Fluence Energy Q3 2026 Earnings Call Transcript

Quartr
Provided by Quartr
August 6, 2026

Key Takeaways

  • Positive Sentiment: Record order momentum: Q3 order intake reached $1.44 billion, nearly triple the prior-year period, while backlog grew to a record $6.4 billion. Management expects another record order quarter in Q4.
  • Positive Sentiment: Data-center traction accelerated: Fluence signed its first $300 million developer order, received approximately $550 million in additional hyperscaler awards, and grew its data-center pipeline to 16 GWh. The company now has two hyperscaler master service agreements.
  • Negative Sentiment: Manufacturing delays reduced the outlook: Construction and automation issues at the Houston facility, along with quality-related rework at a China facility, delayed deliveries and shifted about $400 million of revenue into fiscal 2027. Fiscal 2026 revenue guidance was lowered to a $3.0 billion midpoint from $3.4 billion, while adjusted EBITDA guidance fell to negative $10 million from positive $50 million.
  • Negative Sentiment: Near-term profitability remains pressured: Q3 included roughly $15 million of costs tied to product rollout and production delays plus a $15 million loss on a long-term battery supply agreement. Management projects approximately 11% Q4 gross margin and acknowledged additional execution risks during the manufacturing ramp.
  • Neutral Sentiment: Liquidity is adequate but growth may require capital: Fluence ended the quarter with approximately $863 million of liquidity and expects to return to about $900 million by fiscal year-end, but could need an additional $300 million to $500 million of working capital over the next year to support expanding orders.
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Earnings Conference Call
Fluence Energy Q3 2026
00:00 / 00:00

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Chris Shelton
Chris Shelton
VP of Investor Relations and Sustainability at Fluence Energy

Good morning, welcome to Fluence Energy's third quarter earnings conference call. Joining me on this morning's call are Julian Nebreda, our President and Chief Executive Officer, and Ahmed Pasha, our Chief Financial Officer. 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 fluenceenergy.com.

Chris Shelton
Chris Shelton
VP of Investor Relations and Sustainability at Fluence Energy

During the course of this call, Fluence management may make certain forward-looking statements regarding various matters relating to our business, including but not limited to, statements related to our future financial and operational performance, future market growth and related opportunities, anticipated growth and business strategy, liquidity and access to capital, expectations relating to pipeline, order intake, and contracted backlog, future results of operations, and impact of the One Big Beautiful Bill Act, projected costs, beliefs, assumptions, prospects, plans, and objectives of management, and the timing of any of the foregoing. Such statements are based upon current expectations and certain assumptions and therefore subject to certain risks, uncertainties, and other important factors, which could cause actual results to differ materially. Please refer to our SEC filings for more information regarding these risks, uncertainties, and important factors.

Chris Shelton
Chris Shelton
VP of Investor Relations and Sustainability at Fluence Energy

You are cautioned not to 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. This call will also reference non-GAAP measures that we view as important in assessing the performance of our business, including adjusted EBITDA, adjusted gross profit, and adjusted gross profit margin. A reconciliation of these non-GAAP measures to the most comparable GAAP measure is available in our earnings materials on the investor relations website. Following our prepared remarks, we will conduct a question and answer session with our team. Thank you very much. I'll now turn the call over to Julian.

Julian Nebreda
Julian Nebreda
President and CEO at Fluence Energy

Thank you, Chris, welcome to everyone joining us today. Turning to slide four. Today, I will provide an update on the progress we have made in driving new order intake and building our backlog, both of which were at record levels this quarter. All these costs are growing business, which includes robust demand from our core customers, combined with a rapid expansion of data center customers, from which we receive our first orders and contract awards totaling $850 million. We believe that the momentum of the past few months will continue in the quarters to come, driven by our differentiated product offering and our team's longstanding ability to meet customer needs. Following my remarks, Ahmed will review our financial results for the quarter and our outlook for the remainder of the year. Starting with key highlights for the third fiscal quarter.

Julian Nebreda
Julian Nebreda
President and CEO at Fluence Energy

First, we signed $1.44 billion of orders during the quarter, which is nearly triple the $509 million we signed in the same period last year. Second, included in our record order intake was our first deal with a data center developer worth $300 million. During July, we were awarded an additional $550 million of business across multiple data center sites by one of the hyperscalers that we discussed last quarter. Third, we ended the quarter with a record backlog of $6.4 billion, representing 14% growth over the second quarter and more than 30% growth since the third quarter of last year. Four, we ended the quarter with total liquidity of approximately $860 million, in line with our expectations.

Julian Nebreda
Julian Nebreda
President and CEO at Fluence Energy

Fifth, Ahmed will discuss our third quarter financial results shortly, but revenues were affected by delays in expected project deliveries driven by the ramp-up of two new contracted manufacturing facilities. Accordingly, we are lowering our guidance midpoints for 2026 revenue and adjusted EBITDA to $3 billion and -$10 million respectively. We do not take this reduction lightly and have instituted changes in an effort to ensure we deliver on our growing market demand. I will detail our plan further in a moment. Please turn to slide five for more detail on our order intake. With $2.7 billion now signed to the third quarter of this year, our orders are 80% higher than the amounts from last year, with utilities and IPPs making up approximately 90% of this total.

Julian Nebreda
Julian Nebreda
President and CEO at Fluence Energy

We expect fourth quarter orders will be another record level for the company. We see reason for this strong momentum to continue in future quarters given our current demand and competitive position. Please turn to slide six as I detail our progress with data center customers. Our announcements on last quarter's call that we have signed two Master Service Agreements with hyperscalers raised our profile with other potential data center customers. Overall, our data center pipeline has increased to 16 GWh, representing a more than 35% increase compared to the second quarter. Our pipeline now includes a mix of projects from both hyperscalers and data center developers. During the quarter, we signed a $300 million order for a behind-the-meter project with a developer. We were introduced to these customers by one of the hyperscalers we have been working with.

Julian Nebreda
Julian Nebreda
President and CEO at Fluence Energy

The sales cycle for this customer was much faster than our traditional market segment, converting from lead to order in three months. We continue to see the developer segment centered on speed-to-power solutions. We are pleased to be positioned to meet their needs. Hyperscaler customers continue to focus on quality of power solutions, where we also stand out in terms of our ability to deliver. We were pleased to receive approximately $550 million of awards under one of our MSAs in July. These are not yet purchase orders. We expect these will add to our total of signed orders in the coming months. These data center customers have a pipeline of projects that we continue to believe we are well-positioned to beat out. We look forward to expanding our business with them in the near future.

Julian Nebreda
Julian Nebreda
President and CEO at Fluence Energy

Please turn to slide seven as I discuss five backlog and pipeline growth. Our backlog has benefited from record orders in two of the past four quarters and sets a strong base for revenue growth in fiscal 2027. As of June 30th, approximately $2.2 billion of our $6.4 billion backlog is expected to convert to revenues in fiscal 2027. This compares to the $1.5 billion of fiscal year 2026 revenue coverage we had as of June 30th, 2025. Turning to our pipeline, we exited the quarter at $33.1 billion, which is an increase of $1.6 billion compared to last quarter. This indicates $3 billion of new opportunities after considering our conversion of pipeline into orders during the quarter. We continue to see a growing percentage of our pipeline coming from the U.S. market compared to previous years, mostly attributed to the data center segment.

Julian Nebreda
Julian Nebreda
President and CEO at Fluence Energy

Please turn to slide eight for details on the expansion of our supply chains. We have been expanding our supply chain capacity to meet the strong demand for our products as reflected in the growth of our backlog. New, larger contracted manufacturing facilities globally are expected to increase our capacity and also deliver the quality our customers expect. A major driver of our revised revenue expectation for this year is attributable to ramping up production at two of these new factories. In the U.S., we will be the off-taker of a new, fully automated facility located in Houston with expected capacity of 15 GWh per year. Completion of this new facility has been delayed by a few months due to delays in construction and issues relating to the automation equipment. Limited production commenced this quarter, and our manufacturer is taking steps to address outstanding issues.

Julian Nebreda
Julian Nebreda
President and CEO at Fluence Energy

We expect the facility to reach full production levels during our fiscal first quarter of 2027. I will highlight this contract manufacturer has been our main enclosure supplier from Vietnam, which is a very similar facility to this new one in Houston. We believe their knowledge and experience will be helpful as this factory moves towards full production. Our new international facilities are now fully ramped, and our product is being shipped to customers on a delayed timeline because initial production did not meet our quality expectations. Corrections were implemented, and we have resumed shipping high-quality products to projects all around the world. Given the importance of timely, consistent, and high-quality production to our business, we recently made organizational changes to ensure more direct oversight of and accountability for our production capability.

Julian Nebreda
Julian Nebreda
President and CEO at Fluence Energy

Today, we announce that Roman Loosen will assume leadership of our supply chain, and Peter Williams will concentrate on product, with both leaders reporting directly to me. Roman currently serves as our Chief Enterprise Operations Officer and brings more than 20 years of global leadership experience at Siemens, where he held senior operational and business leadership roles with responsibility for supply chains, manufacturing, and business transformation. Roman will lead a set of managers with deep experience and skill sets in supply chains and manufacturing that have joined our company over the past few months. I am confident that this new management team will strengthen our supply chain and manufacturing to meet the growing demand for our products. When combined with our supply of domestic sales, we expect the Houston facility will expand our annual capacity for domestic content significantly compared to our current footprint.

Julian Nebreda
Julian Nebreda
President and CEO at Fluence Energy

Once it is fully run and added to our current supply chain, we expect to have capacity to meet our current backlog of projects and confidence to meet the growth of the U.S. market. Please turn to slide nine for details on how we are differentiating in the current market. We have been successful in growing our backlog and penetrating the new and important data center customer segment in a very short period of time. Fluence has new and repeat customers who appreciate our advanced product designs, leading energy density, and focus on total cost of ownership. In addition to these factors, our proprietary software stack, including an operating system, is designed to enable our customers to optimize their solution over its long-term life and allow for remote monitoring. These features can increase availability and extend the life of our solution for customers in all use cases.

Julian Nebreda
Julian Nebreda
President and CEO at Fluence Energy

Specifically, for data center customers, the ability of our operating system to efficiently help smooth loads and handle periods of low voltage have contributed to new awards and orders. Smartstack has been gaining favor in terms of orders these years, representing 75% of our orders year to date. One of the attractive features of Smartstack is that we design it as a product platform with the ability to upgrade over time. During the quarter, we announced the first evolution with Smartstack 10, which increases density of each unit from 7.5 MWh to 10 MWh. The ability to upgrade our Smartstack offering over time with speed and efficiency allows us to quickly adapt to evolving customer needs, which is valuable for both Fluence and our customers. To conclude, we believe we have the right product and team to win in this rapidly growing market.

Julian Nebreda
Julian Nebreda
President and CEO at Fluence Energy

With our first data center awards adding to our record backlog, and a growing global supply chain sized to meet future growth, we are committed to delivering for customers and creating long-term value for shareholders. With that, I'll turn the call over to Ahmed to discuss our financial results and outlook for the rest of this year.

Ahmed Pasha
Ahmed Pasha
CFO at Fluence Energy

Good morning, everyone. While our results this quarter were disappointing, the challenges we experienced were primarily related to construction and production startup delays at new manufacturing capacity and scaling of our new products. We have taken actions to address issues and improve execution, and are now tracking to our revised production plan. Importantly, these investments strengthen our supply chain globally and position us to support our growing backlog. As these new facilities move beyond the initial ramp-up phase, we believe Fluence will be better positioned to deliver profitable growth and create shareholder value. Starting with slide 11, we generated Q3 2026 revenue of $650 million, up 8% year-over-year. This was approximately $90 million below the expectations we discussed on our last quarterly call. This shortfall was primarily driven by production delays at two new contract manufacturing facilities that are currently ramping.

Ahmed Pasha
Ahmed Pasha
CFO at Fluence Energy

Production from the enclosure manufacturing facility in Houston was pushed by a quarter due to construction and automation delays. The facility has begun limited production and is expected to achieve full production levels in the first quarter of fiscal 2027. The other issue occurred at one of our two new facilities in China, where initial production of components of Smartstack did not meet stringent standards and required rework. The facility is now producing consistently to our standards and has achieved full production in the fourth quarter. While we expect to realize the revenues associated with the Q3 projects that were delayed, the slower ramp-up compresses the timeline for production in the fourth quarter, pushing a portion of previously planned 2026 deliveries into fiscal 2027.

Ahmed Pasha
Ahmed Pasha
CFO at Fluence Energy

Our Q3 adjusted gross profit reflects the lost margin from revenue shortfall and an approximately $15 million costs associated with new product rollout and production delays. In addition, we recorded $15 million loss on a planned battery supply agreement, most of which was associated with a single project. Despite the upfront cost, this arrangement secures the long-term supply and attractive pricing, strengthening our ability to support growing demand and price future orders with greater confidence. Turning to slide 12 for our fiscal 2026 guidance. We have revised our outlook to reflect our updated expectation for production through the end of this fiscal year. More specifically, we expect revenue in the range of $2.9 billion-$3.1 billion, with a midpoint of $3 billion. The approximately $400 million reduction versus the prior midpoint is largely the result of manufacturing ramp-up delays that pushed revenue recognition into 2027.

Ahmed Pasha
Ahmed Pasha
CFO at Fluence Energy

In terms of EBITDA, we now expect adjusted EBITDA -$30 million to $10 million, with midpoint of -$10 million compared to our prior midpoint guidance of $50 million. While there are several puts and takes relative to our prior guidance, the $60 million reduction is largely explained by two items. About $44 million of lost margin from shift of approximately $400 million of revenue into 2027 and $15 million related to the proposed long-term battery supply agreement discussed earlier. We are maintaining our expectation for annual recurring revenue of approximately $180 million by the end of fiscal 2026. Turning to slide 13 for an update on our liquidity position. We ended the third quarter with total liquidity of approximately $863 million, which includes approximately $365 million in total cash.

Ahmed Pasha
Ahmed Pasha
CFO at Fluence Energy

Consistent with what we said on the last call, we expect total liquidity will return to $900 million level by fiscal year-end, driven by execution on our backlog of projects included in the guidance. Bottom line, our liquidity position continues to support our near-term working capital needs, particularly heading into our highest revenue quarter. Regarding liquidity needs for 2027, we are comfortable that our existing liquidity has us well positioned for success. That said, as Julian noted, our expected order intake is reaching new highs, and to support that growth may require an additional $300 million-$500 million of working capital over the coming year. We will remain disciplined and pursue financing only where there is a clear line of sight to profitable growth and shareholder value creation.

Ahmed Pasha
Ahmed Pasha
CFO at Fluence Energy

In summary, while we have more work to do, demands remain strong, our backlog continues to grow, and we are taking actions needed to improve our execution and support long-term profitable growth. With that, I return the call back to Julian.

Julian Nebreda
Julian Nebreda
President and CEO at Fluence Energy

Thanks, Ahmed. Let me close with a few key takeaways. First, order momentum continues. Our third quarter order intake, our record of $6.4 billion backlog, and the initial order with a data center developer, all evidence our successful product strategy and sales effort. We currently expect orders to reach a record level again during the fourth quarter of this year. Second, additional production capacity. We're adding new contract manufacturing capacity in the U.S. and abroad and have realigned our organization with new leadership to strengthen execution. Third, product offering. The integration of Smartstack density, safety, and reliability metrics with our software and controls capabilities allowing for fast response, load smoothing, and remote operation puts us in a dominant position to meet the growing demand of the diverse customer segments we serve.

Julian Nebreda
Julian Nebreda
President and CEO at Fluence Energy

In conclusion, we are positioning our company to continue profitable growth and to deliver value to our customers and shareholders.

Operator

A brief moment. We needed to delay today's call as we have lost our speaker. We'll be back in just one moment. All participants, please continue to stand by. Your meeting will begin momentarily. Once again, please continue to stand by. All participants, please continue to stand by. Your meeting will begin momentarily. Once again, please continue to stand by, and we thank you for your patience. Once again, please continue to stand by, and we thank you for your patience. It is now our question and answer session. If you'd like to ask a question during this time, simply press star, followed by the number one on your telephone keypad. Your first question comes from the line of George Gianarikas from Canaccord Genuity. Your line is-

George Gianarikas
George Gianarikas
Analyst at Canaccord Genuity

Hey, everyone. Nice to have you back.

Julian Nebreda
Julian Nebreda
President and CEO at Fluence Energy

Good morning, George. Before you answer, I really want to apologize for the technical mishap we had this morning, which we'll figure out what it is, but we've been waiting in hope for the same time you were waiting, and we were not have been connected. Sorry for that, everybody. We really appreciate and value your time, and we know it was a little bit of a waste of time, but hey, great. Okay, George, good morning.

George Gianarikas
George Gianarikas
Analyst at Canaccord Genuity

Good morning. All good. Maybe first, if you could provide some additional granularity on the production delays and just sort of go into a little bit of detail what's happening at the facility. Thank you.

Julian Nebreda
Julian Nebreda
President and CEO at Fluence Energy

Yeah. Great. As you know, as we're scaling up the company, we are increasing our production capacity. As part of that, we brought in two new manufacturing groups, one to serve the international market and one to serve the U.S. market. On the international market, we're working with reputable, well-known seasoned contract manufacturers. One of these manufacturers, as they are producing our Smartstack for the international markets, one of those manufacturers producing our pods, the things that go on top of the skids that we have. The initial production was not meeting our ranging testing, and we had to significantly delay production to ensure that we got the production in line with our quality. That meant significant delays that have been significant, that since then we have fully resolved, and now we are producing, they are working full-time.

Julian Nebreda
Julian Nebreda
President and CEO at Fluence Energy

They're doing a great job, but we won't be able to recuperate the full amount of the volumes we lost during the quarter, during the year. That's that case. We feel confident, and we're seeing it today, that they can meet our quality, our volumes going forward, and it will really put us in a good position to serve the international market with a competitive product. The U.S. is slightly different. The U.S., we're putting a fully facility with our contract manufacturer that works out of Vietnam. The same one is putting a fully automated facilities, an improved version of the one we have in Vietnam, fully automated, a lot more automated because of the U.S. labor cost somehow. Fully automated system.

Julian Nebreda
Julian Nebreda
President and CEO at Fluence Energy

They experienced construction delays, where the construction delays were then we got delays in connected to the utility. Out of the, we've been running the plant with generators, and that meant that we had to manage it. We could not do all the works in parallel. That meant that some of the automation took longer. It's the same thing as these delays got stuck one another. There was a moment it was clear that we were not going to be able to recuperate the volumes for 2026, and that we had to move volumes to 2027. That facility is ramping up, is producing today. It will connect to the grid in the next couple of weeks. The issues are being resolved, and as I said, this is very much a sister company to the one that's in Vietnam.

Julian Nebreda
Julian Nebreda
President and CEO at Fluence Energy

We're confident that the production levels we have set for ourselves for the quarter, that it will be met, that the issues that we have identified are fully resourced and resolved. We're very confident on it. I would say on a more general point, this facility will provide us a competitive advantage in the U.S. market. That we believe is a very, very important of our strategy here in the U.S. market. It will allow us to produce 15 GW of fully U.S.-made products, a fully automated integration. We are really, really happy with what we will receive. However, we're going through these delays that unfortunately we could not fully resolve on time.

George Gianarikas
George Gianarikas
Analyst at Canaccord Genuity

Thank you. Maybe just as a follow-up, an update on your recent commercial traction in data center. Specifically, how would you characterize the competitive dynamics in your win rates and deals you participated in? What are the key differentiating factors that lead to your wins? Thank you.

Julian Nebreda
Julian Nebreda
President and CEO at Fluence Energy

Yeah. Great question. I think that, how we win, we win because of the density, safety, and reliability of Smartstack as it combines with our operating systems. That allows for very efficient load management and very good response times to the low voltage ride through. It's a combination of technical, of our operating systems and our enclosures, which are our delivery equipment, which are safe and reliable. That's how we win. Generally, have been very good result, and we're very happy with the traction we had with this is significantly better than our plans, and we are very confident that as our industry grows, that will be an important part.

Julian Nebreda
Julian Nebreda
President and CEO at Fluence Energy

What's interesting for us also is that we are now looking not only in the U.S. with most of the activities we have, and the contracts we have signed today are from, but also looking at some of our markets, too, with some of the hyperscalers and some of the same developers to help them in other markets, which I think our global footprint will help us on capturing that demand more globally.

George Gianarikas
George Gianarikas
Analyst at Canaccord Genuity

Thank you.

Julian Nebreda
Julian Nebreda
President and CEO at Fluence Energy

Thank you.

Operator

Your next question comes from the line of Brian Lee from Goldman Sachs & Co. Your line is live.

Brian Lee
Brian Lee
Analyst at Goldman Sachs

Hey, guys. Good morning. Thanks for taking the questions. Wanted to ask about the battery cell cost uplift. It sounds like it's international supplier, can you give us a little bit more detail? Does this have anything to do with the new AESC ownership? Maybe just walk us through what's changing to impact costs here, and is this also a drag into your fiscal 2028 procurement and costs as well?

Julian Nebreda
Julian Nebreda
President and CEO at Fluence Energy

Yeah. Great question. No, this is an international. This is for the international market. It's not connected to AESC. We enter into a long-term agreement that is not only a supply but also some technological alignment in how the batteries will work in our modules and how we're going forward. It's a longer-term contract that we believe will put us in a very good position for 2027 and 2028 and going forward. However, we had to take a charge in one project that we had that was being supplied by the same customer that as part of the deal we adjusted, we needed to take. That's what it was and part of the NPV of the project is significantly higher than the charge we're taking, we decided that better take the charge and move forward. That's what it is.

Julian Nebreda
Julian Nebreda
President and CEO at Fluence Energy

I think that as we have continued to grow, we believe that integrating our technological roadmap with the technological roadmap of our cell suppliers is fundamental for our success in the longer term.

Brian Lee
Brian Lee
Analyst at Goldman Sachs

Yep, fair enough. Okay. Maybe just a question on sort of the conversion cycle, because if you look at slide seven, obviously a lot of backlog growth the past couple of years, a lot of pipeline growth, especially the past couple of quarters. You have a lot of top of the funnel momentum heading into fiscal 2028. Obviously, there's some operational challenges here that are tripping you up in terms of meeting expectations this year. How should we think about the conversion cycle on these record backlog levels and kind of the impact of these data center and hyperscaler bookings? Just any sense of how quickly we should start to see these turn into P&L impact and does it differ from your historical backlog conversion cycles? Thanks, guys.

Julian Nebreda
Julian Nebreda
President and CEO at Fluence Energy

As you said, we are just starting with data centers, we have limited proof points of what it is. The proof points we have is that they work at a much faster conversion cycle. We have the deal with the developer. We sign it from lead to contract in less than three months, tremendously fast. They will also have a very fast conversion cycle going forward. We believe those will help accelerate our conversion cycle. Our normal, the other 90% today or our other segments are working on the same conversion cycle of roughly a year to 18 months that we had. As you know, we recognize revenue, the revenue recognition occurs in accordance to the milestones of the program. I would say in a period of 18 months, you recognize the full revenue.

Julian Nebreda
Julian Nebreda
President and CEO at Fluence Energy

Some of it is recognized fairly quickly as we recognize the milestones as we move on the execution of the project. Not like it all happens at the end.

Brian Lee
Brian Lee
Analyst at Goldman Sachs

Okay. Appreciate it. I'll pass it on. Thanks, guys.

Julian Nebreda
Julian Nebreda
President and CEO at Fluence Energy

Yeah.

Operator

Your next question comes from the line of Julien Dumoulin-Smith from Jefferies. Your line is live.

Julian Nebreda
Julian Nebreda
President and CEO at Fluence Energy

Good morning.

Julien Dumoulin-Smith
Julien Dumoulin-Smith
Analyst at Jefferies

Hey, good morning, team. Thank you guys very much. I appreciate it.

Julian Nebreda
Julian Nebreda
President and CEO at Fluence Energy

Thank you, Julien.

Julien Dumoulin-Smith
Julien Dumoulin-Smith
Analyst at Jefferies

Hey. A couple of things real quickly just to rehash. Number one, you made comments about the expedited nature of the potential customers here with BTM. Can you elaborate a little bit more about how you're thinking about the potential cadence for incremental bookings from here against some of these arrangements? Also elaborate a little bit on the composition of customers inasmuch as obviously last quarter we talked about a couple in particular. BTM could be an array of different kinds of counterparties as well. Can you talk about sort of the nature of these counterparties? I got a quick follow-up.

Julian Nebreda
Julian Nebreda
President and CEO at Fluence Energy

Yeah. Last time we talked mostly about hyperscalers. Now the hyperscalers have brought on into, which was our plan, go to hyperscalers because we know that's the door for the developers. What we have seen with the developers, there have been the change when you talk to hyperscalers, mostly speed to power. Mostly, sorry, quality of power solutions. That's why they look, they spend very technical analysis, very deep understanding. When we're talking to the developers, it's mostly speed to power. What we have seen is that the need, the developers are probably, I would say, I don't know if that, but at least what we have seen today, they are in a much of a hurry than compared to the hyperscalers.

Julian Nebreda
Julian Nebreda
President and CEO at Fluence Energy

We see that market a lot more active, and we see those activities, especially moving from leads to pipelines to orders more quickly. That's what we can say as what we have seen up to date. The pipeline, today, hyperscalers have the majority, but the developers represent the growing segment that is working right now.

Julien Dumoulin-Smith
Julien Dumoulin-Smith
Analyst at Jefferies

Understood. Excellent. Just quickly, I see a comment here about strategic expenses just of late here. How are you thinking about the company strategically, if there's anything to flag there? I don't know, on the quarterly expenses, is there anything we should watch in Fluence spending?

Julian Nebreda
Julian Nebreda
President and CEO at Fluence Energy

We're always in the market, we're always looking at stuff. As you know, earlier in the year, we look at AESC as an option, there some of the costs are connected to the AESC review and all the analysis we have to for the AESC review. We're hearing nothing to announce.

Julien Dumoulin-Smith
Julien Dumoulin-Smith
Analyst at Jefferies

Got it. Still looking at alternatives on that front, on procurement?

Julian Nebreda
Julian Nebreda
President and CEO at Fluence Energy

We are spending a lot of time looking at talking to all the battery capacity in the market and talking to them. Nothing really to talk about at this stage, that's where we're spending our time as we see an opportunity to work more closely with the battery manufacturers in the U.S.

Julien Dumoulin-Smith
Julien Dumoulin-Smith
Analyst at Jefferies

Got it. Excellent. Thank you very much.

Julian Nebreda
Julian Nebreda
President and CEO at Fluence Energy

Thank you, Julien. Nice talking to you.

Operator

The next question comes from the line of Dylan Nassano from Wolfe Research. Your line is live.

Dylan Nassano
Dylan Nassano
Analyst at Wolfe Research

Yeah. Hi, good morning.

Julian Nebreda
Julian Nebreda
President and CEO at Fluence Energy

Hey, Dylan. How are you?

Dylan Nassano
Dylan Nassano
Analyst at Wolfe Research

Doing well. Just wanted to check, in terms of the scope of the delays that you guys are seeing from the manufacturing facilities, to what extent, if any, are those impacting the hyperscaler MSAs and these orders that you guys are talking about here?

Julian Nebreda
Julian Nebreda
President and CEO at Fluence Energy

Yeah. No, not at all. These are issues of contracts that we have today that we signed a year, a year and a half ago, and they have nothing. They are normal contracts. They are normal, are typical segments, no way affecting the MSA. The MSAs of the contracts we're signing with a data center.

Dylan Nassano
Dylan Nassano
Analyst at Wolfe Research

Got it. Okay, thanks. Maybe it'd just be helpful if you could just level set us again on the number of MSAs. I believe it was two last quarter. How many hyperscalers exactly does that include? Can you just clarify, you have the $300 million first order and then the $550 million-

Julian Nebreda
Julian Nebreda
President and CEO at Fluence Energy

Yeah

Dylan Nassano
Dylan Nassano
Analyst at Wolfe Research

awarded. Are those from the same hyperscaler or is that two different hyperscalers? Thanks.

Julian Nebreda
Julian Nebreda
President and CEO at Fluence Energy

We have two MSAs with two hyperscalers. As we have engaged in working with hyperscalers, they have referred us to developers that work for them. We are now, as I said, our pipeline and our work is we're spending a lot of time with developers as they continue to work with the hyperscalers a lot, but as they have a pipeline that requires very quick response time. In terms of the contract we signed, we signed the $300 million contract with a developer that was referred by one of the hyperscalers we have an MSA with. This was a contract of a developer that's building a data center for one of the hyperscalers that we will be providing our equipment to. Then we have under one of the hyperscalers, there was a tender, we got awarded the $550 million.

Julian Nebreda
Julian Nebreda
President and CEO at Fluence Energy

One that we're in the process now of finalizing all the final technical points to be able to convert this into a backlog, and we should convert into backlog in the coming months.

Dylan Nassano
Dylan Nassano
Analyst at Wolfe Research

Got it. Very helpful. Thank you.

Julian Nebreda
Julian Nebreda
President and CEO at Fluence Energy

We continue to work to engage with more hyperscalers, and we have seen both hyperscalers we're working on several projects, both in the U.S. and internationally, that we will provide, that we want to bid on and we would like to serve them with our products.

Operator

Your next question comes from the line of Vikram Bagri from Citi. Your line is live.

Julian Nebreda
Julian Nebreda
President and CEO at Fluence Energy

Hi, Vikram. Good morning.

Vikram Bagri
Vikram Bagri
Analyst at Citi

Morning, everyone. Hey, Julian. I wanted to ask about the margins first. One of your larger peers indicated margin pressures in storage. I was wondering how you feel about the 10%-15% margin guidance you have, backlog converting $2.2 billion next year, $2.8 billion after that. Pretty long-dated backlog at this point. Is there a variance in margins when you look at the sort of like backlog in the near term, medium term, and long term? Are you witnessing the same pressures your peer talked about?

Julian Nebreda
Julian Nebreda
President and CEO at Fluence Energy

The reality is that we are still very comfortably within the 10%-15% range. Even when you looked at our results this year, if you take out some of the one-time costs that we had during the year, we will have been around the 12% that we guided the market over. We're confident. In our backlog or in the new orders, they are only in line with the 10%-15%. We do not understand the pressure that the other big supplier announced that they were coming out with this. We don't really understand. It might be something in their cost structure that is different. As we move forward, our big issue is scaling this company. Now that's the issue, and that's kind of the pains we're having going through are connected to scale, and scale drives competitiveness.

Julian Nebreda
Julian Nebreda
President and CEO at Fluence Energy

Probably in the case of our competitors, that some of them have already reached a scale. They're finding some other issues that, for us, but they're not visible.

Vikram Bagri
Vikram Bagri
Analyst at Citi

Got it. You talked about scaling, and my next question is loosely tied to that. We'll be talking about guidance for next fiscal year on the next call. I was wondering what is the mechanism, how you're thinking about setting the guidance. You have $2.2 billion of backlog for FY 2027. Is 85% coverage the right way to think about it, or it should be connected to the capacity that's coming online, how much you can bring online, the capacity from supplier perspective, and/or the 85% coverage should be higher? Relative to that, very encouraging to see the executive management changes to improve execution. I was wondering what specific changes Roman and Peter will make in next 12 months. You're dealing with contract manufacturers, you have relatively less control over their operations. What sort of changes the new team will make to ensure on-time deliveries? Thank you.

Julian Nebreda
Julian Nebreda
President and CEO at Fluence Energy

Let me start with your second question. I am bringing Roman to lead our manufacturing and supply chains due to his deep transformation and his work on supply chains and manufacturing, but he's very experienced in transformation. One of the things you realize as you scale a company, and we move to a very different scale, is that your systems and your processes need to transform to the new scale. That's what he's working on. We have very good suppliers. We have great manufacturing partners. It's not a strategic change, it's an execution issue. That's what he will concentrate on delivering. Peter has been leading the development of Smartstack, I think that he will continue ensuring that continued development of Smartstack.

Julian Nebreda
Julian Nebreda
President and CEO at Fluence Energy

For 2027 and forward, the main point is continuing the integration of our software and our hardware in a way that we can provide much more stringent customers than what we had historically. That's what these two groups are going to do. Transformation of our manufacturing, which is not changing suppliers or anything, it's just ensuring our processes, our systems, our planning is aligned with our bigger scale and continue developing Smartstack as our platform and continue strengthening the connection between one and the other. Very happy. Your first question was on the-

Vikram Bagri
Vikram Bagri
Analyst at Citi

Coverage

Julian Nebreda
Julian Nebreda
President and CEO at Fluence Energy

on the coverage. I still believe that 80%-90% is the right one, the 85%. That's our view. We clearly, and this is a learning, new facilities, even though we put in a plan, we put a hedge and a contingency. What happened is that we had a hedge. It worked. We went over the hedge and we had the contingency. We went over the contingency. That is when the problem becomes a problem. To the extent that we have new facilities coming up, we will probably hedge them more for next year. Having said that, we do not expect any closure of facilities. We do not expect any major new manufacturing capacity that will support our revenue in 2027. I feel confident that 80%-90% coverage will be the right coverage in 2027.

Julian Nebreda
Julian Nebreda
President and CEO at Fluence Energy

We will look at it clearly as we looked at it here's risk.

Vikram Bagri
Vikram Bagri
Analyst at Citi

Thank you.

Operator

Your next question comes from the line of Justin Clare from Roth Capital. Your line is live.

Julian Nebreda
Julian Nebreda
President and CEO at Fluence Energy

Hey, Justin. Good morning.

Justin Clare
Justin Clare
Analyst at Roth Capital

Good morning. Thanks for the time here. Just wanted to ask about the guidance here. Based on the revised revenue and adjusted EBITDA guide, it looks like the fiscal Q4 gross margin could be roughly 12%, around that range. Just wondering if you could clarify what's embedded in the assumption for the gross margin in Q4. Are there any costs associated with the new products or the production delays from fiscal Q3 expected to extend into fiscal Q4?

Ahmed Pasha
Ahmed Pasha
CFO at Fluence Energy

Sure. Hi, Justin. This is Ahmed. I think the implied gross margin, we are looking at roughly 11% for Q4. Based on the guidance we discussed, it's a little less at the midpoint if you're looking at midpoint to midpoint. Yes, we have considered additional costs that we may incur based on the outlook we see today. There are many percentages, but I think net-net, we feel pretty good that after taking those additional costs for delays, we should land at the guidance that we gave based on the outlook that we see today.

Justin Clare
Justin Clare
Analyst at Roth Capital

Got it. Okay, that's helpful. Just on the supply chain here, I was wondering if you could discuss the potential impact of the FCC's restrictions on inverters here. I know you have access to a U.S.-based inverter supplier. Wondering if you have any exposure to sourcing inverters from China. Just curious if compliant domestic sourcing of inverters could be a competitive advantage here as your customers kind of reassess some exposure to imported inverters.

Julian Nebreda
Julian Nebreda
President and CEO at Fluence Energy

We only work with non-Chinese inverters in the U.S., mostly U.S.-made, some of them imported out of Europe. We feel that we will not be affected in any way. That has been our policy since then. We do see that those restrictions on inverters will also increase in Europe, that will happen also, and we expect, and we are working towards continuing. In Europe, we work with a mix of Chinese and non-Chinese, but we're working towards getting ready for a fully European solution for the European market. We see the market, our view from day one since we started, that there will be more technological restrictions on this technology as it continues to grow and plays a more important role in the grid for our technology.

Justin Clare
Justin Clare
Analyst at Roth Capital

Got it. Okay. Thank you.

Julian Nebreda
Julian Nebreda
President and CEO at Fluence Energy

Yeah.

Ahmed Pasha
Ahmed Pasha
CFO at Fluence Energy

Okay. Thanks very much.

Operator

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

Ahmed Pasha
Ahmed Pasha
CFO at Fluence Energy

Hey, Christine. Good morning.

Christine Cho
Christine Cho
Analyst at Barclays

Good morning.

Julian Nebreda
Julian Nebreda
President and CEO at Fluence Energy

Good morning, Christine.

Christine Cho
Christine Cho
Analyst at Barclays

Okay, I wanted to start with the order intake of $1.44 billion this quarter. $300 million of that was for the behind-the-meter project. The $1.1 billion was your typical front-of-the-meter projects. For the $1.1 billion, how should we think about the split of that between U.S. and international? With the $850 million award with the hyperscaler, or data centers collectively, do those include EPC? Is there any difference between the developer versus hyperscaler? Should we assume that both of these projects have a duration of two hours?

Julian Nebreda
Julian Nebreda
President and CEO at Fluence Energy

Yes. On the data centers, they have a duration of two hours. That's generally, we do not offer, and they're really not real offers at less than two hours in the market. All the markets are at two hours. No real difference on what the technical requirements are, and the margins of them generally very much align. As I said, the developers, which are usually smaller companies, more agile, and who can make decisions a lot faster, the conversion rate is significantly faster. I will say that's our current view. This is, as you know, an emerging segment. Some of the things we're learning as we move forward. Very happy with it. In terms of the $1.1 billion of the non-data center, roughly the U.S. continues to be where we're making the most traction. I will say, the number is around 60/40.

Julian Nebreda
Julian Nebreda
President and CEO at Fluence Energy

60% the U.S. and 40% the international markets. One, doesn't mean that that's what this is going to be. It was a quarter where it was a lot of activity in the U.S. and limited activity in the international market.

Christine Cho
Christine Cho
Analyst at Barclays

Okay. Just a housekeeping item. The 10-Q indicates that there were some IEPA refunds. Did any of that show up in COGS, or was it applied to inventory?

Ahmed Pasha
Ahmed Pasha
CFO at Fluence Energy

Yeah. I think that was the point I was saying, the puts and takes. There is some IEPA refund we have, I think it's a little over $10 million, yes, that we have recognized year to date.

Christine Cho
Christine Cho
Analyst at Barclays

You'll expect to recognize some more in 4Q?

Ahmed Pasha
Ahmed Pasha
CFO at Fluence Energy

Definitely.

Julian Nebreda
Julian Nebreda
President and CEO at Fluence Energy

Yes.

Ahmed Pasha
Ahmed Pasha
CFO at Fluence Energy

Some.

Julian Nebreda
Julian Nebreda
President and CEO at Fluence Energy

Over time.

Ahmed Pasha
Ahmed Pasha
CFO at Fluence Energy

Over time.

Julian Nebreda
Julian Nebreda
President and CEO at Fluence Energy

It goes into, as I said, part of it is recognized, part of it goes into inventory, and I think the inventory converts into revenue, then you recognize it over time.

Christine Cho
Christine Cho
Analyst at Barclays

Okay.

Operator

Your next question comes from the line of Chris Dendrinos, from RBC Capital Markets. Your line is live.

Julian Nebreda
Julian Nebreda
President and CEO at Fluence Energy

Hey, Chris. Good morning.

Chris Dendrinos
Chris Dendrinos
Analyst at RBC Capital Markets

Hey, good morning. I guess I hate to belabor the point here just a little bit more, following up on Rob's question around the guidance here. If I look at the outlook for the remainder of the year, pretty wide range, just given the amount of time left in the year. What is driving that guidance range? I guess I'm asking, just trying to get a sense for how confident you are in the execution path here going forward. Thanks.

Ahmed Pasha
Ahmed Pasha
CFO at Fluence Energy

Yeah. No, that's a fair question. I don't think you need to read too much into it. Frankly, I think based on the execution, we have still some work to do on execution. We thought it is prudent to give you a guidance in case there are any incremental costs we may have to incur as we ramp up our operations. That is what is really driving that wider gap versus the revenue guidance we gave. EBITDA guidance is wider than what you would expect. The only thing that reflects is additional costs that we may incur. That is what really is underlying driver.

Chris Dendrinos
Chris Dendrinos
Analyst at RBC Capital Markets

Got it. That's it on my end. Thank you.

Ahmed Pasha
Ahmed Pasha
CFO at Fluence Energy

Thank you.

Operator

Your final question comes from the line of Ameet Thakkar from BMO Capital Markets. Your line is live.

Ameet Thakkar
Ameet Thakkar
Analyst at BMO Capital Markets

Hi. Thanks for-

Julian Nebreda
Julian Nebreda
President and CEO at Fluence Energy

Hey, Ameet.

Ameet Thakkar
Ameet Thakkar
Analyst at BMO Capital Markets

squeezing me in. Hey, good morning.

Ahmed Pasha
Ahmed Pasha
CFO at Fluence Energy

Hey.

Ameet Thakkar
Ameet Thakkar
Analyst at BMO Capital Markets

Thanks for the time.

Julian Nebreda
Julian Nebreda
President and CEO at Fluence Energy

Thank you.

Ameet Thakkar
Ameet Thakkar
Analyst at BMO Capital Markets

Thanks for squeezing me in. I'm maybe just following up on Chris's question, maybe in a little bit different way. If I think about the midpoint of your guidance now for FY 2026, I think it implies like $1.4 billion of revenue for Q4. If I look at kind of where the revenue recognition and kind of implied ASPs are, it's kind of like, let's just say, $235. I think it implies like 6,000 MW of revenue recognition megawatts. Are you guys anticipating a large portion of what you'll recognize in Q4 to have kind of EPC? I know some of the European contracts you have in the past have had pretty attractive kind of implied ASPs because you were doing EPC work. Is that the case for Q4? I've got one more quick follow-up.

Ahmed Pasha
Ahmed Pasha
CFO at Fluence Energy

No, I don't think.

Ameet Thakkar
Ameet Thakkar
Analyst at BMO Capital Markets

Yeah.

Ahmed Pasha
Ahmed Pasha
CFO at Fluence Energy

Most of that is in the U.S., and that's mostly the deliveries that we have under our domestic content.

Ameet Thakkar
Ameet Thakkar
Analyst at BMO Capital Markets

Yeah.

Julian Nebreda
Julian Nebreda
President and CEO at Fluence Energy

I will say, for this quarter, we already have produced and have fully integrated roughly half of what we need to do for the quarter. We're confident that we will get to the numbers. Clearly, as I said, we're ramping up Houston and that, we believe we have it under control. Like any ramp up, there's always risks that we cannot envision today, and that's why the wider range. Nothing in line with what we can do. We already did half already. They already have our inbounds going to where they need to be or in trucks going to where they need to be. We feel the guidance is still good.

Ameet Thakkar
Ameet Thakkar
Analyst at BMO Capital Markets

Understood. Then, if you could kind of help us, it looks like your cumulative deployed megawatts were unchanged versus the prior quarter, I think they're only up like 8% or 9% from the beginning of the year, or from the end of the last year. I think cumulative deployed-

Julian Nebreda
Julian Nebreda
President and CEO at Fluence Energy

Yes

Ameet Thakkar
Ameet Thakkar
Analyst at BMO Capital Markets

megawatts, and it's like 7.4 GW, I think, at the end of the year, with 6.8 GW. The revenue is obviously, from a percentage basis, a little bit better. Can you just help us kind of-

Julian Nebreda
Julian Nebreda
President and CEO at Fluence Energy

Yeah

Ameet Thakkar
Ameet Thakkar
Analyst at BMO Capital Markets

understand when all of those megawatts get deployed? Thanks.

Julian Nebreda
Julian Nebreda
President and CEO at Fluence Energy

Our definition of deployed megawatts in our-

Ahmed Pasha
Ahmed Pasha
CFO at Fluence Energy

Revenue recognition

Julian Nebreda
Julian Nebreda
President and CEO at Fluence Energy

metric is projects that have reached substantial completion. Our revenue recognition happens significantly earlier when we deliver the equipment to site and transfer title. That's where you see the disconnect. Our definition of delivery is act of substantial completion, while our revenue recognition is on transfer of title, which occurred a quarter off. These all convert into actual, what we call delivered products later on. I know it creates a confusion because a part our competitors use delivered as actual delivery into site rather than substantial completion. We probably need to amend our definition to align it more with the revenue recognition definition.

Ahmed Pasha
Ahmed Pasha
CFO at Fluence Energy

Which is percentage of completion.

Julian Nebreda
Julian Nebreda
President and CEO at Fluence Energy

Yeah.

Ameet Thakkar
Ameet Thakkar
Analyst at BMO Capital Markets

Got it. Thank you.

Julian Nebreda
Julian Nebreda
President and CEO at Fluence Energy

that's the disconnect, Ameet.

Ahmed Pasha
Ahmed Pasha
CFO at Fluence Energy

Okay.

Julian Nebreda
Julian Nebreda
President and CEO at Fluence Energy

Well, thank you, everybody, for joining. Again, we are sorry that we had to be late, that we had technical issues. It's really an inconvenience, I know, for all of you, and we assure you that it won't happen again. Thank you so much for your time and your questions.

Operator

This concludes today's meeting. You may now disconnect.

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