Fluence Energy, Inc.

Good day and welcome to Fluence Energy's fourth quarter 2024 earnings 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. Instructions will be given at that time. As a reminder, this call may be recorded. I would like to turn the call over to Lex May, Vice President of Investor Relations. Please go ahead.

Thank you. Good morning and welcome to Fluence Energy's Fourth 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 non-GAAP financial measures, are posted on the Investor Relations section of our website at FluenceEnergy.com. Joining me This morning on our 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 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 who are participating on today's call. I will review our Q4 and full-year results briefly and then provide an update on our business and the strong growth prospects we continue to see. Ahmed will then go into more detail on our financial results and outlook. Beginning of slide four, we delivered strong financial performance. More specifically, we reported a profit for fiscal year 24, our first ever on a full-year basis, and generated free cash flow. These results demonstrate that we can generate strong profitable growth at scale. We also met or exceeded our outlook in all key metrics. More specifically, we generated a record of approximately $2.7 billion in revenue with a 12.6% gross margin, earned $78 million of adjusted EBITDA, which is almost $140 million higher than fiscal year 23, an $18 million better than the midpoint of our expectations. Second, we made good progress in demonstrating the value of our services and digital businesses, as we achieved our goal of increasing our annual recurring revenue by 80% to $100 million. We continue to make strides in our digital software, and it is getting acknowledged by the market. Earlier this month, Fluence was named the top integrator on the GuideHouse Insight Leaderboard for energy storage software. The recognition highlights our exceptional technological development and strong partner relationships. Third, to support our future growth, we continue to add to our backlog with another strong quarter of more than a billion dollars of order intake. Our backlog has grown this year by 55%. to $4.5 billion, providing strong visibility to future revenue. And finally, to our proactive approach to margin expansion and working capital management, we generated $72 million of free cash flow for the year and ended the quarter with $518 million of cash. Turning to slide five, I would like to provide an overview of the market growth of energy which continues to surpass expectations and why we do not expect the growth to decline in light of the recent changes in the U.S. government administration. First, after a long period of stagnation, we're seeing electricity demand growth globally, which is driven by rapid economic development, the growing deployment of data centers, and the electrification of sectors such as transportation, commercial building, and selective industrial processes. As an example, the U.S. electricity demand is projected to rise 15% to 20% in the next decade, and we're seeing similar trends in other countries. Second, renewable energy has been the fastest-growing source of power generation for a significant time already. Current growth projections will put renewals at about 50% of global electricity production in 2030. This rapid adoption reflects the attractive levelized cost of renewable energy and the faster deployment time for renewable energy as compared to gas and nuclear. For most markets, renewable energy paired with BES is the fastest and most economical way to meet electricity needs. The energy storage industry has been benefiting from declining lithium carbonate prices, which declined by almost 50% year over year. The lower input cost has reduced the cost of battery storage systems by 40%. These more favorable price levels have resulted in a 140% increase over the last 12 months in our volume of orders from existing and new customers, as their projects became more attractive. Turning to slide six, customer demand for energy storage is reflected in our current backlog of $4.5 billion, the highest level in our history. It is important to note that during the last two years, we have experienced the highest interest rate in three decades. And despite that, our backlog has doubled since 2022. This higher volume sets a good foundation for future growth. in our recurring services and digital businesses. Turning to slide seven, the strong growth prospects for energy storage are also reflected in 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. I am pleased to share that we have increased our pipeline by $500 million from the end of last quarter to approximately $21 billion currently. This is particularly impressive considering that during the quarter, we converted $1.2 billion into backlog. To provide more perspective, our pipeline has increased 60% from this time last year, which reflects significant growth prospects for energy storage globally. We continue to see a very robust international market We should further diversify our geographic mix in the coming year. Nearly half of our $21 billion pipeline is in the U.S. market, and the rest in the international market, with Germany, Australia, Canada, and Chile representing the bulk of it. Turning to slide eight, speed and innovation are key elements of our strategy for growth. To that point, we have been the first to bring innovation to the U.S., by offering domestic content battery technology to the U.S. storage market and to establish a robust U.S. supply chain. Even before the Inflation Reduction Act, or IRA, we recognized the need for a U.S.-based supply chain and began localizing our operations to reduce reliance on Chinese imports. As shown on slide eight, this U.S. supply chain is essential to delivering domestic content offering. Today we can offer a hundred percent non-Chinese product supported by six US production facilities owned and operated by our supply chain partners. Five of which are located in states that were won by President Trump and benefit from the IRA manufacturing incentives. Development of this domestic supply chain has created thousands of associated jobs and strengthen our commitment to the U.S. energy security. Even though we believe that a full repeal of the IRA is unlikely, we have positioned Fluence to be successful both under the current regime or under a new regime defined by higher tariffs. I'm pleased to announce that in September, we've begun producing our first U.S.-made battery modules at our Utah facility. This module production line is equipped with cutting-edge robotics and automation technology, enhancing both our production efficiency and product quality. Additionally, this month we received our UL 1973 certification at the module level, signifying that our modules meet the highest standards for safety, performance, and quality. This certification is a significant milestone, reinforcing our commitment to delivering reliable, top-tier energy storage products. Moving to slide 9. As you may recall, in the summer of 2023, we reached an agreement with ASE to secure two dedicated battery cell production lines at their facility in Tennessee. This U.S.-based cell production provides us with a distinct competitive advantage. allowing us to offer American-made products to our customers, a unique capability among our peers. The first line started producing its initial battery cells as part of the commissioning process and is expected to begin ramping up production at the end of the year. As battery cells are produced, they will be transported to our dedicated contract manufacturing facility in Utah, Here, we will produce our US-made battery modules and integrate them with other components to create finished products ready for deployment at customer sites. We anticipate a gradual ramp-up in module production over the coming quarters as we scale this capability, which is a key step in fulfilling our commitment to our robust, localized supply chain. We have recently made the strategic decision to upgrade the second cell production line to manufacture the 530 amp hour cells instead of the 305 amp hour cells. By taking the strategic step to invest in manufacturing the 530 cell, we will be among the first to bring this technology to the U.S. market, which provides superior density, resulting in slower degradation and longer battery life, thus providing significant value to our customers. Furthermore, these enhancements double our US cell manufacturing capacity, which enables us to meet our entire near-term volume expectations in the United States with qualified domestic content products. Additionally, it secures our exclusivity for a potential third line to support are long-term growth objectives. Finally, I would like to discuss the impacts of any potential increase in tariffs on Chinese batteries. Today, imported batteries pay a duty of 7.5%, and this is set to increase to 25% in 2026. If the tariffs is raised even further or ahead of the current schedule, it could cause some short-term disruptions in the market, while the markets digest the new prices. However, we have taken proactive measures to mitigate the potential impact on our U.S. products that are planning to utilize foreign sales in 2025, which include bringing these foreign sales into the country sooner than planned. We have also secured contracts with cell manufacturers that provide a cost sharing of tariff increases, thus further mitigating our risk. Our view is that in the long run, higher tariffs should benefit U.S.-based storage providers such as Fluence, giving us a competitive edge over other players that lack domestic manufacturing capabilities. I am confident that in a high-tariff scenario, our domestic content strategy will be able to deliver significant value to our customers and shareholders. Thus, we remain steadfast in our ability to grow and thrive in these new political environments regardless of tariff policy. We solidified our business model for potential policy shifts, and we believe we are best positioned to capture the growing demand for resilient, cost-effective energy storage solutions. This concludes my prepared remarks. I will now turn the call over to Ahmed.