Fluence Energy, Inc.

Welcome to the Fluence second quarter conference call. At this time, all participants are in listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 11 on your telephone. and you will then hear an automated message advising your hand is raised to withdraw your question please press star 11 again please be advised that today's conference is being recorded i would now like to hand the conference over to your first speaker today lexington may vp finance and investor relations thank you good morning and welcome to fluent energy's third quarter 2024

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 our 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 Nabreda, our President and Chief Executive Officer, Ahmed Pasha, our Chief Financial Officer, and Rebecca Boll, our Chief Products Officer. During the course of this call, Fluence Management may make certain forward-looking statements regarding various matters related 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.

I would like to send a warm welcome to our investors, analysts, and employees. who are participating on today's call. I will cover our Q3 results briefly and then provide an update on our business and the strong growth prospects we continue to see. Ahmed will then give more details on our financial results and outlook. Beginning on slide four, we deliver strong financial performance. More specifically, we recognize $483 million of revenue and earned 17.5% adjusted gross margin, which brings our year-to-day gross margin slightly ahead of the 10 to 12 target. Second, we recorded adjusted EBITDA of 15.6 million, which puts us on track to deliver profitable growth for our shareholders. Third, we added 1.3 billion of new contracts setting a new quarterly record for us and bringing our backlog to an all-time high level of $4.5 billion. Fourth, we finished the quarter with $80 million of annual recurring revenue for our services and digital business, reaching the level acquired earlier than our target. And finally, through our proactive approach to cost and working capital management, we generated $64 million free cash flow for the first nine months and ended the quarter with $513 million in cash. Turning to slide five, we continue to see improvements in our gross margin driven by our excellent performance on cost management and execution. We have had four consecutive quarters of double-digit gross margins. When looking at our gross margins on a trailing 12-month rolling basis, we advanced from a gross margin of about negative 5% to a positive 12% margin in the 12-month and the June 30th. This has been an outstanding transformation in less than two years. We expect this trend to continue to improve, putting us on a path to achieve sustainable growth margins in the 10 to 15 percent range. Turning to slide six for an update on our pipeline. As a reminder, our pipeline is a rolling 24-month view, thus giving us confidence in our ability to continue our growth trajectory. Our 20 billion pipeline has increased 65 percent from this time last year. which reflects rapid growth prospects for any storage flow. As I will discuss a bit more in a moment, all in all, we continue to see a very robust international market. We should further diversify our geographic mix in the coming years. Almost half of our $20 billion pipeline is in the Americas region, and the rest is in the international market. The strength of our pipeline is a key reason for our high confidence in our expected revenue growth. We are reaffirming our fiscal year 25 revenue outlook of 35 to 40 percent growth of our original fiscal 24 revenue guidance midpoint of 3B. Turning to slide seven, similar to our pipeline, we're also seeing remarkable growth in our The third quarter was our 11th consecutive quarter of order intake outpacing revenue recognized, showcasing the robust growth in utility-scale energy storage. Our backlog demonstrated our leading competitive position and the significant growth for utility-scale energy. I would like to provide an update on the most relevant markets we serve, beginning with the United States, which continues to be the largest market we operate in global. Recent regulatory developments in the US, as well as the progress we have made in strengthening our competitive position to an early-to-market domestic manufacturing strategy, puts us in a unique position to capitalize on this substantial growth opportunity. Turning to slide eight, since our last conference call, there have been a couple of favorable policy developments. First, the U.S. Treasury released guidelines on the 40% domestic content requirement under the Inflation Reduction Act, or IRA. The Treasury provided an elective table that sets a percentage of value each battery storage component when manufactured in the U.S. can contribute towards the 40% threshold. As you can see, the highest category is battery cells at 38%, which favors our domestic strategy of securing battery cells manufactured in the U.S. As you may recall, we started the process of procuring U.S. cell capacity before the IRA came out and signed an agreement more than a year ago with ASC to purchase U.S. cells from the Tennessee facility. These U.S. manufacturer cells will go into our battery module, which I will touch on more in a moment. By combining U.S. cells and U.S. modules, we believe that we will easily meet the 40% domestic content threshold. Those enabling our customers to capture the incremental 10% investment tax credit on their projects. Our proactive approach to securing the U.S. sales from ASE has resulted in a first-moving advantage in delivering domestic content. The Biden administration issued a proclamation to increase Section 301 tariffs on batteries imported from China, which also applies to battery storage systems. Today, this higher tariff is set at 7.5%, and it will increase to 25% beginning in 2026. We believe this tariff regime could significantly affect the competitive landscape of the U.S. market to the benefit of domestic suppliers. I would like to touch briefly on the political environment and implications for fluid. The demand for battery storage systems in the U.S. is supported by the growing need for new capacity, rejectability, and resilience. It is well known that renewables plus storage is a fast and most economic way to serve these growing needs. None of this due to a potential change in administration. Our business model in the US should also be resilient to changes in the political landscape. Current industrial policy favors using tax credits to promote domestic production. However, we believe that our US business model will also work effectively if a new administration were to change the industrial policy away from tax incentives in favor of tariff. Turning to slide nine, I'm pleased to report that we're on track for initial production of the fluid battery module in late September of this year. The model production line was successfully tested in the manufacturer's facility. The production line is now in the final stages of installation and initial commissioning in our Utah facility. We anticipate starting production with a number of battery modules and gradually ramping up to serve our needs. Turning to additional discussions on the U.S. market on slide 10. Estimate for the size of U.S. utility scale market continues to show growing adoption of energy storage by adding roughly 40 gigawatts in 2025. The significant demand has been fueled by corporate customers seeking clean, low-cost, and reliable renewable energy. Part of this growth in the U.S. has been driven by the rise of GEN-AI, which requires a tremendous number of new data centers, which results in increases in electricity and capacity. We're seeing more and more opportunities coming to our pipeline associated with data centers, mostly in the form of storage for the renewable PPAs that large tech companies are procuring to meet their growing demand and carbon-free goals. Currently, about 40% of our U.S. pipeline is indirectly associated with that data sector. We will also note that the great majority of the clean energy investments associated with the IRA and the resulting job creation are occurring in Republican-led districts. Furthermore, energy storage is becoming a critical part of an increasing number of grids across the country, regardless of political means. For example, in the air-con market in Texas, a traditional red state, the expanding role that energy storage plays in the grid is evident when you consider the interconnection fuse. We chose nearly 132 gigawatts of battery storage projects of nearly 35% from this time last year. In sum, the U.S. market increasing demand for electricity and capacity. The James AI industry's growing need for renewable power and the resilience of our U.S. business model to policy changes makes us confident in our outlook for the U.S. market and its contribution to our growth plan. Turning to slide 11, alongside the attractiveness of the U.S. market in the Europe, Middle East, and Africa region, I'm happy to say we are seeing a growing number of opportunities in Germany and a resurgence in the U.K. and Ireland. Ireland intends to operate its electrical grid with 95 percent renewables. This level of renewable generation will require significant battery storage to provide a higher level of grid stability and reliability. For this region, 2024 annual utility scale capacity additions are expected to be north of 11 GWh, which is more than 100% increase from the 2024 forecasted value. We see a similar story of robust growth in other regions. In the Asia Pacific and Australia region, we have seen tremendous growth over the past few years, with annual utility scale capacity additions approaching nearly 8 gigawatts this year, driven largely by Australia, where the National Battery Strategy continues to provide opportunities for our products. Turning to slide 12. I'm pleased to report that we recently launched our new Digital Service Center in India, which will serve as a central hub for applying operational data intelligence to the global fleet of assets managed by Fluid, providing insight for the company's research and development and service function. We expect that these efforts will provide more value to our customers by optimizing the performance of their storage assets. The co-location in Bangalore, India of the service center with its new remote monitoring and diagnostics capability. And our technology centers, product development capability provides a platform that is intended to allow for efficiency and speedy response in both. I will now turn the call to Ahmed to discuss our financial results