Earnings Call Transcript
Fluence Energy, Inc. (FLNC)
Earnings Call Transcript - FLNC Q1 2026
Operator, Operator
Good day, and thank you for standing by. Welcome to the Fluence Energy First Quarter 2026 Earnings Conference Call. At this time, all participants are in listen-only mode. After the speakers' presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 11 on your telephone. You will then hear an automated message if your hand is raised. To withdraw your question, please press star 11 again. Please be advised that today's conference is being recorded. I would like to hand the conference over to your first speaker today, Chris Shelton, VP of Investor Relations. Please go ahead.
Chris Shelton, VP of Investor Relations
Good morning, and welcome to Fluence Energy's First Quarter 2026 Earnings Call. Joining me on this morning's call are Julian Nebreda, our president and chief executive officer, and Ahmed Pasha, our chief financial officer. A copy of our earnings presentation, press release, and supplementary metrics sheet covering financial results along with supporting statements and schedules, including reconciliations and disclosures regarding non-GAAP financial measures, are posted on the Investor Relations section of our website at fluenceenergy.com. During the course of this call, Fluence's management may make certain forward-looking statements regarding various matters unrelated to our business, including statements related to our future financial and operational performance, future market growth and related opportunities, anticipated growth, business strategy, liquidity and access to capital, expectations relating 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 SEC 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 on the company's Investor Relations website. Following our prepared comments, we will conduct a question and answer session with our team. Thank you very much. I will now turn the call over to Julian.
Julian Nebreda, CEO
Thank you, Chris. And welcome to our stakeholders joining our call today. Turning to Slide four. This morning, we highlight first quarter results and the momentum we are seeing in the U.S. Order intake as demand for energy storage continues to accelerate. I will outline the rapid expansion of our pipeline driven by new customers and emerging use cases and share the tangible impact of our enhanced sales efforts. I will also update you on our domestic content strategy and the meaningful progress we made resolving early production challenges in the U.S. Ahmed will then cover our financial results and 2026 outlook in more detail. To summarize our financial performance, first, our backlog has reached a record of $5.5 billion, reflecting a clear step up in U.S. contracting activity driven by the One Big Beautiful Bill Act and rising demand forecast. The midpoint of our revenue outlook is now fully covered by our backlog. Second, with Q1 now complete, we are reaffirming our fiscal 2026 guidance, supported by greater revenue visibility and line of sight on execution, which increased our confidence in delivering this outlook. And third, we ended the quarter with approximately $1.1 billion in total liquidity, which positions us well to support our growth. Please turn to Slide five for details on our order intake. During the first quarter, we signed over $750 million of new orders globally. More than $500 million of these orders were in the U.S., which represented strong growth from prior quarters. Activity in the U.S. market has been gaining momentum since the passage of legislation last July. We continue to expect growth in orders across all our core markets for this year, with the U.S. representing about half the total, consistent with our pattern from previous years. Please turn to Slide six for an update on our pipeline. We are seeing growing demand from developers, IPPs, utilities, and rapidly expanding data center opportunities. During the quarter, we also ramped up our sales efforts in all our core markets, including expanding our sales channels and outreach to existing and potential new customers. We are already seeing initial benefits with an approximately $7 billion or 30% increase in our pipeline, with a majority of growth coming from the U.S. The task now is to convert our pipeline into signed orders, and this is where we are concentrating our efforts. Please turn to Slide seven for an update on expanding sources of growth. We are seeing growing interest in our product from new customer segments as well as new use cases. In terms of new customer segments, our biggest opportunity is data centers. We are engaged in discussions covering 36 gigawatt hours of projects, including customers with large portfolios such as hyperscalers. We are working through technical reviews with them and working closely to show how our technology fits their specific needs. I will note that many of the 36 gigawatt hours of data center projects are not yet included in our pipeline, which represents meaningful upside opportunity. Another area of growth is long-duration energy storage, where we are in early discussions with 34 gigawatt hours of projects largely in Europe and the U.S. Our leading density positions us well to compete for these applications. Long-duration projects by definition require more volume and, therefore, provide an additional growth opportunity. In addition to new customer segments, we are seeing an evolution in the way our customers use battery storage. Historically, our solutions have been used together with renewable projects to firm up their power generation. Utilities have also used our product to store electricity that can be utilized during peak demand periods, also known as energy shifting, or in specific locations to support grid needs. Today, we are seeing new and developing uses for our battery solutions by large energy users such as data centers and C&I facilities. This includes first, speed to power. Storage can speed interconnection to the grid by adapting power demand to the grid capability and avoid the delay and expenses of grid upgrades. Second, quality of power. Storage can inject reactive power to resolve voltage disturbance, manage demand, including disconnection from the grid when needed, and provide smooth ramp rate control, among others. We believe that no other technology can offer these three capabilities combined at competitive terms. Third, backup power. Energy storage, lower cost, and longer duration enables replacement of higher cost and carbon-intensive thermal gensets that have traditionally served this need. Fourth, support of on-site generation. For bringing your own generation applications, energy storage can match up behind the meter power with the customer's energy needs by adding flexibility and efficiency to dispatchable generation or firming up capacity for renewable sources. Please turn to Slide eight for an update on our domestic supply chain. Let me highlight three developments that are strengthening our competitive advantage and keeping us reliably on schedule. First, our domestic content supply chain is now performing at the level necessary to meet our delivery schedule. Cell and module production continues to run ahead of the plan, and our enclosure manufacturing facility in Arizona is now on track to meet our projected needs. Additionally, we continue to expand and diversify our domestic supplier base to enhance our flexibility and cost competitiveness. Second, on battery cells, we continue to make progress with the ASC in resolving the prohibited foreign entity (PFE) status of its Tennessee facility. Our overall priority is to secure competitively priced PFE compliant domestic sales. ASC is looking at various paths to addressing the ownership aspect of PFE compliance. We are confident that the outcome will be consistent with our stated objectives to secure competitively priced PFE compliance battery cells. Third, we are encouraged by the growing momentum of domestic manufacturing of components for VES. Several facilities are shifting their EV battery lines into best production. This will enable valuable diversification to our supplier base. We believe that building multiple domestic cell partners will optimize pricing resilience and the supply we need to support our growth. Before turning the call to Ahmed to discuss our financial results, I am pleased to update you on the satisfactory resolution of two pending legal matters. The first is on Moss Landing, where the matter was settled for an immaterial amount by the company in conjunction with our insurers and subcontractors on confidential terms. The settlement includes a full release of claim with no admission of responsibility or liability for the 2021 overheating, and the second is on the Diablo Canyon project, where Fluence has obtained a court dismissal of Diablo's $230 million disgorgement claim. With that, I will turn the call over to Ahmed.
Ahmed Pasha, CFO
Thank you, Julian, and good morning, everyone. As Julian mentioned, in the first quarter, we generated strong momentum towards achieving our goals for the year. Across our global portfolio, we reliably perform for customers and capitalize on strong growth trends by increasing our backlog to a record level. We also maintained our strong liquidity position that is integral to our strategy and growth objectives. More specifically, starting with slide 10, we generated Q1 2026 revenue of $475 million, 14% of our full-year guidance and nearly double the 18% of full-year 2025 revenue earned during Q1 2025. This performance was in line with our expectations and keeps us on track to meet our full-year 2026 revenue guidance. Our adjusted gross profit for the quarter was $27 million, representing an adjusted gross margin of 5.6%, well below our full-year expectation of 11% to 13%. The result reflects cost impacts in two discrete areas, most of which we expect to recover over the remainder of this fiscal year. The variance reflects two specific factors. First, we incurred approximately $20 million of additional cost, the majority of which were associated with two specific projects outside the U.S. We expect these costs will be largely recovered over the course of this year, consistent with our experience in resolving similar items in the past. Second, our gross margin reflects our typical first-quarter margin dynamics, where revenue is more likely weighted while fixed overhead costs are spread relatively evenly across the year. Historically, this creates a one to two percentage quarterly margin swing that normalizes over the course of the fiscal year. The lower gross margin also drove adjusted EBITDA to negative $52 million for the quarter. In short, our first-quarter gross margin reflects the lower revenue weighting and some discrete project-specific items, not systemic or structural issues. Turning to slide 11. A broader perspective on our adjusted gross margin and how disciplined project execution and revenue growth initiatives translate to the bottom line. As you can see, we have been steadily improving our gross margin even with the softer result this quarter, our rolling twelve-month adjusted gross margin is 12.3%, a solid double-digit result. This resilience reflects our disciplined execution and reinforces our confidence in our ability to deliver on our commitments to our stakeholders. Beyond this year, we expect continued margin improvement driven by strong execution, supply chain-enabled cost advantages, innovation, and scale as energy storage demand continues to grow. Turning to slide 12. For an update on our liquidity. We ended the quarter with total liquidity of approximately $1.1 billion, reflecting the strength and flexibility of our balance sheet. This includes $477 million in ending cash and an additional $617 million available to our credit facilities. Our liquidity position underscores the discipline with which we are managing the business and provides us with the capacity to continue investing to drive future growth. Turning to slide 13 for our 2026 guidance. We are reaffirming the ranges we introduced last quarter, reflecting our strong visibility into the year and continued momentum we see across our business. This confidence is grounded in three factors. First, the midpoint of our full-year 2026 revenue guidance is now fully covered by orders in our backlog. Second, we have ordered all equipment required to meet our commitments, minimizing supply chain and commodity price risks. And third, we have clear visibility into the operating cost structure needed to deliver margins in the 11 to 13% range. On that basis, we are reaffirming our full-year outlook. We expect revenue in the range of $3.2 to $3.6 billion with a midpoint of $3.4 billion. We expect annual recurring revenue to reach approximately $180 million by the end of fiscal 2026, and we continue to expect adjusted EBITDA in the range of $40 million to $60 million for the full year. In summary, with the right building blocks in place, our focus remains on 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.
Julian Nebreda, CEO
Thanks, Ahmed. Let me summarize today's call with a few takeaways. First, strong financial foundation. Our Q1 performance and record $5.5 billion backlog put us on track to achieve our fiscal year 2026 guidance. We ended the quarter with $1.1 billion of liquidity, giving us strong visibility and flexibility to support growth. Second, U.S. momentum is accelerating. This quarter, our order intake exceeded $750 million globally, with over $500 million coming from the U.S., reflecting increasing demand driven by recent legislation and a strengthening of market fundamentals. Third, pipeline and growth opportunities are expanding. Our pipeline grew by approximately $7 billion or 30%, led by U.S. demand with additional upside from data centers and long-duration energy storage projects not yet fully reflected in the pipeline. Fourth, broader use cases and differentiated technology. We are seeing expanding applications for storage, particularly from data centers and large C&I customers, where our solutions are uniquely positioned to serve emerging customer needs. And fifth, execution and risk reduction. We continue to strengthen our global supply chain by expanding and diversifying our supplier base. In summary, we see accelerating demand, improving visibility, and strengthening of our execution, which together reinforce our confidence in meeting our commitments to customers and delivering long-term value for shareholders. With that, we will now open the call for questions.
Operator, Operator
Thank you. At this time, we will conduct a question and answer session. As a reminder, to ask a question, you will need to press 1 on your telephone and wait for your name to be announced. To withdraw your question, please press 11 again. Our first question comes from the line of George Gianarikas of CG. Your line is now open.
George Gianarikas, Analyst
Hi, good morning, everyone, and thank you so much for taking my question.
Julian Nebreda, CEO
Good morning, George.
George Gianarikas, Analyst
So maybe just to focus for a second on AESC, and I know you are in the process of resolving the ownership stake ticket. But can you just help guide us as to what resolution will look like? I mean, because there are, you know, several potential outcomes to this. So just help us understand, you know, how you are framing this for us. Thank you.
Julian Nebreda, CEO
Great. Thank you, George. Our main objective in this in our relationship with ASC is ensuring that we have access to PFE compliant cells at competitive terms. That is our main objective and our priority number one. As part of that, we have been working with them on ensuring that they meet all the different conditions of the OBVA or BBVA. In terms of ownership, which is your specific question, we made them a proposal. Our understanding today is that they will resolve that problem in some other form. So we got assurances from them that they will meet the conditions of the law, that they will resolve the problem, and they will resolve it without the need for us to get involved in the ownership structure of that. For us, we have been working with them for many years. We trust them very much. We think they are going to do, and we are working with them and waiting for them to give us light today. They have not communicated to us the details that we expect to do it. But we are very confident that we will meet the deadlines of the law and the commissions. In terms of the other ones related to material assist, and IP and all of that, we, as part of our process, we have all that information. That is why it is the ownership we are getting to work. But I will make the point that I think it is very, very important if you learn, which is a side point here. The market for sales in the U.S. is expanding rapidly. We have all these EV battery lines that are converted now into production. We are seeing for the first time a plethora of projects of people offering all types of things. So we expect to see in the U.S. something similar to what we saw in China two or three years ago when all these EV lines converted into energy storage. We are very excited about what the prospects are for a company with our structure and our strategy will do in the U.S. during the next couple of years. So, you know, I think this is a great time. This is a great opportunity. We are very confident on AFE. We are very optimistic about the future for the market for battery storage in the U.S. due to the changing market dynamics. We saw what happened in China over the last couple of years when the EV demand came down and how that allowed for our markets to grow and brought in more suppliers and better quality. It really changed how the battery market shifted. So we are excited about the time.
George Gianarikas, Analyst
If I may ask a follow-up. Yeah. Great. Segue into what the competitive environment looks like. And I would imagine some of these data center bake-offs, you know, some of the hyperscalers do not want to use one of their competitors as a supplier. But are you seeing any increased competition from the likes of Ford, who is doing the exact thing that you mentioned, converting some of their supply into energy storage-related cells. So help us understand what the landscape currently looks like, particularly in data.
Julian Nebreda, CEO
I think the competitive landscape has changed today. There have been other players entering the market, but I do not think the competitive landscape has changed significantly. What we have seen is a significant diversification of battery cell suppliers. It probably will change over time, but what we have today is, you know, no real changes in the competitive environment, but a real change in the way the supply for battery cells in the market. Especially for 2026. I agree that there will be new entrants. This market is exciting and growing rapidly. There will be new entrants in the market. We compete globally and see it as healthy competition that drives our innovation. We are excited about the prospects for the U.S. market and believe we are entering the golden years of battery storage.
Brian Lee, Analyst
Hey. Good morning, Thanks for taking the questions.
Julian Nebreda, CEO
Doing well. Good. Thank you for taking the questions.
Brian Lee, Analyst
I guess just starting on the data center-related pipeline, you know, the 36 gigawatt hours, it is pretty impressive. Again, quarter on quarter. I guess the focus is the execution question now is first, how much have you actually converted to backlog? And is there any of that in the $750 million of bookings you reported this quarter? And then secondly, just what is a big number, thirty-six gigawatt hours? Can you just kind of give us a sense of, you know, the outlook in conversion ratio, timing, you are targeting? Maybe when do we really start to see this move into bookings and P&L impact for you? Yeah.
Julian Nebreda, CEO
Great. I mean, to tell you, these are new types of use cases. We have served data centers with behind-the-meter solutions in the past. Those were not included in this. These are dedicated lines to data centers that are slightly different. We have not converted any of the new data center targets into backlog yet. This is a new market segment that we are engaging with, but it is very difficult for us at this stage to provide a clear view of how much of it will convert and how it will work over time. However, when we look at the pipeline and the projects we are working on, we should expect something to happen in the second half of the year, probably in the third or fourth quarter of the calendar year. We expect to do some conversion in that period. But today, we do not have an actual number to share with you. What is exciting, though, is the speed at which it is growing. We believe we have a competitive advantage. We are working very hard and very focused on this.
Ahmed Pasha, CFO
So the $20 million impact is at two projects, non-U.S. projects in two different countries, with different technologies and stages of completion. The change is essentially due to a change in scope of the project in both cases—one is a change in equipment scope, and the other one is in the schedule. Our plan is to recover these costs under the contract from our customers as we have done in the past, and we feel confident in our ability to do so during the year.
Brian Lee, Analyst
Okay. Helpful. Thanks, guys. I will pass it on.
Dylan Nassano, Analyst
Hey. Good morning, thanks for taking my question. Just wanted to check. So Tesla mentioned on their earnings call that they are facing margin pressure this year. They named some issues like competition, tariffs, and the like. Have you seen any kind of intensification on any of these issues recently, or do you feel like you have already accounted for all of this in your current outlook?
Julian Nebreda, CEO
Yeah. I mean, yes, we have also seen that, but we do not see any significant changes in competitiveness, no real changes. Unless Tesla is referring to us, maybe that is the only thing I can think of. In terms of tariff and all of the other issues, we believe we are very much aligned. We are confirming our guidance with a view that there is no real change. We are confident in our position and outlook.
Dylan Nassano, Analyst
Got it. Thanks. No more comments on the competitive environment, which has always been very intense. Are there any significant changes to the tariff situation that could affect pricing?
Julian Nebreda, CEO
Not any significant changes, we expect stability in the tariff impacts. We are confident in our strategy which supports our long-term forecasts.
Julien Dumoulin-Smith, Analyst
Hey, good morning, team. Could you guys hear me okay?
Julian Nebreda, CEO
Yeah. Hey, Julien. How are you?
Julien Dumoulin-Smith, Analyst
I wanted to follow up on the data center opportunity here. How are you thinking about your products fitting into what the data center community wants, especially when it comes to ramp time, interactivity? I know the product could potentially work, but how do you think about it fitting into your product roadmap?
Julian Nebreda, CEO
In terms of our product roadmap, I think as we have communicated, there are different needs that we are meeting. The majority of needs have not changed, and we have a strong competitive advantage. Our products are designed to be very safe with limited risk of terminal runaway, high reliability—our reliability last year was close to 99%. Our cybersecurity measures are also very robust. The quality of power they need requires a response time of under ten milliseconds, and we are on track to deliver that capability. Today, our connections are more focused on speed to power and on-site generation rather than just pure quality of power. We are adapting based on what we learn from customer engagement, and we are optimistic about meeting their needs.
Julien Dumoulin-Smith, Analyst
Got it. Thanks for that. And then regarding ASC, could you clarify whether you expect an ownership outcome? Is this more of a contracting relationship? What is your outlook on potential counterparty negotiations for your domestic cell supply?
Julian Nebreda, CEO
We have an MSA in place, and we expect them to respect it. We see ourselves as an offtaker to their facility. We have provided them with what we thought was a good offer, but they seem to have a more attractive solution. This will not change our contract or relationship with them, and we will continue to be an offtaker as we move forward.
Mark Strouse, Analyst
Hey. Good morning. Thanks for taking our questions. Julian, when you are talking about some of the data center opportunities not being in the pipeline, are you saying that that would be in addition to the 36 gigawatt hours that you are specifically calling out for data centers? Or are you saying some of that 36 gigawatt hours is not included in your pipeline? Can you clarify this?
Julian Nebreda, CEO
So the 36 gigawatt hours we have, there are projects we are working on. Some are in the pipeline and some are leads. In order to get into our pipeline, we need to ensure that we believe there is more than a 50% probability of the project occurring within the next two years. So some of these projects will likely not become part of our pipeline. We are careful with what enters our pipeline, as this drives our internal investment decisions.
Julien Dumoulin-Smith, Analyst
Got it. Thank you.
Operator, Operator
Thank you. One moment for our next question. Our next question comes from the line of Dimple Gosai of Bank of America. Your line is now open.
Dimple Gosai, Analyst
Good morning. Thank you for taking this question. Given your commentary on strengthening the domestic supply chain, can you provide a sense of the mix of U.S. made versus imported sales embedded in your 2026 delivery plan? How much of that supply is already contracted for the year?
Julian Nebreda, CEO
The mix is roughly half and half—domestic versus import.
Dimple Gosai, Analyst
I asked how much of that supply is already on hand or contracted for the year?
Julian Nebreda, CEO
We have secured 100% of our domestic and international needs for this year.
Ahmed Pasha, CFO
The guidance we have provided reflects a blended rate for gross margins. The guidance we have given is between 10% to 15%, and it all depends on the project scope and whether we have EPC or not.
Ben Kahlo, Analyst
Hey, good morning. Thanks for taking my question. Could you talk about your capabilities to execute on a potential increase in volume given your extensive backlog?
Julian Nebreda, CEO
We have a long-term plan that includes various cases for supply—base case, upside case, and worse-case scenarios. We serve those needs by ensuring we have different sources of supply that can accommodate unexpected growth.
Ahmed Pasha, CFO
We believe we have sufficient liquidity of approximately $1 billion to support our current plan. Future capital needs are expected to be opportunistic as the opportunities arise.
Vikram Bagri, Analyst
Given the discussion on vertical integration, how important is it for you to maintain that compared to leveraging your agile relationships with existing suppliers?
Julian Nebreda, CEO
We do not see a strong need for vertical integration as we have a symbiotic relationship with our suppliers, who provide us with competitive costs while integrating our technology.
Christine Cho, Analyst
I just have a clarification on your previous answer about the projects in the data center pipeline; it seems like the number of projects is slightly less than last quarter. What caused this change?
Julian Nebreda, CEO
Things come in and out of our projections. If we find that engineering or other project details do not align with our expectations, we take those projects out of our pipeline decisions. We are still very excited about the ongoing developments.
Chris Shelton, VP of Investor Relations
Thanks for joining our call today. Please reach out with any additional questions, and have a great day.
Operator, Operator
Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.