NASDAQ:FLNC Fluence Energy Q1 2024 Earnings Report $8.55 +0.07 (+0.83%) Closing price 04:00 PM EasternExtended Trading$8.38 -0.18 (-2.05%) As of 06:15 PM Eastern Extended trading is trading that happens on electronic markets outside of regular trading hours. This is a fair market value extended hours price provided by Polygon.io. Learn more. ProfileEarnings HistoryForecast Fluence Energy EPS ResultsActual EPS-$0.14Consensus EPS -$0.13Beat/MissMissed by -$0.01One Year Ago EPS-$0.21Fluence Energy Revenue ResultsActual Revenue$363.96 millionExpected Revenue$403.93 millionBeat/MissMissed by -$39.97 millionYoY Revenue Growth+17.20%Fluence Energy Announcement DetailsQuarterQ1 2024Date2/7/2024TimeAfter Market ClosesConference Call DateThursday, February 8, 2024Conference Call Time8:30AM ETUpcoming EarningsFluence Energy's Q3 2025 earnings is scheduled for Monday, August 11, 2025, with a conference call scheduled on Tuesday, August 12, 2025 at 8:30 AM ET. Check back for transcripts, audio, and key financial metrics as they become available.Conference Call ResourcesConference Call AudioConference Call TranscriptSlide DeckPress Release (8-K)Quarterly Report (10-Q)Earnings HistoryCompany ProfileSlide DeckFull Screen Slide DeckPowered by Fluence Energy Q1 2024 Earnings Call TranscriptProvided by QuartrFebruary 8, 2024 ShareLink copied to clipboard.Key Takeaways In Q1, Fluence generated $364 Million in revenue with a 10.5% adjusted gross margin, marking its second consecutive quarter of double-digit margins. The company secured a record $1.1 Billion of new orders, lifting its backlog to $3.7 Billion and pipeline to $13.4 Billion, all at fixed battery prices. Fluence’s service and digital businesses grew its annual recurring revenue to $64 Million, on track for the $80 Million FY24 target with 3.3 GW of service assets and 17 GW of digital capacity under management. Battery module manufacturing is set to begin in the U.S. this summer to meet domestic content requirements and qualify for up to $10/kWh production tax credits under Section 45X of the IRA. A legal claim over the Diablo project in California could expose Fluence to up to $37 Million in damages, though the company disputes the allegations and the project has maintained high uptime. AI Generated. May Contain Errors.Conference Call Audio Live Call not available Earnings Conference CallFluence Energy Q1 202400:00 / 00:00Speed:1x1.25x1.5x2xThere are 12 speakers on the call. Operator00:00:00Good day and thank you for standing by. Welcome to the Fluence Energy First Quarter 20 24 Earnings Conference Call. At this time, all participants are in a listen only mode. After the Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Lex May, Vice President, Finance and Investor Relations. Operator00:00:32Please go ahead. Speaker 100:00:40Thank you. Good morning, and welcome to Fluence Energy's 1st Quarter 2024 Earnings Conference Call. A copy of our earnings presentation, press release and supplementary metric sheet covering financial results, Along with supporting statements and schedules, including reconciliations and disclosures regarding non GAAP financial measures are posted on the Investor Relations section of our website at fluentenergy.com. Joining me on this morning's call are Julian Nobreda, our President and Chief Executive Officer Ahmed Pasha, our Chief Financial Officer and Rebecca Bole, our Chief Products Officer. During the course of this call, Fluent's management may make certain forward looking statements regarding various matters relating to our business and company that are not historical facts. Speaker 100:01:30Such statements are based upon the current expectations and certain assumptions and are, therefore, subject to certain risks and uncertainties. Many factors could cause actual results to differ materially. Please refer to our SEC filings for our forward looking statements and for more information regarding certain risks and uncertainties that could impact our future results. You are cautioned to not place undue reliance on these forward looking statements, which speak only as of today. Also, Please note that the company undertakes no duty to update or revise forward looking statements for new information. Speaker 100:02:09This call will also reference non GAAP measures that we view as important in assessing the performance of our business. A reconciliation of these non GAAP measures to the most comparable GAAP measure is available in our earnings materials on the company's Investor Relations website. Following our prepared comments, we will conduct a question and answer session with our team. During this time, to give more participants an opportunity to speak on this call, Thank you very much. I'll now turn the call over to Julian. Speaker 200:02:46Thank you, Lex. I would like to send our welcome to our investors, analysts and employees participating on today's call. I will provide a brief update on our business and then review progress on our strategic objectives. Ahmed will then give more details on our financial performance outlook. Beginning on Slide 4 with the key highlights. Speaker 200:03:09I'm pleased to report that we are off to a good start for fiscal 2024 and continue to benefit from our robust energy storage market. In the Q1, we recognized $364,000,000 of revenue. Furthermore, we delivered our 2nd consecutive quarter of double digit gross margin. Our adjusted EBITDA for the Q1 was approximately negative $18,000,000 in line with our expectations and improving from negative $26,000,000 in the 1st Q of 2023. Additionally, we recognized a record $1,100,000,000 of new orders. Speaker 200:03:49This is broken down by our solution business contracted 2.7 gigawatt hours, Our services business adding 2.3 gigawatt hours and our digital business adding 400 megawatt hours of new contracts. Furthermore, our signed contract backlog as of December 31 increased $800,000,000 to $3,700,000,000 the highest level in our history. Additionally, our pipeline increased $400,000,000 to $13,400,000,000 which gives us confidence to achieve our growth goals in 2024 and beyond. Our service and digital businesses, which together represent our recurring revenue streams continue to gain traction. We ended the quarter with 3.3 gigawatts of service assets under management. Speaker 200:04:41Importantly, our deployed service attachment rate, which is based on our community backed services contracts relative to our deployed storage remains above 90%. We had a strong quarter in our digital business, adding 400 Megawatts to our backlog. More importantly, our digital assets under management increased to 17 Gigawatts as of December 31 from 15.5 Gigawatts at September 30. In summary, Our combined services and digital annual recurring revenue or ARR was approximately $64,000,000 as of December 31 and is on track for our guidance of approximately $80,000,000 by the end of fiscal year 2024. Turning to Slide 5. Speaker 200:05:31I'd like to discuss our progress on the 5 strategic objectives that guide our decisions and actions. There are also important markers for investors to monitor and measure our performance. 1st, on delivering profitable growth. This quarter, we continue to grow our backlog as we added $1,100,000,000 of projects that we expect to yield double digit gross margin. Our disciplined approach to offer competitive solutions to customers keeps us on track to deliver on our financial objectives. Speaker 200:06:042nd, we will continue to develop products and solutions that our customers need. As such, I'm pleased to report that we are on track for our battery module manufacturing to begin production in the summer of 2024, gradually ramping up over the subsequent quarters. This battery module manufacturing will enable us to provide a product that meets the U. S. Domestic content requirements for battery and e storage, which I will touch on more in a moment. Speaker 200:06:353rd, to our scale and global outreach, we have established supply chain as one of our key strategic competitive advantage. Our diversity of suppliers is a key component of this and enables us to take advantage of favorable terms and battery prices, which I will discuss in more detail shortly. 4th, we will use Fluent Digital as a competitive differentiator and a margin driver. I'm pleased to report that we have strong digital customer retention with 21 digital contracts renewed during the quarter and 0 customer attrition. And our 5th objective is to work better. Speaker 200:07:14I'm proud to state that in November, Fluids became an official signatory member of the UN Global Compact, ahead of the expected timeline outlined in our 2023 Sustainability Report. Turning to Slide 6. We continue to see strong growth in demand for utility scale and eStore Systems. Over the past 12 months, we've seen lithium carbonate prices decline over 80%. This has in turn led to a decrease in battery prices, which has improved customer economics and allowed for more projects to be penciled in. Speaker 200:07:53It has been reflected in the growth of our backlog, which now sits at a record level of $3,700,000,000 which is an increase of approximately $800,000,000 from the 4th quarter. This is also the 9th consecutive quarter in which we added more order intake to backlog than revenue that was recognized out of backlog, further illustrating the growth in demand. Additionally, this $3,700,000,000 does not include some awards signed since the end of the quarter, such as our 6 50 Megawatt Hour Moores Lake project in Australia. More importantly, 100% of our backlog is at fixed battery prices with both suppliers and customers with no commodity prices portion, thus giving us strong visibility into revenue and margin for these projects. Additionally, approximately 80% of our fiscal 24 revenue guidance midpoint is already covered by our current backlog attributable to fiscal 2024 plus revenue already recognizing the Q1. Speaker 200:08:58These two data points provide us with high confidence that we will be able to achieve our guidance ranges for revenue and adjusted EBITDA for fiscal 2024. Based on the conversations we're having with our customers and potential customers, we're expecting to see continued strong revenue growth in fiscal 2025 of approximately $35,000,000 to $40,000,000 from fiscal 2024. Our 2025 outlook is supported by our pipeline, which sits at approximately $13,400,000,000 and grew $400,000,000 from the last quarter. As we have communicated in prior calls, our expectations for pipeline conversion is at approximately 50% over the next 24 months. Turning to Slide 7. Speaker 200:09:45Over the past couple of years, we have taken major steps to diversify and improve the resilience of our supply chains. Our supply chain strategy is centered around 4 key elements. The first is diversity of battery suppliers. Coriant will utilize 5 battery suppliers located in China, South Korea, Sweden and the United States. This ensures we have multiple geographies to pull from, which support our growth while mitigating disruptions. Speaker 200:10:17We will also note that building a stable and reliable U. S. Supply chain is critical for the industry. And as I will discuss, We are taking significant steps to establish a U. S.-based supply chain this year. Speaker 200:10:332nd, To capitalize on growing demand for Aprove, we have secured multi year guarantee battery capacity from these suppliers. This cover our need for fiscal 2024 and fiscal 2025 and provides flexibility for upside in demand. These capacity agreements are subject to market price adjustments. Additionally, we also use a price discovery mechanism involving multiple battery suppliers to ensure we are constantly delivering the most competitive prices to our customers. And finally, these capacity agreements come with minimal take or pay obligations. Speaker 200:11:133rd, to capture the incentives laid out by the IRA, We will be manufacturing our own battery models in the U. S, which represents 2 thirds of our global business. It also enables us to introduce our proprietary battery management system, the software that runs the controls at the battery cell level and the initial point of control in a battery storage system. Additionally, it enables us to further commoditize our supply chains by facilitating the integration of multiple battery vendors. We are currently on schedule for our battery module Manufacturing to begin this summer. Speaker 200:11:52In doing so, we expect to qualify for the domestic content tax credit under Section 45X. The 4th element of our strategy is an asset light regional supply chain. This involve using 2 major contract manufacturers for system integration, 1 in Vietnam and 1 in Utah. We will look to continue to regionalize our asset light model in other areas, such as Europe and India. This strategy provides us with enhanced flexibility and agility, particularly in scaling and positions Fluent for a high return on invested capital as we do not incur the capital costs associated with building or maintaining our own production facilities. Speaker 200:12:36When we look around the world, we're using various shipping routes for our projects. To that end, I would like to make a few comments in relation to the recent disruptions in the Red Sea. Only approximately 50% of our global shipments We're expected to use the Red Sea route. The rerouting of these shipments adds around 2 weeks to our shipping schedule, that we have been able to accommodate without affecting customer delivery commitments. Finally, the incremental cost we're experiencing in shipping, We're able to transfer to our customers in their entirety in accordance with our contracts. Speaker 200:13:14In any event, our logistic team is working very to reduce as much as possible these increases in costs. Overall, these four elements are the cornerstone of our supply chain strategy, which provides flexibility, competitiveness and high certainty for our customers. We will look to build on this as we continue to strengthen our global supply chain. Turning to Slide 8. We're well positioned to recognize multiple benefits from the IRA, which is already boosting demand for energy storage. Speaker 200:13:50These benefits fall in 2 categories. Under the first category, our customers have the potential to receive up to a 50% tax credit for their projects capital costs, which significantly improves project economics and attractiveness. These incentives to our customers include a base ITC or investment tax rate as well as bonus incentive for deploying in an energy community and using domestic content. The 2nd category of incentives under the IRA includes those provisions that directly benefit Fluence. By producing battery modules in the U. Speaker 200:14:30S, as I just discussed, we expect to qualify for our production tax credit of $10 per kilowatt hour of battery modules produced under Section 45X. These two categories of incentives provide for our products to be more competitive and enables us to benefit from increased scale, more volumes and operating leverage. Turning to Slide 9. I'm proud to report that in November Fluence became an official signatory member of the United Nations Global Compact. Being accepted as a signatory member is an important step on our sustainability journey of building a strong ESG program based on a structured framework, data and active engagement. Speaker 200:15:14Fluent has joined more than 20,000 companies and organizations around the world that has signed the UN Global Compact and are committed to responsible corporate citizenship and sustainability. We are excited to collaborate with like minded companies, non governmental organizations and other stakeholders through the global company network to exchange best practices and drive positive change. Now I would like to make a few remarks regarding the article published in late December regarding the Diablo project in California that highlighted a contract claim filed against us by the project owner, alleging that we did not have a valid construction license in California. This contract claim was filed in response to our claim for $37,000,000 in non pay amounts and related damages. As we have said already, we believe these contract claims are without merit. Speaker 200:16:15We intend to get paid for our work on the project. The legal proceedings are ongoing. In the meantime, wanted to highlight that the Diablo project is performing very well and has delivered availability or uptime above contract of requirement during 2023. Speaker 300:16:34In conclusion, Speaker 200:16:35I'm pleased with the achievements of the Q1. Although we are mindful there is still work to be done, we will look to continue this momentum as we progress through 2024. I will now turn the call over to Amit. Speaker 300:16:52Thank you, Julian, and good morning, everyone. Before we dive into the results, I am very pleased to be here at Fluence and I would like to share my perspective on my 1st month at Fluence. On a macro level, Fluence is well positioned to capitalize on this once in a lifetime opportunity as energy storage benefits from declining input prices and an ever increasing focus on good stability. I have learned much about the company, the people and the culture. I have been impressed by the team's laser focus on offering competitive solutions to customers while adhering to a disciplined approach to growing our top and bottom lines. Speaker 300:17:35I'm looking forward to maintaining this financial discipline and stewardship of our strong balance sheet while delivering attractive returns to our shareholders. This morning, I will review our Q1 results and 2024 guidance, which we have reaffirmed across all metrics. Beginning with our Q1 2024 results on Slide 11. We generated 3 $164,000,000 in revenue, 70% of which was in the first in the U. S. Speaker 300:18:10And largely in line with our expectations. This was an increase of 17% from the Q1 last year. As we discussed on our previous quarterly call, we expect to realize 30% of fiscal 2024 revenue in the first half and our first quarter results reflect this mix. Turning to adjusted gross profit. For the quarter, we generated approximately $38,000,000 or an adjusted gross margin of approximately 10.5 versus 4.2% in the Q1 of last year. Speaker 300:18:46It also represents the 2nd consecutive quarter in which we posted double digit gross margins. Our operating expenses were $62,000,000 in line with expectations and consistent with the Q1 of last year representing 17% of the quarterly revenue. Adjusted EBITDA for the quarter was negative $18,000,000 versus negative $26,000,000 in the Q1 of last year. Negative adjusted EBITDA reflects our revenue weighting towards the second half and operating costs that are relatively flat on a quarterly basis as I just discussed. Overall, we believe these results reflect our disciplined approach to grow our top line and improve our bottom line to deliver on our financial commitments. Speaker 300:19:40So turning to Slide 12, I am pleased to report that we ended the Q1 with $477,000,000 of cash. This represents an increase of $14,000,000 from the Q4 and is the 3rd consecutive quarter that we increased our total cash position. From a liquidity perspective, we are in excellent position to capitalize on the growing energy storage market. In addition to our cash position, we have access to approximately $130,000,000 in credit facilities. This includes $75,000,000 available under our recently signed $400,000,000 asset backed lending facility or ABL facility. Speaker 300:20:24Availability in this ABL facility is dependent on the level of collateral available to secure, which is mostly our U. S. Inventory. Thus, as our inventory balance increases, so should our borrowing capacity, which provides us another lever to manage our working capital needs. In summary, we have total liquidity of more than $600,000,000 which is sufficient to meet our current business needs. Speaker 300:20:53Moving to Slide 13, as Julian noted, we are reaffirming our guidance for fiscal 2024 of revenue between $2,700,000,000 $3,300,000,000 To that end, We have approximately 80% of the midpoint of our annual revenue guidance covered by our backlog plus revenue recognized in the Q1. This provides us confidence that we are on the path to achieving our fiscal 2024 guidance range. From margin perspective, we continue to anticipate fiscal 2024 adjusted gross margins of between 10% 12%, which is in line with our first quarter results. Additionally, we are reaffirming adjusted EBITDA guidance of $50,000,000 to $80,000,000 Furthermore, We are on track to achieving ARR of approximately $80,000,000 by the end of fiscal 2024. I would also remind that we continue to expect fiscal 2024 revenue split of 30% in the first half and 70% in the second half, which implies fiscal Q2 revenue of approximately $530,000,000 For Q2, we expect adjusted EBITDA to be negative because annual operating costs have a more even rating by quarter than revenue. Speaker 300:22:27Consistent with our full year guidance, we expect second half twenty twenty four adjusted EBITDA to improve significantly relative to the first half as we realized 70% of annual revenue during that time period. Finally, looking ahead to 2025, we continue to believe that we will achieve 35% to 40% year over year top line revenue growth driven by our robust pipeline and record backlog of signed contracts. With that, let me turn the call back to Julian for his closing remarks. Speaker 200:23:06Thank you, Ahmed. Turning to Slide 14 and in conclusion, I want to emphasize the key takeaways from this quarter results. First, we had a record setting order intake and a record backlog of 3,700,000,000 We have locked in battery supply that fits prices for all our projects in our backlog, thus providing us strong visibility to achieving our guidance. 2nd, we have a sustainable and resilient supply chain that is a key component of our competitiveness. Sir, we are on track to begin our module manufacturing this summer. Speaker 200:23:43Together with our customers, we believe we are in a prime position to capitalize on various incentives under the IRA. 4th, the falling battery price environment serves as a tailwind for us and it allows more energy storage projects to be penciled in by our customers. All of these factors provide us confidence in our ability to successfully deliver on our fiscal 2024 and 2025 objectives. This concludes My prepared remarks, operator, we're now ready to take questions. Operator00:24:16Thank And our first question comes from the line of George Canariqis with Canaccord Genuity. Your line is open. Please go ahead. Speaker 200:24:44Good morning, George. How are you? Speaker 400:24:46Good morning. I'm doing great. How about Speaker 500:24:49you? Great. Speaker 600:24:52Thanks for Speaker 700:24:52taking my question. Speaker 400:24:55So maybe just first, I'd like to ask about the orders, the $1,100,000,000 in orders. Can you help us understand Sort of the geographic profile? And also, are those orders consistent with your gross margin profile of mid teens over the long term? Speaker 200:25:13Yes. The geographic profile is in line with what we have said, 2 thirds in the U. S. And 1 third internationally. And they are double digit margins for those for that order intake, so in line with what we have communicated to the market. Speaker 400:25:32And then just as a follow-up here, as you look at the M and A landscape, we Talked about Vartilla in the past, they're still undergoing their strategic review. Do you feel compelled at all to change the profile of You have a nice cash balance. And if you look across the landscape, are you looking to potentially expand footprints For your software profile by making acquisitions? Thank you. Speaker 200:25:58No. Yes, we have said, We're very happy with our corporate business position in terms of strong very, very strong sales channel, and you can see it not only in our backlog, but also in our pipeline. Our technology, we have a very clear roadmap is going well and we're very happy with. And so generally, I don't see any need for acquisitions at this stage. We're not looking at any. Speaker 300:26:28We're clearly in the market Speaker 200:26:31ensuring to understand what the how the environment looks, but there's no need to any acquisitions in any of to support any of our business structure at this stage. Speaker 700:26:46Thank you. Operator00:26:49Thank you. And one moment as we move on to our next question. And our next question is going to come from the line of Brian Lee with Goldman Sachs. Your line is open. Please go ahead. Speaker 200:27:03Hey, good morning, Brian. Speaker 800:27:05Hey, Julian. Good morning. Good morning, everyone. Thanks for taking the questions. I had 2 sort of numbers related one. Speaker 800:27:13First on Legacy backlog, I think entering the year, you guys have talked about something like $150,000,000 of still low margin, no margin legacy backlog you needed to work off this year and I believe most of it was going to get deployed in Q1. So if that's right, It implies the gross margins on the non legacy business was mid to the high teens or something in that range since you reported 10.5 percent for the quarter. So I guess wondering if that's right, if the backlog legacy is all gone and then how do you how should we be thinking about gross margin rest of the year given the implicit higher level for the non legacy stuff, it seems like the 10% to 12% annual guide for gross margin seems a Okay, conservative. And then I had a follow-up. Speaker 200:28:01Yes. All the legacy has is now gone. Well, the actual number for the Q1 of the legacy contracts that we had in the or that we recognized revenue in the Q1, closer to $50,000,000 not $150,000,000 So I'll give you I think that we are in line with our 10% to 12 The margins that we communicated for the year and this quarter proves that if you take into account The $50,000,000 of legacy contract, which are essentially roughly breakeven. So But you're at no more legacy going forward and the actual number for this quarter was $50,000,000 Speaker 800:28:44Okay, okay. That's fair. Then if I take the 50, it seems like you're sort of closer to the mid teens, but still within that range. Understood. And then there's been a lot of questions, Uli, about lower battery price As we see what's happening with lithium carbonate, I think you made a comment on Slide 12 or 13 that Your fiscal 'twenty four battery supply and prices are locked in. Speaker 800:29:14So does that mean I know there's the index based adjustments for your customers. Is there anything in your, I guess, fiscal 'twenty four backlog to be deployed that can still get adjusted on price or is that all for future Outside of fiscal 'twenty four backlog that maybe still has some of those indexed linked adjustments that could take place. I'm just trying to understand how locked and loaded the backlog dollar value is for this year versus what potentially could maybe move around next year if battery prices keep going lower. Speaker 200:29:53Yes. Good. So let me walk you through where we are. So we use RMI as you know. So that's part that's an important part of how we manage our risk. Speaker 200:30:03The RMI supports our projects from the time we start negotiating with our customers to the point when we issue the purchase order, when we buy the batteries and we make a down payment to our battery suppliers and get an actual commitment from the battery suppliers. So what do we have in our backlog today? So what we have said, what we have in our backlog is that we had fixed All our battery prices in all our backlog, all of it, the $3,800,000,000 we already fixed it with our suppliers and with our customers. So our current backlog does not have any commodity risk on either direction, any exposure to the suppliers moving up or down or the customer moving up or down. That means that for 2024, As we have said also, 80% of our revenue for 2024 is already in our backlog. Speaker 200:30:56So that 80% is very much already fixed and battery prices will not move that 80%. However, we have 20% to go, 20% that will be subject to contracts that are in very late stage of negotiation that will be coming in the next couple of months And where the current offers we have outside or what we are negotiating with our customers is based on current price. So we feel very, very comfortable that and secure that we will meet our guidance for the year. And then that gives us $25,000,000,000 that gives you $25,000,000 in front of us. And we have roughly $1,500,000,000 of revenue of $25,000,000 already in our backlog. Speaker 200:31:43That billion so roughly 40% of next year's implied guidance we have given you. That is already in our backlog and is already also fixed. So when you looked at if you looked at it from the upside, 80% already in the backlog fixed, 20% subject to new contracts, which are already very late stage on negotiations. We feel very confident, which reflect current battery prices. And we feel very confident. Speaker 200:32:13And as I said, We feel very, very confident that we'll meet our numbers. We are negotiating the numbers. We're talking to our customers. We know where we are. Those will support our 'twenty four Revenue guidance. Speaker 200:32:25And then for 25%, we're still clearly working on this. 40% is already in the books. The 60% to go, when we looked at and then you can say, well, how do you feel confident about it? Looked at our pipeline. If you look at our pipeline, I'm sorry for the long answer maybe. Speaker 200:32:44If you look at our pipeline, we grew our pipeline by 400,000,000 Well, that means that the $1,100,000,000 we converted from our pipeline to backlog, we also cover. So in reality, our pipe we brought in into our pipeline at current prices $1,500,000,000 of new contract. So it gives us very, very clear in 1 quarter that the demand we're seeing in the market, the interest that is coming to this day, How much investors, customers, regulators feel comfortable with our technology makes us very confident that we will meet the our commitments for 2024 and 2025. And I do understand that sometimes the financial markets are concerned about the potential downward pressure on revenue of battery prices. But maybe We've been working this is a tremendous headwind for this industry. Speaker 200:33:44The elasticity of the money is tremendous and that provides for a significant uptick in demand that significantly covers the potential downside of our that revenue prices are. So very, very confident on 24%, 80% on it, already fixed, Clear line of sight within touring range, let's use Army concept And for 24% for the other 20% and 25.40% in the book, 60% to go and with the remainder of pipeline coming in that we feel that will More than covered all the problems, you know, on our tablets. Speaker 800:34:25Alright. That's great. I appreciate all that. Speaker 200:34:28Sorry for the very long answer, Ryan. Speaker 800:34:31Now crystal clear, I think I got the message crystal clear. Thanks a lot guys. Appreciate it. Speaker 200:34:35Thank you, Ryan. Operator00:34:37Thank you. And one moment as we move on to our next question. And our next question is going to come from the line of Christine Cho with Barclays, your line is open. Please go ahead. Speaker 200:34:52Good morning, Christine. Speaker 600:34:53Good morning. Thank you for taking the question. I just wanted a clarification question on the As I understood it, if the customer had not issued notice to proceed, but had booked, that was still subject to move. And it sounded like you locked everything in as for the backlog that as it stands today. But as you get incremental bookings, should we think that on a go forward basis, all of that will be locked in when it enters your backlog as well or same thing, it's subject to move until they issue notice to Speaker 200:35:29Very good point. As I said, the RMI covers from the point we start negotiating with the customer to the point that the purchase order is issued, which is usually at the point of notice to proceed. So The new order intake that we will get, there will be a point between the moment we signed the contract to the point we issue the notice to proceed that where that potential risk is. However, what we have seen and what we cannot show you this time is that, that time frame has collapsed significantly. And that we are now issuing or dis supersede very close in most cases, very close to the point at which we We're signing the contract. Speaker 200:36:13So I will say that generally the risk for IMI in our backlog will continue to be a small number as we move forward. There might be 1 or 2 projects that come in where the customer wants to wait a little bit and maybe that will happen. But in general, I think most of the Contracts were signed in the customers wants to secure batteries immediately, take advantage of the good price and move forward. Speaker 600:36:39Okay, got it. And then can you give us an idea of how much of your backlog has EPC services tied to it, maybe percentage of contracted volumes. And as demand goes up, should we think that this number, this percentage number moves up, down, consistent incremental bookings. And sorry, how different are the ASPs and margins today for new orders if you provide the EPC versus not? Speaker 200:37:09The EPC are roughly around 30%. A lot of and it's very much market and project Dependent. So we have to give you a sense, all our transmission projects, our ultra stacked projects have EPC, Very complex projects that require significant coordination between all the elements, so those are EPCs. So Australia is a market for EPC. The U. Speaker 200:37:39S. Is less. So it depends a little bit where what how they where we're working. As we see, We clearly are working on improving, continue moving forward in our UltraStax project. Australia is a market that we're very excited with. Speaker 200:37:53You might see that those as we bring more Australia and UltraStax projects, those will be EPC. But generally, if you want to model this going forward, I think the 30% is a good proxy for it. As I said, it depends a little bit on the complexity of the projects and the markets we're working on. Going for and in terms of returns, I think they're within the 10% to 15 percent, there was no change clearly. The more complex projects where we take more risk are closer to the upper band, as we have always said, and the ones that are simpler and less of a problem the lower side of that band, but and generally, you will say that most of the EPC projects are more complex, but I wouldn't Necessarily it doesn't take us out of the range of 10% to 15%. Speaker 600:38:43Got it. Thank you. Speaker 200:38:46Thank you. Operator00:38:48Thank you. And one moment as we move on to our next question. Our next question comes from the line of Justin Clare with ROTH MKM. Your line is open. Please go ahead. Speaker 400:39:02Hey, Justin. Hey, Justin. Speaker 200:39:02Hey, Justin. Hey, Justin. Speaker 100:39:02Good morning. Thanks for taking our questions here. So first, I wanted to ask about the demand that you're seeing for batteries that would meet the domestic content requirements. And have you signed contracts at this point for those domestic batteries. And then is it possible to give us a sense for what the uplift in pricing might be? Speaker 100:39:27And then Do you see potential for a margin uplift, given that you're going to be one of the first to supply domestically produced batteries. Could you get out of that 10% to 15% range? Speaker 200:39:42Yes. A strong demand. I'll say that Not only with our current customers, we're also attracting new customers that have are talking to John, our Americas CEO or President who's really we see a lot of people interested and understanding and getting in. So that's the first thing, Very strong demand. In terms of margins, so we have said that kind of what you implied, We believe we have a 1st mover advantage here and that, that 1st mover advantage will allow us to capture some additional margin. Speaker 200:40:18However, This is early in the game. We're still negotiating with our customers. We have to wait. If I tell you here the number, My customers will use it against me. So we are working with our customers to ensure that they can meet the higher returns and then we can capture some additional margin because they're doing much better than anybody else on those projects. Speaker 200:40:41And that's what we're working with them on. And As these things settle down and we see those projects, those contracts coming in and our customers Secure about the returns they're getting. I think we will communicate to you what potential upside we might get. But for now, I prefer not to talk about it. And then up to date, we have not signed any domestic content contracts even though they are very in very late stage. Speaker 200:41:09Just to give you a point, which I think is important, the domestic content projects are 2025 revenue. They're not going to be Supporting 24 revenue, our supply our module manufacturer starts in the summer and then it will pick up during the quarter and we will start receiving domestic manufactured batteries in the last quarter of this year, but we need to integrate them and then move them into deliver to our customers. So we won't see any revenue in this year from domestic content. Speaker 100:41:47Got it. Okay. And then just following up on that, just wondering how much of your Utah manufacturing capacity could be supplied with domestically produced cells given your agreement with AESC. Could you fully utilize that facility to produce domestic content or domestic cells that meet the requirements, how are you thinking about Speaker 200:42:14That's the idea that we will have we could freely utilize our current capacity. And as you I think we have communicated to you That capacity can be easily double if we need to. So Speaker 500:42:31Got it. Okay. Thank you. Speaker 200:42:33Thank you very much. Operator00:42:34Thank you. And one moment as we move on to our next question. And our next question is going to come from the line of Andrew Percoco with Morgan Stanley. Your line is open. Please go ahead. Speaker 200:42:48Hey, Andrew. Good morning. Hey, Speaker 900:42:50good morning. Thanks so much for taking the question. I did just want to go back to some of your commentary on the Red Sea. Sounds like you haven't seen an impact to margins from the freight rates yet. But I'm just curious, do all of your contracts kind of exposed the Red Sea have freight adjusters? Speaker 900:43:06Or could there be some potential margin risk if freight rates don't come back down? Speaker 200:43:12All our contracts, Irrespective of going through the Red Sea or any other route, freight adjustments, logistic adjustments. So there are all these costs are passed on. So we should not see any effect on our margins coming out of the Red Sea issues. Speaker 900:43:33Okay. That's super helpful. And then my second question is a little bit more thematic, but there's been a lot of And paid to AI data center power needs and it's a big theme right now. And I think the view is energy storage is a pretty critical component when thinking about powering that load with reliable clean electricity. So can you maybe just provide some insights into your conversations that you're having with maybe of these customers and what the time line might look like for Fluence for this opportunity? Speaker 500:44:01I mean, yes, this is Speaker 200:44:02something we have looked at. We work with Google on a project. However, to be very sincere today, we're so busy with the utility scale projects and that We are not we haven't really worked a lot on it recently. But we did have a project. We to test it with them. Speaker 200:44:23It went well. And but it's something that we have not actually in the recent quarters, something that we have not worked Got it. But it's one of those opportunities where going to the point on battery cost reductions where This lowering of prices will start making these projects very attractive. It makes it a lot more attractive than what they were when we looked at it, I think, roughly a year So I think this is kind of the type of things that when we talked about On demand elasticity, sorry for that, that you that comes And it becomes is one off. You know, you've pointed price to set a point and turn you turn the lights on and all this demand comes in, those things. Speaker 200:45:12And that's Kind of my point to all of you on the tremendous head with tremendous, tremendous tailwind of battery prices In our technology and how business cases start Sargeting means Sargeting and it become very, very attractive. Speaker 900:45:33Got it. That's helpful. And I guess maybe just one more follow-up on that. When you had that pilot project or you did that demonstration with Google, was there anything on the software side or battery chemistry side that they were looking for be changed versus your traditional utility customer? Speaker 600:45:50This is Rebecca. On the Battery side, no, the chemistry is the same. The physical delivery of the product was the same based on the size of what we're delivering for Google. There were some changes on the software side for the application space that that was working in. Speaker 900:46:06Thank you. Operator00:46:09Thank you. And one moment as we move on to our next question. And our next question is going to come from the line of Julien Dumoulin Smith with Bank of America. Your line is open. Please go ahead. Speaker 500:46:24Hey, good morning, Huyen, team, Amit, congrats again, pleasure. Hey, guys, just Good morning. Just coming back to the top of the Q and A roster here. On the gross margin piece, I just want to come back to this a little bit. I mean, You guys obviously have this 10% to 15% and then 10% to 12% here in the near term. Speaker 500:46:42Starting off the year the way that you did with revenues really poised to scale through the year, Again, I get this not an OpEx operating leverage piece here, but I mean to what extent can we expand expect those gross margins to scale as revenues and the size of these projects conceivably continue to expand into the bulk of the year here. I mean, is there an argument to be trending Higher within even that 10% to 12% range? Speaker 300:47:06No, I think our guidance Julian, thanks for your comments. Hi, compliments. I think in terms of the gross margin, I think our guidance was 10% to 12%. I think we feel pretty good about that range going through rest of the year. So I think it will be north of where we had realized in the Q1, but I think We feel pretty good there, we will end up in terms of our range for the full year. Speaker 500:47:36Got it. And then, Julian, you mentioned this earlier on the domestic contents, your ability to potentially, I think you said something like double AEC contributions here potentially if need be. I mean, just looking at the trade backdrop here, can you comment a little bit about like what the back what's your ability to pivot is Pending on any future shift in trade policy landscape here, I'm really curious about your ability to shift even more so back to domestic product, especially If the ESS market demands it, what is your ability to bring that to market as you think about providing further disclosures to the year in scaling up, if you will? Speaker 200:48:11Yes. I mean, this is a 25 issue more than 24. As you know, this line will come back will come online or these Sales were coming up online. We are working with our suppliers to ensure that we have access to their additional demand, to additional production capabilities and have a first right of refusal on their production as we move forward. This is a multiyear contract. Speaker 200:48:40So this is what I can tell you. We haven't really disclosed the volumes and stuff that we're working with. But The way we envision this project is a long term relationship where we are able to take advantage of their increasing production as it continues moving forward. That's the way I will put it. So in case I guess your questions indirectly, Unile, maybe I'm sorry that I'm implying is that What happens is that trade issues and then this production becomes even more value. Speaker 200:49:17Well, we believe that we have put into that into consideration the way we at least for a period of time to be able to scale up if this becomes a lot more attractive than what it is today due to potential trade disruptions. Speaker 500:49:32Right. And your point is that 10% to 15% as it stands today, There is fundamentally sort of upside as you disclose what the domestic content, sort of ASP Speaker 200:49:41outlook is. That's not current view. That's right. That's according to me. We'll talk more as we move forward and we sign these contracts and the competitive environment settles. Speaker 200:49:50But essentially, just going back, it is Our customers need to feel comfortable with their business cases. We have and that they can capture more than what they usually capture and that we will capture part of what they use that upside that we're giving them. So that's kind of how all this works out. And we're working with them on that process. And as soon as that settles down in a way that we're comfortable that is the way it's going to work for a period of time, We'll communicate to the financial markets what it is. Speaker 500:50:21Excellent. Thank you, guys. Good luck. Speak to you soon. Speaker 200:50:24Thank you. Operator00:50:25Thank you. And one moment as we move on to our next question. And our next question comes from the line of Kashy Harrison with JPMorgan. Your line is open. Please go ahead. Speaker 700:50:41Thanks. This is Kashy Harrison with Piper Jaffray. Hey, Kashy. How are you? Doing well. Speaker 700:50:46Thanks. Yes. So first question is for to get to 100% shortly. But I was just wondering if you could give a sense of how of where you were at this point last year. Were you 80% booked last year as well? Speaker 700:51:07Or were you a 100% booked at this point for the prior year. And then just in general, how should we conceptually think about The amount of revenues that can be booked and captured within a year? Speaker 200:51:21Yes. So Last year, if you looked at our order what we had in the backlog last year at the end of Q1, compare against where we ended in revenue. Now where we were guiding, as you remember, we guided up over the years, so that gives a little bit of we were roughly at 90%. So 90% of our revenue for 2023 was in our backlog at this stage. So we're a little bit behind compared to last year from that point of view. Speaker 200:51:49However, looking at the late stage of development of our contracts and how we're going to How we're going to where these contracts are, we have very, very high confidence that we will be able to secure the contracts we need to meet our guidance. So yes, that's the way it is. And that's it. We feel very, very good. We have there are several contracts. Speaker 200:52:16We have they're all we're very positive in all of them, and it should allow us to be at a point that we We'll meet our guidance for the year. Speaker 300:52:27Yes, Kashy, this is Amit. And I think your second part of your question was on the profile for rest of the year. I think as I discussed in my comments, I mean, 70% of our revenue or annual revenue is in the second half And it's more back end loaded, but that is frankly all based on our current contracts that we have, which are When we execute, it's a timing when we are delivering those contracts. So it's more driven by the timing of the projects that we have in our pipeline or backlog. Speaker 700:52:57Got it. Thanks for both of those responses. And my follow-up question is just around the order intake. $1,100,000,000 clearly very impressive. If we look at last year and the prior year, it seems like your order There was some type of order seasonality where the 2nd quarter orders look about the same as the Q1, then you have like a dip into 3Q and then somewhat of a recovery into 4Q. Speaker 700:53:26Is that directionally how we should without giving super explicit order guidance. I'm just wondering if that's directionally how we should think about seasonality for orders in your business moving forward? Speaker 200:53:38I mean, if you look back, every year is very different. So I don't think there is a strong seasonality in our order intake. So that's where it moves around. Yes. So it's more of how things worked out and something that can be signed on December 15 or January It's quite nothing to do with season. Speaker 200:54:06It's more of whether people want to take vacation to give you a sense of this quarter. So I wouldn't give any don't we cannot give you a view on seasonality of product orders. Speaker 700:54:21Got it. Thank you. Operator00:54:25Thank you. And one moment for our next question. And our next question comes from the line of Mark Strouse with JPMorgan. Your line is open. Please go ahead. Speaker 1000:54:40Good morning, everybody. Thanks for taking our questions. I appreciate the color that you were giving earlier about No margin risk from changes in pricing because your contracts with your suppliers and your customers are locked in. Can you talk about the ability though of our customers to potentially cancel an order, I mean, especially if the pricing goes lower enough? And if so, can you kind of give us what your average deposits that you're collecting on those contracts? Speaker 1000:55:10And then On the other side, do you then have the ability to turn around and cancel any orders with suppliers? Speaker 200:55:17Yes. I mean, they are what we bring in our backlog are binding contracts that the Our binding contracts that the customer cannot get out with making us hold on any cancellation. Today, To this day, we have never seen a cancellation of our contract in our backlog. There's a reason for it. We are very, very strict of what comes in. Speaker 200:55:38Even though we have contracts that we have signed, which are not in our backlog until they meet the conditions to ensure that if there is a cancellation, everybody is covered. So we haven't seen a cancellation. Nobody has turned down. These projects very much are so that's never been a risk. And the contract will make it difficult for the customer to get out if they have significant financial penalties to ensure they meet and make us whole. Speaker 200:56:06But as I said, that has never happened. And your second question, sorry, on If you don't mind reminding me? Speaker 1000:56:15Well, maybe it's not a risk now, but the second question was if your customers cancelled on you, would you have the ability to cancel with your suppliers? Speaker 200:56:26I mean, we put purchase orders, we'll have penalties if we cancel with our suppliers. But as I said, our customers will more compensate for that. So that's the way we should be. Speaker 300:56:37So the only thing I would add to that is, Mark, I think our when we signed the contract, our counterparties signed the contract at the price that makes sense for them at that time. So they look into take into account the economics of the project. So I think that is what really drives their decision to continue and then they make advance payments, because we generally get anywhere from 10% to 30% advance payments. And I think those are the things and that you have to take into account. I think but overall as Julian mentioned, we have never seen any contract getting canceled for the same reasons. Speaker 1000:57:14Yes, that makes sense. Okay, thank you both. One quick follow-up, Ahmed. Speaker 800:57:20On the last Speaker 1000:57:21call, Manu gave some color about the timing of down payments to AESC. Was there any update there? I'm sorry if I missed it. Speaker 300:57:31No, nothing changed. I think we basically are on track. No, nothing to report beyond what we discussed. Speaker 1000:57:38Okay. Excellent. Thank you very much. Speaker 200:57:41Great. Thank you. Operator00:57:42Thank you. And one moment as we move on to our next question. And our next question comes from the line of Tom Curran with Seaport Research Partners. Your line is open. Please go ahead. Speaker 900:57:56Good morning. Speaker 200:57:57Hey, Tom. How are you? Speaker 1100:57:59Good. So under the EU Climate Law, the European Commission is working on an updated version of its National Energy and Climate Plans that will establish decarbonization targets for 2,040. Between an early draft that leaked into the media and then a The commission has proposed a target for the power gen mix of 90% renewables complemented by nuclear and referred to grid scale energy storage as a key element in their words for achieving that. This news following last year's adoption of accelerated permitting for The guest, the EU really is placing increasing emphasis on storage support when it comes to policy. What are you guys most excited about that either is gestating and seems to have good odds of Becoming part of law or a new rule or incentive, what are you most excited about that you have visibility on over Either this year or let's say by the end of fiscal 2025? Speaker 200:59:04I'll tell you what the things we have seen in the last Quarters clearly demand very strong. Also, I don't know if you saw the announcements, Supply change moving into Germany or into Europe, let's put it, Northwell announcing a big factory in Germany, other players announcing factors all around Europe. So our localization of supply change coming now with a better environment for it, so good that's a good sign. And then our pipeline moving very strongly, especially Germany becoming a cost to market that's very active. The UK has always been market, but then markets that have not been that active now becoming more. Speaker 200:59:45Italy came out with a 6 hour capacity payment. There are Few things happening around that makes us very, very excited. I will tell you, if you ask me what I'm excited about, all of the above, everything. I'm Excited about the fact that we have the supply chain is starting incipient, but good. The fact so that we believe in the realization supply chain, so that's great. Speaker 201:00:08And now these are a lot of more players and regulators supporting the regulators supporting it. So great. We see these Changes in Italy and in some of the Nordic countries, that's right. And then a lot of customers in Germany, in the UK that we have been working on contacting us to move forward. So Speaker 401:00:28all Speaker 201:00:28of the above, I will say, Europe is a fertile ground for battery storage. Speaker 1101:00:35That's helpful. It makes sense. And then, Ahmed, on the balance sheet, you saw a big sequential increase inventory, which more than doubled to 564,000,000 Given the steep ramp in shipment and installation activity that you're preparing for as part of recognizing roughly 70% of fiscal 'twenty four revenue over the second half, I suppose that is at least partly self explanatory, but could you just expound on that inventory surge and then give us an idea of how working capital As a source or use of CFFO should evolve quarter by quarter over fiscal 2024? Speaker 301:01:10So sure. I think in terms of yes, you're right. I think our inventory balance has increased by a couple of $100,000,000 I mean, This year, I think this quarter and that is primarily I think as we are ramping up our growth in revenue because as I discussed, I mean our revenue next Q2 will be not about $550,000,000 So that inventory balance is largely I think is will be deployed to serve our or recognize our revenue in Q2. In terms of working capital needs, I think we discussed on our Q4 call, I think in 2024, there will be I think about $100,000,000 or so of additional working capital needs. But that is part of the plan I think that we will be funding through our existing liquidity. Speaker 301:02:01So nothing changed from that perspective what we discussed in our Q4 call, feel pretty good given our liquidity is not up $600,000,000 so we can manage any short term working capital needs if we have to. Speaker 1101:02:16Great. I appreciate the insights. Operator01:02:20Thank you. And one moment. And our last question is going to come from the line of Ben Kallo with Baird. Your line is open. Please go ahead. Speaker 201:02:36Hey, thanks for fitting me in guys. Just two quick ones. First, maybe this relates to those to proceed, but could you talk about any risk in project or sales timing based on interconnection delays or shortage electricians or labor shortages? And then my second question is just your appetite for offering your software to other battery providers, whether lithium ion or other types of storage providers? Thank you. Speaker 201:03:11In terms of when you looked at our in terms of the risk of the delays is interconnection. Essentially, It is an acute problem in the U. S, less of a problem generally in the other markets. It's important to make that point. The second one is that What we have in our backlog already has the queue has been resolved. Speaker 201:03:34Our customers have a clear line of sight of when they're going to connect what they need to do 1 by 1. So there could be delays, but the delays are usually weeks because something didn't get to a sign on time or things like that. So not the delays we talked about. So generally, I would say that our backlog is the risk on transmission delays in general, except for more of a civil work step type of delays. Then you do see clearly our pipeline, Our ability to convert our pipeline into backlog, it is subject to our customers in the U. Speaker 201:04:11S. Ensuring that they can get on the queue and get those problems resolved. We just see what happened this quarter. We are not seeing a significantly when we look when we build our pipeline, we set days when we see that projects are going to be I see projects that we believe they're going to be we're going to be able find them. And we haven't seen a significant delays of that in any way affect our results or ability to meet our financial metrics. Speaker 201:04:41There are projects here that are ones that surprised you by how fast they move and ones that surprised you because they're a little late. But I would say When you put them in balance, they're generally not the same. In terms of digital solutions, I think I will have to make to we have our BMS, our operating systems, which are integral to our hardware solutions. And those are not that we're not going to sell that to anybody. We're not we don't offer to 3rd parties. Speaker 201:05:12This is ours. We use it for ourselves and it makes us different. And it's one of our competitive barriers and our competitive capacity. However, we do have our Fluence digital offering, our Mosaic offering, which is a bidding app and our Inspira offer, which is Performance Management tool. Those 2 those we do sell to 3rd party technology. Speaker 201:05:39So There are competitors of us who their owners of their technology prefers to use our bidding app and prefer to use our performance management tools rather than whatever the other competitor is But I'll say that only on those two points. On the OS and on the operating system and the BMS, it is integral to what we do, And we don't offer that to anyone else. Thank you. Operator01:06:10Thank you. And I would now like to hand back over to Julian for any further remarks. Speaker 201:06:15Great. Well, thank you so much everybody for your interest and questions. And We had a great quarter a great quarter, great order intake, revenue. We knew from that in line with what we expected, this is what kind of in line where we were going. I think an important point and something that you all brought to me last year that as a main point is The double digit gross margin, this was a main discussion during 2023 whether we were going to able to do it. Speaker 201:06:47Now we have 2 quarters Of bringing meaning double digit gross margins, I think this is a this is the basis of which as we ramp up on revenue, the basis on which we will be able to become to get rich profitability for this quarter again. So we're very confident On our 2023 or 20 24 guidance and our ability to meet our $3,000,000,000 middle of the range earnings revenue guidance And our $50,000,000 to $80,000,000 in terms of adjusted EBITDA. So very happy for what's going on. Thank you so much and talk to you.Read morePowered by Earnings DocumentsSlide DeckPress Release(8-K)Quarterly report(10-Q) Fluence Energy Earnings HeadlinesFluence and AGL sign deal to deliver the 500 MW / 2000 MWh Tomago Battery Energy Storage System in AustraliaJuly 30, 2025 | globenewswire.comFluence Energy, Inc. Announces Third Quarter 2025 Earnings Release Date, Conference Call and WebcastJuly 28, 2025 | globenewswire.comElon’s BIGGEST warning yet?Tesla's About to Prove Everyone Wrong... Again Back in 2018, when Jeff Brown told everyone to buy Tesla… The "experts" said Elon was finished and Tesla was headed for bankruptcy. 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Email Address About Fluence EnergyFluence Energy (NASDAQ:FLNC), through its subsidiaries, offers energy storage products and solution, services, and artificial intelligence enabled software-as-a-service products for renewables and storage applications in the Americas, the Asia Pacific, Europe, the Middle East, and Africa. The company sells energy storage products with integrated hardware, software, and digital intelligence. Its energy storage products include Gridstack Pro, a large-scale front-of-the-meter application; Gridstack, a front-of-the-meter application; Sunstack, a DC-coupled energy storage product for DC-coupled solar + storage projects; Edgestack, for smaller-scale commercial and industrial use cases; and Ultrastack, for critical system requirements of distribution and transmission networks. The company also provides engineering and delivery services to support the deployment of its storage products; operational and maintenance services; and digital applications. It serves independent power producers, developer, utilities, and other generators. Fluence Energy, Inc. was founded in 2018 and is headquartered in Arlington, Virginia. Fluence Energy, Inc. is a joint venture of Siemens Aktiengesellschaft and The AES Corporation.View Fluence Energy ProfileRead more More Earnings Resources from MarketBeat Earnings Tools Today's Earnings Tomorrow's Earnings Next Week's Earnings Upcoming Earnings Calls Earnings Newsletter Earnings Call Transcripts Earnings Beats & Misses Corporate Guidance Earnings Screener Earnings By Country U.S. Earnings Reports Canadian Earnings Reports U.K. Earnings Reports Latest Articles Palantir Stock Soars After Blowout Earnings ReportAmazon's Earnings: What Comes Next and How to Play ItApple Stock: Big Earnings, Small Move—Time to Buy?Why Robinhood Just Added Upside Potential After a Q2 Earnings DipMicrosoft Blasts Past Earnings—What’s Next for MSFT?Visa Beats Q3 Earnings Expectations, So Why Did the Market Panic?Spotify's Q2 Earnings Plunge: An Opportunity or Ominous Signal? 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There are 12 speakers on the call. Operator00:00:00Good day and thank you for standing by. Welcome to the Fluence Energy First Quarter 20 24 Earnings Conference Call. At this time, all participants are in a listen only mode. After the Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Lex May, Vice President, Finance and Investor Relations. Operator00:00:32Please go ahead. Speaker 100:00:40Thank you. Good morning, and welcome to Fluence Energy's 1st Quarter 2024 Earnings Conference Call. A copy of our earnings presentation, press release and supplementary metric sheet covering financial results, Along with supporting statements and schedules, including reconciliations and disclosures regarding non GAAP financial measures are posted on the Investor Relations section of our website at fluentenergy.com. Joining me on this morning's call are Julian Nobreda, our President and Chief Executive Officer Ahmed Pasha, our Chief Financial Officer and Rebecca Bole, our Chief Products Officer. During the course of this call, Fluent's management may make certain forward looking statements regarding various matters relating to our business and company that are not historical facts. Speaker 100:01:30Such statements are based upon the current expectations and certain assumptions and are, therefore, subject to certain risks and uncertainties. Many factors could cause actual results to differ materially. Please refer to our SEC filings for our forward looking statements and for more information regarding certain risks and uncertainties that could impact our future results. You are cautioned to not place undue reliance on these forward looking statements, which speak only as of today. Also, Please note that the company undertakes no duty to update or revise forward looking statements for new information. Speaker 100:02:09This call will also reference non GAAP measures that we view as important in assessing the performance of our business. A reconciliation of these non GAAP measures to the most comparable GAAP measure is available in our earnings materials on the company's Investor Relations website. Following our prepared comments, we will conduct a question and answer session with our team. During this time, to give more participants an opportunity to speak on this call, Thank you very much. I'll now turn the call over to Julian. Speaker 200:02:46Thank you, Lex. I would like to send our welcome to our investors, analysts and employees participating on today's call. I will provide a brief update on our business and then review progress on our strategic objectives. Ahmed will then give more details on our financial performance outlook. Beginning on Slide 4 with the key highlights. Speaker 200:03:09I'm pleased to report that we are off to a good start for fiscal 2024 and continue to benefit from our robust energy storage market. In the Q1, we recognized $364,000,000 of revenue. Furthermore, we delivered our 2nd consecutive quarter of double digit gross margin. Our adjusted EBITDA for the Q1 was approximately negative $18,000,000 in line with our expectations and improving from negative $26,000,000 in the 1st Q of 2023. Additionally, we recognized a record $1,100,000,000 of new orders. Speaker 200:03:49This is broken down by our solution business contracted 2.7 gigawatt hours, Our services business adding 2.3 gigawatt hours and our digital business adding 400 megawatt hours of new contracts. Furthermore, our signed contract backlog as of December 31 increased $800,000,000 to $3,700,000,000 the highest level in our history. Additionally, our pipeline increased $400,000,000 to $13,400,000,000 which gives us confidence to achieve our growth goals in 2024 and beyond. Our service and digital businesses, which together represent our recurring revenue streams continue to gain traction. We ended the quarter with 3.3 gigawatts of service assets under management. Speaker 200:04:41Importantly, our deployed service attachment rate, which is based on our community backed services contracts relative to our deployed storage remains above 90%. We had a strong quarter in our digital business, adding 400 Megawatts to our backlog. More importantly, our digital assets under management increased to 17 Gigawatts as of December 31 from 15.5 Gigawatts at September 30. In summary, Our combined services and digital annual recurring revenue or ARR was approximately $64,000,000 as of December 31 and is on track for our guidance of approximately $80,000,000 by the end of fiscal year 2024. Turning to Slide 5. Speaker 200:05:31I'd like to discuss our progress on the 5 strategic objectives that guide our decisions and actions. There are also important markers for investors to monitor and measure our performance. 1st, on delivering profitable growth. This quarter, we continue to grow our backlog as we added $1,100,000,000 of projects that we expect to yield double digit gross margin. Our disciplined approach to offer competitive solutions to customers keeps us on track to deliver on our financial objectives. Speaker 200:06:042nd, we will continue to develop products and solutions that our customers need. As such, I'm pleased to report that we are on track for our battery module manufacturing to begin production in the summer of 2024, gradually ramping up over the subsequent quarters. This battery module manufacturing will enable us to provide a product that meets the U. S. Domestic content requirements for battery and e storage, which I will touch on more in a moment. Speaker 200:06:353rd, to our scale and global outreach, we have established supply chain as one of our key strategic competitive advantage. Our diversity of suppliers is a key component of this and enables us to take advantage of favorable terms and battery prices, which I will discuss in more detail shortly. 4th, we will use Fluent Digital as a competitive differentiator and a margin driver. I'm pleased to report that we have strong digital customer retention with 21 digital contracts renewed during the quarter and 0 customer attrition. And our 5th objective is to work better. Speaker 200:07:14I'm proud to state that in November, Fluids became an official signatory member of the UN Global Compact, ahead of the expected timeline outlined in our 2023 Sustainability Report. Turning to Slide 6. We continue to see strong growth in demand for utility scale and eStore Systems. Over the past 12 months, we've seen lithium carbonate prices decline over 80%. This has in turn led to a decrease in battery prices, which has improved customer economics and allowed for more projects to be penciled in. Speaker 200:07:53It has been reflected in the growth of our backlog, which now sits at a record level of $3,700,000,000 which is an increase of approximately $800,000,000 from the 4th quarter. This is also the 9th consecutive quarter in which we added more order intake to backlog than revenue that was recognized out of backlog, further illustrating the growth in demand. Additionally, this $3,700,000,000 does not include some awards signed since the end of the quarter, such as our 6 50 Megawatt Hour Moores Lake project in Australia. More importantly, 100% of our backlog is at fixed battery prices with both suppliers and customers with no commodity prices portion, thus giving us strong visibility into revenue and margin for these projects. Additionally, approximately 80% of our fiscal 24 revenue guidance midpoint is already covered by our current backlog attributable to fiscal 2024 plus revenue already recognizing the Q1. Speaker 200:08:58These two data points provide us with high confidence that we will be able to achieve our guidance ranges for revenue and adjusted EBITDA for fiscal 2024. Based on the conversations we're having with our customers and potential customers, we're expecting to see continued strong revenue growth in fiscal 2025 of approximately $35,000,000 to $40,000,000 from fiscal 2024. Our 2025 outlook is supported by our pipeline, which sits at approximately $13,400,000,000 and grew $400,000,000 from the last quarter. As we have communicated in prior calls, our expectations for pipeline conversion is at approximately 50% over the next 24 months. Turning to Slide 7. Speaker 200:09:45Over the past couple of years, we have taken major steps to diversify and improve the resilience of our supply chains. Our supply chain strategy is centered around 4 key elements. The first is diversity of battery suppliers. Coriant will utilize 5 battery suppliers located in China, South Korea, Sweden and the United States. This ensures we have multiple geographies to pull from, which support our growth while mitigating disruptions. Speaker 200:10:17We will also note that building a stable and reliable U. S. Supply chain is critical for the industry. And as I will discuss, We are taking significant steps to establish a U. S.-based supply chain this year. Speaker 200:10:332nd, To capitalize on growing demand for Aprove, we have secured multi year guarantee battery capacity from these suppliers. This cover our need for fiscal 2024 and fiscal 2025 and provides flexibility for upside in demand. These capacity agreements are subject to market price adjustments. Additionally, we also use a price discovery mechanism involving multiple battery suppliers to ensure we are constantly delivering the most competitive prices to our customers. And finally, these capacity agreements come with minimal take or pay obligations. Speaker 200:11:133rd, to capture the incentives laid out by the IRA, We will be manufacturing our own battery models in the U. S, which represents 2 thirds of our global business. It also enables us to introduce our proprietary battery management system, the software that runs the controls at the battery cell level and the initial point of control in a battery storage system. Additionally, it enables us to further commoditize our supply chains by facilitating the integration of multiple battery vendors. We are currently on schedule for our battery module Manufacturing to begin this summer. Speaker 200:11:52In doing so, we expect to qualify for the domestic content tax credit under Section 45X. The 4th element of our strategy is an asset light regional supply chain. This involve using 2 major contract manufacturers for system integration, 1 in Vietnam and 1 in Utah. We will look to continue to regionalize our asset light model in other areas, such as Europe and India. This strategy provides us with enhanced flexibility and agility, particularly in scaling and positions Fluent for a high return on invested capital as we do not incur the capital costs associated with building or maintaining our own production facilities. Speaker 200:12:36When we look around the world, we're using various shipping routes for our projects. To that end, I would like to make a few comments in relation to the recent disruptions in the Red Sea. Only approximately 50% of our global shipments We're expected to use the Red Sea route. The rerouting of these shipments adds around 2 weeks to our shipping schedule, that we have been able to accommodate without affecting customer delivery commitments. Finally, the incremental cost we're experiencing in shipping, We're able to transfer to our customers in their entirety in accordance with our contracts. Speaker 200:13:14In any event, our logistic team is working very to reduce as much as possible these increases in costs. Overall, these four elements are the cornerstone of our supply chain strategy, which provides flexibility, competitiveness and high certainty for our customers. We will look to build on this as we continue to strengthen our global supply chain. Turning to Slide 8. We're well positioned to recognize multiple benefits from the IRA, which is already boosting demand for energy storage. Speaker 200:13:50These benefits fall in 2 categories. Under the first category, our customers have the potential to receive up to a 50% tax credit for their projects capital costs, which significantly improves project economics and attractiveness. These incentives to our customers include a base ITC or investment tax rate as well as bonus incentive for deploying in an energy community and using domestic content. The 2nd category of incentives under the IRA includes those provisions that directly benefit Fluence. By producing battery modules in the U. Speaker 200:14:30S, as I just discussed, we expect to qualify for our production tax credit of $10 per kilowatt hour of battery modules produced under Section 45X. These two categories of incentives provide for our products to be more competitive and enables us to benefit from increased scale, more volumes and operating leverage. Turning to Slide 9. I'm proud to report that in November Fluence became an official signatory member of the United Nations Global Compact. Being accepted as a signatory member is an important step on our sustainability journey of building a strong ESG program based on a structured framework, data and active engagement. Speaker 200:15:14Fluent has joined more than 20,000 companies and organizations around the world that has signed the UN Global Compact and are committed to responsible corporate citizenship and sustainability. We are excited to collaborate with like minded companies, non governmental organizations and other stakeholders through the global company network to exchange best practices and drive positive change. Now I would like to make a few remarks regarding the article published in late December regarding the Diablo project in California that highlighted a contract claim filed against us by the project owner, alleging that we did not have a valid construction license in California. This contract claim was filed in response to our claim for $37,000,000 in non pay amounts and related damages. As we have said already, we believe these contract claims are without merit. Speaker 200:16:15We intend to get paid for our work on the project. The legal proceedings are ongoing. In the meantime, wanted to highlight that the Diablo project is performing very well and has delivered availability or uptime above contract of requirement during 2023. Speaker 300:16:34In conclusion, Speaker 200:16:35I'm pleased with the achievements of the Q1. Although we are mindful there is still work to be done, we will look to continue this momentum as we progress through 2024. I will now turn the call over to Amit. Speaker 300:16:52Thank you, Julian, and good morning, everyone. Before we dive into the results, I am very pleased to be here at Fluence and I would like to share my perspective on my 1st month at Fluence. On a macro level, Fluence is well positioned to capitalize on this once in a lifetime opportunity as energy storage benefits from declining input prices and an ever increasing focus on good stability. I have learned much about the company, the people and the culture. I have been impressed by the team's laser focus on offering competitive solutions to customers while adhering to a disciplined approach to growing our top and bottom lines. Speaker 300:17:35I'm looking forward to maintaining this financial discipline and stewardship of our strong balance sheet while delivering attractive returns to our shareholders. This morning, I will review our Q1 results and 2024 guidance, which we have reaffirmed across all metrics. Beginning with our Q1 2024 results on Slide 11. We generated 3 $164,000,000 in revenue, 70% of which was in the first in the U. S. Speaker 300:18:10And largely in line with our expectations. This was an increase of 17% from the Q1 last year. As we discussed on our previous quarterly call, we expect to realize 30% of fiscal 2024 revenue in the first half and our first quarter results reflect this mix. Turning to adjusted gross profit. For the quarter, we generated approximately $38,000,000 or an adjusted gross margin of approximately 10.5 versus 4.2% in the Q1 of last year. Speaker 300:18:46It also represents the 2nd consecutive quarter in which we posted double digit gross margins. Our operating expenses were $62,000,000 in line with expectations and consistent with the Q1 of last year representing 17% of the quarterly revenue. Adjusted EBITDA for the quarter was negative $18,000,000 versus negative $26,000,000 in the Q1 of last year. Negative adjusted EBITDA reflects our revenue weighting towards the second half and operating costs that are relatively flat on a quarterly basis as I just discussed. Overall, we believe these results reflect our disciplined approach to grow our top line and improve our bottom line to deliver on our financial commitments. Speaker 300:19:40So turning to Slide 12, I am pleased to report that we ended the Q1 with $477,000,000 of cash. This represents an increase of $14,000,000 from the Q4 and is the 3rd consecutive quarter that we increased our total cash position. From a liquidity perspective, we are in excellent position to capitalize on the growing energy storage market. In addition to our cash position, we have access to approximately $130,000,000 in credit facilities. This includes $75,000,000 available under our recently signed $400,000,000 asset backed lending facility or ABL facility. Speaker 300:20:24Availability in this ABL facility is dependent on the level of collateral available to secure, which is mostly our U. S. Inventory. Thus, as our inventory balance increases, so should our borrowing capacity, which provides us another lever to manage our working capital needs. In summary, we have total liquidity of more than $600,000,000 which is sufficient to meet our current business needs. Speaker 300:20:53Moving to Slide 13, as Julian noted, we are reaffirming our guidance for fiscal 2024 of revenue between $2,700,000,000 $3,300,000,000 To that end, We have approximately 80% of the midpoint of our annual revenue guidance covered by our backlog plus revenue recognized in the Q1. This provides us confidence that we are on the path to achieving our fiscal 2024 guidance range. From margin perspective, we continue to anticipate fiscal 2024 adjusted gross margins of between 10% 12%, which is in line with our first quarter results. Additionally, we are reaffirming adjusted EBITDA guidance of $50,000,000 to $80,000,000 Furthermore, We are on track to achieving ARR of approximately $80,000,000 by the end of fiscal 2024. I would also remind that we continue to expect fiscal 2024 revenue split of 30% in the first half and 70% in the second half, which implies fiscal Q2 revenue of approximately $530,000,000 For Q2, we expect adjusted EBITDA to be negative because annual operating costs have a more even rating by quarter than revenue. Speaker 300:22:27Consistent with our full year guidance, we expect second half twenty twenty four adjusted EBITDA to improve significantly relative to the first half as we realized 70% of annual revenue during that time period. Finally, looking ahead to 2025, we continue to believe that we will achieve 35% to 40% year over year top line revenue growth driven by our robust pipeline and record backlog of signed contracts. With that, let me turn the call back to Julian for his closing remarks. Speaker 200:23:06Thank you, Ahmed. Turning to Slide 14 and in conclusion, I want to emphasize the key takeaways from this quarter results. First, we had a record setting order intake and a record backlog of 3,700,000,000 We have locked in battery supply that fits prices for all our projects in our backlog, thus providing us strong visibility to achieving our guidance. 2nd, we have a sustainable and resilient supply chain that is a key component of our competitiveness. Sir, we are on track to begin our module manufacturing this summer. Speaker 200:23:43Together with our customers, we believe we are in a prime position to capitalize on various incentives under the IRA. 4th, the falling battery price environment serves as a tailwind for us and it allows more energy storage projects to be penciled in by our customers. All of these factors provide us confidence in our ability to successfully deliver on our fiscal 2024 and 2025 objectives. This concludes My prepared remarks, operator, we're now ready to take questions. Operator00:24:16Thank And our first question comes from the line of George Canariqis with Canaccord Genuity. Your line is open. Please go ahead. Speaker 200:24:44Good morning, George. How are you? Speaker 400:24:46Good morning. I'm doing great. How about Speaker 500:24:49you? Great. Speaker 600:24:52Thanks for Speaker 700:24:52taking my question. Speaker 400:24:55So maybe just first, I'd like to ask about the orders, the $1,100,000,000 in orders. Can you help us understand Sort of the geographic profile? And also, are those orders consistent with your gross margin profile of mid teens over the long term? Speaker 200:25:13Yes. The geographic profile is in line with what we have said, 2 thirds in the U. S. And 1 third internationally. And they are double digit margins for those for that order intake, so in line with what we have communicated to the market. Speaker 400:25:32And then just as a follow-up here, as you look at the M and A landscape, we Talked about Vartilla in the past, they're still undergoing their strategic review. Do you feel compelled at all to change the profile of You have a nice cash balance. And if you look across the landscape, are you looking to potentially expand footprints For your software profile by making acquisitions? Thank you. Speaker 200:25:58No. Yes, we have said, We're very happy with our corporate business position in terms of strong very, very strong sales channel, and you can see it not only in our backlog, but also in our pipeline. Our technology, we have a very clear roadmap is going well and we're very happy with. And so generally, I don't see any need for acquisitions at this stage. We're not looking at any. Speaker 300:26:28We're clearly in the market Speaker 200:26:31ensuring to understand what the how the environment looks, but there's no need to any acquisitions in any of to support any of our business structure at this stage. Speaker 700:26:46Thank you. Operator00:26:49Thank you. And one moment as we move on to our next question. And our next question is going to come from the line of Brian Lee with Goldman Sachs. Your line is open. Please go ahead. Speaker 200:27:03Hey, good morning, Brian. Speaker 800:27:05Hey, Julian. Good morning. Good morning, everyone. Thanks for taking the questions. I had 2 sort of numbers related one. Speaker 800:27:13First on Legacy backlog, I think entering the year, you guys have talked about something like $150,000,000 of still low margin, no margin legacy backlog you needed to work off this year and I believe most of it was going to get deployed in Q1. So if that's right, It implies the gross margins on the non legacy business was mid to the high teens or something in that range since you reported 10.5 percent for the quarter. So I guess wondering if that's right, if the backlog legacy is all gone and then how do you how should we be thinking about gross margin rest of the year given the implicit higher level for the non legacy stuff, it seems like the 10% to 12% annual guide for gross margin seems a Okay, conservative. And then I had a follow-up. Speaker 200:28:01Yes. All the legacy has is now gone. Well, the actual number for the Q1 of the legacy contracts that we had in the or that we recognized revenue in the Q1, closer to $50,000,000 not $150,000,000 So I'll give you I think that we are in line with our 10% to 12 The margins that we communicated for the year and this quarter proves that if you take into account The $50,000,000 of legacy contract, which are essentially roughly breakeven. So But you're at no more legacy going forward and the actual number for this quarter was $50,000,000 Speaker 800:28:44Okay, okay. That's fair. Then if I take the 50, it seems like you're sort of closer to the mid teens, but still within that range. Understood. And then there's been a lot of questions, Uli, about lower battery price As we see what's happening with lithium carbonate, I think you made a comment on Slide 12 or 13 that Your fiscal 'twenty four battery supply and prices are locked in. Speaker 800:29:14So does that mean I know there's the index based adjustments for your customers. Is there anything in your, I guess, fiscal 'twenty four backlog to be deployed that can still get adjusted on price or is that all for future Outside of fiscal 'twenty four backlog that maybe still has some of those indexed linked adjustments that could take place. I'm just trying to understand how locked and loaded the backlog dollar value is for this year versus what potentially could maybe move around next year if battery prices keep going lower. Speaker 200:29:53Yes. Good. So let me walk you through where we are. So we use RMI as you know. So that's part that's an important part of how we manage our risk. Speaker 200:30:03The RMI supports our projects from the time we start negotiating with our customers to the point when we issue the purchase order, when we buy the batteries and we make a down payment to our battery suppliers and get an actual commitment from the battery suppliers. So what do we have in our backlog today? So what we have said, what we have in our backlog is that we had fixed All our battery prices in all our backlog, all of it, the $3,800,000,000 we already fixed it with our suppliers and with our customers. So our current backlog does not have any commodity risk on either direction, any exposure to the suppliers moving up or down or the customer moving up or down. That means that for 2024, As we have said also, 80% of our revenue for 2024 is already in our backlog. Speaker 200:30:56So that 80% is very much already fixed and battery prices will not move that 80%. However, we have 20% to go, 20% that will be subject to contracts that are in very late stage of negotiation that will be coming in the next couple of months And where the current offers we have outside or what we are negotiating with our customers is based on current price. So we feel very, very comfortable that and secure that we will meet our guidance for the year. And then that gives us $25,000,000,000 that gives you $25,000,000 in front of us. And we have roughly $1,500,000,000 of revenue of $25,000,000 already in our backlog. Speaker 200:31:43That billion so roughly 40% of next year's implied guidance we have given you. That is already in our backlog and is already also fixed. So when you looked at if you looked at it from the upside, 80% already in the backlog fixed, 20% subject to new contracts, which are already very late stage on negotiations. We feel very confident, which reflect current battery prices. And we feel very confident. Speaker 200:32:13And as I said, We feel very, very confident that we'll meet our numbers. We are negotiating the numbers. We're talking to our customers. We know where we are. Those will support our 'twenty four Revenue guidance. Speaker 200:32:25And then for 25%, we're still clearly working on this. 40% is already in the books. The 60% to go, when we looked at and then you can say, well, how do you feel confident about it? Looked at our pipeline. If you look at our pipeline, I'm sorry for the long answer maybe. Speaker 200:32:44If you look at our pipeline, we grew our pipeline by 400,000,000 Well, that means that the $1,100,000,000 we converted from our pipeline to backlog, we also cover. So in reality, our pipe we brought in into our pipeline at current prices $1,500,000,000 of new contract. So it gives us very, very clear in 1 quarter that the demand we're seeing in the market, the interest that is coming to this day, How much investors, customers, regulators feel comfortable with our technology makes us very confident that we will meet the our commitments for 2024 and 2025. And I do understand that sometimes the financial markets are concerned about the potential downward pressure on revenue of battery prices. But maybe We've been working this is a tremendous headwind for this industry. Speaker 200:33:44The elasticity of the money is tremendous and that provides for a significant uptick in demand that significantly covers the potential downside of our that revenue prices are. So very, very confident on 24%, 80% on it, already fixed, Clear line of sight within touring range, let's use Army concept And for 24% for the other 20% and 25.40% in the book, 60% to go and with the remainder of pipeline coming in that we feel that will More than covered all the problems, you know, on our tablets. Speaker 800:34:25Alright. That's great. I appreciate all that. Speaker 200:34:28Sorry for the very long answer, Ryan. Speaker 800:34:31Now crystal clear, I think I got the message crystal clear. Thanks a lot guys. Appreciate it. Speaker 200:34:35Thank you, Ryan. Operator00:34:37Thank you. And one moment as we move on to our next question. And our next question is going to come from the line of Christine Cho with Barclays, your line is open. Please go ahead. Speaker 200:34:52Good morning, Christine. Speaker 600:34:53Good morning. Thank you for taking the question. I just wanted a clarification question on the As I understood it, if the customer had not issued notice to proceed, but had booked, that was still subject to move. And it sounded like you locked everything in as for the backlog that as it stands today. But as you get incremental bookings, should we think that on a go forward basis, all of that will be locked in when it enters your backlog as well or same thing, it's subject to move until they issue notice to Speaker 200:35:29Very good point. As I said, the RMI covers from the point we start negotiating with the customer to the point that the purchase order is issued, which is usually at the point of notice to proceed. So The new order intake that we will get, there will be a point between the moment we signed the contract to the point we issue the notice to proceed that where that potential risk is. However, what we have seen and what we cannot show you this time is that, that time frame has collapsed significantly. And that we are now issuing or dis supersede very close in most cases, very close to the point at which we We're signing the contract. Speaker 200:36:13So I will say that generally the risk for IMI in our backlog will continue to be a small number as we move forward. There might be 1 or 2 projects that come in where the customer wants to wait a little bit and maybe that will happen. But in general, I think most of the Contracts were signed in the customers wants to secure batteries immediately, take advantage of the good price and move forward. Speaker 600:36:39Okay, got it. And then can you give us an idea of how much of your backlog has EPC services tied to it, maybe percentage of contracted volumes. And as demand goes up, should we think that this number, this percentage number moves up, down, consistent incremental bookings. And sorry, how different are the ASPs and margins today for new orders if you provide the EPC versus not? Speaker 200:37:09The EPC are roughly around 30%. A lot of and it's very much market and project Dependent. So we have to give you a sense, all our transmission projects, our ultra stacked projects have EPC, Very complex projects that require significant coordination between all the elements, so those are EPCs. So Australia is a market for EPC. The U. Speaker 200:37:39S. Is less. So it depends a little bit where what how they where we're working. As we see, We clearly are working on improving, continue moving forward in our UltraStax project. Australia is a market that we're very excited with. Speaker 200:37:53You might see that those as we bring more Australia and UltraStax projects, those will be EPC. But generally, if you want to model this going forward, I think the 30% is a good proxy for it. As I said, it depends a little bit on the complexity of the projects and the markets we're working on. Going for and in terms of returns, I think they're within the 10% to 15 percent, there was no change clearly. The more complex projects where we take more risk are closer to the upper band, as we have always said, and the ones that are simpler and less of a problem the lower side of that band, but and generally, you will say that most of the EPC projects are more complex, but I wouldn't Necessarily it doesn't take us out of the range of 10% to 15%. Speaker 600:38:43Got it. Thank you. Speaker 200:38:46Thank you. Operator00:38:48Thank you. And one moment as we move on to our next question. Our next question comes from the line of Justin Clare with ROTH MKM. Your line is open. Please go ahead. Speaker 400:39:02Hey, Justin. Hey, Justin. Speaker 200:39:02Hey, Justin. Hey, Justin. Speaker 100:39:02Good morning. Thanks for taking our questions here. So first, I wanted to ask about the demand that you're seeing for batteries that would meet the domestic content requirements. And have you signed contracts at this point for those domestic batteries. And then is it possible to give us a sense for what the uplift in pricing might be? Speaker 100:39:27And then Do you see potential for a margin uplift, given that you're going to be one of the first to supply domestically produced batteries. Could you get out of that 10% to 15% range? Speaker 200:39:42Yes. A strong demand. I'll say that Not only with our current customers, we're also attracting new customers that have are talking to John, our Americas CEO or President who's really we see a lot of people interested and understanding and getting in. So that's the first thing, Very strong demand. In terms of margins, so we have said that kind of what you implied, We believe we have a 1st mover advantage here and that, that 1st mover advantage will allow us to capture some additional margin. Speaker 200:40:18However, This is early in the game. We're still negotiating with our customers. We have to wait. If I tell you here the number, My customers will use it against me. So we are working with our customers to ensure that they can meet the higher returns and then we can capture some additional margin because they're doing much better than anybody else on those projects. Speaker 200:40:41And that's what we're working with them on. And As these things settle down and we see those projects, those contracts coming in and our customers Secure about the returns they're getting. I think we will communicate to you what potential upside we might get. But for now, I prefer not to talk about it. And then up to date, we have not signed any domestic content contracts even though they are very in very late stage. Speaker 200:41:09Just to give you a point, which I think is important, the domestic content projects are 2025 revenue. They're not going to be Supporting 24 revenue, our supply our module manufacturer starts in the summer and then it will pick up during the quarter and we will start receiving domestic manufactured batteries in the last quarter of this year, but we need to integrate them and then move them into deliver to our customers. So we won't see any revenue in this year from domestic content. Speaker 100:41:47Got it. Okay. And then just following up on that, just wondering how much of your Utah manufacturing capacity could be supplied with domestically produced cells given your agreement with AESC. Could you fully utilize that facility to produce domestic content or domestic cells that meet the requirements, how are you thinking about Speaker 200:42:14That's the idea that we will have we could freely utilize our current capacity. And as you I think we have communicated to you That capacity can be easily double if we need to. So Speaker 500:42:31Got it. Okay. Thank you. Speaker 200:42:33Thank you very much. Operator00:42:34Thank you. And one moment as we move on to our next question. And our next question is going to come from the line of Andrew Percoco with Morgan Stanley. Your line is open. Please go ahead. Speaker 200:42:48Hey, Andrew. Good morning. Hey, Speaker 900:42:50good morning. Thanks so much for taking the question. I did just want to go back to some of your commentary on the Red Sea. Sounds like you haven't seen an impact to margins from the freight rates yet. But I'm just curious, do all of your contracts kind of exposed the Red Sea have freight adjusters? Speaker 900:43:06Or could there be some potential margin risk if freight rates don't come back down? Speaker 200:43:12All our contracts, Irrespective of going through the Red Sea or any other route, freight adjustments, logistic adjustments. So there are all these costs are passed on. So we should not see any effect on our margins coming out of the Red Sea issues. Speaker 900:43:33Okay. That's super helpful. And then my second question is a little bit more thematic, but there's been a lot of And paid to AI data center power needs and it's a big theme right now. And I think the view is energy storage is a pretty critical component when thinking about powering that load with reliable clean electricity. So can you maybe just provide some insights into your conversations that you're having with maybe of these customers and what the time line might look like for Fluence for this opportunity? Speaker 500:44:01I mean, yes, this is Speaker 200:44:02something we have looked at. We work with Google on a project. However, to be very sincere today, we're so busy with the utility scale projects and that We are not we haven't really worked a lot on it recently. But we did have a project. We to test it with them. Speaker 200:44:23It went well. And but it's something that we have not actually in the recent quarters, something that we have not worked Got it. But it's one of those opportunities where going to the point on battery cost reductions where This lowering of prices will start making these projects very attractive. It makes it a lot more attractive than what they were when we looked at it, I think, roughly a year So I think this is kind of the type of things that when we talked about On demand elasticity, sorry for that, that you that comes And it becomes is one off. You know, you've pointed price to set a point and turn you turn the lights on and all this demand comes in, those things. Speaker 200:45:12And that's Kind of my point to all of you on the tremendous head with tremendous, tremendous tailwind of battery prices In our technology and how business cases start Sargeting means Sargeting and it become very, very attractive. Speaker 900:45:33Got it. That's helpful. And I guess maybe just one more follow-up on that. When you had that pilot project or you did that demonstration with Google, was there anything on the software side or battery chemistry side that they were looking for be changed versus your traditional utility customer? Speaker 600:45:50This is Rebecca. On the Battery side, no, the chemistry is the same. The physical delivery of the product was the same based on the size of what we're delivering for Google. There were some changes on the software side for the application space that that was working in. Speaker 900:46:06Thank you. Operator00:46:09Thank you. And one moment as we move on to our next question. And our next question is going to come from the line of Julien Dumoulin Smith with Bank of America. Your line is open. Please go ahead. Speaker 500:46:24Hey, good morning, Huyen, team, Amit, congrats again, pleasure. Hey, guys, just Good morning. Just coming back to the top of the Q and A roster here. On the gross margin piece, I just want to come back to this a little bit. I mean, You guys obviously have this 10% to 15% and then 10% to 12% here in the near term. Speaker 500:46:42Starting off the year the way that you did with revenues really poised to scale through the year, Again, I get this not an OpEx operating leverage piece here, but I mean to what extent can we expand expect those gross margins to scale as revenues and the size of these projects conceivably continue to expand into the bulk of the year here. I mean, is there an argument to be trending Higher within even that 10% to 12% range? Speaker 300:47:06No, I think our guidance Julian, thanks for your comments. Hi, compliments. I think in terms of the gross margin, I think our guidance was 10% to 12%. I think we feel pretty good about that range going through rest of the year. So I think it will be north of where we had realized in the Q1, but I think We feel pretty good there, we will end up in terms of our range for the full year. Speaker 500:47:36Got it. And then, Julian, you mentioned this earlier on the domestic contents, your ability to potentially, I think you said something like double AEC contributions here potentially if need be. I mean, just looking at the trade backdrop here, can you comment a little bit about like what the back what's your ability to pivot is Pending on any future shift in trade policy landscape here, I'm really curious about your ability to shift even more so back to domestic product, especially If the ESS market demands it, what is your ability to bring that to market as you think about providing further disclosures to the year in scaling up, if you will? Speaker 200:48:11Yes. I mean, this is a 25 issue more than 24. As you know, this line will come back will come online or these Sales were coming up online. We are working with our suppliers to ensure that we have access to their additional demand, to additional production capabilities and have a first right of refusal on their production as we move forward. This is a multiyear contract. Speaker 200:48:40So this is what I can tell you. We haven't really disclosed the volumes and stuff that we're working with. But The way we envision this project is a long term relationship where we are able to take advantage of their increasing production as it continues moving forward. That's the way I will put it. So in case I guess your questions indirectly, Unile, maybe I'm sorry that I'm implying is that What happens is that trade issues and then this production becomes even more value. Speaker 200:49:17Well, we believe that we have put into that into consideration the way we at least for a period of time to be able to scale up if this becomes a lot more attractive than what it is today due to potential trade disruptions. Speaker 500:49:32Right. And your point is that 10% to 15% as it stands today, There is fundamentally sort of upside as you disclose what the domestic content, sort of ASP Speaker 200:49:41outlook is. That's not current view. That's right. That's according to me. We'll talk more as we move forward and we sign these contracts and the competitive environment settles. Speaker 200:49:50But essentially, just going back, it is Our customers need to feel comfortable with their business cases. We have and that they can capture more than what they usually capture and that we will capture part of what they use that upside that we're giving them. So that's kind of how all this works out. And we're working with them on that process. And as soon as that settles down in a way that we're comfortable that is the way it's going to work for a period of time, We'll communicate to the financial markets what it is. Speaker 500:50:21Excellent. Thank you, guys. Good luck. Speak to you soon. Speaker 200:50:24Thank you. Operator00:50:25Thank you. And one moment as we move on to our next question. And our next question comes from the line of Kashy Harrison with JPMorgan. Your line is open. Please go ahead. Speaker 700:50:41Thanks. This is Kashy Harrison with Piper Jaffray. Hey, Kashy. How are you? Doing well. Speaker 700:50:46Thanks. Yes. So first question is for to get to 100% shortly. But I was just wondering if you could give a sense of how of where you were at this point last year. Were you 80% booked last year as well? Speaker 700:51:07Or were you a 100% booked at this point for the prior year. And then just in general, how should we conceptually think about The amount of revenues that can be booked and captured within a year? Speaker 200:51:21Yes. So Last year, if you looked at our order what we had in the backlog last year at the end of Q1, compare against where we ended in revenue. Now where we were guiding, as you remember, we guided up over the years, so that gives a little bit of we were roughly at 90%. So 90% of our revenue for 2023 was in our backlog at this stage. So we're a little bit behind compared to last year from that point of view. Speaker 200:51:49However, looking at the late stage of development of our contracts and how we're going to How we're going to where these contracts are, we have very, very high confidence that we will be able to secure the contracts we need to meet our guidance. So yes, that's the way it is. And that's it. We feel very, very good. We have there are several contracts. Speaker 200:52:16We have they're all we're very positive in all of them, and it should allow us to be at a point that we We'll meet our guidance for the year. Speaker 300:52:27Yes, Kashy, this is Amit. And I think your second part of your question was on the profile for rest of the year. I think as I discussed in my comments, I mean, 70% of our revenue or annual revenue is in the second half And it's more back end loaded, but that is frankly all based on our current contracts that we have, which are When we execute, it's a timing when we are delivering those contracts. So it's more driven by the timing of the projects that we have in our pipeline or backlog. Speaker 700:52:57Got it. Thanks for both of those responses. And my follow-up question is just around the order intake. $1,100,000,000 clearly very impressive. If we look at last year and the prior year, it seems like your order There was some type of order seasonality where the 2nd quarter orders look about the same as the Q1, then you have like a dip into 3Q and then somewhat of a recovery into 4Q. Speaker 700:53:26Is that directionally how we should without giving super explicit order guidance. I'm just wondering if that's directionally how we should think about seasonality for orders in your business moving forward? Speaker 200:53:38I mean, if you look back, every year is very different. So I don't think there is a strong seasonality in our order intake. So that's where it moves around. Yes. So it's more of how things worked out and something that can be signed on December 15 or January It's quite nothing to do with season. Speaker 200:54:06It's more of whether people want to take vacation to give you a sense of this quarter. So I wouldn't give any don't we cannot give you a view on seasonality of product orders. Speaker 700:54:21Got it. Thank you. Operator00:54:25Thank you. And one moment for our next question. And our next question comes from the line of Mark Strouse with JPMorgan. Your line is open. Please go ahead. Speaker 1000:54:40Good morning, everybody. Thanks for taking our questions. I appreciate the color that you were giving earlier about No margin risk from changes in pricing because your contracts with your suppliers and your customers are locked in. Can you talk about the ability though of our customers to potentially cancel an order, I mean, especially if the pricing goes lower enough? And if so, can you kind of give us what your average deposits that you're collecting on those contracts? Speaker 1000:55:10And then On the other side, do you then have the ability to turn around and cancel any orders with suppliers? Speaker 200:55:17Yes. I mean, they are what we bring in our backlog are binding contracts that the Our binding contracts that the customer cannot get out with making us hold on any cancellation. Today, To this day, we have never seen a cancellation of our contract in our backlog. There's a reason for it. We are very, very strict of what comes in. Speaker 200:55:38Even though we have contracts that we have signed, which are not in our backlog until they meet the conditions to ensure that if there is a cancellation, everybody is covered. So we haven't seen a cancellation. Nobody has turned down. These projects very much are so that's never been a risk. And the contract will make it difficult for the customer to get out if they have significant financial penalties to ensure they meet and make us whole. Speaker 200:56:06But as I said, that has never happened. And your second question, sorry, on If you don't mind reminding me? Speaker 1000:56:15Well, maybe it's not a risk now, but the second question was if your customers cancelled on you, would you have the ability to cancel with your suppliers? Speaker 200:56:26I mean, we put purchase orders, we'll have penalties if we cancel with our suppliers. But as I said, our customers will more compensate for that. So that's the way we should be. Speaker 300:56:37So the only thing I would add to that is, Mark, I think our when we signed the contract, our counterparties signed the contract at the price that makes sense for them at that time. So they look into take into account the economics of the project. So I think that is what really drives their decision to continue and then they make advance payments, because we generally get anywhere from 10% to 30% advance payments. And I think those are the things and that you have to take into account. I think but overall as Julian mentioned, we have never seen any contract getting canceled for the same reasons. Speaker 1000:57:14Yes, that makes sense. Okay, thank you both. One quick follow-up, Ahmed. Speaker 800:57:20On the last Speaker 1000:57:21call, Manu gave some color about the timing of down payments to AESC. Was there any update there? I'm sorry if I missed it. Speaker 300:57:31No, nothing changed. I think we basically are on track. No, nothing to report beyond what we discussed. Speaker 1000:57:38Okay. Excellent. Thank you very much. Speaker 200:57:41Great. Thank you. Operator00:57:42Thank you. And one moment as we move on to our next question. And our next question comes from the line of Tom Curran with Seaport Research Partners. Your line is open. Please go ahead. Speaker 900:57:56Good morning. Speaker 200:57:57Hey, Tom. How are you? Speaker 1100:57:59Good. So under the EU Climate Law, the European Commission is working on an updated version of its National Energy and Climate Plans that will establish decarbonization targets for 2,040. Between an early draft that leaked into the media and then a The commission has proposed a target for the power gen mix of 90% renewables complemented by nuclear and referred to grid scale energy storage as a key element in their words for achieving that. This news following last year's adoption of accelerated permitting for The guest, the EU really is placing increasing emphasis on storage support when it comes to policy. What are you guys most excited about that either is gestating and seems to have good odds of Becoming part of law or a new rule or incentive, what are you most excited about that you have visibility on over Either this year or let's say by the end of fiscal 2025? Speaker 200:59:04I'll tell you what the things we have seen in the last Quarters clearly demand very strong. Also, I don't know if you saw the announcements, Supply change moving into Germany or into Europe, let's put it, Northwell announcing a big factory in Germany, other players announcing factors all around Europe. So our localization of supply change coming now with a better environment for it, so good that's a good sign. And then our pipeline moving very strongly, especially Germany becoming a cost to market that's very active. The UK has always been market, but then markets that have not been that active now becoming more. Speaker 200:59:45Italy came out with a 6 hour capacity payment. There are Few things happening around that makes us very, very excited. I will tell you, if you ask me what I'm excited about, all of the above, everything. I'm Excited about the fact that we have the supply chain is starting incipient, but good. The fact so that we believe in the realization supply chain, so that's great. Speaker 201:00:08And now these are a lot of more players and regulators supporting the regulators supporting it. So great. We see these Changes in Italy and in some of the Nordic countries, that's right. And then a lot of customers in Germany, in the UK that we have been working on contacting us to move forward. So Speaker 401:00:28all Speaker 201:00:28of the above, I will say, Europe is a fertile ground for battery storage. Speaker 1101:00:35That's helpful. It makes sense. And then, Ahmed, on the balance sheet, you saw a big sequential increase inventory, which more than doubled to 564,000,000 Given the steep ramp in shipment and installation activity that you're preparing for as part of recognizing roughly 70% of fiscal 'twenty four revenue over the second half, I suppose that is at least partly self explanatory, but could you just expound on that inventory surge and then give us an idea of how working capital As a source or use of CFFO should evolve quarter by quarter over fiscal 2024? Speaker 301:01:10So sure. I think in terms of yes, you're right. I think our inventory balance has increased by a couple of $100,000,000 I mean, This year, I think this quarter and that is primarily I think as we are ramping up our growth in revenue because as I discussed, I mean our revenue next Q2 will be not about $550,000,000 So that inventory balance is largely I think is will be deployed to serve our or recognize our revenue in Q2. In terms of working capital needs, I think we discussed on our Q4 call, I think in 2024, there will be I think about $100,000,000 or so of additional working capital needs. But that is part of the plan I think that we will be funding through our existing liquidity. Speaker 301:02:01So nothing changed from that perspective what we discussed in our Q4 call, feel pretty good given our liquidity is not up $600,000,000 so we can manage any short term working capital needs if we have to. Speaker 1101:02:16Great. I appreciate the insights. Operator01:02:20Thank you. And one moment. And our last question is going to come from the line of Ben Kallo with Baird. Your line is open. Please go ahead. Speaker 201:02:36Hey, thanks for fitting me in guys. Just two quick ones. First, maybe this relates to those to proceed, but could you talk about any risk in project or sales timing based on interconnection delays or shortage electricians or labor shortages? And then my second question is just your appetite for offering your software to other battery providers, whether lithium ion or other types of storage providers? Thank you. Speaker 201:03:11In terms of when you looked at our in terms of the risk of the delays is interconnection. Essentially, It is an acute problem in the U. S, less of a problem generally in the other markets. It's important to make that point. The second one is that What we have in our backlog already has the queue has been resolved. Speaker 201:03:34Our customers have a clear line of sight of when they're going to connect what they need to do 1 by 1. So there could be delays, but the delays are usually weeks because something didn't get to a sign on time or things like that. So not the delays we talked about. So generally, I would say that our backlog is the risk on transmission delays in general, except for more of a civil work step type of delays. Then you do see clearly our pipeline, Our ability to convert our pipeline into backlog, it is subject to our customers in the U. Speaker 201:04:11S. Ensuring that they can get on the queue and get those problems resolved. We just see what happened this quarter. We are not seeing a significantly when we look when we build our pipeline, we set days when we see that projects are going to be I see projects that we believe they're going to be we're going to be able find them. And we haven't seen a significant delays of that in any way affect our results or ability to meet our financial metrics. Speaker 201:04:41There are projects here that are ones that surprised you by how fast they move and ones that surprised you because they're a little late. But I would say When you put them in balance, they're generally not the same. In terms of digital solutions, I think I will have to make to we have our BMS, our operating systems, which are integral to our hardware solutions. And those are not that we're not going to sell that to anybody. We're not we don't offer to 3rd parties. Speaker 201:05:12This is ours. We use it for ourselves and it makes us different. And it's one of our competitive barriers and our competitive capacity. However, we do have our Fluence digital offering, our Mosaic offering, which is a bidding app and our Inspira offer, which is Performance Management tool. Those 2 those we do sell to 3rd party technology. Speaker 201:05:39So There are competitors of us who their owners of their technology prefers to use our bidding app and prefer to use our performance management tools rather than whatever the other competitor is But I'll say that only on those two points. On the OS and on the operating system and the BMS, it is integral to what we do, And we don't offer that to anyone else. Thank you. Operator01:06:10Thank you. And I would now like to hand back over to Julian for any further remarks. Speaker 201:06:15Great. Well, thank you so much everybody for your interest and questions. And We had a great quarter a great quarter, great order intake, revenue. We knew from that in line with what we expected, this is what kind of in line where we were going. I think an important point and something that you all brought to me last year that as a main point is The double digit gross margin, this was a main discussion during 2023 whether we were going to able to do it. Speaker 201:06:47Now we have 2 quarters Of bringing meaning double digit gross margins, I think this is a this is the basis of which as we ramp up on revenue, the basis on which we will be able to become to get rich profitability for this quarter again. So we're very confident On our 2023 or 20 24 guidance and our ability to meet our $3,000,000,000 middle of the range earnings revenue guidance And our $50,000,000 to $80,000,000 in terms of adjusted EBITDA. So very happy for what's going on. Thank you so much and talk to you.Read morePowered by