Fluence Energy, Inc.

Good day and thank you for standing by. Welcome to the Fluence Energy Incorporated first quarter 2023 earnings conference call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there'll be a question and answer session. To ask a question during this session, you'll need to press star 1 1 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 1 1 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Lexington May, Vice President, Investor Relations. Please go ahead.

Thank you. Good morning and welcome to Fluent Energy's first quarter 2023 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 Labreda, our President and Chief Executive Officer, Manu Seau, our Chief Financial Officer, and Rebecca Boll, our Chief Products Officer. During the course of this call, Fluent 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 the 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. 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, Lex. I would like to send a warm welcome to our investors, analysts, and employees for participating on today's call. This morning, I will provide a brief update on our business and then review our progress on our strategic objectives. Following my remarks, Manual will discuss our financial performance, as well as our outlook for the rest of the fiscal year. Starting on slide four with the key highlights. I'm pleased to report that we recognized $310 million of revenue during the quarter. More importantly, we improved gross margins for the quarter, both on an adjusted and gap basis. Our demand was strong across all three of our business lines, and new orders were approximately $856 million. highlighted by the 1,200 megawatt-hour contract we announced on our December call. Furthermore, our signed contract backlog of December 31st was $2.7 billion, a quarter-over-quarter increase of more than 20%. Importantly, our 70% of our backlog is with non-related parts. Our recurring revenue businesses, which consists of our services and digital business, continue to grow during the quarter. Our service attachment rate was 11% for the fourth quarter. However, our deployed service attachment rate is greater than 90%, which is based on our community service contracts relative to our deployed storage. Most of our customers wait to sign service agreements. closer to the point where the storage solution is coming online. Thus, there is usually a lag between storage concerns and service concerns. We believe deployed attachment rate is more reflective of our true service attachment rate due to the contracted lag that I just mentioned. Moving forward, we will be providing you with both our contracted and our deployed attachment rates. Our digital business signed more than 800 megawatts of contracts since the fourth quarter, providing us visibility to future revenue. Turning to slide five, I would like to discuss the five strategic objectives that we highlighted on our last earnings call, and provide you with an update on our progress. First, of delivering profitable growth. and face-to-report that we are raising our fiscal year 23 guidance for both revenue and adjusted gross profit. As Mano will discuss in more detail, we are able to raise our guidance due to incremental demand and better supply chain. Second, we will continue to develop products and solutions that our customers need. As such, we're now ready to begin offering North Pole NMC batteries in our Gen 6 queues. This provides our customers with more optionality when looking at solar solutions and helps to diversify our battery supply by adding a European battery. Sir, we will convert our supply chain into a competitive . I'm pleased to say we have all our fiscal year 23 battery requirements, either in country or in transit, thus providing us high confidence for execution and achievement guidance. As you may recall from last year, one of the challenges we faced was getting our batteries on time from our batteries. They were often delayed, and as a result, we incurred illiquidated damage. Our team has done a tremendous job in mitigating this risk for 2023 by ensuring that all our battery needs are within our control. Where we stand today, we don't foresee supply chain issues that could derail our fiscal year 2023 expectations. We continue to implement our risk management processes and procedures, and those provide us with high confidence. Additionally, if we identify any issues that could cause us to deviate from our plans, we will act swiftly to mitigate the risk to the extent possible. Fourth, we will use Fluence Digital as a competitive differentiator and margin driver. I'm pleased to announce two significant milestones in our digital business. First, we enter the airport market with our Mosaic bidding application, and have been awarded an initial contract with a non-related global IPP at UT. Airport is a rapidly expanding market and provides a significant number of opportunities for our Mosaic application. Mosaic now is in three markets, Australian Air, Kaiso, and Air. As we discussed last time, we're looking to expand to four additional markets in the next three years. Additionally, we have now successfully launched an expanded O&M capability onto battery and storage systems. This offering now provides those customers with renewable asset portfolios the opportunity to utilize one asset performance management platform for all their assets rather than multiple platforms. And finally, our fifth objective is to work better. We're continuing to see success on executing on our transformation, including enhancing our risk management capabilities, improving our project execution, and optimizing our cost structure, which I will touch on a little later. Turning to slide six. Demand for energy storage continues to accelerate. In fact, our pipeline now seats at more than 10.3 billion, nearly four times our current backlog. As you can see from the chart, our pipeline reflects some early projects that are attributable to the Inflation Reduction Act. We expect we will see some of these projects turn into signed contracts beginning in the second half of this year. Additionally, our project leads are at an all-time high, which is a good leading indicator of potential opportunities. As such, we expect the IRA to drive our U.S. revenue growth in 2024 to 40% to 50%, thus implying consolidated revenue growth of 35% to 40%, predicated on a timely issuance of the IRA's guidance. While the exact timing of the IRA guidance is unclear, we are hopeful that some initial commentary will be released this spring. Continuing with demand, where the economy is increasingly important for the actions and commentaries coming out of Europe. Earlier this month, the European Commission unveiled its Green Deal industrial plan, which aims to increase spending and reduce regulations and rents in order to accelerate the expansion of renewable energy and sustainable technology. While still early days, the details of the plan have not been shared, we applaud the efforts of the European Commission as they take serious steps towards securing their energy independence by increasing their share of renewable energy, including battery energy storage. On slide seven, we have highlighted some of the reasons why our customers choose us to provide their energy storage solutions. First, they're looking for someone who can provide them with a safe product. We are proud to be one of the market leaders in safety and have surpassed the industry standards. Time after time, our customers tell us that safety is their top priority when selecting an energy source. We will continue to make safety our highest priority when developing additional solutions. Second performance, our customers demand not only a safe product, but one that performs at a high level. To that point, we're pleased to have deployed the world's fastest responding battery energy source facility. has achieved demand response times below 150 milliseconds on assets deployed naturally, setting the pace for performance. Third, this is critical to our customers as they look for project financing, especially for the larger projects, which are becoming more and more common. Banks and financial institutions have told our customers they feel confident in underwriting projects with fluid about the energy storage solutions. In fact, in December, BNDF published its annual energy storage system cost survey. This is a report in which BNDF surveyed 185 industry participants. One of the survey questions asked participants to rank the rankability of system integrators and providers. We're proud to be ranked at the top for rankability, reflecting a successful track. And fourth, supply chain change assurance. Our customers want someone who will be able to deliver their projects on time. This can be done only with efficient supply chain. We're proud to say that we have all our battery needs for the remainder of the fiscal year, either in country or in transit. This significantly reduces the risk of project failures. Our track record of safety and performance. are standing with banks and other lenders. And the steps we have taken to significantly reduce supply chain risk allows us to continue attracting some of the world's largest and infrastructure players as our customers. These customers are seeking a long-term relationship that begins with a first solution and opens up the opportunity for long-term services and digital cultures that provide recovery. This is evident, as greater than 90% of our community stores deployed has a long-term service cost. Turning to slide eight, we continue to expand our digital offerings in order to help our customers maximize their profits. First, we have officially entered the air-cond market with our Mosaic meeting application. This is now the third market for Mosaic, with the others being Australia and . More importantly, we have been awarded our first contract in . We signed a framework agreement with a non-related global IPP and utility to optimize any in the next three years. The first allotment totaled 289 megawatts. It's a significant award, as it establishes our product in a new market with a blue chip customer. Second, as I briefly mentioned, we have officially launched onto battery-heavy storage our NISPERA asset performance management platform. This is a major milestone, as our NISPERA platform is one of the first APMs in the world to be deployed into all four major renewable asset classes, wind, solar, pump hydro, and now battery-heavy storage. NISPERA's additional battery capabilities include providing real-time monitoring of the battery's subcomponents, data performance analysis of the system, and picketing for asset makers. The advantage of NISPERA brings is that many of our customers own more than one renewable asset class. NISPERA can now provide them with one APM for all renewable assets in the portfolio. Thus, instead of having different APMs for each asset class, they can now have just one for the entire portfolio. Similar to our Mosaic offering, the overall objective of our disparate product is to maximize our customer profits. By having an asset performance management platform, we're able to help lower the total cost of ownership for our customers and increase our customer's return on asset. Turning to slide nine, as is evident from our financial results, we're making a tremendous progress As we briefly discussed on our last call, our transformation is focused on three main areas. The first is enhancing our risk management. We have put in place a set of managerial and commercial initiatives to ensure we identify all materials, choose the one we can manage more efficiently and effectively, and ensure all risks are quantified and mitigated to the best possible with the proper conditions. Risk management allows us to be more confident on our prospective financial results. As all these processes and measures continue to mature, we will continue to provide further clarity on the prospects of our performance. There is still some way to go in our endeavors. However, I am confident in our ability to continue moving this path forward. Second, improving our execution. A major driver of our execution is our product development capabilities. We recently revived our product roadmap initiatives by breaking down our product development projects into smaller units, moving away from the concept of generation milestones and concentrating on improvements rather than pay-over. The smaller projects are easier to manage, more efficient, and faster to market. In addition, our recently established testing facility allows us to test each new improvement at a system level. and we are able to travel to issues and identify problems before going to the customer side. Third, optimizing our cost drivers. As we mentioned on our last call, we have been increasing our resources on an India technology set. We have undertaken a competitive workforce strategy that reduces resources in higher cost countries and increases resources in lower cost countries. As part of this, we are utilizing our India Technology Center to provide necessary support functions and to restore our digital platform. And please do report that we made significant progress in this endeavor and plan to double the number of employees in India by the end of our fiscal year. As a result, we expect India to represent 10 to 50% of our talent, which provides us with the necessary resources for our significant growth. By focusing on our resources in lower-cost countries, like India, we're able to reduce our operating leverage as a person of revenue, as Manu will later touch on. Overall, I'm pleased with the achievement of the first quarter. Although we're mindful, there's still a lot of work to be done. We will look to continue this momentum as we progress through the remainder of the year. This concludes my prepared remarks. I will now turn the call over to Manu.