Fluence Energy, Inc. Q2 FY2026 Earnings Call

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-GAF 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 disciplined

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 5 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. Our third quarter to date, we have signed over $600 million of additional orders. For the first seven months of this fiscal year, order intake 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 Fluent 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 Fluence 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 fluctuation 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. SmartStack 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 percent so far this fiscal year we're 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-centered projects to make an increasing contribution to order intake during the fourth 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 a social influence 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 benefits of investing in battery We have evolved our product to accommodate a growing number of customer demands, 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 imported and advantage for our U.S. customers. 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 cost. And its flexible design supports a broad range of cell types across multiple manufacturers. including pouch cells commonly used in electric vehicles. Importantly, SmartStack packaging and modular architecture addresses the density challenges typically associated with pouch format in stationary stores. I'm pleased to report that our first SmartStack has reached substantial completion and commends commercial operations. Our growing SmartStack backlog reflects the smart strong interest in our products. 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're also evaluating additional supply options to help support fluence growth beyond 27. Our current position gives us flexibility as additional proposed U.S. 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 hands on March 31, 26, and the facility continues to produce cells that qualify for tax credits under the One Big Beautiful Bill Act. We move 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 year. Looking ahead, we believe we're well positioned to benefit from growing diversity in U.S. cell supplies and the impact additional capacity may have on battery pricing. 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 margins. 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. 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 laser focused on ensuring discipline 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 amit 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 accelerating. Order intake has doubled year to date, led by order 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 center 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 11 again. Please stand by. Our first question comes from George Giannarikas 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, you know, come 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 and so we feel confident we haven't really made a big difference in the competitive environment so we you know we brought drafted 50% our new sales and new customers where 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 Seattle was big but not 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 MSA's you know if you could 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 your winners 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 companies that could meet this very stringy requirement our ability our deep knowledge our you know 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 is what made a difference you know we have we have the labs 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 over the first one so i think that continue we believe that will continue to be what will keep us ahead of the market because we are now you know some more competitors are still trying to figure out how to meet the criteria we're thinking how to exceed their their their you know that what they need and trying to offer them more value and more capabilities and that's what what we bring to the

table thanks thank you our next question comes from julian dumoulin smith from jeffries your line

is open hey game guys nicely done i gotta hand it to you guys really uh kudos here on uh on seeing it through um in particular absolutely julian um look i wanted to ask you in particular here um as it pertains to hyperscaler orders what specific product are they following up with you guys with you know 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 um deployment permutation that they're using you guys with um you know is Is it a BTM, FTM? Is it a capacity support, load shifting? And then also, how do they think about the domestic contents or fiat compliance? You know, 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 for, 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 concentrated in these hyperscalers, their main need is quality of power, helping them manage the fluctuation of the data and helping us do it quickly and effectively. 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, if I can brag, better than anyone else you know and and that's what what is driving this if you go beyond the hyperscalers into kind of the developers of world it seems to be that they almost 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 hyperscalers 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 the 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 it's to hyperscalers most of the business in the US I think they have they are you know seriously considering but their objectives were meeting their 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 factors that we expect that within the next year will convert into you know the 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 MSAs gives us you know So it puts us in a very, very good position to capture. This is a hurdle in order to compete. Not many people can do it. And I think it 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? The slide has 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 MSAs did you get?

I mean, very, very selective, Julian. They all fit in my hand, I think,

and I have fingers left.

So we don't have the specific information, but we understand they are very, very selective, very, very few people. I've been able to do it today. They might, you know, they're probably working on it. but let's see if they get that.

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. Good morning. 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. I'm 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 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 financial, you know, 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 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 commercially, I will provide you more financial metrics of this.

Okay, fair enough. Yeah, we'll look forward to that. And then maybe just, you know, 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, I guess? Can you help us kind of visualize as you go into some of these, whether they're RFPs or bake-offs, You know, what's the timeline for submitting your design and your proposal to, you know, when one is, you know, finalized? And then when you get a PO to when you're going to deliver to site, kind of 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 when a pipeline that comes into our sinks and very, very tight schedules for delivery that, you know, we can meet because we, you know, we've been working on our speed for some time. And 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, any 11% gross margin we earned, which is higher than what we had in Q1. In 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 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.

Thanks, guys. I'll pass it on. Thank you, Ryan.

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

Hey, Dylan. 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 six 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. Thanks. 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. Generally the same as close to or essentially the same that we had last quarter. We converted some into pipeline, and we were able to replenish it. That's the rule. The six gigas, I don't know what you're referring to, Dylan.

at the bottom it says classified assistance six gigawatt hours or more let

me check buddy 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 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 the it's not a it's not a pipeline that's how we classify an LDES project so anything over six gigawatt hours okay sorry yeah

after a long duration storage yeah yeah those are long duration storage so they need to be more than six hours you know to be long duration as a definition of long duration for us yeah so six and more okay that makes sense yeah yeah my

mistake and then just 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 just wanted to check was there any other seasonality in the quarter beyond or other disruptions beyond the shipping stuff you know there was none

I think if you recall when we gave our guidance Q4 we did see 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 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 already the shipment we have already received so we

feel pretty good on here to go and what if I can add one point our indication of where we see revenue divided among quarters more indicative so you can model it and stop but it's you know we don't run the company on a quarterly basis we very clearly we're running on a yearly basis that's what 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 quality guidance and I know it creates some confusion, but it's a way of trying 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.

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 time. I wanted to drill down a little bit on two product details. You know, 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 then 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 are, you know, say we don't provide anything smaller than two hours, so two hours is what we do. and again that's where the market is trading but they tend to be shorter than it even though our main point to the data centers if 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 and we can do quality of power help them with you know to some other work of a resolving some of the deficiencies of interconnection we can help them on some voltage we can help them on many many from so that's I think that as they're 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 yeah I just yeah I mean sorry sorry 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 we tend to do for transmission systems so we're not providing the actual number because it is very short significantly shorter than a hundred milliseconds we tend to do for transmission systems and European qualifications and just just to follow up

on that very quickly that would probably I assume creates 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 is very much dependent on the inverter you use we work with the companies that that do we have done this you know in Europe for many years so we know exactly who do these how they do it and their strategy very well so you know we have that and our come to our advanced controls work very well with these inverters and have the processing time to ensure the whole system response on that of that not behind the inverter as it's supposed to be.

Okay. Thank you, guys. Thank you very much. Yeah, you're welcome.

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

Good morning, John. 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 kept our capacity we enter into a note 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 the numbers but we is multi-giga capacity and we have seen no problems getting the, and we are putting the whole infrastructure that delivers that multi-giga offering in the U.S. with a domestic content offering. We can also 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 percentage of revenue is essentially a function of growth, of growth over the top line. So if you follow it carefully, you'll see that that operating revenue goals, you know, it's very much followed. we are our costs are very very stable and are 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 and have 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 a goal is that we basically create the operating leverage and we do have that as the revenue grows our cost we will maintain that cost discipline and a 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. Thank you. Our next question comes from Amit Sakhar from BMO Capital Markets. Please go ahead. Hey Amit, how are you? I'm very well. Thank you,

Julian. Thanks for taking my questions. It looked like ASPs, if we'll get revenue and kind of your revenue recognition megawatts for the quarter we're up pretty nicely quarter over quarter 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 modeling purposes yeah thanks I mean I didn't

this number as you said movie moves up and down quarter after quarter base on the mix of the self so I wouldn't read too much on it you know a we are designed 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 up 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 spans 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 that's 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, answering one of the kind of questions before about the kind of your pipeline's 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 so we have

a 12 gigawatt a pipeline of data all of it is still to the data center related when I say that a great majority was connected to the two MSA's that which assigned. So the 12 gigawatt hours, all of it is data center related, of which the great majority, more than 60, or a good portion of it, I want to give a number, comes from the supports, these two MSAs, which assigned.

Understood. Thank you so much.

Thank you. Our next question comes from David Arcaro from Morgan Stanley. Please go

ahead okay 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 are we're

looking we're looking at it these are the tool that were had more urgent needs and you know so 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 with our capabilities so we hope to work with all of them yep

makes sense any 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 you

know a near-term opportunity and I think that it well I cannot give you a real sense of time you know when they will happen as it would depends on when they where they are and what they're doing I mean the tool that we have signed are people are very clear what they need they're in a hurry to win and they seem to be ahead of the market if you ask me so so you know but we're working with everybody we are contacting all of them working with them and they just these 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 Monday, who joined us as our VP of Growth, has done since he arrived. He really had invested significantly in business development, identified all these customers, which are, you know, I'll say, were not the typical we used to work before, but are either 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 outside of the U.S. So, you know, 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, great kudos to our sales organization that has really invested into developing and bringing these new customers into the mix.

Right. OK, 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 your margin compares internationally versus the u.s. thanks very much guys in terms of data

center 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 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 go within our 10 to 15 range but there are markets that are a little bit more or they go through more competition than ours. I will say that markets like the U.S. and the U.S. is probably a little bit on the high side, the U.K. on the lower side. So it changes a little bit, or not changes market per market. But our 10 to 15 range works for all these

markets.

Okay. Thank you. Our next question comes from Mahip Mandeloy from Mizuho. Please go

ahead hey uh hey uh morning and thanks for the questions and and actually then on the msa's

uh a question of the msa's uh with the hyperscalers uh do they have any special requirements on the battery types is it like the general battery you have for the uh 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 thanks wait we make any battery great we make any battery great so you know we the batteries that commodity whatever they need I think the main driver is entity ensure and that comes out our packing our capability so no real need on clearly 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 Regix.

Thanks. And then 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, I mean, not only this, many other elements that we're looking at to continue improving our offering to data centers. to pro solution one one option is this high seed rates batteries that will go into that I think they don't 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 is that 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. Congrats on the great update. As 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 view that you're converting against?

Too early to give you a rule of thumb that we can calculate. We clearly have some views, but it's too early to give you a rule of thumb. How do you think a gigawatt will take this amount of water? so we we will a 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 a 12 giga pipeline ahead of also which we want to convert into orders a good portion of it within the next 12 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 is 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 MSAs, what's the nature of the exclusivity from what you've won? Are there 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? How do we

of that 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 maybe we'll be able to take them there at some point or very good compared you know they're very limited players and a competitive process well thank you everybody for participating today and you know will be available Chris will be available I will be available to answer any questions you may have on the side. Bye-bye.

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