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 a session, you will need to press star 1-1 on your telephone. And 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 first speaker today. Let's move to May. VP of Finance and Investor Relations.

Thank you. Good morning and welcome to Fluence 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 Nebreta, our President and Chief Executive Officer, Ahmed Pasha, our Chief Financial Officer, and Rebecca Bull, 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 -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 extend 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 4, we deliver strong financial performance. More specifically, we recognize $483 million of revenue and earn .5% adjusted gross margin, which brings our -to-date gross margin slightly ahead of the 10-12 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, 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 a quarter earlier than our target. And finally, through our proactive approach to cost and working capital management, we generated $64 million pre-cash log for the first nine months and ended the quarter with $530 million in cash. Turning to slide 5, 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 margin. When looking at our gross margins on a trailing 12-month rolling base, we advanced from a gross margin of about negative 5% to a positive 12% margin in the 12-month and the new 30. 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 gross margins in the -50% range. Turning to slide 6 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% 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 dollar 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% growth of our original fiscal 24 revenue guidance midpoint of 3B. Turning to slide 7. Similar to our pipeline, we are also seeing remarkable growth in our pipeline. The third quarter was our 11th consecutive quarter of order intake outpacing revenue record. Slide 8 showcasing the robust growth in utility scale and storage. Our backlog increased by 50% demonstrating our leading competitive position and the significant growth for utility scale and storage. 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 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 8. Since our last conference call, there have been a couple of favorable policy developments. First, the US Treasury released guidelines on the 40% domestic content requirement under the Inflation Reduction Act, or IRA. The Treasury provided an elective safe harbor table that sets a percentage of value each battery storage component when manufacturing in the US can contribute towards the 40% threshold. As you can see, the highest category is battery sales at 38%, which favors our domestic strategy of securing battery sales manufactured in the US. As you may recall, we started the process of procuring US cell capacity before the IRA came out and signed an agreement more than a year ago with ASC to purchase US cells from the Tennessee facility. These US manufacturing cells will go into our battery modules, which I will touch on more in a moment. By combining US cells and US modules, we believe that we will easily meet the 40% domestic content threshold, thus enabling our customers to capture the incremental 10% investment tax credit on their product. Our proactive approach to securing the US cell from ASC has resulted in a first-moving advance in delivering domestic content. Second, the Biden administration issued a proclamation to increase Section 301 tariff 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 2022. We believe this tariff regime could significantly affect the competitive landscape of the US market to the benefit of domestic suppliers. I would like to touch briefly on the political environment and implications for flow. The demand for battery storage systems in the US is supported by the growing need for new capacity, greater stability, and resilience. It is well known that renewables plus storage is the fastest and most economic way to serve this growing need. None of this is 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 am pleased to report that we are on track for initial production of the Fluent battery module in late September of this year. The module 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 faculty. We anticipate starting production with a number of battery modules and gradually ramping up to serve our needs. Turning to additional discussions on the US market on slide 10. Estimate for the size of US 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 renewables. Part of this growth in the US has been driven by the rise of Gen. AI, which requires a tremendous number of new data centers, with resulting increases in electricity and capacity. We are 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 goal. Currently, about 40% of our US pipeline is indirectly associated with data data centers. 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 cold market in Texas, a traditional red state, the expanding role that energy storage plays in the grid is heavy, when you consider the interconnection field. We chose nearly 132 gigawatts of battery storage projects of nearly 35% from this time last year. In sum, the US market increasing demand for electricity and capacity. The Gen. AI industry's growing need for renewable power and the resilience of our US business model to policy changes makes us confident in our outlook for the US market and its contribution to our growth plan. Turning to slide 11. Alongside the attractiveness of the US 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 UK and Ireland. Ireland intends to operate its electrical grid with 95% renewable. 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 gigawatt hours, 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 product. Turning to slide 12. I'm pleased to report that we recently launched our new Digital Service Centre in India, which will serve as a central hub for applying operational data intelligence to the global fleet of assets managed by Fluid, providing insights 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. The co-location in Bangalore, India of the service centre with its new remote monitoring and diagnostics capabilities and our technology centres product development capabilities provides a platform that is intended to allow for efficiency and speedy response in both regions. I will now turn the call to Ahmed Tuskoff, our financial resource analyst.

Thank you Julian and good morning everyone. Today I will review our third quarter financial results, our strong cash position and our near term outlook. Beginning with third quarter 2024 results on slide 14. We generated $483 million in revenue, which was 20% higher than our expectations discussed on our last earnings call. This was primarily attributable to completing certain projects milestones ahead of schedule. Furthermore, we generated $85 million of adjusted gross profit representing a .5% adjusted gross margin, which was the fourth consecutive quarter of double digit gross profit margins. Including the third quarter results, we delivered year to date adjusted gross margin of 12.8%. We expect to achieve Q4 adjusted gross margin within our previously communicated range of 10 to 12% and for the full year to be at the high end of that range. This performance reflects our focus on achieving operational efficiencies that have been translated to improve profitability of projects. During Q3, after operating expenses, we generated $16 million of adjusted EBITDA, which puts our trailing 12 month EBITDA in positive territory for the first time. Overall, these results illustrate our commitment to delivering profitable growth to our shareholders. Before turning to a discussion of our liquidity and guidance, I will briefly review a disclosure included in our 10 queue that was filed yesterday. As you may know, a short seller report was published on us back in February of this year. In response to the allegations made in the short report, our board audit committee conducted an investigation with the assistance of an outside counsel and forensic accountants. I am pleased to share that this investigation concluded that the allegations contained in the short report are without merit. Recently, however, the SEC notified us that they are investigating certain matters pertaining to the company. Based on the information the SEC has requested, we believe they are examining some of the topics raised in the short seller report, such as revenue recognition policies and our previously disclosed material weakness. We are fully cooperating with the SEC. Although we cannot predict the timing of or the outcome based on the nature of these matters and information requested by the SEC, we do not expect it to have a material impact on our financial condition. Coming to slide 15, we then update on our liquidity. We continue to bolster our liquidity to support our industry-leading growth objectives. To that end, I am pleased to report that we ended the third quarter with nearly $600 million of total liquidity. I am also happy to share that this week we replaced our ABL credit facility with a traditional revolver to further enhance our liquidity. As you may recall, our $400 million of ABL facility was characterized by the level of our U.S. inventory, which has had a lower balance, thus limiting the availability under this facility to not more than $100 million since its inception. The new Covenant-Line revolving credit facility contributes $500 million of commitments from an expanded bank group. With this facility, on a pro-forma basis, our total liquidity is now more than $1 billion, which puts us in an excellent position to capitalize on the growing energy storage market. Moving to slide 16, we have narrowed our full year 24 revenue guidance range to $2.8 billion. With a midpoint of $2.75 billion, this is $250 million lower than our prior revenue guidance. This reduction is mostly due to two factors. First, there were two specific projects accounting for approximately $100 million of expected revenue that had been postponed by the customer for multiple years. And second, the signing of certain projects into our backlog was delayed for a variety of reasons that include site readiness, civil works permitting, and customer decision process. None of these delays were related to interconnection issues. These projects were signed and moved into our backlog admittedly later than anticipated. Although disappointing, we expect to recognize the majority of this delayed revenue in fiscal 25. As Julian noted, our fiscal 24 guidance implies a Q4 reserve that would be the highest in our company's history. We have strong confidence in our ability to deliver on this goal, as the majority of our Q4 project milestones are for production and delivery of cubes, which is within our control. To that end, we have secured the necessary batteries, manufacturing slots, and logistics. In fact, with respect to our expected Q4 revenue, in the first five weeks of the quarter, we have delivered our -in-credit 46% of required cubes, thus securing our revenue for almost half of our expected Q4 revenue. In summary, our -to-date performance and our outlook for the remaining two months of the year gives us confidence in our ability to deliver on our Q4 customer commitments and our revised full-year 24 revenue guidance. Turning to slide 17, I will briefly review our other guidance metrics. Loading the midpoint of our full-year 24 revenue guidance by $250 million would be expected to have a gross profit impact of at least $25 million. However, we have taken proactive actions to mitigate the impact on our profitability targets. To that end, we are expecting to achieve a gross profit margin at the upper end of 10% to 12% expected range for this year and deliver adjusted EBITDA of $55 to $65 million. This revised guidance midpoint of $60 million is only $5 million below our prior guidance. In terms of our long-term outlook, we continue to expect our gross profit margins to be in the 10% to 15% range. Furthermore, we are raising our ARR guidance and now expect to achieve ARR of approximately $100 million by the end of fiscal 24, up from our previous guidance of approximately $80 million. This increase is the result of the continued growth we are seeing from our services business. Finally, looking ahead to fiscal 25, we continue to expect strong growth as we discussed. Using our original fiscal 24 revenue guidance midpoint of $3 billion as a base, we reaffirm our expected fiscal 25 revenue growth of 35 to 40%. With that, let me turn the call back to Julian for his closing remarks.

Thank you, Ahmed. Turning to slide 18 and in conclusion, I want to emphasize the key takeaway from this quarter's results. First, our -to-date performance demonstrates our ability to deliver profitable growth. Importantly, we are on track to deliver 12% gross margin and positive full-year adjusted EBITDA in fiscal year 24. Second, we have started to see the benefits of our U.S. domestic content strategy that we put in motion well before the IRA was enacted. We are seeing a strong customer interest which is converted to initial orders. Third, we have ample liquidity to support our growth plan. We successfully amended and up-sized our credit facility, which now puts our liquidity at more than $1 billion. And fourth, the outlook for utility scale storage is very robust, and we are well positioned to capitalize on this growing market global. As evidenced by the strong growth of our pipeline and our backlog. With that, I would like to open up the call

for questions. Thank you. Thank you. At this time, we will conduct a

question and answer session. As a reminder to ask a question, you will need to press star 1-1 on your telephone and wait for your name to be announced. To withdraw your question, please press star 1-1 again. Please stand by while we compile the Q&A roster. Our first question comes from Christine Cho at Barclays.

Good morning. Good

morning, Christine.

Over 60% of your revenues this quarter was from rest of world, which also coincided with the very high ASPs and high margins. Is this just a function of more of your projects outside the US requiring EPC? Just any color on the geographic breakdown this quarter, how that correlates with top line margins, and how we should think about how this should trend next year? Maybe also an update on the geographic breakdown of your current backlog. I know it was historically 70-30, but it sounds like you're diversifying more.

Good morning, Christine. Yes. Our international markets tend to have more EPCs. They tend to be for our solutions, our offerings a lot broader than what we do in the US. And second, as you know, we have been selling our ultra-stack offering in Europe, our transmission assets. So you generally will see higher ASPs on the international markets. In terms of the composition of our backlog, I think that one-third, two-thirds is kind of where it's going right now. So we have seen a lot of progress in the international markets. So when you looked at the pipeline, more like 50-50. What I'll say today when we look at our backlog is essentially two-thirds, as we have been saying roughly, two-thirds in the US, one-third international. So that's a way just to look at it. The last point is that this is one of the drivers of the lumpiness in terms of our margins and our ASPs as we move forward. You know, what type of projects coming to revenue, for which type of project will recognize revenue on a quarterly basis. And that lumpiness will stay because not all projects are the same.

Okay. And then for my follow-up, is there a way to give us a sense of how much of your current backlog for US projects require US sales? I know you've mentioned that you could eventually supply all of US demand with the AESC contract. But curious to know if the majority of your US customers were mandating that in the contract before the domestic content and Section 301 updates came out a couple of months ago, how those conversations have evolved since that update. And is there some sort of rule of thumb that we can use around how much higher the ASPs are, maybe percentage-wise, for your batteries that use domestic sales versus imported sales for your US customers for bookings going forward?

I would say that, you know, you will still have seen a lot of interest come up as people have realized the, you know, with the new IRA guidelines and the new tariffs. You know, and I think that generally now everybody realizes this is the right move and we're ahead of everybody. So you'll see it a lot more than what we have seen before. I prefer not to go into how that plays out because then, you know, we'll get into a rabbit hole of, you know, that I think will not help anybody. In terms of cost, what I can tell you, and this is very, very competitive information for us, so what I can tell you is that the costs are very competitive and very attractive, you know, even though they include, you know, some additional costs by producing in the US. So they are very, very competitive and our customers do very, very well when they contract with us, the US or Mexico. That's the best way I can tell you. But at this stage, I would prefer not to disclose information on the actual pricing the

content offers. Our next question comes from Dylan DeFile at Wolf Research.

Hey, good morning, everybody. Good morning, my friend. Thanks for taking my

question. So just throwing the math on the updated guidance here. So it looks like you're taking 250 million out of the midpoint this year. You're holding 2025. 100 million of what came out of this year is delayed multiple years, so that seems to suggest up to 150 million shifted from this year to next year. So I guess if that map is correct, did anything shift out of your prior 2025 outlook? Because if you're adding 150 this year, like when that put you at the top end or above the 35 to 40 percent growth.

Well, I would say the final we are we're working on a 25, you know, budget for next year. And we'll give you more details on how 25 looks. But today what we can what we can confirm is that we we can confirm 35 to 40 40 percent growth out of our original target of midpoint of tribute. So that's what I will say. We'll give you more details when we when we in our next earnings call in late November.

OK, and then as a follow up on the board investigation that you spoke about, can you just speak to kind of what was the scope of that investigation, which specific claims from the short report were you guys looking into?

Our committee hired an independent law firm and brought in a forensic auditors, a forensic accounting firm, and they looked at every comment, everything that was there. They irrelevant stuff that has no, you know, to all the elements there and found that all of them had zero merit. There's no merit in any of it. So we feel we're clean below health. That was, you know, and that's what we can say. It was really, really a very detailed investigation, looking at all this or everything that there even things that were implied that were not necessarily reading. And both the independent law firm with the support of the accountants came out with that, you know, that all of that stuff has zero merit.

Great. Thank you very much. Welcome. Our next question comes from Andrew for Coco and Morgan

Stanley.

Good morning. Thanks. Thanks for taking the question. I want to come back to the domestic content piece for a second. Just curious, obviously strong demand for those products. How do you feel in terms of the capacity that you're getting from AESC? Do you see a need to expand that agreement anytime soon, just given the level of demand you're seeing? And just kind of curious on maybe how pricing conversations with AESC have shifted, given obviously the higher demand for domestic sales over the last three months or so.

Good, very good question. So we have we contracted two lines with AESC, one that is coming, start producing in late 2024. So the liver is in early 25 and another one that will come into operation in in 25. And we have a right of first refusal for any additional lines, for an additional line is they bring it up. So we have ample capacity to meet the demand that we see today and our clearly to meet our commitments to the to the street. So we're very happy in terms of the deal with that with ASE. We had we remember we we we had to pay for this. We have to make them we make that prepayment that we disclose to all of you. So it's a firm deal with prices and we haven't seen any discussion on on pricing or ASE is not requesting any additional additional price from from the fact that this is becoming more much more popular. What I will say is that, you know, we were we were convinced that this was the way to go. And I think the reality and the reaction of our customers proven us right. And we are we are very happy with that. And now our view is to accelerate this as possible and solidified our first move with advantage in domestic.

OK, perfect. And then maybe as a follow up question, you mentioned AI and tech is a driver of demand. I'm just curious if if there's any difference in in attributes in terms of duration, sizing that you're seeing from maybe some of those conversations and maybe how that's impacting your offering or the pricing that you're achieving in the market. Thank you.

No, no, no real difference from a technical point of view. What I will say is a level of urgency. Our you know, that's what I'll say. The need for speed, which is also something that we have invested on. It is coming. We're also seeing that that that's becoming a need of the market. We need to do this faster. So that's where I think that's a little bit of a difference from from the past where when we were not, you know, where projects which are not necessarily data center related.

Understood. Thanks so much.

Yeah, Andrew. Thank you.

Our next question comes from Justin Claire at World Capital Partners.

Hi, thanks for taking our questions. Yeah. Good morning, Justin. Good morning. So I wanted to start off just asking about, you know, how do you expect the gross margins for your domestic supply chain using US cells to compare to margins when you're using international cells? And then just curious, as you ramp the domestic supply chain, do you anticipate the margins to initially be lower and then increase as you scale up or will you be kind of at full potential right away?

In

terms of margin of our US domestic offering, you know, prefer not to go into that detail. I think that's a good question. I think that's a good question. I think that's a good question. I think that's a good question. I think that's a good question. I think that's a good question. I think that's a good question. I think that's a good question. I think that's a good question. I think that's a good question. I think that's a good question. I think that's a good question. I think that's a good question. I think that's a good question. I think that's a good question. I think that's a good question. I think that's a good question. I think that's a good question. I think that's a good question. I think that's a good question. I think that's a good question. First, we're bringing the line, the module line earlier to ensure that it runs very well. And we have put in investments in our labs to test our new products ahead of ahead of going publicly in a way that that to ensure that we do not we can realize our margins from day one. So we feel very confident that both our U.S. domestic content with a new line with a new module line being fully tested for a period of time and our new labs are give up give us a confidence that we're going to be able to monetize on the margins on U.S. domestic content are new products from from day one.

Okay, got it. That's really helpful. And then just on your on your backlog, curious how much of the backlog do you anticipate recognizing in fiscal 25 at this point, and if you could just comment on, you know, project timelines, how they're evolving, and then just the the anticipated average timeline for when you book a project to when you're able to complete a project. And then maybe if you could comment on just the bottlenecks that you're seeing and whether you can pull timelines forward. Great.

In terms of our 25 revenue, what we have in our backlog for 25 revenue, roughly a third. So in line with what we had last year, we feel, you know, very well about it. Great. There's our projects, you know, our projects, projects timeline, we have invested a lot in accelerating our capability of delivering projects, you know, and that I think has been given us a competitive position when customers are in a hurry, or, you know, as Jason mentioned, data centers, and one thing very, very quickly know that gives us a competitive position. However, you know, what is what has become a little bit clearer now is that some of the time it is not necessarily set by us, what's set by, you know, other external factors, however, are shortened. Project timelines allows a much more from economic point of view, a much more efficient project. In terms of a project, project timelines, I think we should continue to use the 18 months that we told you. We brought it, we have been bringing it down, but I think that's a good guideline for, it's a good guideline for our financial projections and a good guideline for you to look at our, our, our backlog. We'll let you know if things, you know, improve, you know, change materially.

Okay, appreciate it. Thank you. Our next question comes from Leanne Hayden at Kenna Court

Genuity.

Morning, everyone. Congrats on the quarter and thanks so much for taking my question. To start, I know you reiterated 2025 revenue growth expectations. I was just wondering if you still expect to see the same profit profitability as previously guided. I believe it was a 10 to 15 percent gross margin.

Yes, we do expect the same profitability of 10 to 15. And I will tell you that performance this year, it was even more confidence that we would be able to deliver in the 10 to 15 percent range. So we are very happy. This was our transformation when we took over the company to today, you know, from minus five to now being able to feel very confident in the 10 to 15. We're all very proud of the work that we have done here.

Great, thanks. And then just one more from me on increasing data center demand. Are your data center discussions focused mostly on hyperscalers or small providers as well or any color you could provide on that would be great. You

know, we work with top tier developers in the US, so it's mostly hyperscalers. You know, there might be one or two that are mid-size, but generally hyperscalers. That's what I'll

say. Understood. Great. Thanks so much. I'll jump back in queue.

Thank you. Thank you, Leanne.

Our next question comes from Jordan Levy at Shrews Security. Good morning,

all, and appreciate you taking my questions. I just wanted to get a sense of what you're seeing specifically in the international market from a competition perspective with a large entrant kind of into that market earlier this year, I think, particularly in Europe.

Yes, you know, each market is different. I'm being very clear. There are markets are with some of the players we see in the US do not are not active. However, I'll say about the European market, it tends to be especially the UK more than Europe. Let's say start. Let's talk about the UK. The UK is probably the most competitive market, you know, and it's a market we are very, very happy that we can win and we continue progressing a lot because it is a very competitive. It is a very competitive market because it is very open to a lot of entrants. And it's also it's a market that requires, you know, very good capabilities in terms of delivery. So, you know, that combination makes it an interesting market to work. The rest of Europe, I'll say the intensity of competition in Europe is also a little bit higher. However, because it's a new market, it has one hour, you know, and not all players offer one hour. It tends to be not that, you know, a little bit less than the UK. Appreciate

that. And then maybe just kind of a follow up on your prior question on the data center market. I know you all have had probably a lot of conversations in the space with key players. And I'm just curious if those conversations from your commentary last quarter, if those conversations have evolved at all in terms of what customers might be looking for for a more direct storage solution as it relates to duration or anything like that?

Yeah, most of our, you know, our data center demand is indirect. It comes in directly. We support PPAs that the big, you know, top tier developers offer data centers for big and large tech companies. So I would say the great majority it is indirectly. There's very little that we do directly. And that doesn't seem to be a market that is open enough. We believe that most of our sales that are connected to data centers will go through large PPAs with the large tech

companies. Thanks so much. Our next question comes from the Leet Sector at

BMO Capital Markets.

Hi, good morning. Just real quick. It looked like the implied ASPs this quarter were, I think, like around $430 at KWH. I was just wondering if you could kind of speak to, were there any kind of one-off factors that kind of drove that? Or are we looking at it maybe not perhaps not the right way? Thanks. Hey,

Amit. This is Amit. So, yes, I think the if you're looking just for the quarter, you're right. And I think that is more to do with the mix of the contracts because we have more international during the quarter where we have EPC elements embedded in those contracts. But I think if you look at for the year, year to date versus year to date, ESPs are roughly 25 percent less. And that reflects the pricing, you know, what we have seen in the commodity prices. But so that is the right way to think about, you know, year to date basis is pretty is declining. But that reflects, you know, the lithium-ion prices.

Great. Thank you.

Our

next question comes

from Cassie Harrison at Piper Sandler.

Good morning, Cassie. Good morning. Hey, good morning, Julian. And thanks for taking my questions. Congrats on the impressive bookings backlog and also the execution. So I wanted to focus on the backlog and booking. You know, I noticed that the, you know, the total backlog increased significantly in three Q, but the implied 12 months from the Q was, you know, flat quarter of a quarter around, you know, 2.3 billion. It is a 12 month look. So, you know, it's only good through June 30 of next year. And I was just wondering if you were to extend that to September, can you give us a sense of, you know, what would happen to that, you know, implied 2.3 billion estimate? I'm just wondering if there's another big jump in four Q of next year just because of the just the general waiting for Q waiting up the business.

So, so yes, you're right. I think this is the nature of our business where the revenues are lumpy. And frankly, that is partly driven by the nature of the contracts that we have and the customers who want their deliveries during the summer peak peak months. So, yes, I think we I mean, I think probably 60 to 70 percent of our revenue is second half back unloaded this year. And we think probably that would be the case next next year as well.

Scott, so the 2.3 billion would is probably significantly higher if you were to include four Q of next year.

So, yeah, but I think the key there is the percentage of completion. I think as we sign more contracts, we as we execute on those contracts, we will continue to realize. But net net, you will see, you know, more back unloaded. That's the lumpiness that we have in our business.

Got it. I appreciate I appreciate that. And then for my for my follow up question, I know it's tough to guide the forward bookings, but I wanted to try to ask this question anyway. Do you think you can hold that four or five billion flat exiting the year? I only ask since next quarter is, you know, a very big revenue quarter. And so I was trying to get a sense of if you can hold four or five through your end. Thank you.

Yeah, I think that is the expectations like we did last year. You know, I mean, I think we are pretty much in the same position where we were last year at this stage. Q3 call, we were about one third of our revenue for 24 locked in our backlog and we are the same place. And expectation is as we sign more and more contracts, I think we will be in the similar situation. I mean, this last quarter we signed five gigawatt hours, as you saw. And frankly, that is equivalent to the full year, 23 deliveries. So so we are seeing significant growth in volume and and hopefully that trend will continue.

Thank you. Our next question comes from Ben. Hello, at

Baird.

Hey, good morning, guys. Thank you for taking my question. My first question. Thank you. My first question was just on pricing environment. You guys talked about the ASPs and where they've trended this year. As you look out to next year, could you just talk to us about how we square the 12 to 15 percent gross margin with pricing if you expect it to be continue to go down, maybe what your levers for decreasing costs. I know as you transition to US manufacturing. So if I put all that together, maybe just the levers on bringing down costs so you can keep up with price declines. And then my second question is just what you're seeing in competition in the US in terms of international players and specifically Chinese, Korean players coming to the US for to produce the US and how competitive they are in pricing right now. And if that's impacting any of your business as you look out to next year. Thank you. Great.

Thank you, Ben. On the on the pricing, what do we see today? You know, maybe maybe go back one step. Lithium carbonate was has been stable up to May, came down around 10 to 15, around 20, let's say, since May. So it is getting softer. That gives you a sign that somehow the battery storage market is getting softer. Lithium or the price of lithium has become a lot less relevant in terms of how this is priced. So that's an important point. Having said that, we do believe that we will continue seeing some price reductions going forward and we plan for it and we work for it. And our guidance takes into consideration the fact that our pricing is going to continue coming down. We see strong elasticity of demand in this market, strong. You see it in our see it in our in our pipeline. You know, 65 percent growth in less than a year. See it in our backlog. Just looked at our orders this year. This year, we were able to contract the same volume we recognized last year just in a quarter. So that tells you the tremendous elasticity of the. So where, you know, as I said, the prices are not we're not going to see a repetition of 24. We will see prices continue to soften, you know, and we're ready for it. We have a view of what how it will work and we can commit to our 35 to 40 percent growth out of our three billion midpoint. You know, our prior midpoint with that information in terms of competition. I mean, this has been always been a very competitive market. It is not getting more competitive. It is essentially, you know, maybe the names change, you know, because people realize that they cannot deliver what they say they can deliver and they cannot go away. But for the competition has not given down.

I

haven't seen, you know, there are a lot of players are talking about stuff. But when we talk to our customers, you know, these are midranges. There's nothing behind it. You know, we're going to do this in Dallas, in Arizona. And when you when I've you know, clearly I don't a lot of these competitors, I do not get the information. Well, when I talk to my customers, I think we went there, there's nothing you know, you cannot touch it. You can't, you know, it's all sounds very, very good. Does not exist. So we do expect more competition in the US market and we are ready for it and we love competition. So, you know, we're ready for that, for that. But I do not think that it will take a while for a lot of these, you know, the dreams to become reality, you know, from from their part of it. Great.

Thank you. I appreciate it.

Our next question comes from Joseph O'Shea, Agribaheim Partners.

Good morning, everybody. Congratulations. Good morning, Joe. My first question relates to domestic cell supply. I was in an industry event a while ago, saw some numbers suggesting that, you know, by 2026, when this 301 tariff comes into effect, the industry is only going to be able to meet maybe a quarter to a third of demand with domestic resource cells. I'm wondering if you have a reaction to that and if you're seeing kind of the same numbers.

A, we heard, you know, there are all there are people who said that we're going to be a surplus and there are people who say if you looked at all the products that are around and people that have the view you have that is going to be this market is going to have a huge deficit. Probably somewhere in the middle is going to be a tight market, I believe. But I think that there will be enough to cover. You know, I don't know about 2026. That's a little bit. But, you know, over time, we'll have enough to cover the demand in the US. This is very important and it will happen. We will work to meet that demand. So from our part. So I think that and you know that there will be more players. So we don't expect a market where we'll be we'll be so so so tight. Yeah, as you know, you probably have read some of the reports around.

Okay, thanks. And then then my follow up. I'm just wondering if lots of chatter out there about project timing. I'm wondering if you look at if your storage only business relative to your storage plus solar business, if you're seeing perhaps any greater level of volatility or movement and uncertainty in the solar plus storage business, because it certainly seems like we're picking up those signals from some of the some of the other folks in the solar world. Thank you.

I mean, the reality is we haven't seen any any anything get any worse or deteriorated in any way. Normal project when we get involved, no normal project delays at a transform and it's late. But it's all counted in weeks, you know, or, you know, not not in years or in months. You know, it is the normal delays you get in a project that a permit to move things through a street or things of that sort. So I will not we haven't seen and it's not any different between the projects that we do batteries standalone, which is mostly in our international markets and than the ones we do batteries and solar. It's the same type of delay. But as we have said, and we get into this project, you know, a lot later in the way when we're there, the project, our customers have, you know, assigned PPA, they have financing, they have all the permits in place. So the stuff that gets these things delay are things that delays by weeks. Never my

mom. So thank you. Our next question comes from Brian Lee and Goldman Sachs.

Hey, guys, this is Tyler Bisseton for Brian. Thank you for taking our questions and congrats on the solid results here. Your pipeline appears to have grown the strongest in APAC and the media. But I guess I would have expected to see continued strength in the Americas given growth from data centers as well as domestic content. I see the Kegger growth is higher in both regions, but from a lower base. You called out growth in Germany and Australia. So you've seen certain products getting better than expected traction there. Are there any other markets where you're seeing outside growth?

I think the ones we talked about Germany is a new nation market that is very, very attractive. You know, Australia has been growing and we see a big prospect for for continuous growth. So, you know, as you said, we have seen the growth rate out of a much lower base, but the growth rate in our international market, you know, growing more strongly. And the thing is that because our international markets are a mix, things move here or there differently and they're not affected. So, you know, very, very, you know, very, very happy with our global strategy. I think that's kind of what I would like maybe highlight. This concentrating globally and working with, you know, globally gives us an ability to manage, you know, headwinds that you might get here or there much more effectively that if we were only a company working in a few markets, you know, only a couple of markets.

And then you guys called out 40 percent of your US pipeline data centers. How do you expect that number to turn going forward?

Yeah, I hope that I think it will continue to grow. I think it will continue to grow and it's difficult to know. As you know, we get this demand indirectly, so we don't involve with the data centers. We involve with the developers who talk to data centers, but talking leeches as we all we listen to the calls of all our compete, all our customers that we know what they're doing. They are talking about a game in the data. All of them about a game in the data center market that I think it will be, you know, a multiple of what we have seen up to date. So I expect that number to grow. Perfect. Thank you very much.

Great. Our last call comes from Biju, Perrin Sherald at Susquehanna Financial Group.

Hey Biju, good morning.

Good morning. Thanks for taking my question. I wanted to ask about should the opportunities to use batteries for transmission applications in the US. Especially coupling that with DLR technologies. And also I wanted to see if there is any regulatory changes that need to take place for that to be deployed here.

Good point. We continue. This is a great technology that has been very successful in Europe. We are promoting that technology in the US. I would say that the main, and as you know, or as you probably know, the FERC allows batteries to be a transmission asset. So, you know, that's good. A lot of the system operators are allowing it in their systems. You know, MISO came up with the rules in the Northeastern system allowed. So there are some rules. However, what we see is that there are restrictions on the ownership of the batteries by the owners of the transmission assets. You know, you can put them, but they cannot be owned by the same person, by the same entity. And that I think is a restriction that needs to be, and that comes out of the view that a transmission operator or owner cannot dispatch the generation or calling demand. And that's what, you know, a battery essentially does that. So that creates a regulatory hurdle that we've been trying to, you know, explain to regulators that you need to allow the same owners, the same owner of the transmission asset to own the batteries in order for this to work. And we're working on it. And I think that as this becomes more and more of a success in Europe, we'll see it happening in the US. So we're confident that it will happen.

Okay, thanks.

This concludes the question and answer session. I will now like to turn it back to Lexington for holy remarks.

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

good day. This does include the program. You may now disconnect.