Fluence Energy Aktie

Good day, and thank you for standing by. Welcome to the Fluence Energy, Inc. Q2 2026 Earnings Conference Call. 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 Nabrita, our President and Chief Executive Officer; and Ahmed Pasha, our Chief Financial Officer. A copy of our earnings presentation, press release and supplementary metric sheet covering financial results, along with supporting statements, 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 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 -- on e 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 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 4. Since our February call, we made meaningful progress on order intake, our U.S. domestic supply chains and our product road map as we position 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 expect it 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 delivered 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 31 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 signed orders. During the quarter, higher lithium prices temporarily slowed some customer decisions, but momentum reaccelerated as prices stabilized. For third quarter to date, we have signed over $600 million of additional orders. For the first 7 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 utility. 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 app.

Please turn to Slide 6, as I detail our progress with new customer segment. Since our February call, we executed master supply agreements with 2 major hyperscalers. 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 1 case, the customers 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 Fluence understanding of customer requirements, rapid response time and the peretiated products were key in driving this engagement.

These MSAs established Fluence as a qualified supplier, positioning us to build on expected near-term data center projects for both hyperscalers with additional progress with 1 of these customers over the past few months, we expect to find the initial order from 1 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 track record managing fast response systems. Based on our discussion, we believe these capabilities will be an important differentiator for data center customers concerned with quality of power. Finally, we're seeing increase in 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 have been the growth of our pipeline, which has increased by 35% in so far this fiscal year. We are seeing opportunities in the U.S. market beginning to outpace our other market with projects concentrated in California and Arizona, as well as the MISO market in the mid 1. 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 adopt historic 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 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 customer, which we believe puts us in a previous position to stop 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 back 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 with 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 understand of different markets around the world, we believe Fluence is uniquely positioned to deliver and help our customers maximize the benefit of invested 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, reduce total cost of owners, large-scale fire testing and industry-leading reliability. Fluence was also the first to offer a complete U.S. domestic supply chain and important 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 extend asset life resulting in industry-leading operational net.

Please turn to Slide 9 for an update on Smartstack. Product innovation remains another key differentiator for Fluence. Smartstack set the industry standard for energy density, enabling customers to feed more than 500-megawatt hours of storage per acre with additional improvement plan. With a science Smartstack to lower total cost of owners through modular architecture, easier maintenance accidents and more than 98% reliability delivering more electricity and more value to our customers.

And a flexible design supports a broad range of cell types across multiple manufacturers, including pouch cells, commonly used in electric vehicles. Importantly, smart packaging and modular architecture addresses the density challenges. Typically associated with pouch form in stationary stores. I'm pleased to report that our first Smartstack has reached substantial completion and commence commercial operations. Our growing Smartstack backlog reflects this 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. supply, as we announced in February, we signed an agreement with another source of domestically produced battery health beginning in fiscal '27.

We believe this incremental capacity strengthened 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, converted EV battery production to best cells can take a year or more. When exploring additional proposed supply lines, we plan to evaluate each facility stand line to first production, is run speed. It's technical characteristics and how its location could strengthen and optimize our core in 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 fixed energy, a subsidiary of Lombard Capital. Ownership changed on March 31, 26 and the facility continues to produce sales that qualify for tax credits under the 1 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 see this year. Looking ahead, we believe we are well positioned to benefit from growing diversity in U.S. sales supply and the impact additional capacity may have on battery price 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 inflationary pricing cycles before. With an approximate 50% decline in ASPs over the past 2 years we more than doubled adjusted gross 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 strength 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 our disciplined focus on delivering on our fiscal year 2026 commitments. We also maintained a strong liquidity that provides us flexibility to execute on our growth petitions. 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 2 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 self 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 Strait 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 costs and $6 million gain from unwinding and FX derivative. This offset a $6 million loss on the same FX derivatives 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 2 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 $430 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 lability 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 billion to $3.6 billion, with a midpoint of $3.4 billion. We expect approximately 70% in the second half, consistent with the rating 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 million to $60 million for the full year. In summary, we are submitted to achieving core 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 content in our fiscal '26 guide. We ended the quarter with approximately $900 million of liquidity, which we believe provides always the flexibility to fund growth.

Second, all the momentum accelerated. 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 center demand with the signing of MSC with 2 major hyperscalers after meeting all of their commercial and technical requirements.

We expect to execute the first purchase order with 1 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.

[Operator Instructions] Our first question comes from George Gianarikas from CG.

My first 1 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 particularly we have not worked in the past would be way, but we have worked with the CAPL. It hasn't really changed the intensity of the market, if you talk the truth. The value the ability to meet customer needs at a reasonable price that 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 American.

So we attracted 50% of our new sales are new customers. So we are -- I don't see it as a challenge. It's not new, by the way. I mean, it has happened in the past. The change of CTL was they bought, but not a major change in the competitive landscape from our point of view.

And maybe as a follow-up, first, congrats on the 2 hyperscaler MSAs. 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? What did specifically what did the validation process look like? And what do you think was the primary differentiator for you that larger win theres?

Yes, two things. We went through a very strict commercial and operational and technical evaluation. In 1 of the cases, there were 26 players, I would say the majority would not make it -- so there's a limited number of people or companies that could meet this very stringent requirements. Our ability -- our deep knowledge, our deep experience managing fast response systems in Europe as special. And having the infrastructure and the technology capability to prove their case to them very, very quickly is a negative.

We have the lab, we have the termination we do this every day. We know how the applications work. We understand how the critical work globally. And that made a big difference as 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 -- some of our competitors are still trying to figure out how to meet the criteria. We're thinking how to exceed their what they need and trying to offer them more value and more capabilities, and that's what we bring to the table.

Our next question comes from Julien Dumoulin-Smith from Jefferies.

I got to hand it to you guys really kudos here, I'm seeing it through. In particular, look, I wanted to ask you, in particular here, as it pertains the hyperscale 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 2 as you guys have 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 content or fiat compliance. Is that another nuance that we should consider? Just can you speak to the product and more broadly in these wins? And whether this is a leading indicator for further orders like this in coming quarters?

Yes. So in terms of what they're asking for different what I said in the last call, when we had, we're looking at a portfolio that was a little bit more mixed. Now that we concentrated in the hyperscalers, their main need is quality of power, helping them manage the fluctuation of the data centers and happen so quickly and effectively. So -- and that's what they need, and that's what we proved 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 brought better than anyone else. And that's what is driving this. If you go beyond the hyperscalers into kind of the developers of the world, it seems to be that -- or seems to be what we have experienced more of speed to power and meeting great calls and and is a little bit more mixed, but when it's too hyperscale, it has been quality of power they may ask.

In terms of domestic content, it wasn't a requirement from them or something that we're specifically looking at we clearly are selling it. And I think that as we have explained to them the competitive position of domestic content, the value it can create. And the tremendous branding opportunity of having a product that is built here by American for America here especially as this to hyperscalers most of the businesses in the U.S. I think they have -- they are seriously considering as -- but their objectives were meeting the quality of power, meeting their technical commercial objective, and that's where they concentrated on, and that's how we move it.

In terms of these 2 MSAs, they have behind a significant pipeline, that we expect that within the next year, will convert into the orders. We won't necessarily win them all, but it will be a significant amount of demand that we see behind this that we will convert having these MSAs gives us puts us in a very, very good position to capture. This is the hard in order to compete. Now many people can do it. And I think this was a stop of approval that when we make an offer, they know that we will deliver what we are promising.

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

I would not. Julien, 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. We're 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 supplied MSAs with you guys?

I mean, very, very selective, Julien, they all fit in my hand, I think, and have fingers left. We don't know we have the significant information, but we understand they are very, very selective, very few people. I've been able to go to it, they might -- they're probably working on it, but let's see if they get it.

Our next question comes from Brian Lee from Goldman Sachs.

Congrats on the strong backlog here in the hyperscaler updates. I had a couple of questions, I guess, on the 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 2 MSA deals and how meaningful they are in terms of quantitative impact?

SP1 Yes. 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 -- 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 -- and our current paper is 12 giga, so that'll give you a sense. We're not providing the financial numbers around it. As it's too early, and we are 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 in included in everything and do not necessarily be providing commercial, I will provide you more financial metrics of this.

Okay. Fair enough. Yes, 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, 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 time line for submitting your design and your proposal to when 1 is finalized? And then when you get a PO to when you're going to deliver to sit kind of what are the the sequence of events and how long is that.

They are in a hurry, generally. Most of these projects, as I said, that -- I don't know if I mentioned about the pipeline we have, we believe will convert into orders during the year, evening 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 commit because we've been working on our speed for some time. So I cannot give you today a specific rule. This is the one. But generally, I will say a lot faster than the conversion rate we have for our order from pipeline to orders and a lot faster on the conversion rate for orders to revenue, than what we do in our normal utility developer to, especially with these 2 hyperscalers.

The case of the developers, and it's a little bit different as those are more project tied they are looking for pyramids and stuff. So those will probably take a little .

Okay. Understood. Maybe last one, if I could squeeze 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?

So in terms of the gross margin, you're right, an 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 a 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.

Our next question comes from Dylan Nassano from Wolfe Research.

Just wanted to check on the broader data center pipeline. Any updated thinking there in terms of 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 a number for our pipeline it. 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 gig. And our leads are 3x generally the same as close to where essentially the same as we had last quarter, we come to some into pipeline and we were able to replenish as a rule. The 6 gig, I don't know what the you're referring to Dylan, sorry,.

It's on Slide 6 at the bottom, and just classified the system 6 gigawatts hours or more.

Let me check. But in any event, strong growth great opportunity here. And I think that by concentrating on hyperscale extra, we get the point on this. we are in a market segment that we expect will test faster and that we will convert into execution quick.

Yes. Dylan, that's 6 gigawatt hours. That's -- it's not a pipeline, how we classify an LDS project. So anything over 6 gigawatt hour. Sorry. .

Yes, for long duration storage, yes, those are loan duration stores, so they need to be more than 6 hours, in order to be long duration as a definition of loan duration for 6 and more.

Yes, my mistake. And then just a 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 some guys noted.

No, there was none. I think if you recall, when we gave our guidance in Q4, we did see about 1/3 of our revenue in the first half and the rest given fact that we don't give quarterly guidance, I think that was the only reason what is the difference. But overall, from an internal perspective, as I mentioned, the $80 million of this shipping delay was the only reason why we were lower on the revenue for Q2, but that we have the shipment we have already received.

So we feel pretty good on year to go. .

And if I can add 1 point, our indication of where we see revenue divided among quarters more indicative, so you can model it and so, but we don't run the company on a quarterly basis to be very clearly. We'll run it on a yearly basis. That's why we intend to meet our yearly numbers. We try clearly to what we indicated to me about is 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 efficient within the company. .

Next question comes from Joseph Osha from Guggenheim Partners.

I wanted to drill down a little bit on 2 product details. Julian, you said that hyperscalers and data center more broadly, tends to be more about product quality or power quality. So is the implication then that we're seeing shorter duration configurations, say, an hour or 2 as opposed to 4? That's my first question. And the second question, just to confirm, thinking about the inverters, are you generally being asked to deliver a response time of 10 milliseconds or less. Those are my 2 questions.

Yes. On the first one, they tend to be shorter duration, you're right. So they are -- I'll say, we don't provide anything smaller than 2 hours or 2 hours is what we and general 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 have test the great beauty of that our technology compared to other technologies that are trying to resolve is that we can stack business models on top. And we can do quality of power, help them with to some of the work of resolving some of the efficiencies of interconnection or backup. We can help them on solve them voltage.

We can help them on many, many fronts. So -- that's -- I think that as we're looking at the assets, they are expanding also their view of what is on that was on that point. On the second one, generally, I will say that -- sorry, the second 1 can. We need to -- we're not providing the actual number, but it's very short, not the way over it. So 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 100 milliseconds, we tend to do for transmission systems and European Valifications.

And just to follow up on that very quickly. That would probably assume create the need for inverters with wideband gap MOSFET you've got it off SP-5.

Yes. You need inverters. I can provide that. That capability is very much dependent on the inverter you use. We work with inverter companies that -- we have done this in Europe for many years, so we're not exactly who leave, how they do it and their strategy very well. So we have that. And our advanced controls work very well with these Abertis and have the processing time to ensure the whole system, response on that, not behind the inverter as healthy suppose.

Our next question comes from Jon Windham from UBS.

Nice result. I was wondering if you could talk about the U.S. storage market continues to grow at a rapid pace. Where are you -- are you able to provide us sort of where you are on being able and sort of capacity in gigawatt hours to provide over the next 12 months? And then just sort of thoughts on the road map to keeping up with the market growth over the next 2 or 3 years.

Yes. Yes, we see the U.S. market growing expanding significantly. So that's right. What we have, we have, as you know, our domestic products, our flagship solution in the U.S. We have the ASE capacity, we enter with another supplier for additional capacity, and we are looking at additional capacity for the '28 going forward. So we have enough capacity to forward the pipeline we see and the conversion rate we affected we don't provide specifically the numbers, but we -- it's multigigacapacity, and we have seen no problems getting the -- and we are putting the whole infrastructure that delivers that multidealer the U.S. with our domestic content offer. We can also import equipment if we need to, but our preference is to do the domestic content solution.

Perfect. 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.

Yes. The operating costs are percentage of revenue is essentially a function of growth or growth of the top line. So if you follow it carefully, you'll see that our operated revenue goals it's very much vital. Our costs are very, very stable and how much of our cost represents that 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 costs down and half the rate of growth of our top line, which will be -- which adds tremendous value. And you'll see when you look at the numbers, it's very, very clear. It's an operating leverage 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 had parted.

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 cost will be reduced -- increasing less than half of the growth in our revenue as Julian just mentioned. So I think that's our key focus from my perspective.

Our next question comes from Ameet Thakkar from BMO Capital Markets.

It looked like ASPs, if we'll get revenue and kind of your revenue recognition megawatts for the quarter were up nicely quarter-over-quarter. And I was just wondering, was there a lot more EPC work this quarter? Or is this kind of maybe the level we should be thinking about for the balance of the year for modeling purposes?

This number, as you said, it moves up and down quarter after quarter based on the mix of the cells. So I wouldn't read too much on it. We are designed to meet our financial objectives independent of where the ASPs go up or down. And our planning assumptions that they will continue coming down. And we are deciding to make money and make it successful. And I'll say even more every time we have seen ASPs come down, what happens that demand is plans at a rate that is much bigger. -- the reduction in revenue at on the lower ASP.

So we -- 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 in answering 1 of the kind of questions before about kind of your long -- and I think you said that the vast majority of that is data center related. Is that right? Is it a little bit over half? Or is it substantially all of that 1 gigawatt pipeline is data center related.

Yes. Now we have a 12 gigawatt pipeline of data -- all of its data center related. What I said that a great majority was connected to the 2 MSAs that we just signed. So the 12 gigawatt hours are -- all of it is data center related, of which the great majority of more than 1 or been a good portion of it. I want to give a number come from the -- supports these 2 MSAs, which is high.

Our next question comes from David Arcaro from Morgan Stanley.

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 pursuing on the storage front.

Yes. We're looking at it. These are the 2 that we have more urgent needs. And so -- but we're looking to work with all of them. So we believe the problems are similar and that we can meet their needs with our capacity. So we hope to work with all of them.

Yes, 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 a near-term opportunity? .

I think that -- well, I cannot give you a real sense of time when it will happen as it would depend on where they are and what they do. I mean, -- the tool that we have signed are people are very clear what they need. They are in a hurry to win, and they seem to be ahead of the market if you ask -- so -- but we're working with everybody. We are contacting all of them, working with them, and the chassis to 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? Curious if it's a new profile.

This is a result of the great work that Jeff Monde, who joined us as our VP of Growth has done since he arrived. It really had invested significant business development identify all these customers, which are -- I would say, we're not a typical we used to work before, for our deal developers or utilities, that we have not contacted in the past and now we have made significant progress. And this is a global effort that we're doing, not only in the U.S. but outside of the U.S.

So -- but I would say that, as we said during the call, these are customers that are within our normal or core customer segments, utilities and developers growth. But great calls to our sales organization that has really invested into developing and bringing these new customers and into the mix. .

Our next question comes from Ben Kallo from Baird.

Could you just talk a little bit because of the specific product they're looking for in the size. If you could talk about just pricing and margin, how we should think about that all these better deals? And then also my second question just outside the U.S. where you see pockets of demand and then just remind us how margin compares internationally versus the U.S.

In terms of data center, I will say, as we said, duration shorter term. And I'll say the margin is in line with our guidance of 10% to 15%. That's what we'll say. So generally, that's what it is. 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 worked well and versus -- so in terms of margins, margins changed market for market depends on the competitive environment.

As we go in our 10% to 15% range, but there are markets that are a little bit more -- they go through more competition than us. 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. And so it changes a little bit on changes market per market. But our 10 to 15 range works for all these markets. .

Our question comes from Maheep Mandloi from Mizuho.

A question on the MSAs with the hyperscalers. Do they have any special requirements on the battery types is like the general batteries you have for the best industry? Or is it high searate? Just curious if -- on the supply side, if you need to make any changes on the sales sourcing of that.

We make any battery grade. We make any battery grade. So the battery is a commodity whatever they need. I think the main driver is Nitsure, and that comes our packaging, our capabilities. So no real need on -- clearly, the LFP to nobody as to the M&C for many reasons, but a brand or supplier is not relevant for them. Whatever battery we put in our systems, we can make it to [ Gen 6 ].

And then separately, like we saw some battery deployers proposing high ceded batteries, which go inside the data center for 800 volt TCs? Is that something of interest are you exploring? Or your're looking at outside that did so.

Yes, yes. We're looking at our product road map includes not only these many other elements that we're looking at to continue improving our offering to data centers and to our solutions, 1 option is this high seed rates batteries that will go into that. And they don't have some limitations, but it's part of our program that we have for the will happen or not, we'll see, but it's not any time soon. .

Our next question comes from Moses Sutton from BNP Paribas.

Congrats on the great update. Have these data center opportunities convert into reality, how do we think about the ratio at for what, meaning the loss of load to the watts of storage. We've seen examples out there of gig data center might need 800 megawatts of batteries and examples that could be 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 do the storage opportunity that you're converting against?

Too early to give you a rule of thumb that we can calculate clearly have some views, but it's too early to give you -- too premature to give you a rule of thumb. How do you think a gigawatt would take this amount of battery. So we we will -- 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, as I said, 12 giga pipeline ahead of us, which we want to convert into orders a good portion of it within the next 12 months. So -- that's what we're concentrated on. And as we learn more about this and we see how the industry develops, we'll provide you a 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 to 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 1 of the few players? Are you exclusive? Is that a geographic exclusivity...

One of a few players, 1 of a very, very limited number of players. But this is a competitive process. These are not directed at least not yet. I may be able to take them there and so forth very limited players and a competitive process as we moveforward.

Well, thank you, everybody, for participating today, and we'll be available. Chris will be available, I also will be available to answer any questions you may have. Bye-bye.

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

Good day, and thank you for standing by. Welcome to the Fluence Energy First Quarter 2026 Earnings Conference Call. [Operator Instructions] 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, VP of Investor Relations. Please go ahead.

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 metric sheet covering financial results, along with supporting statements and schedules, including reconciliations and disclosures regarding non-GAAP financial measures are posted on the Investor Relations section of our website at fluenceenergy.com. .

During the course of this call, Fluence management may make certain forward-looking statements regarding various matters related to our business, including statements related to our future financial and operational performance, future market growth and related opportunities, anticipated growth and business strategy, liquidity and access to capital, expectations relating to pipeline, order intake and contracted backlog future results of operations, the impact of the 1 big beautiful bill at 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 materials 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'll now turn the call over to Julian.

Thank you, Chris, and welcome to our stakeholders joining our call today. Turning to Slide 4. This morning, I'll highlight first quarter results and the momentum we're seeing in the U.S. order intake as demand for energy storage continues to accelerate. I'll 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 25th 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 '26 guidance supported by greater revenue with civility and line of sight on execution, which increases 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 5 for details on our order intake. During the first quarter, we signed over $750 million of new orders growing 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 6 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 ramp up our sales efforts in all our core markets, including expanding our sales channels and our reach 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 sign orders, and this is where we are concentrating our efforts.

Please turn to Slide 7 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 opportunities is data centers. We are engaged in discussions covering 36 gigawatt hours of projects including customers with large portfolios, such as hyperscaler. We are working to a technical review 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 and not yet included in our pipeline, which represents meaningful upside opportunity.

Another area of growth is long duration and storage where we are in early discussions with 34 gigawatt hours of projects, largely in Europe and the U.S. Smartstack leading any positions as well to compete for these applications. long-duration projects by the finish, require more volume, and therefore, provide an additional growth opportunity. In addition to new customer segments, we are seeing an evolution in the way customers use battery storage. Historically, our solutions have been used together with the renewable products 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're seeing new and developing uses for our battery solutions by large energy users such as data centers and C&I. These include, first, speed to power. Storage can speed interconnection to the grid by adapting power demand to the grid capability and avoid the delay on expenses of grid upgrades. Second, quality of power. storage can react power to resolve voltage disturbances, manage demand, including disconnection from the grid when needed and provides most brand rate control, among others. We believe that no other technology can offer these 3 capabilities combined at competitive terms.

Third, backup power. Energy storage, lower cost and longer duration enables replacement of higher cost and carbon intense thermal gensets that have traditionally serve this need. Fourth, support of on-site generation for bringing your own generation applications. Energy stores can match up behind the meter power with the customers' energy needs by adding flexibility and efficiency to dispatchable generation or filling up capacity for renewable sources.

Please turn to Slide 8 for an update on our domestic supply chain. Let me highlight 3 developments that are strengthening our competitive advantage and keeping us reliable on schedule. First, our domestic content supply chain is now performing at the level necessary to lead our delivery schedule. Cell and module production continue 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 competitive. Second, on battery cells, we continue to make progress with AESC in resolving the prohibited foreign entity or PFP status of its Tennessee facility.

Our overall priority is to secure competitively priced PFP compliant domestic sales. AESC is looking at various paths to addressing the ownership aspect of PF compliance. We are confident that the outcome will be consistent with our stated objectives to secure competitively priced PFP compliance battery cells.

Third, we are encouraged by the growing momentum of domestic manufacturing of components for BESS. Several facilities are shifting the EV battery lines into BESS products. This will enable value of diversification to our supplier base. We believe that building multiple domestic cell partnerships 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 2 pending legal matters. The first is on most land where the matter was settled for an immaterial amount by the company in conjunction with our insurers and subcontract on confidential terms. The settlement includes a full release of claims with no admission of responsibility or liability for the 2021 overhead in it. The second is on the VialoCanion project, where Fluence has obtained accord this is of the all of 230 new disgorgement claim. With that, I will turn the call over to Ahmed.

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 executed reliably for customers and capitalized 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 2 discrete areas, most of which we expect to recover over the remainder of this fiscal year. The various reflects 2 specific factors. First, we incurred approximately $20 million of additional costs, a majority of which were associated with 2 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 lightly weighted while fixed overhead costs are spread relatively evenly across the year. Historically, this creates 1% to 2% 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 rating and some discrete project specific items, not systemic or structural issues.

Turning to Slide 11. For 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 results this quarter, our rolling 12-month adjusted gross margin is 12.3%, a solid double-digit result. This resilience affects 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 through our credit fusions. 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 3 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. 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 billion to $3.6 billion with a midpoint of $3.4 billion. We expect annual recurring revenue to be 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 commains 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.

Thanks, Ahmed. Let me summarize today's call with a few takeaways. First, strong financial funders. Our Q1 performance and record $5.5 billion backlog puts us on track to achieve our fiscal year '26 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 accelerated. 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 spent. 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 past. Fourth, broader use cases and differentiated technologies. 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 the severity and a strengthening of our execution, which together reinforce our confidence in meeting our commitment to customers and deliver long-term value for shareholders. With that, we will now open the floor for questions.

[Operator Instructions] And our first question comes from the line of George Gianarikas of CG.

So maybe just to focus for a second on AESC, and I know you're in the process of resolving the ownership stake, they could. But can you just help guide us as to what resolution will look like? I mean because there are certainly several potential outcomes to this. So just help us understand how you're framing this for us. .

Thank you George. Our main objective in our relationship with AESC is ensuring that they -- that we have access to PFE compliant cells competitive parent. That's our main objective, that's priority #1. As part of that, we've been working with them on insurance that they meet all the recent conditions of the OBBBA of OBBBA. In terms of ownership, which is a specific question, we made them a proposal our understanding today is that they will resolve that program in some other form.

So we've got assurances from them that they will be the conditions of the law that they will resolve the program and they will see without the need for us to get it involved in the ownership structure of that plan. So for us, as you know, we have been working with them for many years. We lost them very much. We intend and we're working with them and ready for them to go for live today, they have not communicated to the details how we expect to run, but we're very confident that will be the length of the low other conditions.

In terms of the other ones, we need a assist and IP and all of that, as part of our process work, we have all that information that's very well. It's the ownership that we need to wait. But I will make a point that I think is very, very important if you which is a factor here. The market for sales in the U.S. is standing by crazy. We have all these EV battery lines that are converted into now into BESS. We have seen for the first time, better our projects or people offering all types of things.

So we are, if you tell me, we will see here in the U.S. of similar or China or 3 years ago, when 3 years ago when all these EV lines converted into BESS. We're very excited about what the prospects for our company with our structure have now or strategy we'll do in the U.S. during the next couple of years. So I think this is a great time. This is a great opportunity. We are very confident on AESC and we are very, very optimistic about the future for the market provide storage in the U.S. due to how the market is changing the dynamics because we saw what happened in China in the last couple of years with the Chinese, when the AV demand came down and how that will allow for our markets to grow and probably more suppliers, better quality really change how the BESS market changed.

So we're excited about the time.

If I may ask a follow-up, segue into what the competitive environment looks like. And I would imagine some of these data center bake-offs, some of the big hyperscalers that want to use 1 of their competitors as a supplier. But are you seeing any increased competition from the likes of Ford who's doing the exact thing that you mentioned converting some of their cell supply into energy storage-related cells. So help us understand what the landscape currently looks like, particularly in data center.

I'd say the competitive landscape has changed today. People there on, but in the competitive landscape has changed at all. What we have seen is a significant diversification of that rise suppliers. It probably will change over time, and I don't because might change to double opioid thing what we have today is more real changes in the competitive environment, but a real change in the way the supply for battery cells in the market, especially for the second half of '26.

There will be new entrants. The market is subsiding, is growing great entering the market, and we compete in the world with a Chinese state. They go with our Chinese competitor or the support of their going. So we are competing against some of these players, I don't think it will be more difficult than what we will grow earlier. We like competition with a great driver of our innovation and give me wake up a lot with the work of our per it primarily with titles started the prospect for the U.S. market. It is going to be the golden years of battery storage are coming.

Our next question comes from the line of Brian Lee of Goldman Sachs.

I guess just starting on the data center-related pipeline, the 36 gigawatt hour, it's pretty impressive through again quarter on quarter. I guess, the focus and 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's -- it's a big number, 36 gigawatt hours. Can you just kind of give us a sense of the outlook in conversion ratio, timing that you're targeting? Maybe when do we really start to see this move into booking the P&L impact for you?

Right. I mean, to that, there's no -- these are the new type of use cases. We have served data centers with behind nominal solution with the renewal companies. Those were not included in this sort -- these are behind the dedicated lines to a lot of centers behind of dedicated line are slightly different than we have done or just the first. So answer your question completely, we have not converted into backlog any of the new data set that are that's today. This is a new market for us. These are markets that we have not served built directly before for September or before a couple of months ago, we were servicing this company in direct with the new market segment.

We are engaging with them, but it's very, very difficult for us at this stage to give you a clear view of how much of that were converted and how will they work over that. However, we do when we looked at the pipeline and we looked at what we are the maturity of the projects that we're working with, which so expect something happening in the second half of the year, as I said, fourth quarter turn of fourth quarter of the fiscal year -- of the calendar year. That's what we just spent to some conversion of this.

Clearly, we'll not do it earlier. And this is coming such as the important segment that we learn more about it, we'll probably communicate as of this stage, unfortunately. We are learning how to do is working with them at the price time that you can imagine. Some of these companies have been -- are very, very -- the supply chain things are very detailed on the really there's a lot of value about big projects. So there's a lot of where we're going to that. things are selling learning and working very well.

But today, we will not have an absolute number that I can share with you. What's exciting about I can give you a deposit how fast is 1 at today what we are communicating is going very fast. We think we have a competitive environment. We look at the knowledge, we believe we can do better than anybody else. And we're working very hard. It goes very much to our capability, interconnect, things that where we excel. So exciting a lot. But today, as if it is a new market segment, we cannot provide more clarity on it.

Absolutely. No, that's great color. Maybe just 2 quick follow-ups on the guidance. One, on the $20 million of incremental costs here related to the 2 projects. Can you be -- elaborate on kind of what those costs exactly were and then how you plan to recover those costs through the course of the year with $20 million.

And then secondly, Julian, obviously, you're pretty bullish on the outlook for energy storage for the data center. And you're saying that the guide is fully covered by backlog. So with pipeline and bookings continuing to grow, maybe it's a little bit too early. It's only fiscal Q1, but how would you characterize the upside potential to your kind of 2026 guidance outlook here starting off the year.

I'll go over the guidance for the year and then Ahmed can give you details on the gross margin of the 2 projects I have not the on the guidance, we -- our approach to our performance that we want -- we're working towards meeting our guidance. We're committed to meeting guidance that as well you just spent from us. And that we also -- where we want to like to provide you the better opportunities will be from'; 27. That's what we're going to do. So if you ask me today, our order intake first quarter will be the lowest 1 of the year. It will be the low point of the year, and we should be able to more deliver better that will provide stronger receivability for '27.

And that's how we expect to rather than giving you a quarter-to-quarter -- we want to keep this year what it is so in line with our guidance. Hopefully, the topside or whatever, but not -- we do not want -- we're working towards make in making '27 how we provide good news to the market. That's what we're working. Today we cannot provide guidance on '27, but we will -- that's what we're working on BESS, the way you should see. So on the...

So on the -- so the $20 million impact, so this is -- the impact is at 2 projects, non-U.S. projects. 2 different countries, different technologies, different stages of completion. And the change is essentially the change in scope of the project in both cases. One is the scope change in the booklet and the other 1 is in the schedule. So I think our plan is to basically, as we have done in the past years, whenever these changes happen, we always recover those under the contract from our customers, and that is what we plan on doing during the rest of the year. So feel pretty good that we can recover this impact.

[Operator Instructions] our next question comes from the line of Dylan Nassano of Wolfe Research. .

Just wanted to check. So Tesla mentioned on their earnings call the day foresaw some Megapack margin pressure this year. In the name some things like competition tariffs and the like. So I just wanted to check, have you seen any kind of intensification on any of these issues recently? Or do you feel like you've already accounted for this all in your current outlook?

Yes. I mean yes, we also saw that we don't see any major competitiveness, no real changes. So unless Tesla is referring to us the only thing I can see on understand that [indiscernible] to close I mean, but in terms of tariff and all of that, we are very much in line. So we are confirming our guidance with a view that there's no real change. So we are not clear what that you are referring to. No more the competitive environment, which has always been very, very intense, not an in the tariff have been very stable. So we don't expect any major changes in '26 numbers. There are some movement. No, we're confident what we are confirming to it. .

Appreciate that. And then for my follow-up, just kind of given some of the margin headwinds this quarter. Can you kind of confirm that if you do end up being the acquirer of the AESC facility that you feel good about kind of the liquidity situation and for any kind of external capital to.

Yes. No, from an AESC perspective, we already talked about in the last call, we have factored that in, in our forecast that we shared in last quarter. outlook for the year. So feel pretty good.

As I said, I don't say we don't expect that they will resolve decision on more ways. That's our understanding.

Our next question comes from the line of Julien Dumoulin-Smith of Jefferies.

Could you hear my okay?

Yes.

So maybe just a follow-up on the data center opportunity here. I wanted to press a little bit further. How are you thinking about your products fitting into what the data center community wants, especially when it comes to ramp their activity.

Again, I get that the product could work, but how do you think about it fitting into your product road map if you think about this, again, who is probably an iterative nature of what they're looking at versus what you're providing here. Can you speak to that a little bit? And then separately related, how do you think about setting expectations to include explicitly data centers into your pipeline and backlog specifically?

In terms of our product road map, as we have communicated different needs that we are leading. I would say a great majority of me, there's no real change. And we have a very strong competitive advantage, why then it's a problem. It's very heavy where are they planning. The risk of German is very limited. Reliability, we have our reliability last leader -- close to 99%. Very few people can do this. So we've done very well. Cybersecurity, nobody we've been working very, very soon.

So we are very, very happy on that part. Therefore 1 of the needs, which is the quality of power, the mean response time of 10 milliseconds. And we have a road map to deliver that part. But when I looked at the pipeline, that is 1 of the areas where we are competing with other technologies and where they were not necessarily the -- we -- that's not what's driving the contract of the people. There are some projects that are connected to us, but that's all to travel. We want to serve it. We want to do it. We're offering the high -- very, very quick response time but just to be clear, today, it is more connected to speed to power and to bring your own generation applications than necessarily to quality of power.

So we are very, very -- we're very confident. We are also -- we're not a competitor of the data center. We are -- we've been very historically a company that has been very customer centric. So we are a big buyer, so we are adapting the way we contract or what we see to them. So I think that we are in a very, very good position.

In terms of ARO, as I said, unfortunately, on your second question, on our live to give you a proper guidance on when will this go into the pipeline and when we converted into backlog. It's a new customer segment. So for us, we're learning. We are moving forward, and we think we're getting better and better every day on my sales team is really excited about this. And we are probably therefore doing a great job on this. But today, very difficult to commit to this.

Additionally, as you know, absolutely very careful with my competitive information. So we will try to provide you as much information as we can. We are necessarily playing our car what we're doing because there are a lot of people trying to use and we don't want to provide them with competitive. So that's where we are excited about the growth, excited about how we fit into it, excited about our -- the way we approach our customers that will work very well with these customers. And we -- and our probably will do a wonderful job. And hopefully, we will see more and more coming up and as this market segment develops for us, we should be able to provide you more clarity

Got it. All right. Just maybe not quite ready. And then on , just to clarify earlier, you would not expect an ownership outcome. This is more of a contracting relationship. And ERGO perhaps we could see other potential counterparties that you'd be negotiating with for your domestic self supply? .

I will say we have -- we respect it. But we were looking -- we have made -- we provided an opportunity for us to take ownership on it, which they now have resolved with that. So we have -- our content will not change at all. We will be an offtake. Our technologies are very much intertwined and we understand that the solution that AESC is working on, which are not -- I don't have the details, will not affect in any way any of the issues we have. We were trying to resolve this issue for them. So we are getting -- it's always a good offer, but clearly, they have something better, so more solution that is much more attract. So we'll be offtake BP as we move forward.

Right. And you could add a second offtake just to expand.

We already -- last quarter, we already added a second update. And as I told, so we're already awarded with some of the EV lines that are converted into BESS. And that market is getting very, very excited and -- this is no different than what we saw in China 2 years ago or 3 years ago when you had an at the EV capacity that solve you didn't know where to go. So I think this is -- it's a good opportunity.

Guys. I'll leave it there. p.

Our next question is from the line of Mark Strouse of JPMorgan.

Julian, to go back to something you said in the prepared remarks, when you're 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're specifically calling out for data centers?

Or are you saying some of the 36 gigs of data center pipeline is not included in your $30 billion kind of overall pipeline? And then maybe just some color on kind of what delineates what goes in and what stays out.

The 36 gigawatt hours there are projects we're working on, someone in the pipeline, and so on, some of them are leads. We're giving you a number because that compares to the 30 that we gave you last quarter. In order to get into our pipeline, we need to ensure that we there more than a 2% probability of the projects occurring during the next 2 years. So some of the projects, these are new things that we are trying to and we're very careful because we want to be sure that what comes into our pipeline. That drives another set of decisions internally and bad manager.

So we're very careful looking at this as these things coming in very, very quickly. We're looking at them and deciding which going to a partner and Soleil probably not become our harder all the time. But the ones that come in to a pilot because other ones are going to be investing money and providing offers and do the in network. So the 36 giga is if they will convert, if they were all to convert into the pipeline will be is an upside to the time we have today, certainly big pipeline we have for us.

Okay. All right. That's helpful. On the long duration side, don't think that as a complaint, 34 gigawatt hours is a very big number. but it is down from what you were talking about last quarter. So I just want to ask kind of what's going on there quarter-over-quarter. .

Good point. Last quarter, we talked about what we believe the TAM was or the resale market level, 60 giga which we had more portion. We product to route that. And these are now the sort that are projects that we are either in Para or people were working on preparing the engineer looking at identified. So the number at to a more of a bank. I'm sorry to that. I got that I saw that in a few notes that we created that confusion. The 60 gigawatts last time was a more total addressable market that we saw at the time. So that includes a project of where in markets we do not serve our customers, we know we seasonal. So now the solar projects that have the potential to become part of our pipeline because they're in markets we serve customers we want to work with and what has gone the work how much of it we believe has a 50% chance of really.

And the disciple for charging looks at the connection and right turn that, I think exactly the project that are not a big guy. Sorry for the profession at that point. I've read that in a couple of notes and we probably were not clear enough the last line, but the 60 was a time, not a project's lead that we're working.

Our next question comes from the line of Dimple Gosai of Bank of America.

Just given your commentary on strengthening the domestic supply chain and modules out at ahead of plan. Can you give us a sense of the mix of U.S. made versus imported cells as kind of embedded in your '26 delivery plan. And specifically, how much of that supply is kind of already on hand or contracted for the year? And then I have a follow-up.

Yes. Okay. I'll have Ahmed walk you through the number.

So -- mix is roughly half and half, I think, is the domestic versus imposed Yes. And your second question was -- sorry I missed that.

That's fine. And then I asked how much of that supplies already on hand or kind of contracted for the year.

So we have secured 70% of our domestic and international needs for this year.

Okay. And then secondly, just to draw on that, right, as we kind of think about this gross margin or structural gross margins, can you help us frame the gross margin delta between systems that are built with non-PF U.S. made cells versus today's imported mix under the current 48% tariff load?

We look at, frankly, from our perspective, is mantra. I mean the guidance we have given is 10% to 15%. It all depends on the project scope. Sometimes we have EPC, sometimes we don't. So I think net-net, that is what we are looking at between 10% to 15% margin.

Regardless of where the sales come from, regardless like when it's non-PF and what's the tariffs with extra tariffs.

I think -- I mean, it could be depending upon situation. So I think. But net-net, that's where we land in that range.

Our next question comes from the line of Ben Kallo of Baird.

My question is around leverage. But I want to get at it from volume. Could you talk to the route of volume because you have Basepipeline that you could execute on. Just how do you think about your contract manufacturers in your own supply chain people and capital constraints that you guys have, if you want to go up to, say, 10 gigawatts a year or something like that, what is the process for that? And how much flexibility do you guys have to ramp and execute that.

And then specifically outside of manufacturing your contract manufacturers on the liquidity side because we did see you do a capital raise for working capital. And as these numbers get bigger, I know you have $1 billion dollars of liquidity plus, but that might not be enough as we start talking bigger dumps. So if we could just address that.

So I will address the supply chain and I'll ask me to talk about working capital and capital plan. Our supply chain away we work is we have a lower plan of volume that have some base case that has an offset case and has headed out of our case. And we serve those needs with different sources of suppliers that work away. We have base suppliers that support our normal work, upside suppliers that have a crucial capability. And we also identify players of which we can play in. So we feel very comfortable we have the supply chain to go even beyond what we are offsite cases that were communicated significantly above that.

So -- and it's a work of working with our suppliers with building a little bit of spare capacity, provide suppliers that have person capacity they can deliver. So it's a little bit of a renegotiation pain. And they have been working well. And my ambition will interview said, you know what I mean, but to be able to use it today. And we believe that the world we enter into this might be probably an option that will happen.

In terms of capital, I will ask Ahmed to.

So I think you are right. We have $1 billion liquidity, which we believe is sufficient to support our current plan. And I mean in terms of the additional capital needs, I mean, Jan talked about today, significant opportunities we see. And those opportunities will require additional capital on stage materialize, I think, and then we will be frankly opportunistic to see what -- how we can raise the capital. But at the end of the day, we will be very mindful of creating value for our shareholders. I think that's our job as a management.

And then just a follow-up on the leverage side. Can you just talk about what type of scale translate in that like operating leverage under the current gross margin, but that's what we should expect, even as your volume grows, or does that gross margin get bigger? Or is there any leverage there? And then how that translates into operating margin? If you can give me any for work there helpful. .

I'll tell you, look, the way we've been communicated, I mean, the way we think about is actually that you should assume that our gross margins are the same and our ability to grow our EBITDA will come out of our operating leverage. And how we think about and so you see that our top line our overhead would only grow at half and no more than half of the growth of our top line growth. So if we grow at our top line goes to our overhead will grow at less than 50%. And that's where the operating leverage is and that's what you should think about. If you believe that we can go say, at [ 100 ] then that operating leverage gives you significant EBITDA growth.

Our next question comes from the line of Vikram Bagri of Citi.

A lot of discussion about competition and in you highlighted significant opportunities as well. I wanted to ask how important is it for you to be vertically integrated given the rising competition. How are the M&A opportunities that you see today. And then finally, could you share the threshold of return that you -- for you to make an acquisition, whether it's AESC or someone else, how do you look at the possibility of M&A in terms of accretion or the return on invested capital, what's that threshold?

So how do we think about verticalization. We are very much integrated with our suppliers because our suppliers sell back to us our design, our RPs, our -- the beholder. Very much they were using our own engineering is what's driving our supplier base. So generally, our contracted manufacturers are allowing us to have a competitive cost with access to the technology with it. So we don't really get strongly for vertical integration. See change, I will be that you could think about it. But today, we'll see a strong need. We are -- we can work with contract manufactures and integrate our technology into our that we can software or that we can then convert to the product at a very, very competitive. We're happy on that.

In terms of any acquisition generally have to be accreted for us. So how we look at it when we were doing evaluating the potential acquisition of AESC participated in that deal. We have so we are creating. So it has to make sense. So -- and the accretion needs to create -- needs to reflect the additional risk that you take when you integrate vertically because what the great capability we have is that we are very agile. We can have 3 or 4 different battery manufacturers integrated into our system that we have developed our smart store that we can integrate any water.

I'll tell you more. We can make any rate great. using political so.But it is true. Any app, we can make a great reported into our system. So that's what -- that's our approach to supply chain. So if we were to integrate vertically, we will lose that agility and that ability to exit. So we also take that into account what we were looking at hey, we need to take into account that we're going to lose some of the edit we have today. the we are talking with a plethora of potential suppliers that we can integrate all of them with different capabilities, and we can make the right.

And as a follow-up, could you provide a split of leads versus pipeline in data center and long duration sort of numbers that you've shared on the slide? And could you also remind us how do you define these versus pipeline into this category?

Yes roughly, it will leave a pipeline roughly 25%. And the difference is the leases that will lead to 25% of 34 36-hour are in pipeline. In order to order parentco be a project that we will be within the next 3 years and a 50% change of we are converted into backlog. So we will say a customer that we will do that we have a good credit that the project is rent there are a lot of people talking to a lot of stocks. You go sit down and get an idea. So those sales don't come into, but we are bringing it to a pilot because what costs or variants costs, engineering is landing rights, so we are very, very careful that main point on data center is how fast is moving.

And we'll have to see how this show is a big market opportunity converts into real execution within the next quarters.

Ounderlying next question comes from the line of Christine Cho of Barclays.

In I just have a clarification, I guess, on the last response. I think last quarter, when you talked about the 30 gigawatt hours at least at the time of the call, you had said half was in the pipeline and now you're saying 25%. So just curious as to what drove the change over the last .

Yes. Things come in and out. So power we did the engineer did work or something things coming out all the time, So -- we're very excited about where we are. I mean, that's -- and that we're giving you information that usually we don't communicate on how politics move in and out of the bank as we go in and they put in the morning in does work. The price is there's no way you want to do what you want to do so. we take it or tell the customers going per some formulation. .

Okay. And then if I look at your pipeline from the $23 billion to $30 billion, just nominally the U.S. went from $10 billion to $17 billion. So just based on all the comments that you just talked about with the data center, is it fair to say that increase was primarily driven by your typical fund of the meter customers.

Yes, that's right. We had we reorganized the company with its growth group now rather than having it the region. We brought in the month to help us run that growth. They gave in the first quarter on prepared the pipeline, we expanding our capability for business development and that you'll see some other results in this new buyback numbers we have.

Thank you. This concludes the question-and-answer session. I'd now like to turn it back to Chris for closing remarks.

Thanks, everyone, for joining our call today. Please reach out with any additional questions, and have a great day. .

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

Good day, and thank you for standing by. Welcome to Fluence Energy's Fourth Quarter 2025 Earnings Conference Call. [Operator Instructions] Please note that today's conference is being recorded.

I will now hand the conference over to your speaker host, Chris Shelton, VP of Investor Relations and Sustainability. Please go ahead.

Good morning, and welcome to Fluence Energy's Fourth Quarter and Full Year 2025 Earnings Conference Call.

Before we begin, I want to share my excitement as our new Investor Relations Officer. I look forward to engaging with our analysts and investor community.

I would also like to recognize Lexington May, who has recently taken on a new role at Fluence. Lex has been instrumental in leading our Investor Relations program since our initial public offering, and his contributions have greatly benefited our company and its shareholders.

Joining me on this morning's call are Julian Nebreda, our President and Chief Executive Officer; and Ahmed Pasha, our Chief Financial Officer.

A copy of our earnings presentation, press release and supplementary metric sheet covering financial results, along with supporting statements and schedules, including reconciliations and disclosures regarding our non-GAAP financial measures are posted on the Investor Relations section of our website at fluenceenergy.com.

During the course of this call, Fluence management may make certain forward-looking statements regarding various matters related to our business and companies that are not historical facts. Such statements are based upon current expectations and certain assumptions that are, therefore, subject to certain risks and uncertainties. Many factors could cause actual results to differ materially. Please refer to our SEC filings for our forward-looking statements and more information regarding certain risks and uncertainties that could impact our future results. 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 financial measures that we view as important in assessing the performance of our business. A reconciliation of these non-GAAP measures to the most comparable GAAP measures is available in our earnings materials on the company's Investor Relations website.

Following our prepared comments, we will conduct a question-and-answer session with our team. During this time, to give more participants an opportunity to speak on this call, please limit yourself to one initial question and one follow-up.

Thank you very much. I'll now turn the call over to Julian.

Thank you, Chris. I would like to send a warm welcome to our investors, analysts and employees who are participating in today's call. This morning, I will review the highlights of our fiscal '25 results, the accelerating demand for energy storage and how Fluence is positioned to lead in this growing market. I will also provide an update on our product road map, our domestic content strategy and progress towards OBBBA compliance. Ahmed will then cover our financial results and '26 outlook.

Turning to Slide 4 and our financial performance. First, I am pleased to report that during the fourth quarter, we signed more than $1.4 billion of orders, which represents a record level. This brings our current backlog to $5.3 billion, setting us up for renewed growth in '26 and beyond. Second, full year revenue came in at approximately $2.3 billion, about $300 million below our expectations, mostly due to delays by our contract manufacturer in ramping up our newly commissioned Arizona enclosure manufacturing facility. We have implemented corrective actions. Production is improving, and we are confident in meeting delivery commitments and capturing the shortfall during fiscal '26. I will discuss these details further in a moment.

Third, despite this revenue impact, we delivered a record of approximately 13.7% adjusted gross margin for the year and approximately $19.5 million of adjusted EBITDA, which was at the top end of our guidance range. These results were the product of good execution on projects and cost efficiencies. Fourth, in terms of annual recurring revenue or ARR, we ended fiscal '26 with $148 million, slightly above our original guidance of $145 million. And fifth and finally, we ended the quarter with approximately $1.3 billion in liquidity, which puts us in a strong financial position to form our plans for growth.

Please turn to Slide 5 for details on our order intake and pipeline. Our record $1.4 billion of order intake during the fourth quarter included contributions across all our core markets. Approximately half were for projects located in Australia. For fiscal '26, we currently expect the U.S. market will be the largest contributor of order intake as reflected by our pipeline as of year-end.

Looking ahead, demand for any [ storage ] solution is accelerating worldwide, driven by both the rapid decline in capital cost of storage and surge in demand for electricity for intermittent renewals, data centers and industrial complexes, we have seen a significant increase in larger deals in our pipeline. That, as of September 30, includes 38 deals of at least 1 gigawatt hour, more than double the number from last year, and nearly 5x what we saw 2 years ago.

Please turn to Slide 6. Earlier this month, we announced a landmark 4 gigawatt hour project with LEAG, representing the largest battery project in European history. These projects will use our new smart stack product and play a key role in Germany's energy transformation. We are very pleased to welcome LEAG as a customer and look forward to supporting additional energy transformation projects across European markets.

Please turn to Slide 7 for other emerging drivers supporting our pipeline growth. We have seen significant pickup in demand from data center customers. We are currently in discussions with data center projects representing over 30 gigawatt hours. 80% of these engagements have originated since the end of the quarter. Fluence is ready to lead in this emerging market segment with Smartstack industry-leading density, reliability and safety, in addition to its lower cost of owners.

Another set of emerging opportunities is long-duration storage, which is driven by the need for 6- to 8-hour duration batteries in markets with significant renewable penetration, such as Europe and California. Specifically, in Europe, regulatory schemes are in place to procure this capacity. Today, we have line of sight into 60 gigawatt hours of long-duration storage tenders. Smartstack is well suited to compete in this segment due to a flexible architecture and a scalable design.

Please turn to Slide 8 for an update on our team. To capture the opportunities I have just described, we have sharpened our focus on sales and flawless project execution. To that end, we are excited to welcome Jeff Monday as our new Chief Growth Officer. Jeff leads our global sales and marketing teams. He brings deep experience from Qualcomm, where he built their global enterprise and channel sales teams. Prior to that, Jeff spent 18 years leading sales teams at Apple. His expertise will help us expand the reach of Fluence's brand to new customers and industries, such as the tech sector.

In addition, we have also expanded John Zahurancik's role as Chief Customer Success Officer. As one of our company's founders and an industry pioneer, John will leverage our record of successful execution to further differentiate Fluence from our competition. He will also maximize the value of our solutions for our customers with our digital and services offerings. We believe that these internal changes will streamline our customer experience and position us to win a larger portion of our pipeline.

Please turn to Slide 9 as I discuss our new Smartstack product. We are pleased with the market reception of Smartstack. In addition to its role in winning our LEAG deal. This month, we are deploying the first Smartstack units in a project site in Taiwan.

With designed Smartstack with the objective of reducing total cost of ownership for our customers. This means in addition to a lower sales price, Smartstack offers lower cost to install and maintain the system or its useful life with top-of-the-line operational metrics. Smartstack is the only product available today that offers battery density of 7.5 megawatt hour per unit, letting customers fit over 500 megawatt hours of storage per acre. That means bigger projects optimize sites and better economics, all else equal. Additionally, the Smartstack maintains all elements of fire safety and cybersecurity that have been historically a selling element of our offering.

Finally, Smartstack is available with a flexible system architecture that can adapt to customer specifications. We expect this will be a key selling point for data centers as technology to reduce system [ latencybles ] and Smartstack's [ keys ] can be upgraded with new equipment quickly on site. We are engaged with many customers interested in Smartstack, and expect it will represent a majority of our orders for this fiscal year.

Please turn to Slide 10 for an update on our domestic content strategy. Our domestic supply chain is a critical advantage for our business, particularly given that we see the majority of our growth coming from the U.S. market. We have contracted with 3 key production facilities located in Tennessee, Utah, and Arizona. The Tennessee and Utah facilities produce our battery cells and modules, respectively, and they have successfully met production metrics in line with our expectations at the time of our last earnings call.

The Arizona facility, which manufactures enclosures, has not met its production targets during this period. Without those enclosures, we were unable to deliver our completed products and recognize the corresponding revenue during the fourth quarter. The primary cause of the manufacturing delay has been the slower ramp in staff in the facility, especially for weekend shift. We have been working with our contract manufacturer to execute a plan to improve staffing levels and further optimize the workflow. As of today, the production rate has improved and staffing levels have, in great measure, been met, which give us confidence that the manufacturer will meet our desire target rate by the end of this calendar year.

We expect to fulfill all of our customer delivery commitments over the course of '26 and book the associated to any fixed mix revenue. We will continue to work with our U.S. manufacturers to scale production and maintain our leadership position. We are committed to serving our U.S. customers with a competitive, domestically manufactured solutions.

Please turn to Slide 11 for an update on our prohibited foreign entity or PFE compliance strategy. A quick refresh. The One Big Beautiful Bill or OBBBA included regulations designed to restrict tax credit availability for products manufactured in the U.S., both supported by companies deemed to be PFEs. To that end, our strategy aims to meet our growing volume demand for domestic content from a diverse set of qualified suppliers. I am pleased to report significant progress. More specifically, this month, we have secured a second supplier for domestic battery cells. This manufacturer is compliant with OBBBA regulations and further derisk our future growth.

Turning to our Tennessee facility. We continue to work actively with AESC to find a comprehensive solution to comply with PFE regulations. The 3 key pieces to achieve non-PFE status include transfer of ownership, IP and material assistance. Significant progress has been made in addressing all these 3 items. The option of Fluence's purchasing the facility from AESC remains under consideration as a possible solution. We continue to view the incremental financing need of a potential transaction as we manage within our available liquidity. Both parties are motivated, and we continue to expect a constructive resolution in advance of the effective dates specified by the loan.

I will now turn the call over to Ahmed to discuss our financial results and fiscal '26 guidance.

Thank you, Julian, and good morning, everyone. Today, I will review full year 2025 financial results and our liquidity position, followed by a discussion of our fiscal year 2026 guidance.

Starting with Slide 13 covering fiscal year 2025 performance. Over the course of the year, we generated revenue of around $2.3 billion. As Julian mentioned, this figure falls short of our expectations by $300 million, largely due to a slower-than-anticipated ramp-up at one of our contract manufacturing facilities in Arizona. While this shortfall was a challenge, I want to highlight that our disciplined execution and operational focus enabled us to deliver on our profitability and bottom line objectives.

Regarding production, most of our U.S.-based contract manufacturing facilities have been operating at their targeted capacities, including both cell and module manufacturing. However, the newly commissioned enclosure facility in Arizona faced some challenges, primarily due to the longer lead time to attract and train the workforce necessary to drive productivity. This was the primary factor behind the lower-than-expected revenue in the quarter. Working in collaboration with our contractor, we have seen significant production improvements since September. The majority of personnel required to execute our plan have now been hired, and we are on track to achieve our targeted production levels.

Our adjusted EBITDA for the year was $19.5 million, which came at the top end of our guidance range, even as revenue fell short of expectations. This outcome underscores our operational excellence and strong execution.

Turning to Slide 14. We achieved a record level of 13.7% adjusted gross margin for the year, above the top end of our expectations. In addition, our rolling 12-month adjusted gross margin is consistently at or above 13%. This reflects our strong focus on productivity and successfully leveraging our supply chain.

Turning to Slide 15. We also finished the year with a record of approximately $1.3 billion in liquidity, up $300 million compared to the end of fiscal 2024. This includes more than $700 million in cash, with the rest available through our credit facilities. This strong position gives us confidence to make investments that will grow our business and strengthens Fluence's reputation as a reliable partner. Looking ahead to fiscal 2026. We intend to invest about $200 million in our business. This includes approximately $100 million in our domestic supply chain and the rest in working capital to support 50% revenue growth.

Turning to Slide 16. Today, we are introducing our guidance for fiscal year 2026. We expect revenue in the range of $3.2 billion to $3.6 billion. We began this year with 85% of our guidance midpoint already in our backlog. This strong coverage materially derisks our FY '26 revenue compared to the historical level of around [ 60% ]. We anticipate realizing 1/3 of this revenue in the first half of the year and the rest in the second half.

We expect our adjusted gross margin to be between 11% and 13%. This range reflects a period of higher costs associated with the rollout of our Gridstack Pro product, which will make up 70% of our 2026 revenue. We anticipate margins will improve over time as we continue to leverage our disciplined execution and our growing scale. We expect operating expenses to grow at less than half of the pace of revenue, consistent with our guidance in prior years. This includes increased spending on sales, marketing and R&D to support future revenue growth.

For adjusted EBITDA, our guidance of $40 million to $60 million reflects expected revenue, adjusted gross margin and higher operating costs from planned investments in sales and product initiatives. With respect to ARR, we are initiating guidance of approximately $180 million by the end of fiscal '26, representing over 20% year-over-year increase.

In summary, with our strong liquidity, focused execution and robust order book, we are well positioned to deliver on our plan.

With that, I would like to turn the call back to Julian for his closing remarks.

Thanks, Ahmed. Before we take your questions, I would like to conclude with the following 5 takeaways.

Market leadership. Demand for any storage is accelerating globally. Fluence is capitalizing on this environment with notable wins such as the 4 gigawatt hour LEAG project in Europe and a rapidly growing pipeline of data center customers and other large-scale deals.

Product leadership. Smartstack is a key differentiator versus the competition. With increased density and a very competitive total cost of ownership, we expect Smartstack to drive a majority of future orders.

Operational execution. We have made significant progress to strengthen our domestic supply chain advantage. We have addressed production issues at the Arizona facility, and all our domestic manufacturers are now on track to meet our expectations.

Compliance and readiness. We have strengthened our ability to deliver PFE-compliant products to customers, with the addition of a second domestic battery cell supplier. We continue to make progress towards OBBBA compliance with our Tennessee manufacturer and expect resolution ahead of regulatory deadlines.

Looking forward, the achievements position us to maximize stakeholder value by consistently meeting our commitments to customers and shareholders, reinforcing our reputation as a trusted industry leader.

[Operator Instructions] Our first question coming from the line of George Gianarikas with Canaccord.

I'm just curious if you can share any thoughts on what you're seeing in the competitive environment? Any changes there in the U.S. and internationally?

International, no real change. It's a very competitive market. And the Chinese players continue to drive the competition in a way. The U.S., the competitive market is changing, with -- we see more and more customers that prefer to use U.S., our non-PFE manufacturers, even if they are not required to do under the -- because the projects are safeguarded under the law of that provision. So I will say that what is an evolving matter that we see coming. So that's kind of today where I see the market.

And maybe as a follow-up, Ahmed, I think I heard when you were talking about gross margin or margin guidance for '26 that you expect margins to improve over time. Were you referring to gross margins moving beyond the 11% to 13% range you guided for next year, say, in '27 or '28?

Yes, George. Yes, I think our goal is to continue to improve the chart that we have disclosed. I think our goal is to continue to show their chart going forward to show the trajectory and the difference we are making. Our guidance, as you recall, was 10% to 15% in the past. I mean, I think our -- we haven't changed that going forward. So our goal is to continue to improve their trend line.

Our next question coming from the line of Brian Lee with Goldman Sachs.

Kudos on the quarter here. Just -- I appreciate all the color, Julian, on the data center sizing. It sounds like that opportunity is coming to fruition here pretty quickly given the time line you expressed. But can you maybe help us a little bit understand first, the sizing of the market, I guess if we take the 30 gigawatt hours of data center projects in the pipeline in [indiscernible], that's maybe -- if we estimate maybe $6 billion of the total $23 billion pipeline or in that neighborhood. Is that kind of the way to think about it? And what do you think the overall TAM is and what Fluence's market share could ultimately end up looking like?

Good question. Let's start with the TAM. Last quarter, we talked about a TAM of around $8 billion. So I think that is clearly -- the reality has proven that the number is significantly higher. The market has still very, very different numbers. I'd say we have seen numbers of 10x the $8 billion or more than 10x $8 billion. It's still clear. We have to [indiscernible] a little bit more. But clearly, it's a market that is expanding.

On the 30 giga that we talked about, as of September 30, only 20% of it, one small portion of it were in our pipeline. The rest were contracts that we started to -- with customers since then. And then today, if you ask me today this morning, roughly half of the 30 gigawatts are in pipeline, the other half, we're working on it. And what we're looking if I can -- will they happen in the next 2 years, where do we see that the product is suitable to do what they want. And generally, I think we are fine.

So what's a big change from telling you a quarter ago, this is an $8 billion market required is very, very complex capabilities to today. I think there's a big change in terms of what we can do for -- with our technology at Fluence, in particular, can do for data centers. And I would say the way to think about it is that there are 3. One is what we call interconnection flexibility. The ability to manage the energy demand in a way that you can interconnect easier to the grid and you can manage -- and the distribution companies or the service provider can manage your demand to keep the -- so that is, by itself, I would say, today the biggest driver. People who want to connect quickly to a grid and want to ensure that the data center meets the availability of the grid and can give the assurances to the grid operator that they will not disrupt it. And we can do that today with that [indiscernible] work. This is -- there's no -- we have no need to improvements in our technology stack to be able to do that. So very great.

The second one that is also on a rising need or a rising need is back of power. Historically, we haven't played that game. But with our costs coming down as they are and our ability to -- our then [indiscernible] improve, we can now provide backup power and significantly reduce -- I won't say eliminate, but significantly reduce the need for [ diesel generate ]. So that's the second need that we're seeing. We can accelerate interconnection to the grid and we can reduce some of the cost of the business generators for providing backup.

The third one is the one we have talked out in the -- in our last call, this power quality is idea that we can -- will have to manage the variability of energy demand by AI data centers. That -- if you ask me today, that hasn't been -- the first thing is that there are other technologies that can address that. That's the first one.

The second one is that it is a need that is not as big as we thought it was going to be. So it's probably at around that $8 billion number. And it is something that data centers, when they looked at what they're doing, their speed to power is a much more important element than this one because the other one, they can manage in some other way.

We are committed to deliver the 3 products, the interconnection flexibility to accelerate interconnection, the back of power capabilities, and these 2 that we can do today, and we're very well positioned to -- Smartstack is a [indiscernible] project in the world. It is a project that, because of the [indiscernible] the way were designed, provides very good safety, better than, I would say, very, very good. And then third, our cybersecurity, our total control and software, our ability to ensure that no one else can get in.

So the power quality is something we're working on with our inverter manufacturers. We'll get it resolved quickly, but it's still a working product. But we thought that was going to be a [indiscernible], the back of power is going to be a gating item for us to serve this market. That's no longer the case. It is, I would say, it's a cherry on the top. If you can deliver the last 2 and this one is right, but it's not a [indiscernible]. So great market, multiples of what we told you in terms of what we do, and we all need to do a major technology.

And my last point, we -- I -- we don't have a clear view today. This is just [indiscernible] how much we can capture. What I will say, we are very well positioned to safety density. Some of our competitors are claiming density, which is 25% less than what we can do. So that tells you we can do very, very well, and we are -- we have -- we hire Jeff. Jeff comes with knowing how to serve the market. He's been one of the structure go and get [indiscernible]. And this is not only happening in the U.S. It's a global phenomenon. We have our pipeline. It's mostly U.S. today, but we're starting to see pipeline coming both in Australia and Europe. So sorry for the long answer, but we're excited about this.

Yes. No, I can definitely sense that. I appreciate all the color. Maybe just one more question on that topic. From a P&L timing and impact perspective, can you give us a sense of the conversion time line for this data center pipeline? And is any of it embedded in your revenue guide for fiscal '26? And maybe just lastly, margins relative to core margins, are these going to be higher margin just given the customer subset you're dealing with, curious on the impact on margins as well.

I will say that of the 30 giga, half are '26 order intake, half of that are '27, give or take. And most likely, projects that will be -- will convert to order take later in the year. Not revenue for '26, we'll have to see how much revenue for '27, it's not clear.

In terms of margin, this is a new segment. I don't want to talk about it publicly, but what I will say is that we can provide a lot of value to our customers, a lot of value. We can deliver our products quickly, give them the confidence in our security, the best density, and we are -- and so we are very confident that we can create a lot of value to our customers. That's why we're concentrating.

Our next question is coming from the line of Dylan Nassano with Wolfe Research.

Just wanted to go back to the Q4 kind of underperformance versus the guide. I know that in the previous quarter, manufacturing delays kind of came up, but it sounded like maybe those were resolved and you're operating on schedule again. So I just wanted to check what kind of changed between the last call and now, like are these incremental kind of problems that popped up? And anything you can give us just to kind of boost confidence going into the quarter that these are kind of resolved at this point?

So we have -- [indiscernible] and I, clearly, we're disappointed with what happened. I mean first thing -- but I don't want to say -- sound apologetic what I'm telling you about. So what do we have? We have our suppliers in the U.S., many, I said the 3 main suppliers. Out of the 3 main suppliers, 2 are doing great. I'll say even more. The 2 that have the more complex process are doing very well. So we're very happy, ahead of schedule, doing wonderful product. We have less complex process, which is enclosure manufacturing.

When we met last quarter, we had a plan that was going to be able to -- going to allow the delivery of our revenue for the year, but that is required a major staffing process that I think we underestimated the ability to start that facility. I think that today that we have done 2 things. We have clearly gone out and got the staffing and preparing people. And we're essentially done in terms of staff and there's still some people, but it is essentially done. And we have made some changes in the way we are -- with our cultural manufacturer to ensure that we meet our -- that we need to facilitate the manufacturing process at the right [indiscernible].

And I think the 2 combinations, having started the place -- and we're talking about a significant number of people. This is roughly 500, 600 people that we needed for that facility to work with 3 chief and all of that. We were fully -- essentially fully staffed. And with the changes in operations, we are meeting our numbers. So I think we are -- we expect to do -- we were doing, at the end of last quarter, 1.5 [ enclosure ] per day. We are already at 5 and we are ramping up. And I don't know if we will be able to meet our numbers very well. So we are very confident today.

Unfortunately, we did not meet what we do. We could not deliver on the revenue, and we are disappointed. But we learned very quickly. Our operational and manufacturing team is very, very good, and they have fully placed their corrective measure to this.

Yes. Dylan, the only thing I would add is I think that from our perspective, as Julian said, yes, because of the labor shortage, we were -- we've got roughly 1.5 container per day. Fast forward, we added 500 people. We are now running at 5 containers per day, which is in line with our expectations for the quarter. So we feel pretty good where we are, but equally importantly, I think we pulled our levers to deliver on our profitability commitments as you saw the margin and the EBITDA we are in line with our top end of our range. So...

Got it. I appreciate that. And then my follow-up, I just wanted to check on this new cell supplier. Can you just give us any more color around how much incremental capacity this may get you? Any -- are you prepaying for any cells like similar to what you did with AESC? And yes, so mostly just curious, like, does this get you net additional capacity to serve U.S. market?

Yes, I can take that question. Dylan, yes. I think this gives us enough capacity to serve our projected loads for the next couple of years. So we feel pretty good what we have signed. And in terms of the deposits, now no material deposit commitments, I think it's -- as we have to deliver as we make those commitments.

Our next question coming from the line of Ameet Thakkar with BMO Capital Markets.

I just wanted to kind of go back to kind of the implied EBITDA margin for this year versus last year. I mean it looks like the EBITDA margin is down, and I know the gross margin is also kind of down sequentially. But it looks like the implied ASPs in your book [indiscernible] pretty significantly kind of quarter-over-quarter. I was just wondering if you could kind of walk us through why, I guess, the gross margin is lower year-over-year versus kind of a rolling 12 months.

So I think the ASPs -- your question is, yes, I think it's down, but no surprise, I think ASPs are down roughly, I think, give or take, 10% or so. In terms of the gross margin, I think we basically are pretty much in line. I think the EBITDA margin, as you ask is, obviously, there's an operating leverage because volume was less. Last year, our overall revenue was [ $2.7 billion ] This year is $2.3 billion.

So yes, I think -- but the more important thing, frankly, from our perspective is as we grow the top line, we will benefit from the operating leverage, and our goal is to continue to grow EBITDA. Obviously, that is what the shareholders care, at the end of the day, top line is great, but at the end of the day, that should translate into the bottom line. And that's what we, as a management team, also are on the same page. So straight [indiscernible]. I think our goal is to continue to improve the top line and also the bottom line.

And then I know you kind of talked about a couple of kind of uses of liquidity for next year. But just in terms of kind of like kind of the free cash flow expectations relative to that $50 million kind of EBITDA guidance at the midpoint, any kind of kind of, I guess, guideposts there, please?

So yes, I think the $50 million EBITDA, I talked about the working capital, roughly $100 million as our revenue is growing by -- from $2.3 billion to $3.4 billion. So $1 billion or so of additional. If you recall, we said in the past, working capital needs are roughly 10% of our growth in revenue. So about $100 million of working capital needs and then $100 million of investments in the domestic content, as I mentioned in my remarks.

Beyond that, we don't have any material commitments. So I think next year, our goal is to be free cash flow positive as our revenue grows and our EBITDA grows. So I think that is the goal. But this year, $50 million is the EBITDA, but then we have working capital needs of $100 million.

But I think more importantly or equally importantly is liquidity will remain very robust with this working capital use. So our goal is to continue to strengthen our balance sheet with growing cash and our credit facilities. So we feel pretty good where we're going to land at the end of the year.

Our next question coming from the line of Julien Dumoulin-Smith with Jefferies.

Nicely done this quarter. Just following up a little bit about some of the margin commentary and just filtering that back in with AESC. Can you comment a little bit on how you think about margins being tethered to whatever happens with respect to your domestic supply and whether that's with AESC or in [indiscernible]. Does that -- is that part of the commentary about margin driven? And then related, can you just give a little bit more of a detailed update around AESC specifically? I know that you sort of "procured a backup" here, if you will. But how is that relationship evolving here? How would you frame out volumes from one side or the other side of that supply range from now at this point?

In terms of margins -- in terms of AESC, I mean, any deal we do, we might do an AESC will be accretive. So that's the way you like to think about it. We -- when and if it happens, we'll communicate what it means in terms of margins and -- and I think that Ahmed's point was more general. If you looked at our performance since I got here. The company was negative margins of 4%. We're now on a rolling average of 12 [indiscernible]. We're now at 13.7%. So [indiscernible] we're all here. Want to commit to continue showing a growing [indiscernible] that's kind of what we're doing, and we're finding ways to continue to work. I mean that was more of a comment in that direction.

In terms of AESC, what I would say is that we are -- mainly the OB3 OBBBA compliance is a complex cost. We have been able to make a lot of progress. And generally, you can look at it from [ 3 ] area that you need to meet. The [ IP ] and I think we have a solution that's done, and we can -- the [ IP ] in that -- in that for that production facility meets the criteria of OBBBA3 -- OBBBA or [indiscernible]. Then we have the material systems, the need that the suppliers of the facility cannot come from PFE suppliers. We have a plan that will deliver that. And then we have the owners. And the ownership is the one where we are -- field the base. We're making good problems. We're committed to resolve it, but we have not -- we have not reached a final deal. What we have always said, we're not the only option in town. So there are other ways that they can resolve this issue. I don't want to -- we clearly believe that we are the best option, from my point of view, but they can do something different.

So -- and then on the new supplier, I mean, what it is, is we generally diversify supplier. That's a rule of [indiscernible]. We're diversified supplier. And the demand we see is very big. So we need to continue to meet the growing demand of our philosophy of diversified suppliers and the growing demand call for the second supplier. So that's where we are. We are -- we see this as one of our competitive advantages. We are a first mover in this area, and we want to continue being the first mover. So that's the reason for our strategy. Yes.

And so just to clarify that real quickly, it's basically -- your current plan and current margin expectations assume that you're served with AESC? And would it be improved or detrimental to shift the supply, if I heard you right or understand.

Yes. And I will say the following. The -- as I said, a potential deal with AESC will be accretive to the core numbers. That I can provide.

Right. You're already here cutting it. Okay. Understood.

No, I'm not cutting probably [indiscernible].

Okay. All right. Got it. No, that's why I asked. I appreciate it.

Our next question coming from the line of David Arcaro with Morgan Stanley.

In terms of the data center pipeline, I was curious just to get your -- what you're currently seeing, is this bringing larger project sizes versus your current backlog? Is it more U.S. heavy in terms of region where you're seeing that demand? And would be curious, what kind of duration you might be exploring for those types of projects?

Yes. I will say that generally, we talk to in the call. One of the big drivers of the elasticity of demand -- where you can see the elasticity of demand with -- for our technology that price has come down has been how projects are getting bigger. And we have today 38 projects that are 1 gigawatt hour or more. I don't think that the data centers are bigger, naturally bigger than in line with what we have when you look at it. Some are smaller, some are bigger, but generally in line.

In terms of where geographically today, I will say the majority come from the U.S. and we have seen some -- the pipeline development in APAC and Europe is a little bit behind. But so that will see what we will see this as a global market. So last kind of our view.

In terms of duration, depends on the use case, we see from 2 to long-duration storage, both the whole nothing below 2, but that's what we are.

Okay. Got it. That's helpful. And then I was just curious about strong order intake in the quarter -- in this past quarter. I was wondering if you could talk to what the -- whether there's a common driver there that you're seeing? It doesn't seem to be data center growth just yet, if I'm interpreting that correctly. So what are you seeing in terms of what drove the strong [indiscernible]?

It was a strategy, a big driver of the strong quarter in 20 -- in 20 -- the strong order intake. We have these deals in Australia, as you know, that we were delayed in 2025. We signed them all, and they all -- most of them occur later in the year. So that's a big driver of it. But we see for '26, the U.S. being the big driver and a little bit of a change, and we'll see some -- I expect to see some data center stuff happening in '26. So later in the year.

Our next question coming from the line of Mark Strouse with JPMorgan.

I just wanted to go back to the second domestic content supplier. Ahmed, I think you said that your needs are met for the next couple of years, but I just wanted to clarify, is that capacity available today? Or is there kind of a ramp period that we should be expecting?

No, I think the capacity is available -- will be available in about next 10, 11 months. But I think the capacity that we need to serve our load, as we discussed during the call, we have about 85%, 90% of our revenue in our backlog, and we have already secured the capacity for that. So we don't need this capacity, but we are now locking in additional capacity to basically secure our future business.

Okay. And then on the long duration side, is Smartstack the only go-to-market solution that you have there? Are you potentially looking to partner up maybe being a systems integrator for some of the more emerging technologies that are out there?

Smartstack will be our -- is our -- what we're going to do. And we believe that very competitive. So we do all this, Mark.

Our next question coming from the line of Christine Cho with Barclays.

With respect to the data centers, you mentioned the 3 different ways that you can serve data centers, the interconnection backup and power quality. Would you be able to sort of like break down the opportunity set here and maybe rank it? Like is half of the opportunity for power quality and backup is the smallest? And for duration, you mentioned 2 hours is the low end. I'm assuming that's for power quality. Is it similar for those who are interested in getting storage for interconnection purposes?

Yes. First point, that's that I would like to highlight on. So we have these 3 needs. What's the wonderful of our technology. And now we're talking about battery storage, not necessarily ourselves. Is that we can stack up these 3 needs with the same technology. While the other technology solutions can do one or the other, but they cannot do what we do, which is facilitate interconnection, do [indiscernible] power and do what, and that makes a difference. And I think that's what makes our solutions so attractive to our -- to data center today. We have resolved 3 problems with one technology. So that's very, very good.

In terms of the 2 hours, these are -- depends on the need of the customer, so I cannot really put out -- can tell you this is what drives it. But generally, you are right on the view that backup power and interconnection flexibility will tend to be longer duration, while power quality will tend to be shorter [indiscernible]. But generally that's true. But I think you need to think about is this, is the ability to serve the 3 needs with the same infrastructure. That's what we are aiming for. Because that's where I think that will make our technology the preferred technology solution to resolve -- to address these problems.

Okay. And then if you are able to vertically integrate with AESC, how should we think about what the mix will be between the AESC supply and the second supplier? And with this second supplier, is the contract for a set amount of time? And then lastly, for your international projects, are you also diversifying your sales suppliers there?

We have -- we always been diversified internationally. We're just being diversified locally. My view on this is that it is -- we convert any battery into a great technology solution. That's what we do as a company. [indiscernible] a supplier is not a [indiscernible]. Shouldn't be a [indiscernible]. My customer shouldn't care and my financial investor shouldn't care. What the real value we bring is the ability to make any battery great, no matter what. So that was my answer to it. I don't know what the mix will be, but as I said, for my customers, it will be irrelevant from a product delivery and capabilities, what batteries are [indiscernible].

But for you, doesn't it matter in that if you are using AESC and you're vertically integrated, it's higher margin for you versus...

Yes. I care about my customers. That's what I do. We will figure out that far. But the importance in service is the ability to -- or the route to success in meeting our customer needs. That's what drives the company. Well, you're right. We might be able to capture if we were to be vertically integrated, there will be more margin on one or the other, but my -- the way to win is meet the customer. That's our tool. Not -- if you try to optimize something else, you lose this side. Your customer needs, and that drives profitability, that drives margin, that drives everything.

And our next question coming from the line of Justin Clare with ROTH Capital.

So I just wanted to follow up on the second source of the cell supply here. So I think you mentioned it will be available in the next 10 to 11 months. So just at the beginning of the year, do you expect to depend on the source of cells from AESC for domestic U.S. projects until that second source is available? And then -- so I'm just trying to get at how important is it for you to resolve the challenges with the FEOC restrictions by early calendar 2026 in terms of thinking through the outlook for the year.

Very, very important. That's what I would say. We have a plan and we've been working on it, and it's very, very important to do it. So that's what I can tell you. I mean, we will get it done.

Okay. Got it. Good to hear. And then just a follow-up on the data center opportunity. I was wondering, are you seeing -- or could you talk about the ability to kind of successfully accelerate interconnection with storage being added to data centers? Is this being done today? Or do you need the regulatory framework to change in order to support this use case? And then wondering what the timing of orders associated with that use case might be.

We haven't signed any of these contracts yet. So this is a work in progress, but we believe we can -- we have the ability to ensure that the data centers meet the interconnection restrictions that they have. So I'll say, yes. How did you need a major regulatory change [indiscernible] that you meet whatever the grid is offering.

Ladies and gentlemen, that's all the time we have our Q&A session. I will now turn it back to Chris for any closing comments.

Thanks, Lydia, and thanks to everyone for participating on today's call. We look forward to speaking with you again by first quarter results, if not before that. And I'm pleased to -- looking forward to meeting with everyone as your questions arise.

This concludes today's conference call. Thank you for your participation, and you may now disconnect.

Thank you for standing by. My name is Janice, and I will be the operator for today. At this time, I would like to welcome everyone to Fluence Energy, Inc. Q3 2025 Earnings Conference Call. [Operator Instructions] Thank you.

And I would now like to turn the conference over to Lexington May, Vice President of Investor Relations. You may begin.

Thank you. Good morning, and welcome to Fluence Energy's Third Quarter 2025 Earnings Conference Call. A copy of our earnings presentation, press release and supplementary metric sheet covering financial results, along with supporting statements and schedules including reconciliations and disclosures regarding non-GAAP financial measures are posted on the Investor Relations section of our website at fluenceenergy.com.

Joining me on this morning's call are Julian Nebreda, our President and Chief Executive Officer; and Ahmed Pasha, our Chief Financial Officer.

During the course of this call, Fluent's management may make certain forward-looking statements regarding various matters relating to our business and company that are not historical facts. Such statements are based upon current expectations and certain assumptions and are, therefore, subject to certain risks and uncertainties. Many factors could cause actual results to differ materially. Please refer to our SEC filings for our forward-looking statements and for more information regarding certain risks and uncertainties that could impact our future results. You are cautioned to not place undue reliance on these forward-looking statements, which speak only as of today.

Also, please note that the company undertakes no duty to update or revise forward-looking statements for new information. This call will also reference non-GAAP measures that we view as important in assessing the performance of our business. A reconciliation of these non-GAAP measures to the most comparable GAAP measure is available in our earnings materials on the company's Investor Relations website. Following our prepared comments, we will conduct a question-and-answer session with our team. [Operator Instructions]

Thank you very much. I'll now turn the call over to Julian.

Thank you, Lex. I would like to send a warm welcome to our investors, analysts and employees who are participating in today's call. This morning, I will briefly review our Q3 results and then address the impact of recent legislation, which we believe provides a strong foundation for the future of our business. I will also provide an update on the current market environment and the progress we made in executing on our strategy. Ahmed will cover our quarterly financial results and 2025 outlook in more detail.

Turning to Slide 4. I am pleased to report that since our Q2 call, as we expected, we signed 2 contracts in Australia worth approximately $700 million of combined revenue. One of these countries is the largest contract in our history. Additionally, we delivered on our first domestic content product, which we believe is the first domestic content compliant battery storage systems deliver in the U.S. We're ramping up our U.S. production and working through some typical production ramp-up issues as we scale. And finally, all of our contracts that were halted in the U.S. market due to tariff and regulatory uncertainty are now reactivated and moving forward.

Turning to Slide 5 and our Q3 performance. First, we ended the quarter with approximately $4.9 billion in backlog. Since June 30, we had added to our backlog approximately $1.1 billion of contracts, including the 2 Australia contracts that I mentioned. Second, we recorded approximately $603 million in revenue, which was below our expectations, mostly due to delays in ramping up volume at our U.S. manufacturing facility. We expect to recover this revenue in fiscal '26 as production rates at these facilities continue to improve and reach their targeted capacity levels.

Third, despite this revenue shortfall, we generated a 15.4% adjusted gross profit margin, well above our target for the quarter. and our annual recurring revenue increased to $124 million. And finally, we closed the quarter with more than $900 million in liquidity, including approximately $460 million in total cash, which we believe allow us to continue operating from a position of financial strength and provide significant flexibility in the current market.

Please turn to Slide 6. Since our last call, several developments have reshaped the energy [indiscernible] landscape in the United States. The One Big Beautiful Bill Act or the OBBBA came out with strong support for battery storage. It differentiates best from other sources of generation by recognizing our technology as a dependable and dispatchable source of electricity much like nuclear or gas plant. This morning, I would like to highlight 4 provisions of the OBBBA that provides support to Fluent's U.S. strategy, center on domestically produced energy storage system.

First, the OBBBA extends the investment tax through 2034. Second. It establishes new restrictions on the base ITC, limiting eligibility for this equipment. Third, imposes tighter and increasing over time FEOC requirements on the 10% domestic content ITC bone. And four, it has FEOC restrictions on Section 45X manufacturing credits. We believe that these provisions enhance our competitive position as one of the few companies currently capable of delivering domestic content energy storage systems at scale. We're seeing increased customer interest and growing opportunities that reflect the scarcity of compliance solution [indiscernible] the U.S. storage market.

Turning to Slide 7. As I noted, the OBBBA adds FEOC restrictions to the Section 45X tax credit, limiting ownership, control and material sourcing from certain countries. We expect that the forthcoming treasury rules implementing these restrictions will be working. And we are actively engaged with our suppliers to ensure compliance by the deadline next year.

Here, I want to highlight 2 important topics. First, we are looking at multiple options none of which requires any significant capital beyond liquidity needs we have previously earmarked. It does not requiring us to raise additional equity. And second, the increase in domestic content thresholds on the OBBBA favors our established U.S. supply chain, which positions us well to deliver compliant cost competitive system in this evolving regulatory lag.

Turning to Slide 8. The significantly higher tariff from China proposed by the Trump administration and the uncertain tariff environment overall were the primary reasons for the hold in contracting activity last quarter. More recently, though, the tariffs on certain Chinese battery components have reduced from 155.9%to 40.9%. This has restored a level of predictability that has prompted customers to assume contracting [ this cost ]. We are now seeing early signs of renewed U.S. order activity. supported by our foreseeable contracting model, global sourcing and strong customer relationships. As I mentioned earlier, all our contracts are were halted in the U.S. market due to tariffs and regulatory uncertainty are now reactivate and [indiscernible].

Separately, the Department of Commerce issued a preliminary 114% duty on certain Chinese origin graphite material, with an estimated $5 per kilowatt hour cost impact that is manual and reflected in our guidance. We are pursuing alternative sourcing and believe these rules, along with the recent legislation and tariff changes reinforce the value of our U.S. content lift and diversified supply chain.

Turning to Slide 9. I would like to touch on the competitiveness of energy storage. The data is increasingly clear. battery storage is now one of the most competitive solution for meeting capacity needs and is superior to Gaston. It's not just about cost. It's also about speed and scalability. Generally, battery projects can be permitted, cited and deployed far more quickly than new fossil generation. making batteries a flexible tool for utilities and grid operators navigate rapidly growing the market. We are already seeing this gist in real-world operations. In June, battery supply 26% on CAISO's evening-peak demand surpassing gas for the first time, that a landmark moment for our industry and a clear signal that green scale storage is no longer a photolistic concept. It's here, it's working, and it's scale.

Turning to Slide 10. In addition to competitive costs, we've also seen an expanding addressable market for BESS. One of the most transformative trends we've seen in the energy landscape is the rapid growth of data center demand, driven by AI and machine learning workloads. These workloads are not only energy intensive. They are also highly [indiscernible]. Training large AI models or profession inference tasks can lead to solid spikes in power consumption, placing in main strains on the grid and creating localized reliability challenges. This is where battery energy storage can play a critical and unique role that cannot be felt by conventional sources of generation or renewables.

BESS can act as a buffer, absorbing rapid surges in power and releasing it bring high-demand intervals, effectively leveling out the fluctuations come with AI-driven compute cycles was more batteries can be co-located at the data center itself or deployed at the transmission or distribution level, offering both behind the meter and grid level of flexibility. That's [indiscernible] advantage in markets with interconnection bottlenecks or constraints in structure.

Fluence is engaging with leading data center operators to develop storage systems that meet this fast-changing power demand, providing real-time flexibility for some of the grid's most dynamic loads. This shall estimates place the demand for these solutions and $8.5 billion through 2030.

Turning to Slide 11. Coming back to our Q3 performance. We delivered strong double-digit growth margin, driven by disciplined execution, cost control and supply chain optimization. Our product mix pricing strategy and scale are sustaining higher margins in a dynamic market, reflecting a structurally improved margin profile and supporting long-term attractive returns. These results reflect the success of our commitment to profitable growth that we laid out a few years back.

Turning to Slide 12. As of June 30, our backlog was approximately $4.9 billion, providing strong visibility into future growth. Since quarter end, we have signed approximately $1.1 billion in additional contracts, including the approximately $700 million from the delayed Australia projects. The backlog is well diversified across North America, EMEA and Asia Pacific. Momentum remained strong in Asia Pacific and EMEA, and we are seeing early signs of recovery in the U.S. as tariff-related uncertainty is and the enhancement of OBBBA addresses concerns about to the regulatory environment. Our domestic content compliance product, flexible contract and resilient supply chain position us to capitalize on this rebound. Our pipeline has grown to $23.5 billion from $22 billion last quarter, under current broad global demand.

This concludes my prepared remarks. I will now turn the call over to Ahmed.

Thank you, Julian, and good morning, everyone. Today, I will review our third quarter financial results and then discuss our liquidity and updated outlook for the remainder of fiscal 2025.

Turning to Slide 14. Starting with our third quarter performance. We generated $603 million of revenue. This brings our year-to-date revenue to $1.2 billion or 46% of expected full year revenue, which is consistent with our prior year results. Q3 revenue was approximately $100 million or 15% below plan due to a slower ramp-up at our new U.S. manufacturing facilities particularly at our recently commissioned enclosure facility in Arizona. Enclosures are the final stage in the production process and therefore, the getting item from a revenue standpoint. We have already seen recovery milestone met across our cell, module and employer facilities and expect to reach targeted production levels by the calendar year-end.

I would note that our delivery commitments have sufficient time contingency to cover this delayed ramp-up, thus, we expect to continue delivering products to our customers on time and on budget. Our Q3 adjusted gross margin was 15.4%, which reflects solid execution across our portfolio, particularly in Europe and Asia, where we generated more than half of Q3 revenue. Our adjusted EBITDA was approximately $27 million, which reflects the higher margins carried by the international projects during the quarter.

Turning to Slide 15. We remain focused on maintaining strong liquidity to support our operations. We ended the third quarter with more than $900 million in liquidity. This includes approximately $416 million of cash with the rest coming from availability under our credit facilities. I'm also pleased to report that last week, we executed a new $150 million of supply chain facility. This is Fluence's first-ever unsecured facility, which carries an all-in interest cost of approximately 6% and is available to us to meet working capital needs. We appreciate the continued confidence of our relationship banks who share our vision and believe in Fluence's long-term growth potential.

On a pro forma basis, this brings our total liquidity as of June 30 to more than $1 billion, giving us additional flexibility to execute on our future growth plans. As I mentioned on our second quarter call, we expected to require a couple of hundred million dollars of working capital during the second half of fiscal 2025. During the third quarter, we have already funded approximately $150 million of that, mostly to purchase inventory, which now totals $650 million. The majority of this inventory will be used to meet our near-term customer commitments. Accordingly, we don't foresee any material additional funding needs in the near term, and we expect to maintain our strong liquidity, which is critical to supporting our growth plans.

Turning to Slide 16. Next, I will review our financial guidance for fiscal 2025. We now expect revenue to come in at the low end of our prior guidance range of approximately $2.6 billion. As I noted earlier, the delays in ramping up our U.S. manufacturing facilities have had the impact of shifting approximately $100 million of fiscal 2025 revenue into fiscal 2026. With respect to other guidance metrics, we are reaffirming our ARR of $145 million by the end of fiscal 2025. In addition, we are reaffirming our adjusted EBITDA guidance range of $0 to $20 million. We also continue to expect our full year 2025 adjusted gross margin to be between 10% and 12%. Despite the macro headwinds that have occurred this year, such as tariffs and legislative uncertainty, we have continued to take necessary steps to manage the business for profitability and cash flow, and this is reflected in our results.

For 2026, we will provide formal guidance on our year-end call in November, consistent with our prior practice. We intend to base guidance on backlog coverage of 80% to 90%, which will represent higher confidence in our revenue and EBITDA forecast compared to the historical practice of 65%. Today, we have fiscal year 2026 backlog of $2.5 billion. In summary, we remain confident in the long-term prospects of energy storage in general and particularly influences ability to deliver maximum value to our shareholders and customers.

With that, I would like to turn the call back to Julian for his closing remarks.

Thank you, Ahmed. Turning to Slide 17. In closing, I will highlight the key takeaways from this quarter's performance and our outlook moving forward. First, the market for energy storage remains robust globally. More importantly, we have started to see the U.S. market activity picked back up after the path we saw earlier this year, driven by a very supportive backdrop from recent federal legislation and some easing of tariff uncertainty.

Second, we are actively working with our supply partners to structure our supply arrangements to achieve compliance with the new requirements under OBBBA, including the FEOC provisions, and we'll continue to do so as new regulations and guidance are issued. We are working towards these being completed ahead of the deadline under the OBBBA. Third, there is a strong business case for battery storage as battery technology is now cheaper than gas and is uniquely positioned to adapt the growing AI data center power demand to grade conditions. Together, these factors reinforce our confidence in Fluence's ability to excel in to the environment and delivering value to our stakeholders.

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

[Operator Instructions] Your first question is coming from the line of Brian Lee from Goldman Sachs.

I guess, first, when I look at the guidance for the rest of the year, fiscal Q4, it implies gross margin. I know you guys don't like to focus on it too much, but you had a really good gross margin in Q3 here. Q4 is indicating something south of 10%. So below the low end of the guidance range for the year, even though it's a big revenue quarter. So can you kind of talk about the puts and takes on margins into the year-end quarter? And then also you got a decent amount of backlog heading into '26 and really be in Australia activity here that presumably is going to show up in your '26 execution. What are you seeing in terms of margin outlook for the backlog? Are we tracking ahead of kind of the 10 to 12 that you did this year? I'm just trying to understand what to read into Q4, but also what you see in the backlog here again in '26?

Thanks, Brian. On the margins for the fourth quarter, the fourth quarter has a lot of U.S. revenue, a lot of the revenue in the fourth quarter comes from the U.S. and it has been affected by the new tariff, roughly -- we disclosed in the last call, roughly $30 million, which generally represents 1%. So that's what's driving I will say, the softer margin number for the year. But from an execution point of view, for [indiscernible] the data side, the other parts of the execution are going -- putting the tariff segment. The other parts of the distribution are going very well. We're working hard to take this as high up as we can. So we're delivering things are working well. So -- but that's the driver essentially.

As you know, we had to take some of those tariff cost into our results. So that's driving it. In terms of '26 guidance, I mean, on gross margins for '26, I don't want to provide guidance today, but on that number. But what we're seeing is roughly in line with the 10% to 12% that we are giving you, that we set for this year. Sales on work to do that we're working on. And hopefully, things will work out better, but that's where we are at this stage.

Okay. Fair enough. And then in, I know you talked a lot about the -- kind of you had a couple here around the policy actions of late and how they impact your business. Can you -- I know there's been a lot of investor focus and concern around and how Fluence fits into the new landscape with your relationship the ownership structure of AESC. Can you give us a bit more elaboration around how you're navigating that and how you're positioned with respect to [indiscernible] and AESC and if there are actions you need to take in what time frame and what potential investments you might need to make to make that happen?

I'll tell you. I know that you all have spread some concern around -- on the macro view, our view has always been that the U.S. battery storage market was going to be a domestic content market. It has been our view even before the IRA and all of that. I think politically about the role that this technology was going to play, how this technology is built, is going to difficult to see it being dominated than the U.S. will allow this to become dominated by Chinese [indiscernible] from day 1 and that's the way we've been working on. And we started this ahead of the IRA. We clear when the IRA came in, we got in financial support. And I think now with the OBBBA, kind of confirms our view of that case. So we don't see it as a threat. It has always been the basis of our assumption planning.

So I just wanted to give you that general statement. That's very, very important on how we see this company. In terms of AESC, which is what you're asking, there are 3 drivers of 45X credits on the -- for any supplier. And ownership, we cannot be owned by a company that is from certain countries. It cannot be controlled by a company from that group and materials have a limitation of how much of the materials can come from one of the [indiscernible]. We're working on the 3 of them, ensuring that we have the supply chain that meets the OBBBA requirements, and we have developed with -- or AESC, we have worked together on developing that supply chain, which is from force out of that area, and we need to do. We are working on it. We already have converted some of it. We have many, many suppliers that are going through a process, and we believe our view and that we will be ready by the deadline under that.

Control is more of how you're going to manage your O&M and we've been talking to our lawyers, it can be managed effective. Ownership is what you all are a little bit concerned about, It's always understandable. We have been working with AESC. AESC's looking at different options, and we are looking at different options. And we believe those options, they are good -- there are a lot of opportunities. There are some opportunities there. Some of that are very viable that we cannot execute them on time on the OBBBA line. And when we look at of potentially entering into the ownership of the line. And we have looked at that option is 1 of them, not the only one. We believe that it can be -- we can be and we can make it work within the cash flow with the financial liquidity that we have today. We do not see any need for any capital raise, and we believe that transaction can be on time with it, and it's not that complicated.

So I'll tell you, when we looked at the act and we looked at the effort to convert to the act, the ownership has been one of them. I think we are the -- we're not only of -- there are other opportunities here that they're working on, we can do and we can transact on time to be the acre.

And [indiscernible], if I can repeat the way I started, if you don't mind. We don't see the FEOC restrictions necessarily attract. We see that this, in a way, confirms our view of how this market was going to evolve. We have been investing on this. We have been moving supply chains to the U.S. it's challenging and everybody thought that we could not be done and we're doing it. And so we are optimistic that the regulatory environment is supporting our view of the market.

I could just squeeze one last one in. I know, again, you're not going to give '26 guidance, but we're here at the end of almost end of fiscal '25. You had a lot of good contracts come in, in July and August. So you're almost done for the year. And you talked about at least high-level guidance should be 80% to 90% covered just as you think about maybe being more conservative and having more visibility into the upcoming guidance range that you're going to give on the next call. But is that the way to think about it? You're sort of 80% to 90% covered and you got the sort of $2.5 billion of backlog thus far through ended July, early August and whatever you book between now and the rest of the quarter, sort of the starting point of reference for what guidance should look like for next year?

We will base guidance on the backlog we have for '26 at the time of the earnings call. So a couple of months to move forward. We have a good pipeline going forward. So we expect the $2.5 billion to be [indiscernible]. But I mean, on resolute of guiding to 80% to 90%. I think I don't want to go over what happened this year. So we're very -- the market in the U.S. picked up, things are moving forward. We see good prospects in only in Australia where we have done a good job, but also in EMEA. So stay tuned, we will provide you the actual guidance, but it will be based on the 80% to 90% of the backlog we have for '26 starting on -- at the end of the call. I think Ahmed will add.

Yes. I think I don't think you need to leave anything in between the lines here. I think there's more to tell you how we are thinking about the guidance when we give our guidance there on the number. I think if -- hopefully, we will continue to do what we have done in the first month. In July, we have signed a [ $1.4 billion ] contract. So I think, hopefully, we will maintain this momentum, but that is where we will end up. So goal is to give you guidance where we have more confidence unlike in the past where we had 65% coverage and we have to sign contracts and miss the numbers. So that was the [indiscernible]. I don't think there's anything beyond that.

Your next question is coming from the line of Dylan Nassano with Wolfe Research.

Can we just start with comments on data centers. So correct me if I'm wrong, I mean, it sounds like maybe you're engaging a little more directly with the data centers. Can you just kind of walk us through that? Have you actually signed any kind of new contracts there?

No. So this is a new and emerging need that, as you know, we've been serving data centers indirectly. Through our IPPs and other players who actually provide services to them. But now we have this emerging need that data centers, AI data centers were training or managing AI, complex AI processes, have very volatile energy consumption. And there's no other way of resolving that issue and not affecting the grid that adding battery stores. So this is an emerging need. It requires a lot of technical work, especially the response of the batteries needs to be very, very quick.

I want to give you a number, not to provide -- give actually my competitors a view. But it requires very, very quick response time to shore that the electrodes in no way affect the algorithms that are learning in the process. So that picking up, we have a pipeline, but we do not -- we have not signed an agreement. And as I said in the call, we're working on the solution. The solution is we see we have it, but we need to test them and be sure that we have it available for our customers. It is our view. This in a way -- the reason why we included in the script is not only because clearly it's data center opportunity, but it also shows the expand, the scope of products that battery storage are going to can offer.

And I think that's where our solutions, if you want to put it differently. And I think that's where -- have been our view from day 1 that the value of this technology to not be only looked at integrating renewals into the grid is much broader, and we'll continue to play a very broad jobs, more broad, more jobs. both behind as [indiscernible] we move forward.

Your next question is coming from David Arcaro with Morgan Stanley.

I was wondering if you could maybe give a little bit more color on just how the U.S. demand picture is trending following the passage of the OBBBA? And I was curious if you're seeing the executive order uncertainty impacting the pace of bookings, given that it might impact the solar outlook and any battery attachments to solar?

Picking up, we remember, we had to halt a few -- the execution of a few contracts we have signed. All those contracts are now moving forward and are moving forward to execution, it will be generally '26 revenue rather than '25. So very active. We have signed a few contracts as of late. And we are seeing more and more opportunities come up. We haven't seen people concerned today, at least with the projects they have in concern about the executive order. I think that the projects that we're working on are projects that people feel are very much solidly with the start of construction. They're already buying the stuff and put it into place. So I think at least the projects that are -- that were signed in, which are places that are very, very mature, would not be affected or are not affected.

Great. Got it. That makes sense. And let me see, I was wondering if you could just elaborate on the ramp-up issues that you had. I think you mentioned it was at your Arizona facilities. But are those now fully resolved, any lingering impacts or issues that you're managing through the end of the year?

Yes. We had some typical ramp-up issues that come out of putting in place these production lines. In the case of the Arizona facility [indiscernible] we were -- we essentially did a technology transfer from what we were doing in Vietnam to the U.S. and no other work processes and some need to change to a fact to the U.S. that kind of delayed the start-up and the ramp-up. We believe we have it all under control, and we are in the process and the process is starting to ramp up. And we believe that we will be -- by the end of the year, we should be -- will the [indiscernible].

Unfortunately, we would not believe that we'll be able to recuperate the $100 million of revenue that we have to move to next year. So we will meet a ramp-up objective for the end of the year, but it will not be enough that we will do more than from now to year-end, that will recuperate in revenue. So that's the reason why we have to be a little bit more. But they are typical ramp-up issues. The things that are small but get delayed, processes that need to be affected, post-process that needed to adapt to usher rules, things of that sort, that you only find out or you find out usually when you are trying to ramp up production out of our facility.

So the quality of the work is very good also on that factory last week, meaning the employees, looking at the people who have like 40 of our engineers working with them trying to resolve these issues very quickly or actually helping them resolve this future very quickly. And I'm really excited. And it's also -- if I can give a little bit of an add. Nobody believed we could close we can build the closures with U.S. Steel. These are closures. The view was that you could not do it that it was too expensive that the steel industry in the U.S. is not going to be able to do it. We now -- we are -- decent closures that are coming out of that line are made with 100% U.S. sales. So we're very, very happy with the process. And we think this is the way to go forward, and then we are believers in the U.S. industry issue that we have, but we'll make it up.

Next question is coming from the line of Julien Dumoulin-Smith with Jefferies.

Just this '26 number here, on the 2.5, how would you think about that teeing up here in the next year? I mean I know you talked about this 80% to 90%. I just want to understand like how you think about the line of sight and sort of the timing and cadence of when you see some of that backlog coming in? I mean, do you really see that number accelerating into the end of the year based on OBBBA? And then also, can you speak a little bit more, I mean it's notable the non-U.S. acceleration that you're seeing here, too?

Yes. So I don't want to provide guidance for next year, unfortunately. And we highlighted that number, and we had a conservative approach because remember, last year, we guided with $2.6 billion in our [indiscernible], not this year -- and we guided to $4 billion. So I didn't want to say $2.5 billion that you determined these guys are going to guide to $3.8 billion. So that's kind of what we wanted to give you a sense going very well. Things are picking up globally. We are in a very good position, but we're going to be a lot more conservative. That was an message. And I think that's a mentione. We are seeing very good momentum and say tuned. -- unfortunately, I don't want to give -- we cannot provide a view today.

We're not on shop. So I think our goal will continue to grow. And provide service to our customers and grow the business. So that's the goal. So let's stay tuned, but we will come and report, but our sales team is actively working and we are adding more resources and sales, that's right. So...

Right. And then maybe can you speak to a little bit of what you're expecting on FEOC here and how that's going to be implemented and how you see yourself vis-a-vis like the cadence of books. I know someone kind of tried to ask the same question earlier, but how do you think about that driving acceleration? Or at least the clarity, like when does that drive order activity? If folks are safe harbored here perhaps they're little [indiscernible] and a little bit [Technical Difficulty].

Can you repeat again, please? The sound in my part got cut out.

Okay. I got you. Look, keep it short. On the FEOC part, you've got the -- you have contracts where perhaps folks have safe harbor perhaps FEOC exempt equipment. When do you think you'll start the FEOC compliant equipment orders really start to come in, given what you're seeing with the OBBBA. What the time line there as you think about it, right? Again, in theory, that might somewhat lagged. Is that near term? Or do you think that there could be some changes here with the safe harbor that would force folks to procure more FEOC compliant type products? How do you think about that fitting into your business?

Good point Yes. As you know, safe harbor gives you a little flexibility on meeting some of the FEOC restrictions. What we for ourselves and with and with our supplier is to meet the actual ad that which are all happened, as you know, in the first half of year next year, unless there was -- we see any changes going forward. So that's generally our real. We want to meet the deadlines that are in the [indiscernible] even though we'll have some flexibility meeting some contract with things that are slightly different. So that's our approach.

That's the way we take -- we have taken, I want to call it a conservative approach, but we do not want to lose any of our first-mover advantage of this. And I think that part of it is ensuring that we have that supply chain to that ownership and that control restructured in accordance with the law as soon as we can.

Your next question is coming from the line of Justin Clare with ROTH Capital.

I wanted to just follow up on gross margins here. It sounds like the tariffs in the U.S. might affect your gross margin into the fiscal Q4. So just wondering if you're anticipating being able to offset the tariff-related costs in the U.S., whether through pricing, sourcing through your domestic supply chain here, other levers? And if this is a temporary issue, should we anticipate margins for the U.S. being similar to your international margins over time and what that looks like?

Very good question. I think this reflects 2 contracts we already signed that was already in our backlog and where we had some rules with some rules or some provisions in our contract, how we divided the tariff effect. The tariff effect on the contracts are a bigger number, but this is the amount, the $30 million is a net amount that we need to reflect in our numbers. And this applies to the contracts where we already signed. New contracts come in that will reflect the new cost structure, and we should see them going back to the normal margin levels of 10% to 15% that we have set for ourselves. So it should not -- this is a temporary situation. There might be some in the first quarter of '26 that still have these issues. So there will be some lingering ones, but I think the majority will be done by between this quarter than the first quarter of '26.

Got it. Okay. That's helpful. And then just on the domestic supply chain here, wondering if you could provide an update on the ramp-up of AESC second production line? I think that was expected to come online toward the end of fiscal -- your fiscal '26. Has that time line shifted at all given the recent policy developments? And then are you considering any alternatives for domestic call sourcing at this point?

Good question. As I said, we do not need the second line until early '27. So that's still to be the case. And that when you look at -- we can live what we have with the one line going forward. We kind of put that line on OBBBA during the OBBBA when things were moving up, people now forget, but remember the cows came with very strict rules and the liberalized now. So we kind of put a hole. Now we will bring it back on as part of our renegotiation and it should come -- I will say probably will be a little bit later than the first quarter of '26, but it should be -- it should work with our current volumes.

However, as there are some challenges, we're also looking at other options just to ensure we don't play on -- we don't dance to only one tool. So we are looking at other options just in cases were gets delayed or we get a lot more volume than what we are thinking of or somehow the negotiations with AESC not work as we expect for the second line. So...

Your next question coming from the line of Ameet Thakkar with BMO Capital Markets.

Just real quick on kind of OpEx you guys had historically tried to kind of, I think, grow that at half the rate of revenues. Looks like it's up kind of year-to-date versus the same period last year. Any kind of -- and I know you guys have embarked on some kind of cost savings initiatives. Can you just kind of give us an update on where that stands and kind of maybe the timing of when we might start to see some progress on that front?

Okay. So I mean in terms of OpEx, I think generally, long term, our view is what we have said, keeping our OpEx at half of our of our growth. However, for next year, most likely, we'll keep OpEx flat compared to '25. We were expecting a significant growth in '25 in revenue that we were not able to deliver and our cost structure in a way, reflects part of it. So that's why I think that for next year, it will be essentially flat, but after $0.20, it should go back to growing at 26 and 27 onwards, it should grow at half the rate of our top line growth. That's the way you should think about it.

And just to give you a sense of what we're doing, we are looking at our OpEx, especially taking a deep look all our costs are not sales or product development or R&D. And we invested on SAP. So we're looking at our financial cost, our control costs, human resources, all of that, G&A that is not connected to either sales or R&D and really taken a look and taking advantage of our investments in SAP and other systems that I think are helping. So that's what you should see. Platform '26 and then growing back again, at half the rate of the top line growth at '27 onward.

And then just one quick follow-up. It looks like ASPs were kind of in the low to the mid-30s at KWH during the quarter. If I look at your backlog, it implies something in kind of the lower 200s. I don't think that's necessarily a new phenomenon, but like is there any kind of additional kind of revenue that you guys end up kind of booking on the product side that allows you to kind of realize a higher kind of realized ASP versus what's implied by bookings?

No. It's in line with [indiscernible].

Yes, I think if you look at our order intake last year, I mean, we were in 300. So I think it's a timing lag, if you wish in the revenue that you are seeing in Q3, those are the contracts we have signed last year. And if you go back last year, we had in that range, 300 plus. The only other thing you have to consider in the EPC, the scope of the projects. For example, in Europe, this quarter, we have -- than the base equipment price, which don't do EPC, just a product.

And I would I mean, if I'm in the promotion mode, but it's true. I mean, we have been able to follow the ASP reductions in line with whatever with our competitors. And we have signed in good projects with good margins at significant lower ASPs. I mean some of you had concerns of our ability to it. We've been able to do it with investments in R&D, thinking about our projects. So in a way, clearly, is a threat. But at the same time, it's an opportunity for us so...

Your next question was coming from the line of Christen Dendrinos with RBC Capital Markets.

I wanted to go back to just kind of some of the manufacturing commentary here. And I guess I'm curious are you in a position going forward to support a ramp from, I guess, AESC -- and then you do look at a different supplier, can you support the -- I guess, the cell coming off that line maybe if they're prism or pouch and just trying to understand I guess, your flexibility to support a different cell structure if you switch supply like [indiscernible]?

We clearly -- currently, our supply chain is designed to integrate ASC batteries. If we were to bring another supplier with another technology, there will be a little bit of a work in bringing them up, it's not a lot of work, but it will require some work. However, we do not have any need for new supply during the rest of '25 or '26. It will be an early '27 needs. So we will have enough time to adapt to it.

Got it. Okay. And then as a follow-up, maybe just going back to the last question on pricing dynamics. And maybe just broadly, are you -- out like in response to a question from ROTH that maybe there's pricing increases going on a bit in the U.S. as a result of tariffs. I guess, is that true? And then I guess, globally, are you still kind of seeing some incremental pricing pressure? Or is it kind of dying down?

Yes. Good question. I think the U.S. will over time, we'll see some pressure on costs. However, today, most of the projects that we are looking at are projects that are safeguard under the old IRA provision. So I don't expect that you will see significant price increases for the next maybe 6 to 12 months. They will be on the older system. So -- but generally, I think that we should expect some additional increases going forward. That's the way you should think about.

Your final question is coming from the line of Dimple Gosai of Bank of America.

What are you seeing in the market as far as Chinese players front-running [indiscernible] tariff escalations ahead of the end of 2025? And maybe anything you can add on what customers are saying on that front? And then I have a follow-up.

Well, we've been selling domestic content production, mostly in the U.S. So those are the customers where we're working with. So the customers who like Chinese equipment, we have not necessarily. So I don't know to tell you a true where we are. They don't -- Chinese equipment does not compete with our domestic content offering. So people are probably front running it, maybe they are, but it's for other customers, not the ones we're working. For projects that are not within our own. The economics of domestic content on the products that are safeguard under the IRA and the new projects is very, very strong and continues to be very strong. and we feel very, very confident that, that market will continue to this time.

Okay. And then in the current backlog, what is the tariff sensitivity that perhaps wasn't already baked into the contracts, if any? And are there any potential cancellation risk or mutual terminations that might still be on the cards?

We don't see any terminations to the tariffs. I think that we have the contracts that we stopped because of the tariff risk and how the thing all reactivated and now with the 40% tariff this year is going up to 58%, I think everybody kind of -- the provisions that we are in the current backlog. And they're already -- they are in our guidance for this year. And so you shouldn't expect any other additional change.

I will now turn the call back over to Lexington May, Vice President of Investor Relations, for closing remarks. Please go ahead.

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

Ladies and gentlemen, that concludes today's call. Thank you all for joining. You may now disconnect.