Fluence Energy, Inc. (FLNC) Q2 2026 Earnings Call Transcript

Good day and thank you for standing by. Welcome to the Fluence Energy, Inc. Q2-2026 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 11 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star one one again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Chris Shelton, Vice President of Investor Relations. Please go ahead.

Good morning, and welcome to Fluence Energy's second quarter earnings call. Joining me on this morning's call are Julian Nabrida, our president and chief executive officer, and Amid Pasha, our chief financial officer. A copy of our earnings presentation, press release, and supplementary metric sheet covering financial results along with supporting statements, schedules, including reconciliations, and disclosures regarding non-gap financial measures are posted on the investor relations section of our website at FluentBentity.com. During the course of this call, Fluent's management may make certain forward-looking statements regarding various matters related 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 related to pipeline, order intake, and contracted backlog, future results of operations, the 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 are therefore subject to certain risks, uncertainties, and other important factors which could cause actual results to differ materially. Please refer to our FCC filings for more information regarding these risks, uncertainties, and important factors. 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 measures 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.

Thank you, Chris, and welcome to everyone joining us today. Turning to slide four. Since our February call, we made meaningful progress on order intake, our U.S. domestic supply chains, and our product roadmap, as we positioned Fluence to capture expanding global demand for energy storage. Our business model keeps us close to customers, so we can anticipate their needs early and respond quickly with the right products, applications, and commercial structures. This morning, I'll highlight our momentum across the business, and then Ahmed will review our financial results for the quarter and our current fiscal 26 outlook. Here are the key highlights for the quarter. First, order activity is accelerating versus fiscal 25. As of today, we signed approximately $2 billion of orders this year, which is double the amount signed through the same period last year. Our record backlog was $5.6 billion at the end of the second quarter, and we expected to grow further based on execution so far this year. Second, second quarter adjusted gross margin was 11.1%. which is within our full year expectation of 11% to 13%, a meaningful improvement versus Q1, and more reflective of the discipline execution we deliver historically. Third, based on our first half performance and visibility into the remainder of the year, we are reaffirming our fiscal 26 guidance for revenue, ARR, and adjusted EBITDA. And fourth, we ended the quarter on March 31st with approximately $900 million of total liquidity, reinforcing our strong financial position. Please turn to slide five for more details on order intake. Our expanded commercial effort is translating to stronger conversion into sign orders. During the quarter, higher lithium prices temporarily slowed some customer decisions, but momentum re-accelerated as prices stabilized. For third quarter to date, we have signed over $600 million of additional orders. For the first seven months of this fiscal year, order in tech totals approximately $2 billion, and we expect the total for all of Fiscal 26 to significantly exceed the level from Fiscal 25. Most of the orders this year have come from our core customer segment, developers and utilities. It is important to note that 50% of our orders this year come from new customers, a signal of the early results from our expanding commercial effort. Please turn to slide 6 as I detail our progress with new customer segments. Since our February call, we executed master supply agreements with two major hyperscanters. The selection process for both of these MSAs was subject to multiple rounds of review, and in each case, Fluence was chosen after meeting criteria specific for each customer. In one case, the customer's process began with 26 different best vendors, and Fluence was the first to complete all qualifications to sign a global MSA. In the other case, the customer had requirements which made it hard for many competitors to comply with. In both cases, we believe Fluent's understanding of customer requirements, rapid response time, and differentiated products were key in driving this engagement. These MSAs established Fluent as a qualified supplier, positioning us to build unexpected near-end data center projects for both hyperscalers. With the additional progress with one of these customers over the past few months, we expect to sign the initial order from one of the data center projects within the third quarter. In addition, since our prior call, we have successfully developed a proprietary solution to handle the extreme power usage fluctuations experienced in data centers. Fluence excels at this based on our deep experience with advanced controls and tracked record managing fast response systems. Based on our discussions, we believe these capabilities will be an important differentiator for data-centered customers concerned with quality of power. Finally, we are seeing increasing interest in SmartStack for applications requiring longer duration energy storage. Smart stack density provides a competitive advantage for these applications because of its smaller footprint. Please turn to slide 7 as I discuss our growing pipeline. A key piece of our commercial strategy has been the growth of our pipeline, which has increased by 35% so far this fiscal year. We are seeing opportunities in the U.S. market beginning to outpace our other markets, with projects concentrated in California and Arizona, as well as the MISO markets in the Midwest. Most of the growth is from our core customer base, as I mentioned earlier, but also in part by new customer segments, including data centers and other large energy users, increasingly adopting storage solutions. Since our last call, our data center pipeline has increased by over 30%, including projects from both major hyperscalers I just discussed. We expect data center projects to make an increasing contribution to order intake during the first quarter of this year, building on the initial order we expect in the next few weeks. Fluence business model is intended to keep us close to customs, which we believe puts us in a privileged position to spot evolving needs early and to respond quickly. That insight informs our product design, the applications we support, and the technical, operational, and commercial terms our customers require, backed by a sales organization with deep, long-standing relationships. In short, we have positioned Fluence to be on the leading edge of best. We view the components we use as commodities, which we integrate into finished products to meet customer needs. Combined with our long-standing technical expertise and hands-on experience and our deep understanding of different markets around the world, we believe Fluence is uniquely positioned to deliver and help our customers maximize the benefit of investing in battery projects. We have evolved our product to accommodate a growing number of customer demand, including market-leading density, digital solutions optimizing operations and profitability, reduced total cost of ownership, large-scale fire testing, and industry-leading reliability. Fluence was also the first to offer a complete U.S. domestic supply chain, an important advantage for a U.S. customer. We offer a one-stop solution, primarily project development through delivery and installation, and continuing over the full operating life of each project. We combine in-house EPC expertise with a dedicated service organization that optimizes performance and extends asset life, resulting in industry-leading operational methods. Please turn to slide 9 for an update on SmartStack. Product innovation remains another key differentiator for Fluent. SmartStack sets the industry standard for energy density, enabling customers to feed more than 500 megawatt hours of storage per acre with additional improvements planned. We design SmartStats to lower total cost of owners through modular architecture, easier maintenance access, and more than 98% reliability, delivering more electricity and more value to our customers. And its flexible design supports a broad range of cell types across multiple manufacturers, including pouched cells commonly used in electric vehicles. Importantly, smart stack packaging and modular architecture addresses the density challenges typically associated with pouched format in stationary stores. I am pleased to report that our first SmartStack has reached substantial completion and commenced commercial operations. Our growing SmartStack backlog reflects the market's strong interest in our product. Please turn to slide 10 for an update on our domestic supply strategy. As I just mentioned, we recognize the importance of a U.S. domestic supply chain early. Today, we have U.S. production for all major components, including battery cells from our supplier in Smyrna, Tennessee, which has been operating since 25. Building on our existing U.S. supplies, as we announced in February, we signed an agreement with another source of domestically produced battery cells beginning in fiscal 27. We believe this incremental capacity strengthens our supply position and supports delivery against our growing order book. We are also evaluating additional supply options to help support fluence growth beyond 27. Our current position gives us flexibility as additional proposed US supply comes online. Based on our experience, converting EV battery production to best sales can take a year or more. When exploring additional proposed supply lines, we plan to evaluate each facility's timeline to first production, its range speed, its technical characteristics, and how its location could strengthen and optimize our current U.S. domestic supply network. Let me also update you on PFE compliance for our cell supply in Smyrna, Tennessee. ASC closed a deal to sell a majority interest of its facility to Fix Energy, a subsidiary of Lone War Capital. Ownership changed hand on March 31, 26, and the facility continues to produce cells that qualified for tax credits under the One Big Beautiful Bill Act. We moved quickly to establish a relationship with a new owner and have signed a new supply agreement covering the next few years. We are confident in their plan to sustain the strong production level we've seen this Looking ahead, we believe we're well positioned to benefit from growing diversity in U.S. sales supply, and the impact additional capacity may have on battery prices. Internationally, we competed in markets that have seen meaningful declines in average sales prices for several years, and those lower prices expanded demand by enabling new applications. It's reasonable to expect similar dynamics in the U.S. Importantly, we have executed successfully through the flash and eye repricing cycles before. With an approximate 50% decline in ASPs over the past two years, we more than doubled adjusted growth margin. Although we expect ASPs to continue to decline for the balance of fiscal 26, we are forecasting approximately 50% revenue growth with adjusted gross margins in the range of 11% to 13%, reflecting the strengths of our execution and operating mode. To conclude, we are seeing accelerating demand, improving execution, and expanding opportunity across both our core and emerging customer segments. With a record backlog, a strengthening U.S. domestic supply position, and a differentiated product platform, 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.

Good morning, everyone. Since our previous earnings call, we have continued to capitalize on strong demand trends in our industry while maintaining a disciplined focus on delivering on our fiscal year 2026 commitments. We also maintain a strong liquidity that provides us flexibility to execute on our growth expectations. More specifically, starting with slide 12, we generated Q2 2026 revenue of $465 million, up 8% year-over-year. Approximately $80 million of revenue was pushed into Q3 due to two issues. Specifically, roughly half was attributable to a customs issue in Vietnam, with the remainder due to shortage of loading equipment in Spain. Both issues have since been resolved. The delayed shipments have been received and we are current on the quarter's deliveries with no further delays. Also, to confirm, we do not have any material exposures to the Middle East conflict as none of our shipments utilize the state of Hormuz. Our adjusted gross profit for the quarter was $51 million, representing an adjusted gross margin of 11.1%. This result is within our full year expectations of 11% to 13% and reflects a meaningful improvement from the first quarter level, as well as comparable quarter for fiscal 2025. The primary driver of the improvement was consistent execution and operational discipline across our portfolio. Adjusted EBITDA for the second quarter was negative $9 million, an improvement of $21 million compared to the second quarter of last year. The improvement reflects higher gross margin, lower operating cost, and $6 million gain from unwinding an FX derivative. This offset is $6 million loss on the same FX derivative recorded in the first quarter of 2026, with no net year-to-date impact. Turning to slide 13 for an update on our adjusted gross margin progression and how disciplined execution translates to returns for our stakeholders. As you can see, our rolling 12 months adjusted gross margin is 12.4%, marking two full years of consistent double-digit returns. We believe this progression underscores the durability of our margin profile, even in the dynamic pricing environment. Importantly, it reflects the product, commercial, and supply chain actions we have taken across the portfolio. These actions position us for continued margin improvement beyond this year. Turning to slide 14 for an update on our liquidity position. We ended the second quarter with total liquidity of approximately $900 million, which includes approximately $413 million in total cash. During the quarter, we invested $220 million in inventory to support deliveries that underpin our second-half fiscal 2026 revenue. you. In addition, we will invest approximately $100 million in inventory during Q3 to support second-half deliveries. Liquidity is expected to return to $900 million levels by the fiscal year end, driven by execution on our backlog and new orders. Bottom line, our liquidity position fully supports delivery of our fiscal 2026 commitments. Turning to slide 15 for our fiscal year 2026 guidance. We are reaffirming our guidance ranges for revenue, ARR, and adjusted EBITDA, reflecting our strong visibility into the year and continued momentum we see across our business. More specifically, we expect revenue in the range of $3.2 to $3.6 billion with a midpoint of $3.4 billion. We expect approximately 70% in the second half, consistent with the waiting of revenue last year. We expect roughly 30% of second half revenue in Q3 and the remainder in Q4, again consistent with last year. With all equipment ordered and production tracking as planned, we are confident in delivering on our customer commitments and our full-year revenue goals. We expect annual recurring revenue, or ARR, to reach approximately $180 million by the end of fiscal 2026, up from $148 million in fiscal 2025. And we continue to expect adjusted EBITDA in the range of $40 to $60 million for the full year. In summary, we are committed to achieving full revenue and profitability outlook for fiscal 2026, we remain rather focused on ensuring disciplined execution for our customers and delivering value to our shareholders. With that, I will now turn the call back to Julian for his closing remarks. Thanks, Ahmed.

Let me close with a few key takeaways. First, strong execution. Our second quarter performance, record $5.6 billion backlog, and on track production levels, support our confidence in our fiscal 26 guide. We ended the quarter with approximately $900 million of liquidity, which we believe provides us with the flexibility to fund growth. Second, order momentum, momentum accelerating. Order intake has doubled year-to-date, led by orders from both new and existing customers, an indication of strong demand in the U.S. and the positioning of our business. And third, expanding customer base. We are in an excellent position to capture a portion of the rapidly expanding data-centered demand with the signing of MSAs with two major hyperscalers. after meeting all of their commercial and technical requirements. We expect to execute the first purchase order with one of these customers within the third quarter. In conclusion, we are positioning our company to continue profitable growth and to deliver value to our customers and shareholders. With that, we are now prepared to take your questions. Thank you.

Thank you. At this time, we will conduct the question and answer session. As a reminder, to ask a question, you will need to press star 11 on your telephone and wait for your name to be announced. To withdraw your question, please press star 111 again. Please stand by. Our first question comes from George Gianaricas from CG. Your line is now open. Hi, everyone.

Good morning, George. Good morning. Thank you for taking my questions. My first one is on the competitive landscape. How are you viewing the recent trend of some cell manufacturers vertically integrating? And specifically, how are you looking at their push for market share and any impact on pricing?

We have seen both CATL and BYD become common and integrate vertically. we have not worked in the past with BYD, but we have worked with the CATL. It hasn't really changed the intensity of the market, if you tell me the truth. The value, the ability to meet customer needs at a reasonable price hasn't changed effectively. So we continue. We're growing our backlog. We're growing our winning projects the same as we are. So we feel confident it hasn't really made a big difference in the competitive environment. So, we, you know, we attracted 50% of our new sales and new customers. So, we are, I don't see it as a challenge. It's not so new, by the way. I mean, it has happened in the past. The change of CTL was big, but not a major change in the competitive landscape from our point of view.

Thank you. And maybe as a follow-up, first, you know, congrats on the two hyperscaler MSAs.

You know, you did this a little bit, but if you could pull back the curtain a bit on the mechanics of those wins you know what did specifically that what did the validation process look like and what do you think was the primary differentiator for you that allowed you to win those yeah two things they go we went through a very strict commercial and operational and technical say evaluation in one of the cases there were 26 players I would say the majority will not make it you know so there's a limited number of people could use of companies that could meet this very stringy requirement our ability our deep knowledge our you know this deep experience managing fast response systems in Europe especially and having the infrastructure and the technology capability to prove their case to them very very quickly if we're made of it you know we have we have the lab we have the technicians we do this every day we know how the applications work, we understand how the grid codes work globally, and that made a big difference that we were the first one. So I think that, we believe that will continue to be what will keep us ahead of the market because we are now, you know, some of our competitors are still trying to figure out how to meet the criteria. We're thinking how to exceed their, you know, what they need and trying to offer them more value and more capabilities, and that's what we bring to the table.

Thank you, George.

Our next question comes from Julian Dumoulin-Smith from Jefferies. Your line is open.

Hey, guys, nicely done. I've got to hand it to you guys, really. Kudos here on seeing it through. Thank you, Julian. In particular, absolutely, Julian. Look, I wanted to ask you in particular here, as it pertains to hyperscaler orders, what specific product are they following up with you guys with? I know there's been some ambiguity in the marketplace as to whether or not you have the right product and the product positioning for the hyperscalers. To get this kind of confirmation with two, as you guys just flagged in particular, is quite notable. Can you speak to the specific deployment permutation that they're using you guys with? Is it a BTM, FTM? Is it a capacity support, load shifting? And then also, how do they think about the domestic contents or FIAC compliance? Is that another nuance that we should consider? Can you speak to the product more broadly in these wins and whether this is a leading indicator for further orders like this in coming quarters?

In terms of what they're asking, different than what I said in the last call when we were looking at a portfolio that was a little bit more mixed, now that we've concentrated in these hyperscalers, their main need is quality of power, helping them manage the fluctuation of the data. and help us do it quickly and effectively so and that's what they need and that's what we prove with our advanced controls and our products we can prove very very quickly to them that we can do it I will say you know if I can brag better than anyone else you know and that's what what is driving this if you go beyond the hyperscalers into kind of the developers and world it seems to be that they or it seems to be what we have experienced more of you know speed to power and meeting you know grid codes and and it's a little bit more it's a little bit more mixed but with these two hyperscaler has been quality of power they made they made ask in terms of domestic content it wasn't a requirement from them or something they were specifically looking at we clearly are selling it and i think that as we have explained today in the competitive position of domestic content they you know value you can create and the tremendous running opportunity of having a product that is built here by American for America here especially as these two hyperscalers most of the business in the US I think they have they are you know seriously considering but their objectives were meeting the quality of power meeting their technical commercial objectives and that's where they concentrated on and that's how we move in terms of these two MSAs they have behind you know significant partners that we expect that within the next year will convert into you know orders no we won't necessarily win them all but it will be a significant amount of demand that we see behind this that will will convert having these MSA's gives us you know who pulls us in a very very good position to capture it this is a hurdle in order to compete not many people can do it and I think gives us a stamp of approval that when we make an offer, they know that we will deliver what we're promising. Awesome, guys.

And quickly, Ahmed, can you speak to this slide? I have this interesting commentary that says, you know, you're going to invest additional inventory during the third quarter, but you're going to rebuild liquidity towards $900 million by fiscal year. When you say rebuilding liquidity, is that going to capitalize in some ways, or is that kind of organic cash flow?

Julian, I would not read too much in between the lines there. I think it was more as we invest because we have roughly $2.5 billion of revenue in the second half, so we will be delivering that and building up the inventory. But as we deliver the inventory, we will be collecting. So at the end of the day, our liquidity will be back at $900 million levels by the end of the year, consistent with what we told you when we gave our guidance for the year. So that was the intent there.

Awesome. And just to clarify from earlier, how many other suppliers and MSAs have you got?

I mean, very, very selective, Julian. They all fit in my hand, I think, and I have fingers left. We don't have the specific information, but we understand they are very, very selective, very few people. I've been able to do it today. They're probably working on it, but let's see if they get there.

All right, awesome. Congrats again, guys. Speak to you soon.

Thank you. Thank you, Julian.

Thank you. Our next question comes from Brian Lee from Goldman Sachs. Please go ahead.

Hey, Brian. Hey, William. Good morning. Thanks for taking the questions. Congrats on the strong backlog here and the hyperscaler updates. I had a couple questions, I guess, on hyperscaler MSAs. Not sure how much you can provide, but would love to maybe get some detail around quantification of the size of the deals, how many megawatts, over what years, and is it over multiple sites that are already identified? Maybe just if you could elaborate a bit more on kind of the scope of these two MSA deals and how meaningful they are in terms of quantitative impact.

Yeah. So I'll tell you, the majority or the great majority of our pipeline is supported by deals that are behind these two MSAs. and these deals will and those and that pipeline is several different data centers around that they have around the u.s. mostly so that's what it is in terms of a financial you know yeah and our current pipeline is 12 gigas so that gives you a sense we're not providing the financial numbers around it as it's too early and we're competing as you know so we are not providing those numbers today but I have my expectation is that as we end the fourth quarter and bring, hopefully, a good number of these projects, and I can offer numbers included in everything and do not necessarily be provided commercial. I will provide you more financial metrics of this.

Yeah, we'll look forward to that. And then maybe just zooming out a little bit, because this is a new business for you and obviously very, very high growth potential, what's sort of the deployment schedule? So, I guess, can you help us kind of visualize as you go into some of these, whether they're RFPs or bake-offs, what's the timeline for submitting your design and your proposal to when one is finalized and then when you get a PO to when you're going to deliver to site? What are the sequence of events and how long is that?

They are in a hurry, generally. Most of these projects, as I said, I don't know if I mentioned it, but the pipeline we have, we believe will convert into orders during the year, within a year, so quicker than generally we're in a pipeline that comes into our things, and very, very tight schedules for delivery that we can meet because we've been working on our speed for some time. So, you know, I cannot give you today a specific rule. This is what I want, but generally I'll say a lot faster than the conversion rate we have for our order from pipeline to orders and a lot faster of the conversion rate from orders to revenue than what we do in our normal utility and developer, especially with these two hyperscalers. The case of the developers, and it's a little bit different as those are more project type that they are looking for permits and stuff. So those will probably take a little longer.

Okay, understood. Maybe last one, if I could squeeze it in, just on the gross margin bounce back. I know that's been a focus for you guys for a little while, so nice to see it back to the range. Even on the lower volume here in 2Q, that was a pretty impressive gross margin rebound. What does that maybe entail for the back half of the year? Is there volume leverage and some of the efficiencies from this quarter that can spill over? and is there any potential upward bias to margins as you kind of move through the rest of the year? I'll give Ahmed to...

Hey, Brian. So in terms of the gross margin, you're right in the 11% gross margin we earned, which is higher than what we had in Q1. In the year to go, we just reaffirmed our guidance where we said 11% to 13%. So we will be somewhere in the middle of that range for our year to go. I think at least that is our goal is about 12%. So we will definitely be better than what we earned in Q2.

Okay. Thanks, guys. I'll pass it on. Thank you, Rick. Thank you, Brian.

Thank you. Our next question comes from Dylan Nassano from Wolf Research. Please go ahead.

Hey, Dylan. Good morning. I just wanted to check on the broader data center pipeline. Any updated thinking there in terms of, you know, how much of that kind of fits your previous criteria of pipeline versus leads? And then I noticed there's this 6-gigawatt-hour kind of target for what gets included. Just how did you come up with that number? Any thinking around there would be helpful.

I'll tell you that there are numbers for our pipeline and leads. Our pipelines went up like 30% from last quarter. We concentrated a lot on the hyperscalers, and so a good driver of that has been the hyperscalers who are roughly at 12 gigas. And our leads are three times that. No, generally the same as, or close to, or essentially the same that we had last quarter. We converted some into pipeline, and we were able to replenish it. The six gigas, I don't know what you referenced to the initial.

At the bottom, it says classified assistance, six gigawatt hours or more. Let me check.

But in any event, strong growth, a great opportunity here, and i think that by concentrating hyperscale if i can you know what we get the the the point of this we are in a in a market segment that we expect will transact faster and that we will convert into execution quickly yeah dylan that's six gigawatt hours that's uh it's not a it's not a pipeline that's uh how we classify an ldes project so anything over six gigawatt hours okay Sorry. Yeah, that's for long-duration storage. Yeah, yeah. Those are long-duration storage, so they need to be more than six hours in order to be long-duration. That's the definition of long-duration for us.

For us, yeah.

Yeah, so six and more. Okay, that makes sense. Yeah, I didn't know what it was.

Sorry for that. Yeah, my mistake. And then just to follow up on the quarter, I mean, it looks like revenue was kind of lower than analyst expectations, even kind of including this 80 million. So I just wanted to check, was there any other seasonality in the quarter beyond or other disruptions beyond the shipping stuff that you guys noted?

No, there was none. I think if you recall, when we gave our guidance Q4, we did say that about one third of our revenue in the first half and the rest, given frankly, we don't give quarterly guidance, I think that was the only reason why there's a difference. But overall, from internal perspective, as I mentioned, you know uh the 80 million dollars of this shipping delay was the only reason why we were lower on the revenue for q2 but that we have all the shipment we have already received so we feel pretty good on here to go and what if i can have one point our indication of where we see revenue divided among quarters more indicative so you can model it and stuff but it's you know we don't run the company on a quarterly basis so we very clearly we run it on a yearly basis That's why we intend to meet our yearly numbers.

We try clearly to what we indicate to meet it, but it's not – we do not provide quarterly guidance. I know it creates some confusion, but it's a way of try to help you model and at the same time keep the flexibility to manage things effectively and efficiently within the company.

Sounds good.

Thank you, Dylan.

Thank you. Our next question comes from Joseph Osha from Guggenheim Partners. Please go ahead.

Hey, Joe. How are you?

Just fine. Thanks for taking my call. I wanted to drill down a little bit on two product details. Julian, you said that hyperscalers and data centers more broadly tends to be more about product quality or power quality. So is the implication then that we're seeing a shorter duration configuration, say, you know, an hour or two as opposed to four? That's my first question. And the second question, just to confirm, you know, thinking about the inverters, are you generally being asked to deliver a response time of 10 milliseconds or less? Those are my two questions.

Yeah, and the first one, they tend to be shorter durations, you're right. so they they are a you know say to what we don't provide anything smaller than two hours those two hours as well what we do and again that's where the market is trading but they tend to be shorter than even though our main point to the data centers as we engage with them and the developer hyperscale is that the great beauty of that our technology compared to other technologies that are trying to resolve this is that we can stack business models on top we can do we can help them on some voltage we can help them on many many fronts so that's I think that as they are looking at the asset they are expanding also their view of what this kind of that was a on that point on the second one in generally I will say that that sorry the second one can we check it out and the actual number but it's very short you know so that's the way I will put it so you know we're not providing the actual number because it is proprietary to the solution and to the people we're working with but it is very very short significantly shorter than a hundred milliseconds because we tend to do for transmission systems and European qualifications.

And just to follow up on that very quickly, that would probably, I assume, create the need for inverters with, you know, wideband gap MOSFETs and some of the exotic stuff.

Yeah, yeah, you need inverters that can provide that capability. That capability is very much dependent on the inverter you use. We work with inverter companies that do it. We have done this in Europe for many years, so we know exactly who do this, how they do it, and their strategy very well. So, you know, we have that. And our advanced controls work very well with these inverters and have the processing time to ensure the whole system responds on that, not behind the inverter as it's supposed to be.

Okay. Thank you, guys. Thank you very much. Yeah, pleasure.

Thank you. Our next question comes from John Windham from UBS. Please go ahead.

Hey, good morning. Nice result. I was wondering if you could talk about the U.S. storage market continues to grow at a rapid pace. Are you able to provide us sort of where you are on being able in sort of capacity in gigawatt hours to provide over the next 12 months, and then just sort of thoughts on the roadmap to keeping up with the market growth over the next two or three years?

Yeah, we see the U.S. market growing expanding significantly. So that's great. What we have, as you know, we have our domestic products, our flagship solution in the U.S. We have the ASC capacity. We enter with another supplier for additional capacity, and we are looking at additional capacity for the 2028 going forward so we have enough capacity to power our you know the pipeline we see and the conversion rate we expected we don't provide specifically the number of the the the numbers but we is multi-giga capacity and we have seen no problems getting the we are putting the whole infrastructure that delivers that multi-giga offer in the US with a domestic content offering we can also So import equipment if we need to, but our preference is to do the domestic content solution.

Perfect. Thank you. And maybe just a quick follow-up. There's been a lot of commentary on the gross margin. But historically, some of the issue has been that operating OPEX as a percentage of revenue has basically been offsetting the positive gross margin. So just your thoughts on internal initiatives to get the OPEX number down to drive bottom-line profitability and free cash flow.

Yeah, the operating cost out of a percentage of revenue is essentially a function of growth, of growth of the top line. So if you follow it carefully, you'll see that that operating revenue goals, you know, it's very much followed. Our costs are very, very stable, and, you know, how much of our cost represents out of our revenue depends on how much we can grow revenue. So we have seen, and we have an operating leverage that we believe that we can grow this company, that we can keep our cost down at half the rate of growth of our top line which will be which adds tremendous value and you'll see it you'll see it when you look at the numbers it's very very clear it's an operating leverage you know formula unfortunately as you know last year we didn't grow so that's where the operating revenue the percentage of revenue of cost of revenue was a little higher than what we expect.

Our goal is that we basically create the operating leverage and we do have that as the revenue grows our costs, we will maintain that cost discipline and the cost will be reduced increasing at less than half of the growth in our revenue as Julian just mentioned. So I think that's our key focus from my perspective.

Thanks so much.

Thank you.

Thank you. our next question comes from amit sakar from bmo capital markets please go ahead hey amit how are you i'm very well thank you julian um thanks for taking my questions um it looked like um asps um if we'll get revenue and kind of your revenue recognition megawatts for the quarter we're up pretty nicely um quarter over quarter um and i was just wondering um was there a lot more epc work this quarter or is this kind of maybe of the level we should be thinking about for for the balance of the year for for modeling purposes yeah thanks I mean I didn't know this number as you said movie moves up and down quarter

after quarter based on the mix of the self so I wouldn't read too much on it you know a we are assigned to meet our financial objectives independent of where the ASPs go up or down you know and our planning assumptions that they will continue coming down and we are designed to make money and make it successful and I'll say even more whenever every time we have seen ASPs come down what happens that demand is fine at a rate that is much bigger than the reduction in revenue that comes out of the lower ASP so we you know I wouldn't read too much on it I know that something that you care about a lot I mean the analysts care a lot about but it is not a big driver of our business

financial results great and then I know you had mentioned earlier and answering one of the kind of questions before about the kind of your pipelines 12 gigawatts um and yeah I think you said that the vast majority of that is data center related is that right um you know is it a little bit over half or is it substantially all of that 12 gigawatt pipeline is data center yeah no we have 12 gigawatt a pipeline of data all of it is still to a data center related when I said that a great majority was connected to the two MSA's that we just signed so

the 12 gigawatt hours are all of it is data center related of which the great majority more than 60 yeah a good portion of it I want to give a number a come from the supports these two MSAs which are fine understood thank you so much yeah thank you our next question comes from David Arcaro from Morgan Stanley please go ahead hey thank you good morning I was wondering are there other MSA opportunities that you're currently working on is that something

that you would expect most hyperscalers to be, you know, pursuing on the storage front?

Yeah, we're looking at it. These are the two that had more urgent needs, and, you know, but we're looking to work with all of them, you know. So we believe their problems are similar and that we can, you know, meet their needs, you know, with our capabilities. So we hope to work with all of them.

Yeah, makes sense. Are there any active now or any sense of timing as to when those opportunities might pop up? It seems like they're all very active on the data center side of things, and I imagine looking at storage. So is that also a near-term opportunity?

I think that it – well, I cannot give you a real sense of timing of when it will happen. I think it depends on where they are and what they're doing. I mean, the two that we have signed are people who are very clear of what they need. They're in a hurry to win, and they seem to be ahead of the market, if you ask me. So, you know, but we're working with everybody.

We are contacting all of them, working with them, and the Chessies two are ahead.

Got it. Okay, great. And then the 50% proportion of new customers I thought was notable. I was just wondering, could you give any characteristics of kind of who those customers are, what type of customers they are? Is it the traditional profile of developers and utilities that you would see or any specific locations? I'm curious if it's a new profile.

I mean, this is a result of the great work that Jeff Munday, who joined us as our VP of Growth, has known since he arrived. it really had you know invested significantly in business development identified all these customers which are you know it I'll say we're not the typical we used to work before for our dealers developers or utilities that we have not contacted in the past and now we have made significant progress and this is a global effort what we're doing not only in the u.s. but I will say that as we said during the call these are customers that are within our normal or our core customer segments, you know, utilities and developers. But great kudos to our sales organization that has really invested into developing and bringing these new customers into the mix.

Right. Okay. Understood. Thanks so much. You're welcome.

Thank you. Our next question comes from Ben Callow from Baird. Please go ahead.

Hey, thanks for fitting me in here. Just back on data centers, hey, good morning. Could you just talk a little bit, you know, because of the specific product they're looking for and the size, if you could talk about just pricing and margin, how we should think about that on these bigger deals.

And then also my second question, just, you know, outside of the U.S. where you see pockets of demand, and then just remind us how you know margin compares internationally versus the US thanks very much guys okay in terms of data centers I'll say as we said duration shorter and I'll say the margins in line with our you know our guidance of 10 to 15 that that's what we'll say so generally that's what it is and and both of their needs are quality of power which we do this for grades globally we're doing for them here and i think it works well and you know in terms of margins margins change market for market depends on the competitive environment i said we tend we we go within our 10 to 15 range but there are markets that are a little bit more or they go through it's more competition now i'll say that you know markets like the us and the us is probably a little bit on the high side the UK on the lower side you know and then so we changes a little bit on no change changes market per market but our 10 to 15 range works for all these markets thank you our next question comes from Maheep Mandeloy from Mizuho please go ahead hey Maheep good morning and thanks for the

questions and nicely done on the MSAs.

A question on the MSAs with the hyperscalers. Do they have any special requirements on the battery types? Is it like the general battery you have for the best industry or is it a high C rate? Just curious if on the supply side, if you need to make any changes on the cell sourcing for that?

We make any battery grade as well. We make any battery grade. so you know we the batteries that commodity whatever they need I think the main driver is entity insure and that comes out our packing or capability so no real need on clearly the LFP to nobody goes to the MNC for for for many reasons but you know brand or supplier it's not it's not relevant for them whatever battery we put in our systems we can make it to red six thanks and And separately, like, we saw some battery supplies proposing high-seeded batteries which go inside the data center for 800-volt DCs.

Is that something of interest? Are you exploring or are you guys looking at outside the data center? So, thanks.

Yeah, yeah. We're looking at the, you know, our product roadmap includes, not only this, many other elements that we're looking at to continue improving our offering to data centers and to ProSolutions. One option is this, high seed rates, batteries that will go into that. I think, you know, have some limitations, but it's part of our product roadmap that we have for whether it will happen or not. We'll see. But it's not anytime soon.

Thank you.

Thank you.

Our next question comes from Moses Sutton from BNP Paribas. Please go ahead.

Thanks for squeezing me in. And congrats on the great update. Have these data center opportunities convert into reality? How do we think about the ratio watt for watt, meaning the watts of load to the watts of storage? We've seen examples out there of, you know, a gigawatt data center might need 800 megawatts of batteries and examples that could be a fifth of that, right, depending on their need.

So what do these projects start to look like right now as we're connecting sort of a data center TAM in gigawatt terms to the storage opportunity you know that you're converting against you know too early to give you a rule of thumb that if we can calculate we clearly have some views but it's too early to give you to premature to give you a rule of thumb how do you think a gigawatt would take this amount of water so we we will with over time I think that we'll be able to develop that as it becomes more clear but today we that we cannot do what we have you know as I said at 12 giga pipeline ahead of us which we want to convert into orders a good portion of it within the next two months so that's what you know that's what we're concentrating on and as we learn more about this and we see how the industry develops will provide you rule of thumb that will give you a better sense of the whole market got it got it that's helpful we'll look forward for that and then on the MSA what's the nature of the exclusivity from what you've won like there are multiple vendors I couldn't tell if you were answering that in some of the earlier questions so for those hyperscalers are you one of a few players are you exclusive is that a geographical exclusivity everything about one of a few players one of a very very limited number of players but this is a comp this is a competitive process you know these are not a these are not you know directed so much or at least not yet But maybe we'll be able to take them there at some point. You know, we're very limited players and a competitive process as we move forward.

So thank you, everybody, for participating today.

And, you know, we'll be available. Chris will be available. I'll possibly be available. And I'm clearly going to answer any questions you may have on the side.

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