Fluence Energy Q1 2025 Earnings Report

Fluence Energy EPS Results

• Actual EPS: -$0.32
• Consensus EPS: -$0.17
• Beat/Miss: Missed by -$0.15
• One Year Ago EPS: N/A

Fluence Energy Revenue Results

• Actual Revenue: N/A
• Expected Revenue: $373.52 million
• Beat/Miss: N/A
• YoY Revenue Growth: N/A

Fluence Energy Announcement Details

• Quarter: Q1 2025
• Date: 2/10/2025
• Time: After Market Closes
• Conference Call Date: Tuesday, February 11, 2025
• Conference Call Time: 8:30AM ET

Fluence Energy (NASDAQ:FLNC) is a global leader in energy storage solutions, providing technology and services to customers in over 20 countries. The company was founded in 2018 as a joint venture between Siemens AG and The AES Corporation. Fluence Energy's mission is to transform how the world generates, stores, and uses energy to create a more sustainable future. The company provides energy storage solutions that allow customers to manage their energy supply more efficiently, reduce costs and increase resilience.

Fluence Energy's products and services include energy storage systems, control software, and services for customers in various industries, including utilities, renewable energy, commercial and industrial, and data centers. The company has over 300 energy storage projects installed worldwide, representing over 2.5 GW of installed capacity. Some of Fluence Energy's key customers include Arizona Public Service, Duke Energy, and Tesla.

Fluence Energy's leadership team comprises experienced executives with deep expertise in energy and technology. Julian Nebreda is the President and Chief Executive Officer. Before becoming CEO, Mr. Nebreda was the South African Strategic Business Unit president at The AES Corporation. 

Fluence Energy's revenue has grown steadily over the past few years, with the company reporting 15% - 20% increases yearly. The company's gross profit margin has also improved, averaging around 25%. Fluence Energy has yet to be profitable, reporting nominal net income losses yearly; however, it is important to note that during this same period, revenue reported has increased from under $100 million to over $1 billion. This correlates to an increase in total assets mirroring the revenue increase. 

Fluence Energy's stock has performance paralleled industry peers and is relatively volatile, reflecting changes in the energy markets. The company has a market capitalization of approximately $3.5 billion and a price-to-sales ratio on par with industry peers. 

The energy storage market is rapidly growing, with increasing demand for energy storage solutions to support the integration of renewable energy sources into the grid. The market is highly competitive, with several established players, including Tesla, LG Chem, and Samsung SDI. Fluence Energy has a competitive position in the market, with a well-established brand, a broad product portfolio, and a robust global presence.

Fluence Energy has several growth opportunities in the coming years, driven by increasing demand for energy storage solutions and the company's focus on innovation and technology development. The company has recently announced several large energy storage projects. Fluence Energy is also expanding its product portfolio, focusing on developing new energy storage technologies and control software.

While Fluence Energy has positioned itself to capitalize on the growing demand for energy storage solutions, the company faces many risks and challenges that could impact its future growth prospects.

The energy storage market is highly competitive, with established players already operating in the space, including Tesla, LG Chem, and Siemens already operating in the space. These companies have significant resources and established relationships with key customers, which could make it difficult for Fluence to win new business and maintain market share.

Another risk is the regulatory environment. The energy storage industry is subject to complex regulations, including environmental and safety standards, building codes, and interconnection requirements. Changes in these regulations could significantly impact the company's ability to operate in specific markets, and compliance with these regulations could add additional costs and complexities to Fluence's operations.

In addition to regulatory risks, there are also macroeconomic risks that could impact the company's performance. Economic downturns could reduce demand for energy storage solutions. At the same time, geopolitical events or trade disputes could disrupt global supply chains, increasing costs and impacting the company's ability to deliver products and services to customers.

To mitigate these risks, Fluence has implemented a number of strategies. The company has invested heavily in research and development to continue innovating and improving its products and services, expanding into new markets, and diversifying its customer base. Additionally, the company has a strong balance sheet, with manageable debt and notable cash reserves, which provides a buffer against potential economic downturns or other challenges.

Fluence Energy Q1 2025 Earnings Call Transcript

Key Takeaways

• Record backlog of $5.1 billion (18.5 GWh) and ARR of $106 million provides strong visibility to future revenue growth.
• FY 25 revenue guidance was lowered by $600 million to $3.1 billion–$3.7 billion at the midpoint due to delays in signing three Australia projects.
• Increased pricing pressure from Chinese competitors has led to a narrowed FY 25 gross margin outlook of 10%–12%.
• A new high-density AC Block product platform launching in FY 26 targets 99% availability and 10%–15% gross margins to bolster competitive positioning.
• Strong liquidity position with $654 million in cash (and $1.1 billion total) plus a $21.4 billion two-year pipeline supports continued investment and growth.

Presentation

[Operator]

Good day and thank you for standing by. Welcome to the Fluence Energy First Quarter twenty twenty five Earnings Call. At this time, all participants are in listen only mode. After the speakers' presentation, there will be a question and answer session. To ask a question during this session, you will need to press 11 on your telephone.

[Operator]

You will then hear an automated message advising your hand is raised. Please be advised that today's conference is being recorded. I'd now like to hand the conference over to your first speaker today, Lexington May, Vice President of Finance and Investor Relations. Please go ahead.

[Lex May, VP & Investor Relations at Fluence Energy]

Thank you. Good morning, and welcome to Fluence Energy's first quarter twenty twenty five 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 and Ahmed Pasha, our Chief Financial Officer. During the course of this call, Fluent's management may make certain forward looking statements regarding various matters related to our business and company that are not historical facts.

[Lex May, VP & Investor Relations at Fluence Energy]

Such 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.

[Lex May, VP & Investor Relations at Fluence Energy]

This 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.

[Julian Nebreda, President and CEO at Fluence Energy]

Thank you, Lex. I would like to extend a warm welcome to our investors, analysts and employees who are participating in today's call. I will review our Q1 results briefly and then provide an update on our business and financial outlook. Amir will then go into more detail on our financial results. Beginning on Slide four, we continue to see a very strong battery storage market with The U.

[Julian Nebreda, President and CEO at Fluence Energy]

S. As a cornerstone. We have carved out a solid competitive advantage with our domestic content offering, where we continue to see strong interest from customers. This has been a key driver of the growth of our backlog, which is now at a record $5,100,000,000 Our diversified supply chains, particularly our U. S.

[Julian Nebreda, President and CEO at Fluence Energy]

Domestic content strategy allows us to mitigate the potential impacts of current geopolitical uncertainty that we expect will continue for the foreseeable future. Looking at our first quarter performance. First, we generated $187,000,000 of revenue with a 12.5% adjusted gross margin. Revenue was significantly lower than fiscal Q1 twenty twenty four and resulting from our fiscal twenty twenty five backend weighted plan as discussed in our prior earnings call. Second, we continue to add to our backlog with another strong quarter of more than $770,000,000 in order intake.

[Julian Nebreda, President and CEO at Fluence Energy]

This propelled our backlog to a record $5,100,000,000 providing a high degree of visibility to future revenue growth. Third, our annual recurring revenue or ARR was $106,000,000 which is an increase of 6,000,000 from the previous quarter. We're on track to achieve our $145,000,000 ARR target by the end of the fiscal year. Finally, we ended the quarter with more than $650,000,000 of total cash, which puts us in a strong position to continue investing in our products and delivering value to our customers. Turning to Slide five.

[Julian Nebreda, President and CEO at Fluence Energy]

We are providing an update to our fiscal year twenty twenty five guidance. We now expect revenue between $3,100,000,000 and $3,700,000,000 with a midpoint of 3,400,000,000 This is a $600,000,000 reduction from the midpoint of our prior guidance, which is due mostly to delays in the expected signing of contracts for three projects in Australia. The delays were project specific. One was delayed for permitting issues related to traffic control and other due to recent delays in the corresponding customer offtake agreement and the third project is located at a brownfield site where it took longer to prepare the site than expect. All these contracts delays were unique rather than systemic and do not represent a cool down of the Australia and the storage market.

[Julian Nebreda, President and CEO at Fluence Energy]

The issues affecting these three projects are now resolved or are close to resolution. We expect to sign all three contracts later this year with revenue to be recognized in fiscal twenty twenty six. The midpoint of our revised revenue covered by contracts in our backlog and revenue recognized today. This coverage ratio exceeds the coverage ratio we had at this point in fiscal twenty twenty four and fiscal twenty twenty three. The new guidance midpoint, albeit disappointed, still represents approximately 26% growth from fiscal twenty twenty four.

[Julian Nebreda, President and CEO at Fluence Energy]

Turning to Slide six. The strong demand for battery and energy storage in our markets continue to attract competition, especially from Chinese players trying to preempt trade restrictions and compensate for underperformance in the Chinese market. Recently, we have seen Chinese players intensify their competitive position in international markets, exerting significant pressure on pricing to win contracts. We believe this competitive environment will continue. And as I will discuss later, we are making the required investments in product development to compete successfully.

[Julian Nebreda, President and CEO at Fluence Energy]

However, as Samuel will address shortly, this competitive environment is putting pressure on our fiscal twenty twenty five margins. We recognize that the key to our success in the face of this increased competition is our ability to continuously innovate our technology, which should lead to superior performance, competitive pricing and more reliable supply chains and better security of our products. Putting the customers at the center of our efforts and ensuring we are the best technology partner to support their project objectives has been the foundation of our success to date and supports our continued leadership position in the market. In response to the increased competition from Chinese players, we have accelerated our product development program. To that end, I would like to highlight a new product platform that we will be launching as part of our customer roadshow this Thursday, February 13.

[Julian Nebreda, President and CEO at Fluence Energy]

We expect to see the benefit of this new platform beginning in fiscal twenty twenty six. This platform will put us in an industry leading position in terms of density, something our customers are increasingly requesting to reduce their footprint and costs. The design will be an AC block incorporating the inverter and other balance of plant equipment within the enclosure. The new platform also offers a lower cost point arising from its higher density, modular design, faster installation and reduced operating costs. This will provide our customers with a significant reduction in their required investments and their total cost of ownership over the life of the project.

[Julian Nebreda, President and CEO at Fluence Energy]

The new design, in conjunction with our digital capabilities and services offering, will allow us to offer our customers 99 availability, which represents industry leading performance. We can achieve this performance with a seamless integration of our hardware, proprietary controls, digital tools and service offering. The platform will also offer industry leading safety features, similar to the elements found in our proprietary tube and grid stack pro product lines, which includes our BeyondBurn certification, but now at a much higher density. This new platform will integrate our most recent developments in cybersecurity, which will provide a confidence that our customers, regulators and communities require to ensure the security of their power grids. This new platform will also enable faster realization of project investments as we continue to reduce our integration cycle times, which we aim to reduce to twelve months from eighteen months historically.

[Julian Nebreda, President and CEO at Fluence Energy]

All these factors are critical to enable our customers to achieve the lower total cost of ownership across the project life, leading to a higher return on their investments. This new platform will be the most substantial generational change for Fluent since the introduction of the Genes 6Q. Because of the significant benefits to customers, particularly the lower total cost of ownership and improved performance, we plan to price the product competitively, while securing gross margins within a range of 10% to 15%. This new platform also provides a foundation to continue product development that will allow us to accelerate our innovation roadmap going forward. We believe the speed of our innovation is key to our success.

[Julian Nebreda, President and CEO at Fluence Energy]

Turning to Slide seven. I'm pleased to report that our backlog as of December 31 was $5,100,000,000 and includes volume of 18.5 gigawatt hours. This is the highest level in our history, representing a year over year increase of 38% in value and more than double in terms of volume. This growth reflects the strong elasticity of demand for our technology, which supports our continuous growth in terms of both revenue and volume despite declining prices. Our backlog provides us with strong visibility to future revenue and positions us well to continue growth in our recurring services and digital businesses.

[Julian Nebreda, President and CEO at Fluence Energy]

Turning to Slide eight. The size of our pipeline continues to reflect the strong growth prospects for Energy Storage. As a reminder, our pipeline reflects a rolling twenty four month view, thus giving us confidence in our ability to continue our growth trajectory. Since the end of the previous quarter, we have increased our pipeline by $500,000,000 to $21,400,000,000 currency. This is particularly impressive considering that during the first quarter, we converted more than $700,000,000 into backlog.

[Julian Nebreda, President and CEO at Fluence Energy]

To provide more perspective, our pipeline has increased 60% from this time last year, which reflects significant growth prospects for energy storage globally. We continue to see a very robust international market, which will further diversify our geographic mix in the coming years. Nearly half of our $21,400,000,000 pipeline is in The U. S. Market and the rest in the international markets with Germany, Australia, Canada and Chile representing the bulk of it.

[Julian Nebreda, President and CEO at Fluence Energy]

Turning to Slide nine, I would like to provide an update on The U. S. Energy storage market, where growth continues to surpass expectations. First, we expect power demand to increase to more than 5,000 terawatt hours by 02/1930, which represents a 2.4% CAGR from 2022 to 02/1930. This anticipated robust growth is driven by data center growth, domestic manufacturing and sector wide electrification.

[Julian Nebreda, President and CEO at Fluence Energy]

Second, battery storage is becoming more mainstream. In The Americas, battery storage installation increased 83% year over year to more than 45 gigawatt hours in 2024. This robust growth is reflected in the interconnection queues for major U. S. Markets.

[Julian Nebreda, President and CEO at Fluence Energy]

Across the entire U. S. Interconnection queue, battery storage is second only to solar in gigawatts of interconnection request. For example, in ERCOT, battery storage represents 43% of the outstanding grid connection applications. And in Kaiso, battery storage represents an even larger contribution at 68%.

[Julian Nebreda, President and CEO at Fluence Energy]

Turning to Slide 10 and continuing with our discussion of The U. S. Market. I'd like to review some of the recent policy announcements and headlines since our last call. Starting with trade related headlines, our U.

[Julian Nebreda, President and CEO at Fluence Energy]

S. Domestic content strategy and our proactive initiatives, especially with respect to supply chains puts us in an excellent position to successfully weather the changing U. S. Trade policy. We view tariffs in two buckets, announced and potential tariffs.

[Julian Nebreda, President and CEO at Fluence Energy]

The first bucket is a universal tariff that already has been announced on China. Because of our business strategy that I just outlined, less than 15% of our backlog is exposed to this tariff. We estimate that for our fiscal twenty twenty five, the impact of the recently announced 10% tariff on Chinese imports is approximately $10,000,000 of gross profit, which is reflected in our updated guidance. The second bucket is potential product specific tariffs that have not been announced. We view the announcement potential tariff on China and specifically on Chinese battery storage systems as a net positive as they will enhance the competitiveness of our U.

[Julian Nebreda, President and CEO at Fluence Energy]

S. Domestic offering. Next, moving to potential changes to the Inflation Reduction Act or IRA. Regarding the Section 48 ITC that our customers claim, we believe there is sufficient bipartisan consensus in keeping the stand alone ITC for storage as it supports much needed energy security and reliability. Additionally, looking at Section 45, we also note that there is sufficient bipartisan consensus for maintaining these tax credits as it supports domestic manufacturing, something that Trump administration has been very vocal about.

[Julian Nebreda, President and CEO at Fluence Energy]

As we noted previously, much of our U. S. Supply chain is in red states and currently provides thousands of jobs. Finally, on the advocacy front, we're being very proactive with the Trump administration promoting awareness of the importance of cybersecurity for critical grid infrastructure and thus advocating for a ban on foreign controls for battery storage systems. The security of power grid is of paramount importance and regulation should ensure there are no software designs or controls by foreign entities that will provide them the ability to disrupt power grids.

[Julian Nebreda, President and CEO at Fluence Energy]

This is especially important for battery storage systems given their increasing role in U. S. Power grids. Fluent is proud to build its own control systems for battery storage in The U. S.

[Julian Nebreda, President and CEO at Fluence Energy]

Battery storage represents the fastest and most economical way to provide the much needed capacity and resiliency that The U. S. Power grid need to support the AI industry, The U. S. Reindustrialization and general economic growth.

[Julian Nebreda, President and CEO at Fluence Energy]

Turning to Slide 11, our strategy of developing a U. S. Supply chain is something we've begun working on even before the IRA was passed in 2022. As a result, we can now offer a product that is 100% non Chinese. This is something the market has taken note of as we have doubled our number of U.

[Julian Nebreda, President and CEO at Fluence Energy]

S. Customers over the past year. Our ability to mix and match various components of the battery storage system to enable our products to meet their required thresholds for domestic content is something unique to Fluent and enables us to stretch our U. S. Sales supply beyond its nameplate plant capacity.

[Julian Nebreda, President and CEO at Fluence Energy]

As a result, we have the ability to meet all our expected U. S. Domestic content demand in 2025 and 2026. Regarding our domestic manufacturing efforts, we continue to make good progress with our U. S.

[Julian Nebreda, President and CEO at Fluence Energy]

Cell manufacturing efforts at the ASC Tennessee facility. Line one is in process of ramping up production and Line two should come online sometime during the summer of twenty twenty six. This concludes my prepared remarks. I will now turn the call over to Amit.

[Ahmed Pasha, Senior VP, CFO & Principal Financial Officer at Fluence Energy]

Thank you, Julian, and good morning, everyone. Today, I will review our first quarter financial results and then discuss our updated outlook and liquidity for fiscal twenty twenty five. Turning to Slide 13, in the first quarter, we generated $187,000,000 of revenue, which was a decrease of 49% from the same quarter last year. The decrease was largely anticipated and reflects the back end weighted nature of our expected full year revenue, which we noted on our last call. We generated $23,000,000 of gross profit, representing gross profit margin of approximately 12.5%.

[Ahmed Pasha, Senior VP, CFO & Principal Financial Officer at Fluence Energy]

This was our sixth consecutive quarter of double digit gross profit margins. We reported negative $50,000,000 of adjusted EBITDA, mainly due to the fact that our operating expenses are more evenly distributed across the year than our revenue. Turning to Slide 14 and our guidance for 2025. As Julian discussed, we now expect revenue of between $3,100,000,000 and $3,700,000,000 with a midpoint of $3,400,000,000 This is reduction of $600,000,000 from the midpoint of our prior guidance, which is due mostly to the timing of three specific projects in Australia that have been delayed but not lost. We had been expecting to sign these contracts in January such that we would recognize the associated revenue over the following nine months.

[Ahmed Pasha, Senior VP, CFO & Principal Financial Officer at Fluence Energy]

However, over the past month, it became clear that the signing would be delayed until later in the year, which does not allow us enough lead time to be able to execute on these contracts and recognize revenue in the fiscal twenty twenty five. We expect to recognize revenue from these contracts in fiscal twenty twenty six. I would like to emphasize that the midpoint of our revised revenue guidance represents backlog coverage of approximately 85%. Although it is disappointed to us to reduce guidance, the revised midpoint of $3,400,000,000 still reflects 26% year over year growth from fiscal twenty twenty four. From a revenue timing perspective, we now expect our fiscal twenty twenty five revenue split to be 15% in the first half and 85 in the second half.

[Ahmed Pasha, Senior VP, CFO & Principal Financial Officer at Fluence Energy]

The shift primarily reflects timing of signing some of the projects. In terms of annual recurring revenue from our services and digital businesses, we continue to see traction in our recurring revenue platform and still expect to end the fiscal year with 145,000,000 of ARR. Regarding gross margin, we have narrowed our expectations for gross margin to 10% to 12% from 10% to 15% due to the factors I will discuss shortly. When looking at our fiscal twenty twenty six outlook, we expect revenue growth of 30% plus in the fiscal twenty twenty six starting from our updated fiscal twenty twenty five guidance midpoint. Turning to Slide 15 and looking at fiscal twenty twenty five's adjusted EBITDA, we have lowered the midpoint of our guidance by $95,000,000 to $85,000,000 This change reflects a $125,000,000 reduction in gross margin, partially offset by cost cutting initiatives.

[Ahmed Pasha, Senior VP, CFO & Principal Financial Officer at Fluence Energy]

More specifically, the $600,000,000 reduction to our revenue guidance at the midpoint attributable to the delay in signing the contracts has an impact on adjusted EBITDA of approximately $75,000,000 based on our previously assumed 12.5% gross margin. In addition, there is an impact of $50,000,000 from competitive pressures and the recently announced tariff on Chinese imports that resulted in a lower gross margin of 11%. To mitigate the impact of EBITDA of lower gross margin, we are implementing a targeted action plan to reduce our costs that will better align our resources to deliver long term sustainable growth. We expect these actions to generate $30,000,000 of offsets, which takes us to the new revised adjusted EBITDA guidance midpoint of $85,000,000 Turning to Slide 16, I will now discuss our liquidity, which continues to be strong. We ended the quarter with $654,000,000 of total cash, which represents a 37% increase from the same quarter last year.

[Ahmed Pasha, Senior VP, CFO & Principal Financial Officer at Fluence Energy]

Additionally, we have $458,000,000 available under our revolver and supply chain facilities, which puts our total liquidity at more than $1,100,000,000 This reflects the benefits of $400,000,000 of convertible notes issued in December, which results in a fully funded plan for 2025. During the first quarter, we used more than $200,000,000 of cash for our operating activities, which was partially driven by the purchase of inventory to fulfill near term contracts. This use of working capital represents the substantial majority of the expected working capital needs for this year. In summary, we have strong liquidity that positions us well to capitalize on significant growth in the energy storage market. With that, let me turn the call back to Julian for his closing remarks.

[Julian Nebreda, President and CEO at Fluence Energy]

Thank you, Ahmed. Turning to Slide 17. I would like to emphasize the key takeaway from this quarter's results. First, we're adjusting fiscal year twenty twenty five guidance, primarily to reflect delays in signing a specific contract and secondly, due to some competitive pressures. The strong backlog coverage of our revised guidance significantly derisk our year to go out.

[Julian Nebreda, President and CEO at Fluence Energy]

Second, the battery storage market remains robust, driven by rising demand and highlighted by The U. S. Market, where we have a competitive advantage with domestic content. Third, our U. S.

[Julian Nebreda, President and CEO at Fluence Energy]

Supply chain puts us in an excellent position to mitigate the geopolitical volatility we are experiencing and foresee for the near future. And fourth, our strategy of rapid innovation, more specifically, our new product platform provides a technology foundation to sustain our leadership position in the competitive environment we are experiencing. In summary, even with the disappointing guidance we set today, we have confidence in the strength of our business model to guide us to success in this market. We remain dedicated to delivering the profit return our shareholders are seeking through: one, our strategy of profitable growth that provides robust top line growth with double digit margins two, a successful operating track record that provides confidence in our ability to realize the margins in our backlog three, scalable operating leverage implying strong growth of adjusted EBITDA on top of our top line growth four, continued investment in product innovation and sales capabilities to ensure our offering is competitive and more important, that customers are well served and enjoy a secure route to value for their investment. And fifth and finally, a capital light approach that on top of the agility to adapt to a changing environment allows for robust profitability metrics.

[Julian Nebreda, President and CEO at Fluence Energy]

With that, I would like to open up the call for questions.

[Operator]

Thank you. And our first question comes from the line of George Giannakos of Canaccord Genuity. Your line is now open.

[Julian Nebreda, President and CEO at Fluence Energy]

Good morning George.

[George Gianarikas, Managing Director and Senior Analyst at Canaccord Genuity Group]

Good morning.

[George Gianarikas, Managing Director and Senior Analyst at Canaccord Genuity Group]

Thank you for taking my questions. Maybe first just to focus on the 2026 revenue guidance that you pointed to in your deck. You mentioned that you expect 30% plus growth there, which is the same as last quarter despite the fact that you had some three push outs this year in Australia. Does that mean that you've maybe lost some business or do you just decide not to update that for other reasons? Thank you.

[Julian Nebreda, President and CEO at Fluence Energy]

Thanks, George. We're taking a conservative view of our '26 of '26. And what we have today and the way we present is kind of a floor or where we see we can do 30% on top of our guidance. And our idea is that as we move forward during the year, we will be able to give you more clarity on these numbers and firm them up. So today our best view is the 30 plus or 30% on top of the midpoint for '25 and I will provide more a better view for 2026 as we move along.

[Julian Nebreda, President and CEO at Fluence Energy]

Today, we have like €1,200,000,000 backlog for 2026 and we need to bring some additional backlog in order to firm that number up and we hope to as we move forward. But we have taken after what happened now, we have taken a more conservative view of '26 and what we have done.

[George Gianarikas, Managing Director and Senior Analyst at Canaccord Genuity Group]

Thank you. And maybe as a follow-up, just different topic, you have any comments on Moss Landing and some of the recent events there? Help us kind of work through that. Thank you.

[Julian Nebreda, President and CEO at Fluence Energy]

Yes. Moss Landing, we have no information except for what we got from the press. So we have not been to that site since 2022. We have no contract with that site. We have no service agreement with that site.

[Julian Nebreda, President and CEO at Fluence Energy]

So we don't think there's any liability coming out of that event. As I said, we what we'd lost was the same thing you brought in the media and in the general media. So no, we cannot comment more than that.

[Operator]

Thank you. One moment for next question. And our next question comes from the line of Brian Lee of Goldman Sachs. Your line is now open.

[Julian Nebreda, President and CEO at Fluence Energy]

Good morning, Brian.

[Brian Lee, Analyst at Goldman Sachs]

Hey, good morning, everyone. Thanks for taking the questions. I'm sure you're going to get a lot of them, but I wanted to focus on the margins for a little bit. So maybe to start off, can you talk about sort of what margins you're seeing on new bookings this quarter as well as these Australia bookings you're expecting later in the year? Like, is that all going to be at the lower end of that 10% to 15% range you've targeted overall? Or are you going to be able to start seeing some margin expansion based off the new product and redesign? I'm just trying to understand like how structural and how set are these margins at the lower end of the range for a while?

[Brian Lee, Analyst at Goldman Sachs]

And then is it something you recover in '26? Or does it take longer than that?

[Julian Nebreda, President and CEO at Fluence Energy]

Very good question. Two points, I think, that are important. Let's talk about first twenty six. We believe that our new product design and our strategy for '26 will bring us back to our range. So we'll put us in the middle of that range, but this will hopefully better than that.

[Julian Nebreda, President and CEO at Fluence Energy]

But that's our view today when we looked at the product, what it can do. So we see this margin reduction as a temporary situation. What do we have for the year? When we looked at two things are driving this margin point. One, a change of mix, the mix of projects change due to the delays in the Australia projects.

[Julian Nebreda, President and CEO at Fluence Energy]

And second, the new our current view of the recent backlog and the backlog that we will be in that we will need to enter into to support 26, 20 five percent revenue is that they will come in high single digits. If you do a simple math, when you do the simple math of what we had in our backlog, the 12.5% of the high single digits, it comes around this 10% to 12% that we're giving you. We think this is temporary. This is something that we are addressing. It comes out of competitive pressure.

[Julian Nebreda, President and CEO at Fluence Energy]

We're still we're not that far, but we clearly need to put we are putting up a plan to get to where we need to be. And that's concession. This is a temporary situation that we will address in the with our investments in technology essentially.

[Brian Lee, Analyst at Goldman Sachs]

Okay, fair enough. And then just follow-up for me would be, I mean, presumably this competitive pressure you called out Chinese peers is more acute in international markets in The U. S. Because I know, Huweme, you spent a lot time on the call talking about how the advantages that are starting to come your way in terms of U. S.

[Brian Lee, Analyst at Goldman Sachs]

So is this a large function of incremental bookings coming from the international part of your pipeline? And on The U. S. Side, are you seeing the same type of pressures? Or are you actually seeing any kind of margin upside because of your kind of domestic advantages?

[Brian Lee, Analyst at Goldman Sachs]

Have you started to see any of those benefits accrue to your margins and pricing? Love to maybe just dissect the difference between U. S. And international sort of margin outlook.

[Julian Nebreda, President and CEO at Fluence Energy]

On The U. S. Side first, we see a very strong position. The problem not the problem in The U. S, the issue in The U.

[Julian Nebreda, President and CEO at Fluence Energy]

S. Are tariffs. As we said, we mentioned that $10,000,000 hit on margins on U. S. Contracts that we expect in 2020 or contracts we're going to be realized in 2025.

[Julian Nebreda, President and CEO at Fluence Energy]

So that's where we see that a lower point. The competition is mostly in international markets, mostly that's significantly more strong in international markets. And that's where we have seen our margins compress. We have seen competition all around, but the compression of margin comes mostly from international markets. However, as I said, just repeating my point, The U.

[Julian Nebreda, President and CEO at Fluence Energy]

S. Has seen the $10,000,000 in tariffs, which is a margin the reduction happens in The U. S. So most of our U. S.

[Julian Nebreda, President and CEO at Fluence Energy]

Or essentially all of our U. S. Domestic content is in U. S. For $25,000,000 has already been contracted.

[Julian Nebreda, President and CEO at Fluence Energy]

So generally, we don't see that this there will be any ability to that we will lose some of that.

[Operator]

Thank you. One moment for our next question. Our next question comes from the line of Dylan Nosseno of Wolfe Research. Your line is now open.

[Julian Nebreda, President and CEO at Fluence Energy]

Hey, good evening. How are you?

[Dylan Nassano, Vice President at Wolfe Research, LLC]

Good. How are you?

[Julian Nebreda, President and CEO at Fluence Energy]

It will be better. Let me put it that way. Yeah.

[Dylan Nassano, Vice President at Wolfe Research, LLC]

Yeah. Understandable. Can you just talk to your confidence level that these Australian contracts do kind of come back and get signed by the end of the year? And then if they do, is there any chance that any of that would be realized in 2025 at the time that you booked them? And then I guess just taking a step back, can you just talk about what kind of gave you the confidence initially to include them in the guidance and what kind of change relative to your assumptions?

[Julian Nebreda, President and CEO at Fluence Energy]

This is a very, very good point. These delays were caused, we saw the other projects by minor issues that my being very, very transparent here, my team did not see on time. By the time we saw the delay, we realized these projects have all their major permits, they should be ready. We are very much very advanced things that we had already we believe we had on there in our pocket. However, these minor issues delayed the projects in a way that and that's what it is.

[Julian Nebreda, President and CEO at Fluence Energy]

So we are very confident at least two of them are essentially fully the risk and should be signed signed and they should not be and we should be able to. Is there a probability that there might be revenue in '26 there is, but if today not I don't feel confident enough to bring it into the forecast. So we decided to take them out of the forecast for this year because clearly and one point that some of you had asked me many times, interconnection. None of these things is interconnected. These guys are fully you have all those permits.

[Julian Nebreda, President and CEO at Fluence Energy]

The issue has been minor issues, the traffic, a road passing through a town that and that did not get the permits until recently. Small issues with the offtaker that delayed the project and some issues with the preparing aside that were that I will say my team should have picked up, especially because these were big contracts. We see these things, small contracts here and there and they're usually delays that do not affect our ability to meet our forecast. However, when we have minor issues on three big contracts, it derail 2025 plan. So we feel very confident they will come in.

[Julian Nebreda, President and CEO at Fluence Energy]

And our current view is that it will be 26 revenue. There's no probability that you may get some '25, but today we took it out of the forecast and decided to become to try and continue on this keep it in quarter clean.

[Dylan Nassano, Vice President at Wolfe Research, LLC]

Okay. Thank you. It's very helpful. And then just as a quick follow-up, so this the slide on the tariff exposure is helpful. But I guess the one thing that's kind of missing in that discussion is the Section three zero one tariffs that hit in 2026.

[Dylan Nassano, Vice President at Wolfe Research, LLC]

Can you just kind of readdress your exposure to that 25% tariff that hits next year and kind of how you're negating that?

[Julian Nebreda, President and CEO at Fluence Energy]

We have that. That we have included in our forecast. It should not affect our number. So I mean it affects our cost structure and stuff that we need to do, but it will not affect our ability to meet our forecast. It's already put in place.

[Dylan Nassano, Vice President at Wolfe Research, LLC]

Great. Thank you.

[Julian Nebreda, President and CEO at Fluence Energy]

You're welcome.

[Operator]

Thank you. One moment for next question.

[Julian Nebreda, President and CEO at Fluence Energy]

Maybe a point on tariff, I can add one thing that sorry, Dylan. It's the following. The problem with tariff comps are announced with time, we have all the tools to manage them, because this domestic content gives us that ability. And we have all the tools to manage it very effectively like the 301s. We won't get any.

[Julian Nebreda, President and CEO at Fluence Energy]

The problems are the surprising stuff that comes out of nowhere that people were not expecting that that are more difficult and it takes us a little longer to adapt to. So if we I think that at some point we'll get to a normal cadence with the Trump administration, I think we'll be announced with time and we will be able to manage it because our domestic content strategy, it is designed for a world of productionists. That's what it's designed for. And it should be do very, very well. So just to give you a sense of why the 301s, we treat them very, very differently than what we treat how we treat the tariff on the 10% China tariff, which came out solidly.

[Operator]

Our next question comes from the line of Christine Cho of Barclays. Your line is now open.

[Analyst]

Hi, this is Tom on for Christine.

[Julian Nebreda, President and CEO at Fluence Energy]

Good morning. How are you?

[Analyst]

Good morning. So you guys had a very large deferred revenue number of over $300,000,000 run through your cash flow statement. So the magnitude was much larger than what we've seen in the past. Could you talk about what drove that this quarter? And if there's anything notable about when we should see that reverse and booked as revenue?

[Julian Nebreda, President and CEO at Fluence Energy]

I'll give Amit.

[Ahmed Pasha, Senior VP, CFO & Principal Financial Officer at Fluence Energy]

This is Amit. I think this we will expect that to be reversed within next quarter or so. So this is more just the accounting, but I think we expect that to be rolled over within the next three months.

[Analyst]

Okay, great. Thank you. That's helpful. And then I guess just one follow-up for me. Could you talk about what measures you're taking on the graphite supply and procurement front given the ADCVD investigation?

[Analyst]

How any duties would impact your existing operation in the event that they were retroactive?

[Julian Nebreda, President and CEO at Fluence Energy]

I don't think they can be retroactive by the way. They can be retroactive. Okay. So where are we doing on this one? First thing, I think it's the first point.

[Julian Nebreda, President and CEO at Fluence Energy]

We are in order to prepare for a potential duties, we are trying to accelerate some graphite into a contract clearly to for retroactive duties that will not apply. So but if they were, which would reduce our problem since we're 02/2004. How to think about this? Generally, tariff sales are roughly 30% of our project. Graphite is 10% to 15%.

[Julian Nebreda, President and CEO at Fluence Energy]

So roughly on a project in a total project cost, 5% is graphite. The way we understand the petitioners claim is that they are asking for an application of duties on graphite imports and on all batteries that include and other elements that include graphite. So what it will mean is that this will create a level playing field for both domestic content and for imported batteries. So it will not be that domestic offerings will be more expensive than imported. If they were successful in their claim, that's what it will mean.

[Julian Nebreda, President and CEO at Fluence Energy]

The whole market will go up in price and we all feel the same. From our part, what we're doing is accelerating some graphite imports. But at the end of the day, I will say that if it is if they can go back, I don't know how far what back they can go, it will probably that will not be sufficient. So that's what we're doing. We believe that this will create disruptions, it will create a problem, no doubt.

[Julian Nebreda, President and CEO at Fluence Energy]

But it will create a problem for the whole industry and it should not make domestic content by itself more less competitive. The main objective of this graphite potential or graphite manufacturers to develop a battery industry in The U. S. Where they can deliver their products. So if they destroy domestic production, they will not be able to they will not meet their objectives.

[Julian Nebreda, President and CEO at Fluence Energy]

So I think at the end of the day, this will we should be able to adapt to it. However, if it comes, let's say that if there is a retroactive tariff, it will be create some disruptions that we will let you know when it comes. I mean, if you go today to see what it is.

[Operator]

Thank you. One moment for our next question. Our next question comes from the line of Andrew Percoco of Morgan Stanley. Your line is now open.

[Andrew Percoco, Analyst at Morgan Stanley]

Good morning, guys. Thanks for taking the question.

[Julian Nebreda, President and CEO at Fluence Energy]

Good morning, Andrew.

[Andrew Percoco, Analyst at Morgan Stanley]

Good morning. I just wanted to come back to a question on margins. I think loud and clear that margin compression and pricing compression is really originating in some of these international markets. But I just kind of wanted to put a finer point on what you're seeing from domestic customers. You've talked a lot about strong domestic content demand.

[Andrew Percoco, Analyst at Morgan Stanley]

Can you confirm whether or not that's translating into maybe premium pricing and higher margins on those contracts today?

[Julian Nebreda, President and CEO at Fluence Energy]

I mean, our margins are within our range of $10,000,000 to $15,000,000 We have not been able to go beyond that up to now. What we have seen in The U. S. Is that a lot of these players are trying to sell into The U. S.

[Julian Nebreda, President and CEO at Fluence Energy]

Ahead of these rules coming out and trying to I don't know. So there's a little bit of noise about that. Generally, the customers were working with our customers who are betting on domestic content. That's not something that really affects them. But we have seen the Chinese players trying to become more active, especially on projects that are delivering during 2025 to try to win space in The U. S, trying to preempt trade restrictions.

[Andrew Percoco, Analyst at Morgan Stanley]

Got it.

[Julian Nebreda, President and CEO at Fluence Energy]

But I my main point is that

[Julian Nebreda, President and CEO at Fluence Energy]

I don't think that is affecting our domestic content margins and our domestic content margins are in the $10,000,000 to $15,000,000 and today we haven't seen premiums that will take us out of that range.

[Andrew Percoco, Analyst at Morgan Stanley]

Understood. Okay. That makes sense. And maybe shifting gears to the cost side of the equation for a second. As you've ramped your facility in Utah, can you just discuss how is the cost trajectory played out maybe relative to your expectations?

[Andrew Percoco, Analyst at Morgan Stanley]

Is everything going as planned? Are you maybe a little bit higher in the cost per kilowatt hour than maybe expected? Just maybe give a general outlook of cost trajectory from that facility.

[Julian Nebreda, President and CEO at Fluence Energy]

I tell you that's a very good question. I'm very pleasantly surprised not surprised maybe I'm very pleased with how that facility is going. And he makes the point that I don't know how to I'm not originally born in The U. S. The U.

[Julian Nebreda, President and CEO at Fluence Energy]

S. Can't compete manufacturing stuff. Come on, let's get out of this idea that there will be only the Chinese can do it. This is a facility with machines made in Indiana, Indiana, and that is run by Americans and it works very, very well. And you go to a facility in China, you go to this, our facility is better.

[Julian Nebreda, President and CEO at Fluence Energy]

There's no reason why we need to think we lost the battle of production. I know that it's difficult. Your financial market, you're not into it. But when I talk to people, I don't know why. I mean, this is a battle we can win.

[Julian Nebreda, President and CEO at Fluence Energy]

And we're not even experts on this. We've been able to put in this facility very quickly and doing very, very well. I really think that hopefully I hope that we all get that confidence, not you, but the entrepreneur world in The U. S. Gets the confidence that we can build stuff in The U.

[Julian Nebreda, President and CEO at Fluence Energy]

S. At competitive price. There's no reason why we need to think that the Chinese are any better than us in doing any of this stuff. So, but very, very good. It's doing very, very well.

[Julian Nebreda, President and CEO at Fluence Energy]

I'm very, very happy. And I do hope that when things get better, we'll invite you over. You can see it and see for yourself how great these machines these machines were not imported. They were made in Indiana.

[Andrew Percoco, Analyst at Morgan Stanley]

Thanks so much.

[Julian Nebreda, President and CEO at Fluence Energy]

Thank you, Andrew.

[Operator]

Thank you. One moment for our next question. Our next question comes from the line of Mark Strouse of JPMorgan. Your line is now open.

[Mark Strouse, Equity Research Analyst at JP Morgan Chase & Co]

Yes, good morning. Thanks for taking my remarks.

[Julian Nebreda, President and CEO at Fluence Energy]

Hey, Huynh.

[Mark Strouse, Equity Research Analyst at JP Morgan Chase & Co]

I want to go back to Slide 10. So we talked about government policy and trade.

[Mark Strouse, Equity Research Analyst at JP Morgan Chase & Co]

There's nothing on there about the temporary permit increase in Trump's executive order. Is it safe to say that there's no impact to Fluence there or is it maybe just too early to tell?

[Julian Nebreda, President and CEO at Fluence Energy]

No, we haven't seen any impact of today. Not really impact. I understand that they were all it applied to federal lands and they were all light lifted. That's what I read earlier this week. I don't know if that's the case or not, but that's what I because I haven't been involved directly.

[Julian Nebreda, President and CEO at Fluence Energy]

What I heard is that all the permitting freeze was lifted earlier this week.

[Mark Strouse, Equity Research Analyst at JP Morgan Chase & Co]

Got it. Okay. I'll take the rest offline. Thank you very much. Thank

[Operator]

you. We'll move in for our next question. Our next question comes from the line of Chris Dienos of RBC Capital Markets. Your line is now open.

[Chris Dendrinos, Vice President at RBC Capital Markets]

Yes.

[Julian Nebreda, President and CEO at Fluence Energy]

Hey, Greg.

[Chris Dendrinos, Vice President at RBC Capital Markets]

Good morning.

[Chris Dendrinos, Vice President at RBC Capital Markets]

Thanks. I wanted to ask about the new product launch. And I guess the question is, is this sort of industry leading or is this a bit of a catch up product? And the reason I'm asking is, I'm curious if you think you're going to be able to maintain that margin profile if it's an industry leading product and your, I guess, competition would play catch up and price down as well? Thanks.

[Julian Nebreda, President and CEO at Fluence Energy]

We see it as an industry leading product. It will allow us to get to the 7.5, seven point two gigawatts of sorry, it will get us to seven megawatts of capacity per unit, which is IndustriLily 30% better than anybody else. So we believe that people will copy us, but we will and what have we done to make this? We separated the batteries from the intelligence of the unit. We're putting the all the units in the base of that product line that you see there.

[Julian Nebreda, President and CEO at Fluence Energy]

That allows us to go higher in terms of batteries per square meter. But it also allows to continue transporting everything in containers. So by separating the pods that you see the individual pods into the specific units and putting all the intelligence and a balance of plant equipment in the base, we can go higher in terms of height and we can reach a much higher density than anybody else Using 300 amp hour cells, so that I think will put us in a very, very competitive position. All the other products that are close to what we're doing are products that are using higher end power cells batteries. So this will allow us to provide these with lower end power cell batteries, which means if we add up the higher end power cell batteries, we'll be even higher than that.

[Julian Nebreda, President and CEO at Fluence Energy]

So we're very, very happy with the product. We believe we're industry leader and this will allow us to give to regain our competitive advantage. And also this facility gives us a platform this new product gives us a platform where we can innovate. So we already have a product roadmap to ensure that this is not the this is just the beginning of a set of innovations that will keep that project competitive as we go along and our competitors try to copy also and go with all the stuff.

[Ahmed Pasha, Senior VP, CFO & Principal Financial Officer at Fluence Energy]

So I think this is Armen, Chris. I think your question as Julian mentioned, I mean, I think the goal is to create value for our customers and return at the same time it's a win win proposition that will bring us back with our targeted returns that we talked about 10% to 15%. That's right.

[Chris Dendrinos, Vice President at RBC Capital Markets]

Okay. And then maybe as just a follow-up here, I hate to hit the margin question again, but if I go back to prior commentary, the original outlook and I think you mentioned that you're 65% booked for the year. So if I just do kind of the bridge on that to the new guide, it looks like the incremental margin on the unbooked portion here is pretty low to kind of almost negative. Is that

[Julian Nebreda, President and CEO at Fluence Energy]

No, there is no way.

[Ahmed Pasha, Senior VP, CFO & Principal Financial Officer at Fluence Energy]

No, Chris, just to I think step back, last time when we gave our guidance, we were saying 10% to 15% margin. And we had 65% of our coverage for our revenue guidance of $4,000,000,000 Fast forward, what we are saying today is I think since then the contracts we have signed are roughly high single digits, I mean 9% plus minus. So I think that is what we are saying. Net net that brings us at around 11% gross margin for the device guidance. So the impact is only on the new contracts, not the backlog that we had signed at that time.

[Ahmed Pasha, Senior VP, CFO & Principal Financial Officer at Fluence Energy]

We have not seen any material change except the tariff that we talked about, which is only $10,000,000 and that shapes roughly 0.3%, zero point four %.

[Chris Dendrinos, Vice President at RBC Capital Markets]

Okay. Thank you.

[Operator]

Thank you. One moment for next question. Our next question comes from the line of Kashy Harrison of Piper Sandler. Your line is now open.

[Kashy Harrison, Senior Research Analyst at Piper Sandler Companies]

Just good morning, everyone. Just two quick ones for me. Good morning, Helane. So a quick clarification question. Is the margin weakness in The U.

[Kashy Harrison, Senior Research Analyst at Piper Sandler Companies]

S. Or is the margin weakness in international markets? I just want to make sure I fully understand that.

[Julian Nebreda, President and CEO at Fluence Energy]

Mostly international. I mean, we do have some law as you know, non domestic offering in The U. S, but mostly international.

[Kashy Harrison, Senior Research Analyst at Piper Sandler Companies]

Okay. And then my follow-up question. So if I just take a step back and I just think about the broader renewable space, a recurring theme is that competition against the Chinese, especially when they have severe excess capacity in markets that don't have strong protectionist policies in place. It just never seems to end well. It's fantastic to hear your enthusiasm on competition, but generally speaking, they're more focused on utilization than profitability, which makes it tough.

[Kashy Harrison, Senior Research Analyst at Piper Sandler Companies]

And so as you look at markets outside The U. S. That you're competing in, are there any places you feel have stronger protectionist policies in place? And is there perhaps a thought on pulling back from some of these more competitive markets where the Chinese can play without worrying about duties and whatnot? Thank you.

[Julian Nebreda, President and CEO at Fluence Energy]

Kashim, my first point is I would disagree on the premise. When you looked at these products, why don't we have a a battery cell, which is a commodity. And the ability to make that battery cell work well is a combination of cooling, software, controls, delivery. That's where the value comes. You are right, the Chinese could have an ability to sell batteries at very low margins or very zero margin, but the reality is that batteries are less and less relevant in the value proposition we get.

[Julian Nebreda, President and CEO at Fluence Energy]

So when we looked at our new product, we compare it against the prices that we're seeing in The Middle East, where there are zero restrictions, where we're seeing in some of the markets where we see very little restriction. And we can get competitive through innovation by integrating our software, by designing our products in a way that we can transport them better, that we can deliver better reliability that they can be safer at a lower cost point. So I don't disagree, that was my point earlier that we this is a manufacturing industry. This is an industry of innovation, of technology innovation. And I think that we have the technology innovation to compete and we'll continue doing it now.

[Julian Nebreda, President and CEO at Fluence Energy]

So that's what I think. Clearly, as you said, there are now going to your question, there are markets that have more restrictions. The U. S. Is a market with significant restrictions to Chinese competition.

[Julian Nebreda, President and CEO at Fluence Energy]

Australia is a market with some restrictions to Chinese competition. Taiwan is a market that has many restrictions to Chinese competition. Then you see more open markets. Europe is in the way and they are defining what they how they're going to manage it. But let's say it is a more open market.

[Julian Nebreda, President and CEO at Fluence Energy]

The Middle East is very much open. I'll say Latin American is open today. So that's kind of where you see the world. There are markets where but our objective as a company is to compete globally. We are here to compete globally.

[Julian Nebreda, President and CEO at Fluence Energy]

I think this is important. And we believe that through innovation, integrating software, our controls, our ability to rethink all the value added around the battery, we can create enough value to beat up on price the Chinese willingness to sell stuff at lower cost. That's our view today. When we look at it, when we see the margins they have, what how they do visit, that's what we see. That's where we can see a rally.

[Julian Nebreda, President and CEO at Fluence Energy]

So that's our premise. Today, clearly, I can understand as to what will happen. You probably do not necessarily need to believe me, but or you might put it in doubt. But that's the premise of our view. Through technology, in a world with lower battery cost, through technology we can win this competition.

[Kashy Harrison, Senior Research Analyst at Piper Sandler Companies]

Thank you.

[Julian Nebreda, President and CEO at Fluence Energy]

I don't know if I answered your question, Kasey. I went a little bit or if you need a second one here.

[Kashy Harrison, Senior Research Analyst at Piper Sandler Companies]

No, no. You answered the question you answered all points and I appreciate your thoughts on the market. I mean, if I could just sneak one more in since I'm talking right now. So I think in the past, you had thought of the in house inverter as being margin accretive to the business. When you look at your current offering, do you think that this in house inverter gives you a path to go from this 10% to 15%?

[Kashy Harrison, Senior Research Analyst at Piper Sandler Companies]

And then how long do you think it will take before 100% of your shipments are using the in house inverter? Thank you.

[Julian Nebreda, President and CEO at Fluence Energy]

Yes. The in house I mean, adding the inverter into it's not only the inverter, we're adding all the balance of plant equipment. And by adding this additional space, we're also adding edge computer to edge computing to the software, to the system, which will allow a much better performance because you don't need to put things in the cloud rather than send them back. We will be able to now add artificial intelligence in the system itself. By the way, we are now designing this.

[Julian Nebreda, President and CEO at Fluence Energy]

This is all accretive to it, the house inverter. We believe this is a problem that is like our cube. It's going to be able it's going to take all our sales as we move forward. And we're very happy. We believe that at some point all our sales will be under this type of architecture. What is more than the inverter, that's my point.

[Operator]

Thank you. Thank you, gentlemen. Our next question Our next question comes from the line of Jordan Levy of Truett Securities. Your line is now open.

[Jordan Levy, Vice President - Sustainability Equity Research at Truist Securities]

Good morning all and thanks for all the details. Just to get your thoughts on the new guide, 85% covered to current backlog, I think you've covered that well. I recognize that that's higher than the same time last year, but can you just talk through your thinking process there given what we saw last year in terms of project push outs? And I know these are kind of one off occurrences that aren't necessarily interconnection related or anything. But maybe just talk to your confidence on the ability to deliver on that uncovered portion of the guide?

[Julian Nebreda, President and CEO at Fluence Energy]

Yes. No, I mean, we feel very confident clearly. We're sending the guidance to that number. What I will say, I mean, I know where we are today. We're kind of in a penalty box.

[Julian Nebreda, President and CEO at Fluence Energy]

We need to find a substantial part of this number by the next earnings call. And that will be that's the point. We are working on it. We believe we're going to get it. And we'll see whether by the next earnings call, we should have a substantial part of this resolve and the risk for it doesn't mean that we'll get to 100% because as you know, we recognize some revenue as we sign contracts.

[Julian Nebreda, President and CEO at Fluence Energy]

But we will get to a point that you can feel comfortable that the mid side of the range is covered enough that we can get your trust back on our ability to deliver.

[Jordan Levy, Vice President - Sustainability Equity Research at Truist Securities]

Thanks for that.

[Jordan Levy, Vice President - Sustainability Equity Research at Truist Securities]

And then just a quick follow-up on the $30,000,000 in cost reductions and rightsizing. Is there depending on market conditions, is there still more wood to chop on that front or is that sort of what you're the level you're comfortable with on a go forward basis?

[Julian Nebreda, President and CEO at Fluence Energy]

This cost reduction aligns our cost structure with our business model of half or not allowing our cost to grow more than half of our top line growth. So if our growth is 25%, not allowing our cost to go more than 12.5%. So that's what we're doing with this cost structure, align it to that business case. There probably are always a little opportunity here there, but that's the objective.

[Jordan Levy, Vice President - Sustainability Equity Research at Truist Securities]

Thank you.

[Operator]

Thank you. One moment for next question. Our next question comes from the line of Vikram Bakri of Citi. Your line is now open.

[Vikram Bagri, Analyst at Citigroup]

Good morning, everyone. You talked about winning from the Chinese through tech and we thought tech is deflationary as well. We saw the announcement from China and E and NdRC recently, which seems like they might make the situation for Chinese manufacturers a little more desperate and a little more worse. I was wondering like how are you thinking about ASP this year and next year? Do you I understand and appreciate that you should be able to get to the targeted margins and protect the margins.

[Vikram Bagri, Analyst at Citigroup]

I was wondering like how much of ASP pressure do you anticipate we might see this year and next year?

[Julian Nebreda, President and CEO at Fluence Energy]

We still see some as we mentioned during the call, we still see some ASP pressure going forward that the competitive environment is not there. And we're working with a view of further reduction in ESPs going forward. We looked at the Chinese tender prices, which are we get information on it. So we kind of know and we I know we have added some recent tenders in The Middle East, especially in the Saudi Arabia. That gives us a sense of where the lower side of that range is.

[Julian Nebreda, President and CEO at Fluence Energy]

So we already are expecting certain reductions going forward that we will be working on. We have in our that's part of our plan.

[Ahmed Pasha, Senior VP, CFO & Principal Financial Officer at Fluence Energy]

Yes, this is Amit. I mean, last year since last year, we have seen roughly 35%, forty % decline in ASPs, but I think at the same time, we have seen volume pickup of north of 60%. So I think there is a benefit in the volume pickup that helps to continue to grow our revenue. But these trends are continuing, but at the same time we are seeing more and more volume. Got it.

[Vikram Bagri, Analyst at Citigroup]

And then as a follow-up,

[Vikram Bagri, Analyst at Citigroup]

I wanted to ask about the $30,000,000 in cost reductions, if you can share where they're happening. And to your answer for the last question, I was wondering if this $30,000,000 reduction speaks to the growth this year or you're aligning your expenses to growth longer term, so it's related more to growth next year and expectation for growth outlook are changing for forward years and that's why the reduction is happening?

[Julian Nebreda, President and CEO at Fluence Energy]

I mean, we looked at our cost structure per year depending on our top line growth and then we look at our cost structure. Generally, what we're doing is things that we were planning to do during the year that we are now won't do because of the we don't have the revenue. And simple as that, I mean, we are I'm defending all investments in product and I'm defending all investments in sales, but the rest of the organization, we are adopting it to a company that now is selling 15 less than what originally expected. And then for next year, we will whatever we have the 30% top plus that we just communicated to you. Depending on where we end up, we will ensure that our cost structure aligns with our business model, but not allowing our costs to grow more than half the rate of growth of our top line growth.

[Vikram Bagri, Analyst at Citigroup]

Thank you.

[Operator]

Thank you. One moment for next question. And our final question comes from the line of Julien Dumoulin Smith of Jefferies. Your line is now open.

[Julian Nebreda, President and CEO at Fluence Energy]

Good morning.

[Julien Dumoulin-Smith, Research Analyst at Jefferies Financial Group]

Hey, can you hear me okay?

[Julian Nebreda, President and CEO at Fluence Energy]

Hey, Julien, good morning.

[Julien Dumoulin-Smith, Research Analyst at Jefferies Financial Group]

Hey, good morning, guys. Thank you very much for letting me on. Just following up here on a couple of things said. First, briefly on liquidity backdrop, obviously, you commented about working capital here at the start of the year. I mean, given the EBITDA profile interest, I mean, you're basically saying suggesting that the cash balance should remain relatively intact through the course of the year, Amit.

[Julien Dumoulin-Smith, Research Analyst at Jefferies Financial Group]

Just want to make sure we're on the same page about how to think or you said yes, right?

[Ahmed Pasha, Senior VP, CFO & Principal Financial Officer at Fluence Energy]

Working capital. Yes. Hey, Julian. Yes, I think the main reason for working capital use is the build up in our inventory. As you may have seen, we have over $300,000,000 of inventory and that is primarily to basically serve our demand contracts we have in place.

[Ahmed Pasha, Senior VP, CFO & Principal Financial Officer at Fluence Energy]

So net net during the whole year, we are not expecting the working capital use more than I think it's totally roughly $225,000,000 that we are forecasting for the full year and $200,000,000 of that is already in the Q1. So we don't expect any material change in the forecast.

[Julien Dumoulin-Smith, Research Analyst at Jefferies Financial Group]

And no material build in cash though, that was the key piece, like just in terms of like where you land for the year or do you expect it to reverse here?

[Ahmed Pasha, Senior VP, CFO & Principal Financial Officer at Fluence Energy]

I mean, for the full year, we basically will be in around the same ballpark because we will have significant receivables in the Q4 given the revenue profile we have, but I think we expect that to be collected in the following quarters. But for the full year, we feel pretty good where we are today.

[Julien Dumoulin-Smith, Research Analyst at Jefferies Financial Group]

Awesome. And Julian, if I can go back to the competitive pressures, I mean, obviously '25, '20 '6, you've got this running advantage versus your peers in The U. S. Admittedly by '27, we start to see some suggestions of international entrants into The U. S.

[Julien Dumoulin-Smith, Research Analyst at Jefferies Financial Group]

Market at various levels here. How do you think about the competitive landscape in The U. S. Over time and as much as what you just described internationally of competitive pressures bearing weight here? Again, would you think that '26 would be a relative peak versus '27 as you see some of those new ventures come in?

[Julien Dumoulin-Smith, Research Analyst at Jefferies Financial Group]

Again, open question, obviously, you responded in part to Kashy on this, but we'd love to hear your thoughts, especially as you think about your product innovation in 2020.

[Julian Nebreda, President and CEO at Fluence Energy]

So in terms of we believe that over time, The U. S. Market will be a domestic content market. So most players will compete in the market, will compete with domestic offerings. So you're right.

[Julian Nebreda, President and CEO at Fluence Energy]

Probably I'm surprised that it has taken them this long to get ready in my own personal view. So I agree with you. Our view today is that they will be probably in 2026 I mean, sorry, in 2027 where we'll see more of domestic offering and competing. There, our competition will have to win through technology by offering things that are better, that do better, that behave, that run better and that last longer. And that's the way to win.

[Julian Nebreda, President and CEO at Fluence Energy]

That's what I would say that the normal way you win in any industry. So that will be my view. I think the domestic content gives us a couple of years of upside of opportunity to have kind of a safe place, but we are getting ready for a world where we compete just with all the domestic content players and it will be technology as a driver of success.

[Julien Dumoulin-Smith, Research Analyst at Jefferies Financial Group]

Right. But the margin dynamics there by over time, I mean, obviously, you brought down expectations here in the near term. Do you think there's a little bit more pressure and you need to offset that with technology beyond the near term?

[Julian Nebreda, President and CEO at Fluence Energy]

I think that generally will be 10% to 15%. I don't have to be very clear, I don't think I have a view yet on 27 margins, but I think that our current view when we looked at our product or our cost on our competitors, the 10% to 15% is something that we can safely guide to. So that's what I would tell you. We clearly require part of this new platform, it already has a roadmap of improvements to ensure that because we know our competition will not sit idle. So we already have that as part of it.

[Julian Nebreda, President and CEO at Fluence Energy]

So we have investments in product development that we'll need to continue to to ensure that we continue to be competitive.

[Julien Dumoulin-Smith, Research Analyst at Jefferies Financial Group]

Great. Excellent guys. Thank you.

[Julian Nebreda, President and CEO at Fluence Energy]

Thank you, Julien. And thank you everybody for participating on today's call. I really appreciate your participation.

[Operator]

Thank you. This concludes the question and answer session. I would now like to turn it back to Lexington May for closing remarks.

[Lex May, VP & Investor Relations at Fluence Energy]

Thank you for your participation on today's call. If you have any questions, feel free to reach out to me. We look forward to speaking with you again when we report our second quarter results. Have a good day.

[Operator]

Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.

Participants

Executives

• Lex May, VP & Investor Relations
• Julian Nebreda, President and CEO
• Ahmed Pasha, Senior VP, CFO & Principal Financial Officer

Analysts

• George Gianarikas, Managing Director and Senior Analyst at Canaccord Genuity Group
• Brian Lee, Analyst at Goldman Sachs
• Dylan Nassano, Vice President at Wolfe Research, LLC
• Analyst
• Andrew Percoco, Analyst at Morgan Stanley
• Mark Strouse, Equity Research Analyst at JP Morgan Chase & Co
• Chris Dendrinos, Vice President at RBC Capital Markets
• Kashy Harrison, Senior Research Analyst at Piper Sandler Companies
• Jordan Levy, Vice President - Sustainability Equity Research at Truist Securities
• Vikram Bagri, Analyst at Citigroup
• Julien Dumoulin-Smith, Research Analyst at Jefferies Financial Group