvement pace and underlying drivers.

Christopher Suther (Truist) - Christopher Suther (Truist)

2026Q3: Overall, these initiatives aim for over 72 points of adjusted gross margin improvement in 12 months, assuming plan execution and volume targets. - [John Mahas](COO)

Can you provide more detail on the material cost and project drivers contributing to the gross margin improvement plan, specifically regarding cost-out initiatives, Don OS, and third-party labor? - Olivia Tong (Raymond James)

2026Q2: The Q4 FY26 gross margin step-up includes one-time items from last year that will not repeat, leading to a more normalized run-rate. - [Rod Little](CEO)

Contradiction Point 3

Customer Concentration & Diversification Strategy

Contradiction on the primary goal for managing the project backlog and customer base.

Stephen Gangaro (Stifel) - Stephen Gangaro (Stifel)

2026Q3: The goal is to grow the overall backlog pie (currently ~$807M) rather than just changing its composition. - [Joe Mastrangelo](CEO)

How concentrated was customer revenue and backlog in Q2, and what strategies are planned for diversifying the customer base moving forward? - Stephen Gangaro (Stifel)

2026Q3: The company is actively managing a blend of projects: ... The goal is to grow the overall backlog pie ... Recent wins ... are expanding the customer base and geographic reach. - [Joe Mastrangelo](CEO)

Contradiction Point 4

Timeline for Operational Ramp at Thornhill

Conflicting statements on when full production capacity at Thornhill will be achieved.

Christopher Suther (Truist) - Christopher Suther (Truist)

2026Q3: The high end (350M) is achieved by fully ramping Thornhill to 24/7 operation by the end of Q4 2026. - [Joe Mastrangelo](CEO) and [John Mahas](COO)

Does the high end of the updated revenue guidance assume Line 1 comes back online at Thornhill? - Peter Grom (UBS Investment Bank)

2026Q1: The expected sales ramp is driven by improved share performance relative to category... Executional progress in Q3/Q4 will lay the foundation for renewed growth. - [Rod Little](CEO)

Contradiction Point 5

Profitability Timeline for FPUSA Projects

Inconsistency regarding when projects from the Frontier Power USA joint venture will become operational and profitable.

Stephen Gangaro (Stifel) - Stephen Gangaro (Stifel)

2026Q3: Initial projects under FPUSA are expected to come online in the second half of 2027. - [Joe Mastrangelo](CEO)

"When do you expect FPUSA to become profitable and when will you start realizing profits from your ownership stake?" - Christopher Carey (Wells Fargo Securities)

2026Q1: The company is focused on executing projects for attractive returns and building a pool of assets for future monetization. - [Joe Mastrangelo](CEO) (Implied focus on future monetization without specific timeline)