Fluence Energy, Inc. Price & Performance (FLNC)

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 spend a warm welcome to our investor I will review our Q1 results briefly.

And then provide an update on our business and financial outlook. Amir will then go into more detail on our financial results. Beginning on Slide four, we continue to see a very strong battery storage market. With The U. S. As the cornerstone.

We have carved out a solid competitive advantage with our domestic content offering where we continue to see strong interest from customers. This has been a key driver of the growth of our backlog which is now at a record $5,100,000,000 Our diversified our diversified supply chains, particularly our U. S. Domestic content strategy, allows us to mitigate the potential impacts of current geopolitical geopolitical uncertainty that we expect will continue for the foreseeable Looking at our first quarter performance. First, we generated $187,000,000 of revenue. With a 12.5% adjusted gross margins. Revenue was significantly lower than fiscal Q1 to 2024 and resulting from our fiscal twenty twenty five back end weighted plan as discussed in our prior earnings call. Second, we continue to add to our backlog with another strong quarter of more than $770,000,000 in order intake. This propelled our backlog to a record $5,100,000,000 providing a high degree of visibility to future revenue growth. Third, our annual recurring revenue or ARR was $106,000,000 which is an increase of $6,000,000 from the previous quarter. We're on track to achieve our $145,000,000 ARR target by the end of the fiscal year. Finally, we ended the quarter with more than $650,000,000 of total cash.

Which puts us in a strong position to continue investing in our products and delivering value to our cost Turning to Slide five. We are providing an update to our fiscal year 2025 guidance. We now expect revenue between 3,100,000,000.0 and $3,700,000,000 with a midpoint of 3.4 This is a $600,000,000 reduction from the midpoint of our prior guidance. Which is due mostly to delays in the expected signing of contracts for three projects in Australia. The delays were project specific. One was delayed for permitting issues related to traffic control, and other due to recent delays in the corresponding customer of take agreement and the third project is located at a brownfield site where it took longer to prepare the site. [indiscernible] All these contracts delays were unique rather than systemic. And do not represent a cool down of the [indiscernible] The issues affecting these three projects are now resolved or are close to resolution. We expect to sign all three contracts later this year. With revenue to be recognized in fiscal twenty twenty six. The midpoint of our revised revenue guidance is approximately 85% covered by contracts in our backlog and revenue recognized today. This coverage ratio exceeds the coverage ratio we had at this point in fiscal 'twenty four and fiscal 'twenty three.

The new guidance midpoint abate [indiscernible] still represents approximately 26% growth from fiscal twenty four. Turning to Slide six, The strong demand for battery energy storage in our markets continue to attract especially from Chinese players trying to preempt trade restrictions and compensate for underperformance in the Chinese market.

Recently, we have seen Chinese players intensify the competitive position in international markets. Exerting significant pressure on pricing to win contracts. We believe this competitive environment will continue And as I will discuss later, we are making direct to compete successfully. However, as Samuel will address shortly, this competitive environment is putting pressure on our fiscal twenty twenty five margins.

We recognize that the key to our success in the face of this increased competition is our ability to continuously innovate our technology. Which should lead to superior performance competitive pricing, a more reliable supply chain and better security of our products. Putting the customers at the center of our efforts and ensuring we are the best technology partner to support their project objectives has been the foundation of our success to date and supports our continued leadership position in the market. In response to the increased competition from Chinese players, we have accelerated our product development program. To that end, I would like to highlight a new product this Thursday, February 13. We expect to see the benefit. Of this new platform beginning in fiscal twenty twenty six. This platform will put us in a industry leading position in terms of the exit. Something our customers are increasingly requesting. To reduce their footprint and costs. The design will be an AC block incorporating the inverter, another balance of plant equipment within the enclosure. The new platform also offers a lower cost point arising from its higher density modular design, faster installation, and reduced operating costs. This will provide our customers with a significant reduction in their required investments and their total cost of of ownership over the life of the project.

The new design in conjunction with our digital capabilities and services offering, will allow us to offer our customers 99% availability. Which represents industry leading performance. We can achieve this performance with a seamless integration of our hardware, [indiscernible] digital tools, and service offering. The platform will also offer industry leading safe safety features, similar to the elements found in appropriate tube and Grisak Pro product lines. Which includes our Beyond Burn Certification, but now at a much higher density. This new platform will integrate our most recent development in cybersecurity, which will provide the confidence that our customers, regulators and communities require to ensure the security of their power grids. This new platform will also enable faster realization of project investments as we continue to reduce our integration cycle tax. Which we aim to reduce to twelve month from eighteen months historically. All these factors are critical to enable our customers to achieve the lower total cost of ownership. Across the project life, leading to a higher return on their investments. This new platform will be the most substantial generational change for Fluence since the introduction. Of the Gen six Q. Because of the significant benefits to customers, the particularly the lower total cost of ownership and improved performance, we plan to price the product competitively.

While securing gross margins within a range of 10% to 15%. This new platform also provides a foundation to continue product development that will allow us to accelerate our innovation road going forward. We believe the speed of our innovation is key to our success. Turning to Slide seven. I'm pleased to report our backlog as of December 31 was $5,100,000,000 an increase volume of 18.5 gigawatt hours. This is the highest level in our history. Representing a year over year increase of 38% in value and more than double in terms of volume. This growth reflects the strongest which supports our continuous growth in terms of both revenue and volume despite declining prices. Our backlog provides us with strong visibility to future revenue and positions us well to continue growth in our recurring services. And digital businesses. Turning to Slide eight. The size of our pipeline continues to reflect the strong growth [indiscernible] As a reminder, our pipeline reflects a rolling twenty four month view thus giving us confidence in our ability to continue our growth trajectory. Since the end of the previous quarter, we have increased our pipeline by $500,000,000 to $21,400,000,000 This is particularly impressive considering that during the first quarter, we converted more than $700,000,000 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 which will further diversify our geographic mix in the coming years. Nearly half of our $21,400,000,000 pipeline is in The U. S. Market. And the rest in the international markets. With Germany, Australia, Canada and Chile. Representing the bulk of it. Turning to Slide nine. I would like to provide an update on The U. S. NE storage market, where growth continues to surpass expectations. First, we expect power demand to increase to more than 5,000 terawatt hours by 02/1930. Which represents a 2.4% CAGR from 2022 to 02/1930.

This anticipated robust growth is driven by data center growth, domestic manufacturing, and sector wide electrification. Second, battery storage is becoming more mainstream. In The Americas. Battery storage installation increased 83% year over year to more than 45 gigawatt [indiscernible] In 2024. This robust growth is reflected in the interconnection queues for major U. S. Markets. Across the entire U. S. Interconnection queue, Battery storage is second only to solar. In gigawatts of interconnection request. For example, in ERCOT, battery storage represents 43% of the outstanding grid connection applications. And in Caeso, Bate Restaurants represents an even larger contribution at 68%. Turning to Slide 10. And continue with our discussion of The U. S. Market. I'd like to review some of the recent policy announcements at headlines since our last call. Starting with trade related headlines. Our U. S. Domestic content strategy and our proactive initiatives especially with respect to supply chain, puts us in an excellent position to successfully weather the changing U. S. Trade policy. We view tariffs in two buckets, announced and potential tariff. The first bucket is a universal tariff that already has been announced on China. Because of our business strategy, that I just outlined, less than 15% of our backlog is exposed to this time.

We estimate that for our fiscal twenty twenty five, the impact of the recently announced 10% tariffs on Chinese imports is approximately $10,000,000 of gross profit. Which is reflected in our updated guidance. The second bucket is potential product specific tariff that have not been announced. We view the announced and potential tariff on China and specifically on Chinese battery storage systems as a net positive, as they will enhance the competitiveness of our U. S. Domestic offer. Next moving to potential changes to the inflect reduction or IRA. Regarding the Section 48 ITC that our customers claim, we believe there is sufficient by parties and consensus in keeping the standalone ITC for storage as it supports much needed energy security, and reliability. Additionally, looking at Section 45X, we also note that there is sufficient bipartisan consensus for maintaining these tax credits as it supports domestic manufacturing. Something that Trump administration has been very vocal about. As we noted previously, more of our U. S. Supply chain is in red states, and currently provides thousands of jobs. Finally, on the advocacy front, we're being very proactive with the Trump administration promoting awareness of the importance of cybersecurity for critical grid infrastructure.

And thus advocating for a ban on foreign control for battery storage. The security of power grids is of paramount importance and regulations should ensure they are not software designs or controls by foreign entities that will provide them the ability to disrupt power grids. This is especially important for battery storage systems given their increasing role in U. S. Power grids. Fluence is proud to build its own control systems for battery storage in The U. S. Battery storage represents the fastest and most economical way to provide the much needed capacity and resiliency that The U. S. [indiscernible] to support the AI industry. The U. S. Reindustrialization, and general economic growth. Turning to Slide 11, our strategy of developing a U. S. Supply chain is something we've begun working on even before the IRA was passed in 2022. As a result, we can now offer a product that is 100% Non Chinese. This is something the market has taken note of. As we have doubled our number of U. S. Customers over the past year. Our ability to mix and match various components of the battery storage system to enable our products to meet the required thresholds for domestic content it's something unique to Fluids.

And enables us to stretch our U. S. Sales supply beyond its nameplate plant capacity. As a result, we have the ability to meet all our expected U. S. Domestic content demand in 2025. And 2026. Regarding our domestic manufacturing efforts, we continue to make good progress with our U. S. Cell manufacturing efforts.

At the ASC Tennessee facility. Line one is in process of ramping up production and Line two should come online sometime during the summer of twenty twenty six. This concludes my prepared remarks. I will now turn the call Thank you, Julian, and good morning, everyone. Today, I will review our first quarter financial results and then discuss our updated outlook and liquidity for fiscal twenty twenty we generated $187,000,000 of revenue, which was a decrease of 49% from the same quarter last year. The decrease was largely anticipated and reflects the back end weighted nature of our expected full year revenue which we noted on our last call. We generated $23,000,000 of gross profit representing gross profit margin of approximately 12.5%. This was our sixth consecutive quarter of double digit gross profit margins. We reported negative $50,000,000 of adjusted EBITDA mainly due to the fact that our operating expenses are more evenly distributed across the year than our revenue. Turning to Slide 14 and our guidance for 2025. Which is due mostly to the timing of three specific projects in Australia that have been delayed but not lost. We had been expecting to sign these contracts in January, such that we would recognize the associated revenue over the following nine months.

However, over the past month, it became clear that the signing would be delayed until later in the year. Which does not allow us enough in the fiscal twenty twenty five. We expect to recognize revenue from these contracts in fiscal twenty twenty six. I would like to emphasize that the midpoint of our revised revenue guidance represents backlog coverage of approximately 85%, although it is disappointed to us to reduce guidance. The revised midpoint of $3,400,000,000 still reflects 26% year over year growth from fiscal twenty twenty four. From a revenue timing perspective, we now expect our fiscal and 85% in the second half. The shift primarily reflects timing of signing some of the projects. In terms of annual recurring revenue, from our services and digital businesses, we continue to see traction in our recurring revenue platform and still expect expect to end the fiscal year with $145,000,000 of ARR. Regarding gross margin, we have narrowed our expectations for gross margin to 10% to 12% percent to 15% due to the factors I will discuss shortly. When looking at our fiscal twenty twenty six outlook, we expect revenue growth of 30% plus in the fiscal twenty twenty six starting from our updated fiscal 'twenty five guidance midpoint.

Turning to Slide 15, and looking at fiscal twenty twenty five's adjusted EBITDA, we have lowered the midpoint of our guidance by $95,000,000 to $85,000,000 This change reflects a $125,000,000 reduction in gross margin partially offset by cost cutting initiatives. More specifically, the $600,000,000 reduction to our revenue guidance at the midpoint attributable to the delay in signing the contracts has an impact on adjusted EBITDA of approximately $75,000,000 based on our previously assumed 12.5% gross margin. In addition, there is an impact of 50,000,000 from competitive pressures and the recently announced tariff on Chinese imports that resulted in a lower gross margin of 11%. To mitigate the impact of EBITDA of lower gross margin, we we are implementing a targeted action plan to reduce our costs that will better align our resources to deliver long term sustainable growth. We expect these actions to generate $30,000,000 of offsets. Which takes us to the new revised adjusted EBITDA guidance midpoint of $85,000,000 Turning to Slide 16, I will now discuss our liquidity, which continues to be strong. Ended the quarter with $654,000,000 of total cash. Which represents a 37% increase from the same quarter last year. Additionally, we have $458,000,000 available under our revolver and supply chain facilities which puts our total liquidity at more than $1,100,000,000 This reflects the benefits of $400,000,000 of convertible notes issued in December, which results in a fully funded plan for 2025.

During the first quarter, we used more than $200,000,000 of cash. For our operating activities. Which was partially driven by the purchase of inventory to fulfill near term contracts This use of working capital represents the substantial majority of the expected working capital needs for this year. In summary, We have strong liquidity that positions us well to capitalize on significant growth in the energy storage market. With that, let me turn the call back to Julian for his closing remarks. Thank you, Ahmed. Turning to Slide 17. Would like to emphasize the key takeaway from this quarter's results. First, we're adjusting fiscal year 2025 guidance. Primarily to reflect delays in signing a specific contract and secondly, due to some competitive pressures. The strong backlog covers of our revised guidance significantly the risk are year to go out. Second, the battery storage market remains robust. Driven by rising demand and highlighted by The U. S. Market. Where we have a competitive advantage with domestic content. Sir, our U. S. Supply chain puts us in an excellent position to mitigate the geopolitical volatility we're experiencing. And foresee for the near future. And fourth, our strategy of rapid innovation, more specifically, our new product platform provides the technology foundation to sustain our leadership position in the competitive environment we are experiencing.

In summary, even with the disappointing guidance we set today, we have confidence in the strength of our business model to guide us to success in this market. We remain dedicated to delivering the profit return our shareholders are seeking. True. One, our strategy of profitable growth that provides robust top line growth with double digit margins. Two, a successful operating track record. That provides confidence in our ability to realize the margins in our backlog. Three, scalable operating leverage implying strong growth of adjusted EBIT on top of our top line growth. [indiscernible] To ensure our offering is competitive and more important, that customers are well served and enjoy a secure route to value for their investment. And fifth, and finally, a capital light approach that on top of the agility to adapt to a changing environment, allows for robust profitability metrics. With that, I would like to open up the call for questions.

Thank you. At this time, we'll conduct a question and answer session. And our first question comes from the line of George Generacos of Canaccord Genuity. Your line is now open. Good morning, Josh. Good morning. Good morning. Thank you for taking my questions. Maybe first just to focus on The 2026 revenue guidance that you pointed to in your deck. You mentioned that you'd expect 30% -plus growth there.

Which is the same as last quarter despite the fact that you had some free push outs. This year in Australia, do you does that mean that you've maybe lost some business or do you just decide not to update that for other reasons? Thank you.

Thanks, George. We've taken a conservative view of our twenty six of twenty six and what we have today the way we present this kind of a floor. Where we see we can do 30% on top of our guidance. And our idea is that as we move forward during the year, we will be able to give you more clarity on these numbers and firm them [indiscernible] No. So today our best view is a 30 plus [indiscernible] on top of the midpoint for 2025% and I will provide more a better view for for $2,026,000,000 euros as we move along. Today, we have like EUR 1,200,000,000.0 backlog for 2026 and we need to bring some additional backlog in order to firm that number up. And we hope to forward. But we have taken after what happened now, we have taken a more conservative view of 26% than what we have done. Thank you. And maybe as a follow-up, just a different topic. You have any comments on on Moss Landing and some of the recent events there. Help us kind of work through that? Thank you.

Yes. Most likely, we have no information except for what we got from the press. So we have not been too outside since 2022.

We have no contract with outside. We have no service agreement with outside. So I don't think there's any liability coming out of that event. As I said, we but with lows, what the same thing you brought on the in the media and in the general media. So We cannot comment more than that.

Thank you. One moment for our next question. And our next question comes from the line of Brian Lee of Goldman Sachs.

Your line is now open.

Good morning, Brian.

Hey, everyone. Thanks for taking the questions. I'm sure you're going to get a lot of them, but I wanted to focus on the margins for a little bit. So maybe to start off, can you talk about sort of What margins you're seeing on new bookings this quarter as well as these [indiscernible] is that all going to be at the lower end of that 10% to 15% range you've targeted overall? Or are you going to be able to Start seeing some margin expansion based off the new product and redesign. I'm just trying to understand like how structural and how set are these margins at the lower end of the range for a while? And then is it something you you recover in 2026 or does it take longer than that? Very good question. Two points I think that are important. The soft out first 2026, We believe that our new product design and our strategy for 2026 will bring us back to our range. So, Gopurof, in the middle of that range, but this will hopefully better than that. But that's our view. Today. When we looked at the product, what it can do. So we see this margin reduction as as a temporary situation.

What do we have for the year? When we looked at our two things that driving this margin point: one, a change of mix. The mix of projects change due to the delays in the Australia project. And second, the new our current view of the recent backlog and the backlog that we will be that we will need to enter into to support 2625 revenue is that they will come in high single digits. Let's do the less simple math. When you do the simple math of what we had in our backlog, the 12.5 the high single digits, it comes around this 10% to 11%. 12% that we're We think this is temporary. This is something that we are addressing It comes out of competitive pressure. We're still we're not that far but we clearly need to put we are putting up a plan to get to where we need to be. And that's conception. This is a temporary situation that we will address in the with our investments in technology essentially.

Okay, fair enough. And then just follow-up from me would be, I mean presumably this competitive pressure you called out Chinese peers is more acute in international markets in The U. S. I know, Huynh, you spent a lot of time on the call talking about how the advantages that are starting to come your way in terms of U. S. So is this a large function of incremental bookings coming from the international part of your pipeline? And on The U. S. Side, are you seeing the same type of pressures or are you actually seeing any kind of margin upside because of your kind of domestic advantages? Have you started to see any of those benefits accrue to your margins and pricing? Love to maybe just dissect the difference between U. S. And international sort of margin outlook?

So on The U. S. Side first, we see a very strong position. The problem the problem in The U. S, the issue in The U. S. Are tariff. As we said, we mentioned that $10,000,000 hit on margins on U. S. Contracts that we expect in '20 contracts we're going to be realized in 2025. That's where we see that a lower point. The competition is mostly in international markets. Markets, mostly that's significantly more strong in international markets. And that's where we have seen our margins compress. We have seen competition all around, but the compression of margin comes mostly from international markets. However, as I said, just repeating my point, The U. S. Have seen the $10,000,000 in tariff, which is a margin the reduction happens in the Most of our U. S. Or essentially all of our U. S. Domestic content is in For $25,000,000 has already been contracted. So generally, we don't see that this there will be any ability that we will lose some of that.

Thank you. One moment for our next question. Our next question comes from the line of Dylan Ossano of Wolfe Research. Your line is now open.

Hey, good evening. How are you? Good. How are you?

We'll be better. Let me put it that way.

Yes, understandable. Can you just talk to your confidence level that these Australian contracts kind of come back and get signed by the end of the year.

And then if they do, Is there Is there any chance that any of that would be realized in 2025 at the time that you booked them? And then I guess just taking a step back, can you just talk about what kind of gave you the confidence initially to include them in the guidance? And what kind of change relative to your assumptions?

This is a very, very good point.

These delays were caused. We talked about the projects in. By minor issues. That my being very, very transparent here, my team did not see on time.

By the time we saw the delayed, we realized these projects have all the major permits that should be ready. We are very much you know, very advanced. It's things that we had already we believe we had on their in our pocket However, these minor issues delayed the projects in a way. And that's what it is. So we are very confident least two of them are essentially fully the risk and should be signed We signed signed and they should not be and we should be able to Is there a probability that it might be revenue in €26,000,000 there is, but is today not, I don't feel confident enough to bring it into the forecast. So decided to take them out of the forecast for this year because clearly and one point that some of you had asked me, I mean, it has interconnection. None of these things is interconnect. These guys are fully inter you have all the permit. The issue has been minor issues, traffic, a road passing through a town that and the that did not get the permits until recently. Small issue with the off takers that delayed the project and some issues with preparing a site that were that I will say my teams have picked up especially because these were big contracts.

We see these things small contracts here and there and they're usually delays that do not affect our ability to meet our forecast. However, when we have minor issues on three big contracts with Israel 2025, So that's what it. So we feel very confident they will come in. And our current view is that there will be 26 revenue. There's now probability that you may get some $25 order today took it out of the forecast and decided to become try and continue on this [indiscernible] Okay. Thank you. It's very helpful. And then just as a quick follow-up, so this slide on the tariff exposure is helpful, but I guess the one thing that's kind of missing in that discussion is the Section three zero one tariffs that hit in 2026. Readdress your exposure to that 25% tariff that hits next year and kind of how you're mitigating that?

We have that. That we have included in our forecast It should not affect the numbers. So I mean, it affects our cost structure and stuff that we need to do, but it will not affect our ability to meet our forecast. It's already put in place.

Great.

Thank you. [indiscernible] Thank you. One moment for our next question.

Maybe a point on tariff, I can add one thing that sorry, Dylan. It's the following. The problem with tariff comps are announced with time, we have all the tools to manage them. Them because this domestic content gives us variability. And we have all the tools to manage it very effectively like the 301s. Don't get any. The problems are these surprising stuff. That comes out of nowhere that people were not expecting that that are more difficult and it takes us a little longer to adapt to. So we I think that at some point we'll get to a normal cadence with the Trump administration and things will be announced with time and we will be able to manage it because our domestic content strategy it is designed for a world of protectionists. That's what it's designed for. And it should be do very, very well. So just to give you a sense of why the 301s we treated them very, very differently. Than what we treat how we treat the tariff on on the 10% China tariff, which came out Solidly.

Our next question comes from the line of Christine Cho of Barclays. Your line is now open. Hi. This is Tom on for Christine.

Good morning. How are you?

Good morning. So you guys had a very large deferred revenue number of over $300,000,000 run through your cash flow statement.

So the magnitude was much larger than what we've seen in the past Could you talk about what drove that this quarter and if there's anything notable about when we should see that reverse and book this revenue?

I'll give Amit. This is Amit. I think this we will expect that to be reversed within next quarter or so. So this is more just the accounting, but I think we expect that to be rolled over over the next three months.

Okay, great. Thank you. That's helpful. And then I guess just one follow-up for me. Could you talk about what measures measures you're taking on the graphite supply and procurement front given the AD CVV [indiscernible] I don't think they can be retroactive by the way. They can be retroactive, okay, but So where are we doing on this one? First thing, I think is the first point. We are in order to prepare for a potential duties we are trying to accelerate some graphite into a country clearly for retroactive duties that will not apply. So but if they were we should reduce our problem since we're two zero four. How to think about this? Generally, target sales are roughly 30% of our project. Graphite is 10% to 15%. So roughly a project in a total project cost, 5% is graphite.

The way we understand the petition is claim is that they are asking for an application of duties on graphite imports and on all batteries that include and other elements that include graphite, So what it will mean is that this will create a level playing field. For both domestic content and for imported batteries. So it will not be that domestic offerings will be more expensive than important. If they were successful in their claim, that's what it will mean. The whole market will go up in price and we do all feel the same. Some graphite imports. But at the end of the day, I will say that if it is they can go back, I don't know how far back they can go, it will probably that will not be two patients. So that's what we're doing. We believe that this will create disruptions. It will create a problem, no doubt. But it will create a problem for the whole industry. And it should not make domestic content by itself. More less competitive. Main objective of this graphite potential or graphite manufacturers to develop battery industry in The U. S. Where they can deliver their products. So if if they destroy domestic production, they will not be able to they will not meet their objective.

So I think at the end of the day, we should be able to adapt to this. However, if we come to say that if there is a retroactive tariff, it will be create some disruptions that we will let you know when it comes. I mean, if you go today, to see what it is.

Thank you. One moment for our next question. Our next question comes from the line of Andrew Percoco of Morgan Stanley. Your line is now open.

Good morning, guys. Thanks for taking the question. Good morning. I just wanted to come back to a question on margins.

I think loud and clear that margin compression and pricing compression really originating in some of these international markets. But just kind of wanted to put a finer point on you're seeing from domestic customers, you've talked a lot about strong domestic content demand. Can you confirm whether or not that's translating into maybe premium pricing and higher margins on those contracts today?

I mean, our margins are within a range of 10% to 15. We have not been able to go beyond that up to now. We have seen in The U. S. Is that a lot of these players are are trying to sell into The U. S. Ahead of this roof coming out and trying to, I don't know, So there's a little bit of noise about that. Generally, the customers were working, which our customer who are betting on domestic content that's not something that really affects them. But we have seen the Chinese players trying to become more active. Especially on projects that are delivered in 'twenty, during 'twenty five. To try to build the wind space in The U. S. Trying to preempt trade restrictions.

So Got it.

My main point is that I don't think that is affecting our our domestic content margins and our domestic content margins are in the 10% to 15 Today, we haven't seen premiums that will take us out of that range.

Understood. Okay. That makes sense. Maybe shifting gears to the cost side of the equation for a second. As you've ramped your facility in Utah, can you just discuss how is the cost trajectory played out maybe relative to your expectation Is everything going as planned or you maybe a little bit higher in the cost cost per kilowatt hour than maybe expected? Just maybe give a general outlook of cost trajectory from that facility?

That's a very good question. I'm very pleasantly surprised. Not surprised, maybe that's not. I'm very pleased with how that facility is going. And it makes the point that I don't know I don't I'm not originally born in The U. S. The U. S. Can compete by manufacturers stuff, come on. Let's get out of this idea that the only the Chinese can do it. This is a facility with machines made in Indiana. Indiana, and that is run by Americans. And it works very, very well. I mean, you go to a facility in China, you go to this our facility is better. There's no reason why we need to think we lost the virus of production. I know that it's difficult, but your financial market, you're not into it, but when I talk to people, I don't know why. I mean, this is a battle we can win.

And we're not even experts on this. We've been able to put in this facility very quickly and doing very, very well. I really think that hopefully I hope that we all get that confidence, not you, but the entrepreneurial world in The U. S. Gets the confidence that we can build stuff in The U. S. At competitive prices. There's no reason why we need to think that the Chinese are any better than us doing any of this stuff. So, hey, but very, very good. It's doing very, very well. I'm very, very happy and I I do hope that when things get better, we'll invite you over, you can see it. And see it for yourself.

How great these machines. These machines were not imported. They were made in India. Thanks so much. Thank you, Andrew.

Thank you. One moment for our next question.

Our next question comes from the line of Mark Strauss of JPMorgan. Your line is now open.

Yes. Good morning. Thanks for taking my questions. Hey, Helane. I want to go back to Slide 10. So we talk about government policy and trade. There's nothing on there about the temporary permitting freeze. In Trump's executive order. Is it safe to say that there's there's no impact to Fluence there? Or is it maybe just too early to tell?

No, we haven't seen any impact of today. Not really impact. I understand that they were all in applied to federal lands and they were all light lifted as what I read earlier this week. I don't know if that's the case or not, but that's what I because I haven't been involved directly. What I heard is that all the permitting freeze was lifted were lifted earlier this week.

Got it. Okay. I'll take the rest offline. Thank you very much.

Thank you. One moment for our next question.

Our next question comes from the line of Chris Trusz of RBC Capital Markets. Your line is now open.

Hey, Greg. Good morning.

Thanks.

I wanted to ask about the new product launch. And I guess the question is, is is this sort of industry leading or is this a bit of a catch up product? And the reason reason I'm asking is, I'm curious if you think you're going to be able to maintain that margin profile if it's an industry leading product and you're guess, competition would play catch up and price down as well?

We see it as an industry leading project. Product. It will allow us to get to the 7.5 gigawatts, 7.2 gigawatts of [indiscernible] It will get us to seven megawatts of capacity. Per unit, which is industry leader 30% better than anybody else.

So we believe that people will copy us, but we will and what have we done? To make this? We separated the batteries from the intelligence of the unit. We're putting all the units in the base of that product line that you see there. That allows us to go higher. Terms of batteries per square meter. But it also allows to continue transporting everything in containers. So by separating the parts that you see the individual parts into the specific units and putting all the intelligence and balance on pad, plant equipment in the base. We can go higher in terms of height and we can reach a much higher density than anybody else.

Using 300 amp power cells. So that I think will put us in a very, very competitive position. All the other products that are close to what we're doing, are products that are that are using higher end power cells batteries. So this will allow us to provide these with lower end power cell batteries, which mean if we add up the higher end power cell we'll be even higher than that. So we're very, very happy with the product. We believe we're industry leading and this will allow us to give to regain our competitive advantage and also this facility gives us a platform, this new business product gives us a platform where we can innovate. So we already have our product roadmap to ensure that this is not the this is just the beginning of a set of innovations that will keep that project. Project competitive as we go along and our competitors try to copy also all stuff.

So I think this is Amit, Chris. I think your question as Julian mentioned, I think the goal is to create value for our customers customers and in return, at the same time, it's a win win proposition that will bring us back Our targeted returns that we talked about 10% to 15% That's right.

Okay. And then maybe as just a follow-up here, I hate to hit the margin question again, but if I go back to the the prior commentary, the original outlook, and I think you mentioned that you're 65% booked for the year. So if I just do kind of the bridge on that to the new guide, it looks like the incremental margin on the unbooked portion here is pretty low to kind of almost negative. Is that No, Chris, just to I think step back, last time when we gave our guidance, we were saying 10% to 15% margin.

And we had 65% of our coverage for our revenue guidance of $4,000,000,000 Fast forward, what we are saying today is I think since then the contracts we have signed are roughly high single digits. I mean 9% plus minus. So I think that is what we are saying. So net net that brings us at around 11% gross margin [indiscernible] the device guidance. So the impact is only on the new contracts not the backlog that we had signed at that time. We have not seen any material change except the tariff that we talked about, which is only $10,000,000 and that shaves roughly 0.3%, 0.4%. Okay. [indiscernible] Our next question comes from the line of Kashy Harrison of Piper Sandler. Your line is now open.

Just good morning, everyone. Just two quick ones for me. Good morning, Julian.

So a quick clarification question. Is the margin weakness in The U. S. Or is the margin weakness in international markets? I just want to make sure I fully understand that.

Mostly international. I mean, we do have some low as you know, non domestic offer in The U. S, but mostly international.

Question, so if I just take a step back and I just think about the broader renewable space, our recurring theme is that competition against the Chinese especially when they have severe excess capacity in markets that don't have strong protection as well in place. It just never seems to end well. It's fantastic to hear your enthusiasm enthusiasm on competition, but generally speaking, they're more focused on utilization than profitability, which makes it tough. And so as you look at markets outside The U. S. That you're competing are there any places you feel have stronger protectionist policies in place? And is there perhaps a thought on pulling back from some of these more competitive markets where the Chinese can play without worried about duties and whatnot? Thank you. Ben, I've got you.

My first one is, I would disagree on the premise. When you looked at these products, why don't we have a battery cell, which is a commodity, and the ability to make that battery cell work well is a combination of cooling, software, controls, delivery, that's where the value comes. You are right. The Chinese could have an ability to sell batteries at very low margins or very zero margin. But the reality is that batteries are less and less relevant. In the value proposition we gain. So when we looked at our new product, we compared it against the prices that we're seeing in The Middle East, where there are zero restrictions.

Where we're seeing in some of the markets where we see very little restriction, And we can get competitive. Through innovation. By integrating our software, by designing our probes in a way that we can transport them better, that we can deliver better reliability that they can be safe. At a lower cost point. So I don't disagree, that was my point earlier, that we this is a manufacturing industry. This is an industry of [indiscernible] And I think that we have the technology innovation to compete and we'll continue So that's what I think. Clearly, as you said, there are now going to your question. There are markets that have more restrictions. The U. S. Is a market with significant restrictions. Chinese competition. Australia is a market with some restrictions to Chinese competition. Taiwan is a market that has many restrictions to Chinese competition.

Then you see more open markets. Europe is in the way and they have the defining what they how they're going to manage it, but let's say it's a more open market The Middle East is very much open. I'll say Latin America is open today.

So that's kind of where you see the world. There are markets where but our objective as a company is to compete [indiscernible] We are here to compete globally. The English is important. And we believe that through innovation, integrating software, our controls, our ability to re sync all the value added around the battery, we can create enough value to beat up on price the Chinese willingness to sell stuff at lower cost.

That's our view today. When we look at it, when we see the margins they have, how they do business, that's what we see. That's where we can see a value. So that's our [indiscernible] Today clearly I can understand after what will happen, you probably do not necessarily believe me, no, but or you might or who you might put it in doubt, but that's the premise of our view. Through technology, due to in a world with lower battery costs, through technology we can win. This.

Thank you. I don't know if I answered your question, Gazzi.

I went a little bit or if you need a second one here.

No, no, you answered the question. You answered all points, and I appreciate your thoughts on the market. I mean, if I could just sneak one more in, Vincent. I'm talking right now. So I think in the past you had thought of the in house inverter as being margin accretive to the business. When you look at your current offering, do you do you think that this in house inverter gives you a path to go from this 10% to 15%? And then how long do you you think it'll take before 100% of your shipments are using the in house inverter? Thank you.

Yes. The in house I mean adding the inverter into it's not only the inverter, we're adding all the balance of plant equipment. And by adding the additional space, we're also adding edge computer. To edge computing to the software, to the system, which will allow a much better performance you don't need to put things in the cloud resin and send them back We will be able to now add artificial intelligence in the system itself. By the way, we are now designing this. This is all accredited to it, the house inverter. We believe this is a problem that is like our cube. It's going to be able it's going to take all our ourselves as we move forward. And we're very happy. We believe that at some point all our sales will be under this type of architecture. What is more than the inverter, last Thank you. Thank you, everyone. Our next question Our next Our next question comes from the line of Jordan Levi of Trues Securities. Your line is now open.

Good morning all and thanks for all the details. Just to get your thoughts on the new guide, 85% covered the current backlog. I think you've covered that well. Recognize that that's higher than the same time last year, but can you just talk through your thinking process there given what we saw last year in terms of project push outs and I know these are kind of one off occurrences that aren't confidence on the ability deliver on that uncovered portion of the guide? Yes.

No, I mean, we feel very confident clearly. We're sending the guidance to the bond that number What I will say, I mean, I know where we are today. We're kind of in a penalty box. We need to find a substantial part of this number by the next earnings call. And that will be the that's the point. We are working on it. We believe we're going to get it. And and we'll see whether by the next earnings call, we should have a substantial part of this. Resolve and the risk for it. It doesn't mean that we'll get to 100% because we recognize some revenue as we sign contracts, but we will get to a point that you can feel comfortable that the mid side of the range is covered enough that you can we can get your trust back on our ability to allure.

Thanks for that. And then just a quick follow-up on the $30,000,000 in cost reductions and rightsizing. Is there depending on market conditions, is there still more wood to chop on that front? Or is that sort of what you're the level you're comfortable with on a go forward basis?

This cost reduction aligns our cost structure with our business model of half or not allowing our cost to grow more than half of our top line growth. So if our growth is 25%, not allowing our cost to grow more than 12.5%. So that's what we're doing with this cost structure, aligning to that business business case. There probably are there are always a little opportunities here there but that's the objective. [indiscernible] Thank you. One more for next question. Our next question from the line of Vikram Bhakri of Citi. Your line is now open.

Good morning, everyone.

Leon, you talked about winning from the Chinese through tech Is a little more desperate and a little more worse I was wondering like how are you thinking about ASP this year and next year? Do you understand and appreciate that you should be able to get to the targeted margins and protect the margins. I was wondering like how much of ASP pressure do you anticipate we might see this year and next year? We still see some as we mentioned during the call, we still see some ASP pressure going forward. The competitive environment is not there. And we're working with a view of further reduction in ESPs going forward. We looked at the Chinese tender prices, which are we get information on it. So we kind of know and we I know we have had some recent tenders in in The Middle East, especially in the Saudi, Arabia, that gives us a sense of where the lower side of that range is. So we already are expecting certain reductions going forward that we will be working on. And we have in our that's part of our plan.

Yes. This is Ahmed, Dheksha. I mean, last year since last year, we have seen roughly 35%, 40% decline in ASPs, but I think at the same time, we have seen volume pickup up north of 60%. So I think there's a benefit the volume pickup that helps to continue to grow our revenue. But these trends are continuing, but at the same time, we are seeing more and more volume. Got it. And then as a follow-up, I wanted to ask about the $30,000,000,000 in cost reductions, if you can share where they're happening [indiscernible] To your answer for the last question, I was wondering if this this $30,000,000 reduction speaks to the growth this year or you're aligning your expenses to growth longer term. So it's related more to growth next year and expectation for growth outlook are changing for forward years and that's why the reduction is happening.

I mean, we looked at our cost structure per year depending on our top line growth and then we look at our cost structure. Generally, what we're doing is things that we were planning to do during the year that we are now going to. Because of the we don't have the revenue. And as simple as that, I mean, we are undefending of investments in product and I'm defending all investments in sales. But the rest of the organization, we are adopting it to a company that now is selling 15% less than what originally expected. And then for next year, we will whatever we have the 3030% top plus that we just communicated to you. Depending where we end up, we will ensure that our cost structure aligns with our business model and not allowing our costs to grow more than half the rate of growth of our top line growth.

Thank you. Thank you. One moment for next question. And our final question comes from the line of Julian Dumoulin Smith of Jefferies. Your line is now open. Hey, can you hear me okay?

Hey, Julian. Good morning.

Hey, good morning, guys. Thank you very much for letting me on. Just following up here on a couple of [indiscernible] briefly on liquidity backdrop. Obviously, you commented about working capital here. At the start of the year. I mean given the EBITDA profile, I mean you're basically saying suggesting that the cash balance should remain relatively intact through the course of the year, Amit? Want to make sure we're on the same page about how to think or you said yes, right?

Working capital, yes. Yes. Hey, Julian. Yes, I think the main reason for working capital use is the buildup in inventory. As you may have seen, we have over $300,000,000 of inventory and that is primarily to basically serve our demand contracts we have in place. So net net, during the whole year, we are not expecting the working capital use more than I think it's total is roughly $225,000,000 that we are forecasting for the full year.

And $200,000,000 of that is already in the Q1. So we don't expect any material change in the forecast.

And no material build in cash though. That was the key like just in terms of like where you land for the year or expect it to reverse here?

I mean, for the full year, we basically will be in around the same ballpark. Because we will have significant receivables in the Q4 given the revenue profile we have, but I think we expect that to be collected in the following quarters. But for the full year, we feel pretty good where we are today.

Awesome. And, Julian, if I can go back a little bit and perhaps just I mean, obviously 25%, 26%, you've got this running advantage versus your peers in The U. S. Admittedly, by 2027, we start to see some suggestions of of international entrants into The U. S. Market at various levels here. How do you think about the competitive landscape in The U. S. Over time in as much of what you just described internationally of competitive pressures bearing weight here. Again, would you think that '26 would be a relative peak versus '27 as you see some of those new entrants come in? Again, open question, obviously responded in part to Kashy on this, but would love to hear your thoughts. As you think about your product innovation in '27.

So in terms of we believe that over time, The U. S. Market will be a domestic content market. So most players are will compete in the market will compete with domestic offerings. So you're right. Probably, I'm surprised that it has taken them this long to get ready in my own personal view. But So I agree with you. Our view today is that they will be probably in '26 I mean sorry, in '27 where we'll see more domestic offering and competing. There our competition will have to wait through technology. By offering things that are better, that do better, that behave, that run better and that last longer. And that's the way to win. That's what I will say that the normal way you win in any industry. So that's so that will be my view. Think the domestic content gives us couple of years of upside of opportunity to to have kind of a safe place, but we are getting ready for a world where we compete just with with all the domestic content players and it will be technology driver. Of success.

Right. But the margin dynamics there by over time, I mean, obviously brought down expectations here in the near term. Do you think there's a little bit more pressure and you need to offset that with technology beyond the nature? I think that generally will be 10% to 15%. I don't have to be very clear, I don't think I have a view yet on 27 margins. But I think that our current view when we looked at our product, our cost on our competitors, the 10% to 15% something that we can safely guide to.

To. So that's what I would tell you. We clearly require part of this new platform, it already has a roadmap of improvements. To ensure that because we know our competition will not sit idle. So we already have that as part of it. So have investments in product development that we'll continue need to continue to do to ensure that we continue to be competitive. [indiscernible] Great. Excellent, guys. Thank you.

Thank you, Julien. And thank you everybody for participating on Tudesco. I really appreciate you.

Thank you. This concludes the question and answer session.

I'd now like to turn it back to Lexington May for closing remarks. Thank you for your participation on today's call.

If you have any questions, feel free to reach out to me. We look forward to speaking with you again when we report our second quarter results.

Thank you for your participation in today's conference. This does conclude the program. You may now disconnect. [indiscernible]