Fluence Energy, Inc.

Good morning and welcome to Fluence Energy's third quarter earnings conference 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 relating 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 relating to pipeline, order intake, and contracted backlog, future results of operations and impact of the One 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 measure 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 four, today I will provide an update on the progress we have made in driving new order intake and building our backup, both of which were at record levels this quarter. I'll discuss our growing business, which includes robust demand from our core customers, combined with a rapid expansion of data center customers, from which we received our first orders and contract awards totaling $850 million. We believe that the momentum of the past few months will continue in the quarters to come, driven by our differentiated product offering and our team's longstanding ability to meet customer needs. Following my remarks, Ahmed will review our financial results for the quarter and our outlook for the remainder of the year. Starting with key highlights for the third fiscal quarter. First, we signed 1.44 billion of orders during the quarter, which is nearly triple the 509 million we signed

in the same period last year.

Second, included in our record order intake was our first deal with a data center developer worth 300 million. During July, we were awarded an additional 550 million of business across multiple data center sites by one of the hyperscalers that we discussed last quarter. Third, we ended the quarter with a record backlog of $6.4 billion, representing 14% growth over the second quarter and more than 30% growth since the third quarter of last year. Fourth, we ended the quarter with total liquidity of approximately $860 million, in line with our expectations. Ahmed will discuss our third quarter financial results shortly. But revenues were affected by delays in expected project deliveries driven by the ramp-up of two new contractor manufacturing facilities. Accordingly, we are lowering our guidance midpoints for 2026 revenue and adjusted EBITDA to $3 billion and negative $10 million, respectively. We do not take this reduction lightly and have instituted changes in an effort to ensure we deliver on our growing market demand. I will detail our plan further in a moment. Please turn to slide 5 for more detail on our order intake. With $2.7 billion now signed to the third quarter of this year, our orders are 80% higher than they amounted from last year. with utilities and IPPs making up approximately 90% of this total. We expect fourth quarter orders will be another record level for the company. And we see reason for this strong momentum to continue in future quarters given our current demand and competitive position. Let's turn to slide six. as I detail our progress with data center customers. Our announcements on last quarter's call that we have signed two master supply agreements with hyperscalers raised our profile with other potential data center customers. Overall, our data center pipeline has increased to 16 gigawatt hours, representing a more than 35% increase compared to the second quarter. Our pipeline now includes a mix of projects from both hyperscalers and data center development. During the quarter, we signed a $300 million order for a behind-the-meter project with a developer. We were introduced to these customers by one of the hyperscalers we had been working with. The sales cycle for this customer was much faster than our traditional market segment. Converting from lead to order in three months. We continue to see the developer segment center on speed to power solutions, and we are pleased to be positioned to meet their needs. Hyperscaler customers continue to focus on quality of power solutions, where we also stand out in terms of our ability to deliver. We were pleased to receive approximately 550 million of awards under one of our MSAs in July. These are not yet purchase orders and we expect this will add to our total of signed orders in the coming months. These data center customers have a pipeline of projects that we continue to believe we are well positioned to build on. And we look forward to expanding our business with them in the near future. Please turn to slide 7 as I discuss backlog and pipeline growth. Our backlog has benefited from record orders in two of the past four quarters and sets a strong base for revenue growth in fiscal 27. As of June 30th, approximately $2.2 billion of our $6.4 billion backlog is expected to convert to revenues in fiscal 27. This compares to the 1.5 billion of fiscal year 26 revenue coverage we had as of June 30th of 2025. Turning to our pipeline, we exited the quarter at 33.1 billion, which is an increase of 1.6 billion compared to last quarter. This indicates 3 billion of new opportunities after considering Our conversion of pipelines into orders during the quarter. We continue to see a growing percentage of our pipelines coming from the U.S. market compared to previous years, mostly attributed to the data center segment. Please turn to slide 8 for details on the expansion of our supply chains. We have been expanding our supply chain capacity to meet The strong demand for our products has reflected in the growth of our backlog. New, larger contracted manufacturing facilities globally are expected to increase our capacity and also deliver the quality our customers expect. A major driver of our revised revenue expectation for this year is attributable to ramping up production at two of these new factories. In the US, we will be the off-taker of a new fully automated facility located in Houston with expected capacity of 15 gigawatt hours per year. Completion of this new facility has been delayed by a few months due to delays in construction and issues related to the automation equipment. Limited production commends this quarter. and our manufacturers taking steps to address outstanding issues. We expect the facility to reach full production levels during our fiscal first quarter of 2017. I will highlight this contract manufacturer has been our main enclosure supplier from Vietnam, which is a very similar facility to this new one in Houston. We believe their knowledge and experience will be helpful as this factory moves towards full production. Our new international facilities are now fully ramped and our product is being shipped to customers on a delayed timeline because initial production did not meet our quality expectation. Corrections were implemented and we have resumed shipping high quality products to projects all around the world. Given the importance Roman Loosen currently serves as our Chief Enterprise Operations Officer and brings more than 20 years of global leadership experience at Siemens, where he held senior operational and business leadership roles with responsibility for supply chains, manufacturing, and business transformation. Roman will lead a set of managers with deep experience and skill sets in supply chains and manufacturing, that have joined our company over the past few months. I am confident that this new management team will strengthen our supply chains and manufacturing to meet the growing demand for our products. When combined with our supply of domestic sales, we expect the Houston facility will span our annual capacity for domestic content significantly compared to our current footprint. Once it is fully run and added to our current supply chain, we expect to have capacity to meet our current backlog of projects and confidence to meet the growth of the US market. Please turn to slide nine for details on how we are differentiating in the current market. We have been successful in growing our backlog and penetrating the new and important data center customer segment. in a very short period of time. Fluent has new and repeat customers who appreciate our advanced product designs, leading energy density, and focus on total cost of ownership. In addition to these factors, our proprietary software stack, including an operating system, is designed to enable our customers to optimize their solution over its long-term life and allow for remote monitoring. These features can increase availability and extend the life of our solution for customers in all use cases. Specifically for data center customers, the ability of our operating system to efficiently help us move loads and handle periods of low voltage have contributed to new awards and orgs. have been gaining favor in terms of orders this year, representing 75% of our orders year to date. One of the attractive features of SmartStack is that we design it as a product platform with the ability to upgrade over time. During the quarter, we announced the first evolution with SmartStack 10, which increases density of each unit from 7.5 MWh to 10 MWh. The ability to upgrade our smart stack offering over time with speed and efficiency allows us to quickly adapt to evolving customer needs, which is valuable for both Fluence and our customers. To conclude, we believe we have the right product and team to win in this rapidly growing market. With our first Data Center Awards adding to our record backlog and a growing global supply chain size to meet future growth, 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 and outlook for the rest of this year.

Good morning, everyone. While our results this quarter were disappointing, the challenges we experienced were primarily related to construction and production startup delays at new manufacturing capacity and scaling of our new products. We have taken actions to address issues and improve execution and are now cracking to our revised production plan. Importantly, these investments strengthen our supply chain globally and position us to support our growing backlog. As these new facilities move beyond the initial ramp-up phase, we believe Fluence will be better positioned to deliver profitable growth and create shareholder value. Starting with slide 11, we generated Q3 2026 revenue of $650 million, up 8% year-over-year. This was approximately $90 million below the expectations we discussed on our last quarterly call. This shortfall was primarily driven by production delays at two new contract manufacturing facilities that are currently ramping. Production from the employer manufacturing facility in Houston was pushed by a quarter due to construction and automation delays. The facility has begun limited production and is expected to achieve full production levels in the first quarter of fiscal 2027. The other issue occurred at one of our two new facilities in China where initial production of components of SmartStack did not meet stringent standards and required rework. The facility is now producing consistently to our standards and has achieved full production in the fourth quarter. While we expect to realize the revenues associated with the Q3 projects that were delayed, The slower ramp-up compresses the timeline for production in the fourth quarter, pushing a portion of previously planned 2026 deliveries into fiscal 2027. Our Q3 adjusted gross profit reflects the lost margin from revenue shortfall and an approximately $15 million costs associated with new product rollout and production delays. In addition, we recorded $15 million loss on a planned battery supply agreement, most of which was associated with a single project. Despite the upfront cost, this arrangement secures the long-term supply and attractive pricing, strengthening our ability to support growing demand and price future orders with greater confidence. Turning to slide 12 for our fiscal 2026 guidance. We have revised our outlook to reflect our updated expectation for production through the end of this fiscal year. More specifically, we expect revenue in the range of 2.9 to 3.1 billion with a midpoint of 3 billion. The approximately 400 million reduction versus the prior midpoint is largely the result of manufacturing ramp-up delays that pushed revenue recognition into 2027. In terms of EBITDA, we now expect adjusted EBITDA negative 30 million to positive 10 million with midpoint of negative 10 million compared to our prior midpoint guidance of 50 million. While there are several puts and takes relative to our prior guidance, the 60 million reduction is largely explained by two items. about 44 million of lost margin from shift of approximately 400 million of revenue into 2027 and 15 million related to the proposed long-term battery supply agreement discussed earlier. And we are maintaining our expectation for annual recurring revenue of approximately 180 million by the end of fiscal 2026. Turning to slide 13 for an update on our liquidity position. We ended the third quarter with total liquidity of approximately $863 million, which includes approximately $365 million in total cash. Consistent with what we said on the last call, we expect total liquidity will return to $900 million level by fiscal year end, driven by execution on our backlog of projects included in the guidance. Our liquidity position continues to support our near-term working capital needs, particularly heading into our highest revenue quarter. Regarding liquidity needs for 2027, we are comfortable that our existing liquidity has us well positioned for success. That said, as Julian noted, our expected order intake is reaching new highs. and to support that growth may require an additional 300 to 500 million of working capital over the coming year. We will remain disciplined and pursue financing only where there is a clear line of sight to profitable growth and shareholder value creation. In summary, while we have more work to do, demands remain strong, our backlog continues to grow, and we are taking actions needed to improve our execution and support long-term profitable growth. With that, I will turn the call back to Julian.

Thanks, Ahmed. Let me close with a few key takeaways. First, order momentum continues. Our third quarter order intake. Our record of $6.4 billion backlog. and the initial order with the data center developer all evidence our successful product strategy and sales effort. We currently expect orders to reach a record level again during the fourth quarter of this year. Second, additional production capacity. We're adding new contract manufacturing capacity in the U.S. and abroad and have realigned our organization with new leadership to strengthen execution. The integration of SmartStacks density, safety, and reliability metrics, where our software and controls capabilities allow for fast response, load smoothness, and remote operation, puts us in a dominant position to meet the growing demand of the diverse customer segments we serve. In conclusion, we are positioning our company to continue profitable growth and to deliver value to our customers and shareholders.

A brief moment.

We needed to delay today's call as we have lost our speaker.

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All participants please continue to stand by. Your meeting will begin momentarily. Once again please continue to stand by. Thank you. All participants, please continue to stand by. Your meeting will begin momentarily. Once again, please continue to stand by and we thank you for your patience. Once again, please continue to stand by and we thank you for your patience. It is now our question and answer session. If you'd like to ask a question during this time, simply press star followed by the number one on your telephone keypad. Your first question comes from the line of George Giannourakis from Canaccord Ingenuity. Your line is live.

Hey, everyone. Nice to have you back. Good morning, George. And before you answer, I really want to apologize for the technical mishap we have this morning, which we'll figure out what it is. We've been waiting in the hall for the same time you were waiting and we would not have been connected. So sorry for that, everybody. We really appreciate and value your time. And we know it was a little bit of a waste of time. But great. Hey, George, good morning.

Good morning. All good. Maybe first, if you could provide some additional granularity on the production delays and just sort of go into a little bit of detail what's happening at the facility. Thank you.

Yeah, great. As we're scaling up the company, we are increasing our production capacity. As part of that, we brought in two new manufacturing groups, one to serve the international market and one to serve the U.S. market. On the international market, we're working with reputable, well-known, seasoned contract manufacturers. One of these manufacturers, as I said, they are producing our SmartStack for the international markets. One of those manufacturers producing our pods, the ones that, you know, the things that go on top of these kits that we have. And the initial production was not meeting our, you know, our stringent testing. And we had to significantly delay production to ensure that we got the production in line with our quality. And that meant, you know, Significant, you know, delays that have been significant that since then we have fully, you know, fully resolved and now we're producing that working full-time. We are fully ramped up. They're doing a great job, but we won't be able to recuperate the full amount of the volumes we lost during the quarter, during the year. So that's that case and, you know, We feel confident, and we're seeing it today, that they can meet our quality, our volumes going forward, and it will really put us in a good position to serve the international market with a competitive product. The U.S. is slightly different. The U.S. will put in a fully facility with our contra-manufacturer works out of Vietnam. The same one is put in a fully automated facility, an improved version of the one we have in Vietnam. fully automated, a lot more automated because of the U.S. labor costs also, but, you know, fully automated system. And they experienced construction delays where the construction delays were then we got delays in connected to the utility. And out of the, you know, we've been running the plant with generators and that meant that we had to manage that we could not do all the works in parallel. That meant that some of the automation took longer than and it's the same thing as these delays got stuck one another. There was a moment that was clear that we were not going to be able to recuperate the volumes for 26 and that we had to pull volumes to 27. That facility is ramping up. It's producing today. It will connect to the grid in the next couple of weeks. The issues are being resolved and as I said, this is a very much a sister company to the one that's in Vietnam. So we're confident that the production levels we have set for ourselves for the quarter will be met, that the issues that we have identified are fully resourced and resolved. So we're very confident on it. I will say on a more general point, this facility will provide us a competitive advantage in the U.S. market that we believe is very, very important of our strategy here in the U.S. market. They will allow us to produce 50 gigas of fully U.S.-made products, fully automated integration. So we are really, really happy with what we will receive. However, we're going through these delays that unfortunately we could not fully resolve on time.

Thank you. And maybe just as a follow-up, An update on your recent commercial traction in data centers.

Specifically, how would you characterize the competitive dynamics in your win rates and deals you participated in, and what are the key differentiating factors that lead to your wins? Thank you.

Yeah, very great, great question. I think that, you know, how we win. We win because of the Density, safety, and reliability of SmartStack as it combines with our operating systems that allows for very efficient load management and very, very good response times to the low voltage ride-through.

So that is a combination of technical, of our operating systems and our

and our enclosures, which are our delivery equipment, which are safe and reliable. That's how we win. Generally, it has been very, very good, and we're very happy with the traction we had. This is significantly better than our plans, and we are very, very confident that as our industry grows, that will be an important part. What's interesting for us also is that We are now looking not only in the U.S. with most of the activities we have and the concepts we have time today are from, but also looking at some of our markets with some of the hyperscalers and some of the same developers to help them in other markets, which I think will put us, our global footprint will help us on capturing that demand more globally.

Thank you.

Your next question comes from Your next question comes from the line of Brian Lee from Goldman Sachs & Co. Your line is live.

Hey guys, good morning. Thanks for taking the questions. I wanted to ask about the battery cell cost uplift. It sounds like it's an international supplier, but can you give us a little bit more detail? Does this have anything to do with the new AESC ownership or maybe just walk us through What's changing to impact costs here? And is this also a drag into your fiscal 2028 procurement and costs as well?

Yeah, great question. This is for the international market. It's not connected to ASE. And we enter into a long-term agreement that is not only a supply but also some technological alignment in how the batteries will work in our modules and how we're going forward. and it's a longer term contract that we believe will put us in a very good position for 27 and 28 going forward. However, we had to take a charge in one project that we had that was being supplied by the same customer that as part of the deal we, you know, as a deal adjusted, we needed to take. So that's what it was. But the NPV of the project is significantly higher than the charge we're taking. So we decided that Better take the charge and move forward. That's what it is. I think that as we have continued to grow, we believe that integrating our technological roadmap with the technological roadmap of our cell suppliers is fundamental for our success in the long term.

Fair enough. Okay. And then maybe just a question on sort of the conversion cycle because you know this is if you look at slide seven obviously a lot of backlog growth the past couple years a lot of pipeline growth especially the past couple quarters so you have a lot of you know top of the funnel momentum heading into into fiscal 28 obviously there's some operational challenges here that that are tripping you up in terms of meeting expectations this year but how should we think about The conversion cycle on these record backlog levels and, you know, kind of the impact of these data center and hyperscaler bookings. Just any sense of how quickly we should start to see these turn into P&L impact and does it, you know, differ from your historical backlog conversion cycles? Thanks, guys.

I mean, as you said, we are just starting with data centers. We have limited proof points of what it is. The proof points we have is that they work at a much faster conversion cycle. We had the deal with the developer. We signed it from lead to contract in less than three months, so tremendously fast. And they will also have a very fast conversion cycle going forward. So we believe those will help accelerate our conversion cycle. Our normal, you know, the other 90% today or our other segments are working on the same conversion cycle of, you know, roughly a year to 18 months that we had at. So, you know, as you know, we recognize revenue, so the revenue recognition occurs in accordance to the milestones of the program. And I would say in a period of 18 months, you recognize the full revenue. Some of it is recognized fairly quickly as we, you know, it's recognized in milestones as we move on the execution of the project. Not like it all happens at the end though.

Okay, appreciate it. I'll pass it on. Thanks guys. Your next question comes from the line of Julian Dumoulin-Smith from Jefferies. Your line is live.

Hey, good morning team. Thank you guys very much. I appreciate it.

Thank you, Julian.

Hey, a couple things real quickly just to rehash. Number one, You made comments about the expedited nature of the BTM, the potential customers here with BTM. Can you elaborate a little bit more about how you're thinking about the potential cadence for incremental bookings from here against some of these arrangements? And also elaborate a little bit on the composition of customers in as much as, obviously last quarter we talked about a couple in particular. BTM could be an array of different kinds of counterparties as well. Can you talk about sort of the nature of these counterparties? And I've got a quick follow-up.

Yeah, so last time we talked mostly about hyperscalers, you know, and now we have the hyperscalers have brought on into, which was our plan, go to hyperscalers because we know that's the door for the developers. And what we have seen with the developers, and there has been the change when you talk to hyperscalers, mostly speed to power, mostly, sorry, quality of power solutions. That's why they look, you know, they'll spend very technical analysis, you know, very deep understanding. When we're talking to the developers, it's mostly speed to power. And what we have seen is that the need, the developers are, I would say, I don't know, but at least what we have seen today, they are in much of a hurry compared to the hyperscalers. So we see that market a lot more active, and we see those activities especially moving from leads to pipelines to pipelines or others more quickly. So that's what we can say as what we have seen up to date. The pipeline today, hyperscalers have the majority, but the developers represent the growing segment that is working right now.

Understood. Excellent.

And then just quickly, I see a comment here about strategic expenses just of late here. How are you thinking about the company strategically if there's anything to flag there? I don't know, on the quarterly expenses. Is there anything we should watch for, for instance?

You know, we're always in the market and we're always looking at it. So, as you know, earlier in the year we look at ASC as an option and there some of the costs are connected to The ASC review and all the analysis we have to do for the ASC review. So there's nothing to announce.

Got it. But still looking at alternatives on that front?

Well, you know... We are spending a lot of time looking at talking to all the battery capacity in the market and talking to them. Nothing really to talk about at this stage, but that's where we're spending our time as we see an opportunity to work more closely with the battery manufacturers in the U.S. Got it.

Excellent. Well, thank you very much.

Thank you, Julian. Nice talking to you.

Next question comes from the line of Dylan Nassano from Wolf Research. Your line is live.

Yeah, hi, good morning. Hey, Dylan, how are you? Doing well. I just wanted to check, so in terms of the scope of the delays that you guys are seeing from the manufacturing facilities, to what extent, if any, are those impacting the hyperscaler MSAs and these orders that you guys are talking about here?

Yeah, no, no, not at all. These are issues of contracts that we have today and that, you know, that are, that we signed a year, a year ago and a half ago and they have nothing. They are normal contracts, not normal contracts. They are normal, are typical segments, so no affection to no, in no way affecting the MSAs of the contracts we're signing with data centers.

Got it. Okay, thanks. And then, I mean, maybe it would just be helpful if you could just level set us again on The number of MSAs, I believe it was two last quarter. And how many hyperscalers exactly does that include? And can you just clarify? So you have the $300 million first order and then the $550 million awarded. Are those from the same hyperscaler or is that two different hyperscalers? Thanks.

So we have two MSAs with two hyperscalers. As we have engaged in working with hyperscalers, they have referred us to developers that work for them. And we are now, as I said, our pipeline and our work, we're spending a lot of time with developers as they continue to work with hyperscalers, no doubt, but as they have a pipeline that requires very great response time. In terms of the contract we signed, we signed the $300 million contract with a developer. that was referred by one of the hyperscalers we have an MSA with. So this was a contract of a developer building a data center for one of the hyperscalers that we'll be providing our equipment to. Then we have one of the hyperscalers that was attended. We got awarded the $550 million. So we're in the process now of finalizing all the final technical points to be able to convert this into a backlog and we should convert into backlog in the coming months.

Got it. Very helpful. Thank you.

But we continue to work to engage with more hyperscalers and we have seen, you know, both hyperscalers we're working on. We're working on several projects both in the U.S. and internationally that we will provide, you know, that we will want to bid on and we would like to

to serve them with our products. Your next question comes from the line of Vikram Bagri from Citi. Your line is live. Hi, Vikram. Good morning.

Good morning, everyone. I wanted to ask about the margins first. One of your larger peers indicated margin pressures in storage. I was wondering how you feel about the 10 to 15 percent margin guidance you have, you know, backlog converting 2.2 billion next year, 2.8 after that. So, you know, pretty long-dated backlog at this point. Are there any variance in margins when you look at the backlog in the near term, medium term, and long term? Are you witnessing the same pressures your peer talked about?

The reality is that we are still very comfortably within the 10 to 15 range. Even when you looked at our results this year, If you take out some of the one-time softs that we have during the year, we will have been around the 12% that we added the market towards. So we're confident. We don't see in our backlog or in the new orders, they are only in line with the 10 to 15. We do not understand the pressure that the other big suppliers announced that they were coming out with this. We don't really understand. There might be something in their cost structure that is different. You know, as we move forward, our big issue is scaling this company. That's the issue. That's kind of the pains we're having going through are connected to scale. And scale drives competitiveness. Probably in the case of our competitors that some of them have already reached a scale, they're finding some other issues that, you know, for us, they're not visible.

Got it. and you talked about brilliant scale and my next question is you know loosely tied to that We'll be talking about guidance for next fiscal year on the next call. I was wondering what is the mechanism, how you're thinking about setting the guidance? You have $2.2 billion of backlog for fiscal 27. Is 85% coverage the right way to think about it, or it should be connected to the capacity that's coming online, how much you can bring online, the capacity from supplier perspective, and or the 85% coverage should be higher Relative to that, very encouraging to see the executive management changes to improve execution. I was wondering what specific changes Roman and Peter will make in the next 12 months. You're dealing with contract manufacturers, so you have relatively less control over their operations. So what sort of changes the new team will make to ensure on-time deliveries? Thank you.

Let me start with your second question. So I am bringing Roman to lead our manufacturing and supply chain due to his deep transformation. You know, he's been working on supply chain and manufacturing, but he's very experienced in transformation. One of the things you realize as you scale a company, and we move to a very different scale, is that you need a transformation, that your systems and your process need to transform to a new scale. So that's what he's working on. We have very good suppliers. We have great manufacturing partners. So it's not a strategic change. It's an execution. That's what he will concentrate on on delivery. Peter has been leading the development of SmartStack. So I think that he will continue ensuring that continue developing SmartStack. And for 2027 and forward, the main point is continuing the integration of our software and our hardware in a way that we can provide and much more stringent customers than what we had historically. So that's what these two groups are going to do. Transformation of our manufacturing, which is not changing suppliers or anything. It's just ensuring our processes, our systems, our planning is aligned with our bigger scale and continue on developing SmartStack at our platform and continue strengthening the connection between one and the other. Very happy. And your first question was on the coverage. I still believe that 80% to 90% is the right one, the 85%. So that's our view. We clearly, clearly, and this is a learning, new facilities, you know, even though we put in a plan, we put a hedge and a contingency, and, you know, we are, what happened is that we had a hedge. We went over the hedge and we had the contingency. We went over the contingency. and that is when the problem becomes a problem. So to the extent that we have new facilities coming up, we will probably hedge them for next year. Having said that, we do not expect any non-closure facilities, we will not expect any major new manufacturing capacity that will support our revenue in 2027. So I feel confident that 80 to 90% coverage will be the right coverage in 2027, but we will look at it clearly.

Thank you.

The next question comes from the line of Justin Clare from Roth Capital. Your line is live.

Good morning.

Good morning.

Good morning. Thanks for the time here. So just wanted to ask about the guidance here. So based on the revised revenue and adjusted EBITDA guide, it looks like the fiscal Q4 gross margin could be roughly 12% around that range. Just wondering if you could clarify what's embedded in the assumption for the gross margin in Q4. And then are there any costs associated with the new products or the production delays from fiscal Q3 expected to extend into fiscal Q4?

Sure. Hi, Justin. This is Ahmed. So I think the implied gross margin, we are looking at roughly 11% for Q4 based on the guidance we discussed. It's a little less at the midpoint if you're looking at midpoint to midpoint. And yes, we have considered additional costs that we may incur based on the outlook we see today. There are many puts and takes, but I think net-net we feel pretty good that after taking those additional costs for delays, the guidance we gave, we should land at the guidance that we gave based on the outlook that we see today.

Okay, that's helpful.

And then just on the supply chain here, I was wondering if you could discuss the potential impact of the FCC's restrictions on inverters here. I know you have access to a US-based inverter supplier. Wondering if you have any exposure to sourcing inverters from China. And then just curious if compliant domestic sourcing of inverters could be a competitive advantage here as your customers reassess exposure to imported inverters.

We only work with non-Chinese inverters in the U.S. Mostly U.S. made. Some of them imported out of Europe. We feel that we will not be affected in any way that has been our policy since then. We do see that those restrictions on inverters will also increase in Europe. That will happen also, and we expect, and we are working towards continuing, you know, in Europe we work with a mix of Chinese and non-Chinese, but we're working towards getting ready for a fully European solution for the European market. We see the market, our view from day one when we started, that there will be more technological restrictions on this technology as it continues to grow and plays a more important role in the grid.

Okay, thank you. Okay, thanks very much. Your next question comes from the line of Christine Cho from Barclays. Your line is now live. Hey, Christine, good morning. Good morning, Christine.

Okay, so I wanted to start with the order intake of $1.44 billion this quarter. So $300 million of that was for the Behind the Meter project and the rest The $1.1 billion was your typical front-of-the-meter projects. For the $1.1 billion, how should we think about the split of that between U.S. and international? And then with the $850 million award with the data centers collectively, do those include EPC? And is there any difference between the developer versus hyperscaler? And should we assume that both of these projects have a duration of two hours?

Yes, on the data centers, they have a duration of two hours that generally we do not offer, and they're really not really offered at less than two hours in the market, so all the markets are at two hours. No real difference on what the technical requirements and the margins are generally very much aligned. As I said, the developers, which are usually smaller companies, more agile, and more, you know, and who can make decisions a lot faster, the conversion rate is significantly faster. So I will say that that's our current view. This is, as you know, an emerging segment. So, you know, some of the things we're learning as we move forward. But, you know, going very happy with it. In terms of the 1.1 of the non-data center, roughly the U.S. continues to be where we're making the most traction. and I will say, you know, numbers around 60-40, you know, 60% the U.S. and 40% the international markets. You know, one doesn't mean that that's what this is going to be. It was a quarter where it was a lot of activity in the U.S. and, you know, limited activity in the international markets.

Okay. And then just a housekeeping item, the 10-Q indicates that there were some AIPA refunds. Did any of that show up in COGS, or was it applied to inventory?

Yeah, I think that was the point I was saying, the poor syntax. There is some IPA refund we have. I think it's a little over $10 million, yes, that we have recognized year-to-date.

And you'll expect to recognize some more in 4Q?

Some, yes. Over time, you know, because it goes into, part of it is recognized, part of it goes into inventory, and I think the inventory converts into revenue that you recognize it over time, so.

Okay.

Your next question comes from the line of Chris Dandrinos from RBC Capital Markets. Your line is live. Hey, great.

Yeah, thank you. Good morning. Hey, good morning. You know, I guess, I hate to belabor the point here just a little bit more following up on Rob's question around the guidance here. But if I look at the outlook for the remainder of the year, pretty wide range just given the amount of time left in the year. And so what is driving that guidance range? And I guess I'm asking just trying to get a sense for how confident you are in the execution path here going forward.

Yeah, no, that's a fair question. I don't think you need to read too much into it. Frankly, I think based on the execution, we have still some work to do on execution. So we thought it is prudent to give you a guidance in case there are any incremental costs we may have to incur as we ramp up our operations. So that is what is really driving that wider gap versus the revenue guidance we gave. So EBITDA guidance is important. Your final question comes from the line of Amit Thakkar from BMO Capital Markets. Your line is live.

Hi, thanks for bringing me in. Hey, good morning. Thanks for the time. Thank you for bringing me in. Maybe just following up on Chris's question, maybe in a little bit different way. If I think about the midpoint of your guidance now for fiscal year 2026, I think it implies like $1.4 billion of revenue for 4Q. You know, if I look at kind of where the revenue recognition and kind of implied ASPs are, it's kind of like, let's just say kind of 235. I think it implies like 6,000 megawatts or revenue recognition megawatts. Are you guys anticipating like a large portion of what you'll recognize in 4Q to have kind of EPC? You know, I know some of the European contracts you have in the past have had, you know, pretty attractive kind of implied ASPs because you were doing EPC work. Is that the case for 4Q? And I've got one more quick follow-up.

No, I don't think most of that is in the U.S. And that's mostly the deliveries that we have under our domestic content.

I would say, you know, for the quarter, for this quarter, we already have produced and have fully integrated roughly half of what we need to do for the quarter. So we are confident that we will get to the numbers. Clearly, as I said, we're ramping up Houston and that, we believe we have it under control, but like any ramp ups there's always reason we cannot envision today and that's why you know the wider range but nothing in line with what we can do you know we already did have already they already have our in boats going to where they need to be or or be or in trucks going to where they need to be so we feel you know that the guidance it's uh still good understood um and then

If you could kind of help us, it looks like your cumulative deployed megawatts were unchanged versus the prior quarter and I think they're only up like I think 8 or 9% from the beginning of the year or for the end of the last year. I mean I think cumulative deployed megawatts and it's like 7.4 gigawatts I think at the end of the year with 6.8 but like the revenue is obviously from a percentage basis a little bit better. Can you just help us kind of understand when all of those megawatts get deployed.

Thanks. Our definition of deployed megawatts in our metrics is projects that have reached substantial completion. Our revenue recognition happens significantly earlier when most of our revenue, when we deliver the equipment to site and transfer title. So that's where you see the disconnect. So, you know, We use, our definition of delivery is actual substantial completion, while our revenue recognition is on transfer of title, which occurred, you know, a quarter, a quarter off. So, you know, these all convert into actual, what we call, delivered products later on. I know it creates a confusion because our competitors use delivered as, you know, actual delivering to site rather than substantial completion. We probably need to amend our definition to align it more. with the revenue recognition definition.

Which is percentage of completion.

Yeah.

Got it. So that's the disconnect, Ahmed.

Okay.

Well, thank you, everybody, for joining.

And again, you know, really, you know, we want to, we are sorry that we were late, you know, that we had to be late. We had technical issues. It's really an inconvenience. and not for all of you and we'll assure you that it won't happen again. Thank you so much for your time and your questions.

This concludes today's meeting. You may now disconnect.