Fluence Energy (NASDAQ: FLNC), a leader in energy storage solutions, has reported a robust performance for the third quarter of 2024, surpassing revenue expectations by 20%. The company announced $483 million in revenue with a 17.5% adjusted gross margin, indicating significant progress towards its profitability goals. Fluence Energy's strategic initiatives, particularly in the U.S. market, have contributed to this success, alongside a record-setting $1.3 billion in new contracts and a strong cash position of $513 million.
Key Takeaways
- Fluence Energy's Q3 revenue reached $483 million, 20% above expectations.
- Adjusted gross profit stood at $85 million, with a 17.5% adjusted gross margin.
- A record $1.3 billion in new contracts was added during the quarter.
- Annual recurring revenue ended at $80 million, with a raised guidance to approximately $100 million.
- The company generated $64 million in free cash flow over the first 9 months.
- A strong cash position of $513 million was maintained.
Company Outlook
- Fluence Energy is confident in sustaining revenue growth of 35-40% for the fiscal year 2025.
- Gross margins are expected to remain within the 10-15% range.
- The company's pipeline has increased by 65% from the previous year, signaling continued growth prospects.
Bearish Highlights
- Increased tariffs on Chinese battery imports could pose challenges.
Bullish Highlights
- The domestic content strategy and securing of AESC battery cell supply for U.S. manufacturing are driving success.
- Strong growth in international markets, including Europe, Middle East, Africa, and Asia Pacific regions.
- Beneficial regulatory environment due to U.S. Inflation Reduction Act guidelines.
Misses
- There were no specific misses mentioned in the earnings call summary.
Q&A Highlights
- CEO Julian Nobreda expressed high confidence in the company's performance and outlook.
- Nobreda highlighted the strong demand elasticity in the market.
- The global strategy was emphasized as an effective means to manage regional market headwinds.
Fluence Energy's third-quarter earnings reflect a company capitalizing on the growing demand for energy storage. With significant interest from data centers, which make up 40% of the U.S. pipeline, and a strategic focus on domestic content, Fluence Energy is well-positioned to maintain its upward trajectory. The company's outlook remains positive, buoyed by favorable market trends and regulatory support, as it continues to expand its international presence and secure strategic supply agreements. As Fluence Energy heads towards the fiscal year's end, it expects to deliver on its promise of profitability, with a positive adjusted EBITDA on the horizon.
Full transcript - Fluence Energy Inc (NASDAQ:FLNC) Q3 2024:
Conference Operator: Good day and thank you for standing by. Welcome to the Fluent (NASDAQ:FLNT)'s Second Quarter Conference Call. At this time, all participants are in a listen only mode. After the speakers' presentation, there will be a question and answer Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Leslie Timmai, VP of Finance and Investor Relations.
Leslie Timmai, VP of Finance and Investor Relations, Fluence Energy: Thank you. Good morning and welcome to Fluence Energy's Q3 2024 earnings conference call. A copy of our earnings presentation, press release and supplementary metric sheet covering financial results along with supporting statements and schedules, including reconciliations and disclosures regarding our non GAAP financial measures are posted on the Investor Relations section of our website atfluenceenergy.com. Joining me on this morning's call are Julian Nobreda, our President and Chief Executive Officer Ahmed Pasha, our Chief Financial Officer and Rebecca Bull, our Chief Products Officer. During the course of this call, Fluent's management may make certain forward looking statements regarding various matters related to our business and company that are not historical facts.
Such statements are based upon the current expectations and certain assumptions and are therefore subject to certain risks and uncertainties. Many factors could cause actual results to differ materially. Please refer to our SEC filings for our forward looking statements and for more information regarding certain risks and uncertainties that could impact our future results. You are cautioned to not place undue reliance on these forward looking statements, which speak only as of today. Also, please note that the company undertakes no duty to update or revise forward looking statements for new information.
This call will also reference non GAAP measures that we view as important in assessing the performance of our business. A reconciliation of these non GAAP measures to the most comparable GAAP measure is available in our earnings materials on the company's Investor Relations website. Following our prepared comments, we will conduct a question and answer session with our team. During this time, to give more participants an opportunity to speak on this call, please limit yourself to one initial question and one follow-up. Thank you very much.
I'll now turn the call over to Julian.
Julian Nobreda, President and Chief Executive Officer, Fluence Energy: I would like to extend a warm welcome to our investors, analysts and employees who are participating on today's call. I will cover our Q3 results briefly and then provide an update on our business and the strong growth prospects we continue to see. Ahmed will then give more details on our financial results and outlook. Beginning on Slide 4, we delivered strong financial performance. More specifically, we recognized $483,000,000 of revenue and earned 17.5 percent adjusted gross margin, which brings our year to date gross margin slightly ahead of the 10% to 12% target.
2nd, we recorded adjusted EBITDA of 15,600,000 dollars which puts us on track to deliver profitable growth for our shareholders. 3rd, we added $1,300,000,000 of new contracts, setting a new quarterly record for us and bringing our buyback to an all time high level of 4,500,000,000 dollars 4th, we finished the quarter with $80,000,000 of annual recurring revenue for our services and digital business, reaching the level a quarter earlier than our target. And finally, through our proactive approach to cost and working capital management, we generated 64,000,000 dollars free cash flow for the 1st 9 months and ended the current quarter with $513,000,000 in cash. Turning to Slide 5. We continue to see improvements in our growth market, driven by our excellent performance execution.
We have had 4 consecutive quarters of double digit gross margin. We're looking at our gross margins on a trailing 12 month rolling basis. We are back from a gross margin of about negative 5% to a positive 12% margin in the 12 month ended June 30. This has been an outstanding transformation in less than 2 years. We expect this trend to continue to improve, pulling off on a path to achieve sustainable gross margins in the 10% to 15% range.
Turning to Slide 6 for an update on our pipeline. As a reminder, our pipeline is a rolling 24 month view, thus giving us confidence in our ability to continue our growth trajectory. Our $20,000,000,000 pipeline has increased 65% from this time last year, which reflects rapid growth prospects for any storage flow. As I will discuss a bit more in a moment, all in all, we continue to see a very robust international market. We should further diversify our geographic mix in the coming years.
Almost half of our $20,000,000,000 pipeline is in the Americas region and the rest is in the international market. The strength of our pipeline is a key reason for our high confidence in our expected revenue growth. We are reaffirming our fiscal year 2025 revenue outlook of 35% to 40% growth of our original fiscal 2024 revenue guidance midpoint of $3,000,000,000 Turning to Slide 7. Similar to our pipeline, we're also seeing remarkable growth in our backlog. The 3rd quarter was our 11th consecutive quarter of order intake outpacing revenue recognized, showcasing the robust growth in utility scale energy storage.
Our backlog increased by $0.01 demonstrating our leading competitive position and the significant growth for utility scale energy storage. Now I would like to update to provide an update on the most relevant markets we serve, beginning with the United States, which continues to be the largest market we operate in global. Recent regulatory developments in the U. S. As well as the progress we have made in strengthening our competitive position to an early to market domestic manufacturing strategy puts us in a unique position to capitalize on this substantial growth opportunity.
Turning to Slide 8. Since our last conference call, there have been a couple of favorable policy developments. First, the U. S. Treasury released guidelines on the 40% domestic content requirements under the Inflation Reduction Act or IRA.
The Treasury provided an elected safe harbor table that sets a percentage of value each battery storage component when manufactured in the U. S. Can contribute towards the 40% threshold. As you can see, the highest category is battery sales at 38%, which favored our domestic strategy of securing battery cells manufactured in the U. S.
As you may recall, we started the process of procuring U. S. Cell capacity before the IRA came out and signed an agreement more than a year ago with ASC to purchase U. S. Cell from the Tennessee facility.
These U. S. Manufacturer sales will go into our battery modules, which I will touch on more in a moment. By combining U. S.
Sales and U. S. Modules, we believe that we will easily meet the 40% domestic content threshold, thus enabling our customers to capture the incremental 10% investment tax credit on the project. Our proactive approach to securing the U. S.
Sales from ASC has resulted in a 1st mover advantage in delivering domestic. 2nd, the Biden administration issued a proclamation to increase Section 301 tariffs on batteries imported from China, which also applies to battery storage systems. Today, this higher tariff is set at 7.5%, and it will increase to 25% beginning in 2026. We believe this tariff regime could significantly affect the competitive landscape of the U. S.
Market to the benefit of domestic suppliers. I would like to touch briefly on the political environment and implications for Fluor (NYSE:FLR). The demand for battery storage systems in the U. S. Is supported by the growing need for new capacity, grid accessibility and resilience.
It is well known that renewals plus storage is the fastest and most economic way to serve this growing. None of this is due to a potential change in administration. Our business model in the U. S. Should also be resilient to changes in the political landscape.
Current does their policy favors using tax credits to promote domestic production. However, we believe that our U. S. Business model will also work effectively if a new administration were to change the industrial policy away from tax incentives in favor of tariffs. Turning to Slide 9, I'm pleased to report that we're on track for initial production of the fluid battery module in late September of this year.
The module production line was successfully tested in the manufacturer's facility. The production line is now in the final stages of installation and initial commissioning in our Utah facility. We anticipate starting production with a number of battery modules and gradually ramping up to serve our needs. Turning to additional discussions on the U. S.
Market on Slide 10. Estimates for the size of U. S. Utility scale market continues to show growing adoption of energy storage. By adding roughly 40 gigawatts in 2025.
This significant demand has been fueled by corporate customers seeking clean, low cost and reliable renewable. Part of this growth in the U. S. Has been driven by the rise of Gen AI, which requires a tremendous number of new data centers, which resulted increases in electricity and capacity. We're seeing more and more opportunities coming to our pipeline associated with data centers, mostly in the form of storage for the renewal PPAs that large tech companies are procuring to meet their growing demand and target free goals.
Currently, about 40% of our U. S. Pipeline is indirectly associated with data centers. We will also note that the great majority of the clean energy investments associated with the IRA and the results in job creation are occurring in Republican led businesses. Furthermore, energy storage is becoming a critical part of an increasing numbers of rigs across the country regardless of political need.
For example, in the aircon market in Texas, a traditional red state, the expanding role that energy storage plays in the grid is evident when you consider the Internet connection view. We chose nearly 132 gigawatts of battery storage projects, up nearly 35% from this time last year. In sum, the U. S. Market increasing demand for electricity and capacity.
The James AI industry's growing need for renewable power and the receiving of our U. S. Business model to policy changes makes us confident in our outlook for the U. S. Market and its contribution to our growth plan.
Turning to Slide 11. Alongside the attractiveness of the U. S. Market in the Europe, Middle East and Africa region, I'm happy to say we are seeing a growing number of opportunities in Germany and a resurgence in the UK and Ireland. Ireland intends to operate its electrical grid with 95% renewable.
This level of renewable generation will require significant battery storage to provide a higher level of grid stability and reliability. For this region, 2024 annual utility scale capacity additions are expected to be north of 11 Gigaawatt hour, which is more than 100% increase from the 2024 forecasted level. We see a similar story of robust growth in other regions. In the Asia Pacific and Australia region, we have seen tremendous growth over the past few years with annual utility scale capacity additions approaching nearly 8 gigawatts this year. Driven largely by our strength where the national battery strategy continues to provide opportunities for our products.
Turning to Slide 12. I'm pleased to report that we recently launched our new digital service center in India, which will serve as a central hub for our planning operational data intelligence to the global fleet of assets managed by Fluent, providing insights for the company's research and development and service functions. We expect that these efforts will provide more value to our customers by optimizing the performance of their storage assets. The colocation in Bangalore, India of the service center with its new remote monitoring and diagnostics capability And our technology centers' product development capability provides a platform that is intended to allow for efficiency and experience response in both regions. I will now turn the call to Ahmed to discuss our financial results.
And outlook?
Ahmed Pasha, Chief Financial Officer, Fluence Energy: Thank you, Julian, and good morning, everyone. Today, I will review our Q3 financial results, our strong cash position and our near term outlook. Beginning with Q3 2024 results on Slide 14, we generated $483,000,000 in revenue, which was 20% higher than our expectations discussed on our last earnings call. This was primarily attributable to completing certain projects milestones ahead of schedule. Furthermore, we generated $85,000,000 of adjusted gross profit, representing a 17.5 percent adjusted gross margin, which was the 4th consecutive quarter of double digit gross profit margins.
Including the 3rd quarter results, we delivered year to date adjusted gross margin of 12.8%. We expect to achieve Q4 adjusted gross margin within our previously communicated range of 10% to 12% and for the full year to be at the high end of that range. This performance reflects our focus on achieving operational efficiencies that have been translated to improved profitability of projects. During Q3, after operating expenses, we generated $16,000,000 of adjusted EBITDA, which puts our trailing 12 month EBITDA in positive territory for the first time. Overall, these results illustrate our commitment to delivering profitable growth to our shareholders.
Before turning to a discussion of our liquidity and guidance, I will briefly review a disclosure included in our 10 Q that was filed yesterday. As you may know, a short seller report was published on us back in February of this year. In response to the allegations made in the short report, our Board's audit committee conducted an investigation with the assistance of an outside counsel and forensic accountants. I am pleased to share that this investigation concluded that the allegations contained in the short report are without merit. Recently, however, the SEC notified us that they are investigating certain matters pertaining to the company.
Based on the information the SEC has requested, we believe we are examining some of the topics raised in the short seller's report, such as revenue recognition policies and our previously disclosed material weakness. We are fully cooperating with the SEC. Although we cannot predict the timing of or the outcome, based on the nature of these matters and information requested by the SEC, we do not expect it to have a material impact on our financial condition. Turning to Slide 15 with an update on our liquidity. We continue to bolster our liquidity to support our industry leading growth objectives.
To that end, I am pleased to report that we ended the 3rd quarter with nearly $600,000,000 of total liquidity. I'm also happy to share that this week we replaced our ABL credit facility with a traditional revolver to further enhance our liquidity. As you may recall, our $400,000,000 of ABL facility was characterized by the level of our U. S. Inventory, which has had a lower balance, thus limiting the availability under this facility to not more than $100,000,000 since its inception.
The new covenant light revolving credit facility contributes $500,000,000 of commitments from an expanded bank growth. With this facility, on a pro form a basis, our total liquidity is now more than $1,000,000,000 which puts us in an excellent position to capitalize on the growing energy storage market. Moving to Slide 16. We have narrowed our full year 2024 revenue guidance range to $2,700,000,000 to 2,800,000,000 dollars With a midpoint of $2,750,000,000 this is $250,000,000 lower than our prior revenue guidance. This reduction is mostly due to 2 factors.
1st, there were 2 specific projects accounting for approximately 100,000,000 dollars of expected revenue that have been postponed by the customer for multiple years. And second, the signing of certain projects into our backlog was delayed for a variety of reasons that include site readiness, civil works, permitting and customer decision process. None of these delays were related to interconnection issues. These projects were signed and moved into our backlog admittedly later than anticipated. Although disappointing, we expect to recognize the majority of this delayed revenue in fiscal 2025.
As Julian noted, our fiscal 2024 guidance implies a Q4 result that would be the highest in our company's history. We have strong confidence in our ability to deliver on this goal as the majority of our Q4 project milestones are for production and delivery of cubes, which is within our control. To that end, we have secured the necessary batteries, manufacturing slots and logistics. In fact, with respect to our expected Q4 revenue, in the 1st 5 weeks of the quarter, we have delivered or put in transit 46% of required tubes, thus securing our revenue for almost half of our expected Q4 revenue. In summary, our quarter to date performance and our outlook for the remaining 2 months of the year gives us confidence in our ability to deliver on our Q4 customer commitments and our revised full year 2024 revenue guidance.
Turning to Slide 17, I will briefly review our other guidance metrics. Lowering the mid point of our full year 2024 revenue guidance by $250,000,000 would be expected to have a gross profit impact of at least $25,000,000 However, we have taken proactive actions to mitigate the impact on our profitability targets. To that end, we are expecting to achieve a gross profit margin at the upper end of 10% to 12% expected range for this year and delivered adjusted EBITDA of $55,000,000 to $65,000,000 This revised guidance midpoint of $60,000,000 is only $5,000,000 below our prior guidance. In terms of our long term outlook, we continue to expect our gross profit margins to be in the 10% to 15% range. Furthermore, we are raising our ARR guidance and now expect to achieve ARR of approximately $100,000,000 by the end of fiscal 2024, up from our previous guidance of approximately 80,000,000 dollars This increase is the result of the continued growth we are seeing from our services business.
Finally, looking ahead to fiscal 2025, we continue to expect strong growth as Julian discussed, Using our original fiscal 2024 revenue guidance midpoint of $3,000,000,000 as a base, we reaffirm our expected fiscal 2025 revenue growth of 35% to 40%. With that, let me turn the call back to Julian for his closing remarks.
Julian Nobreda, President and Chief Executive Officer, Fluence Energy: Thank you, Ahmed. Turning to Slide 18 and in conclusion, I want to emphasize the key takeaways from this quarter's results. First, our year to date performance demonstrates our ability to deliver profitable growth. Importantly, we are on track to deliver 12% gross margins and positive full year adjusted EBITDA in fiscal year 2024. 2nd, we have started to see the benefits of our U.
S. Domestic content strategy that were put in motion well before the IRA was enacted. We're seeing a strong customer interest, which is converted to initial orders. 3rd, we have ample liquidity to support our growth plan. We successfully amended and upsized our credit facility, which now puts our liquidity at more than $1,000,000,000 And 4th, the outlook for utility scale storage is very robust, and we are well positioned to capitalize on this growing market globally, as evidenced by the strong growth of our pipeline and our backlog.
With that, I would like to open up the call for questions. Thank you.
Conference Operator: Thank you. At this time, we will conduct a question and answer session. Our first question comes from Christine Cho at Barclays (LON:BARC).
Christine Cho, Analyst, Barclays: Good morning.
Julian Nobreda, President and Chief Executive Officer, Fluence Energy: Good morning, Christine.
Christine Cho, Analyst, Barclays: Over 60% of your revenues this quarter was from Rest of World, which also coincided with the very high ASPs and high margins. Is this just a function of more of your projects outside the U. S. Requiring EPC? Just any color on the geographic breakdown this quarter, how that correlates with top line margins and how we should think about how this should trend next year?
Maybe also an update on the geographic breakdown of current backlog. I know it was historically seventy-thirty, but it sounds like you're diversifying more.
Julian Nobreda, President and Chief Executive Officer, Fluence Energy: Good morning, Christine. Yes, our international markets tend to have more EPCs. They tend to be so that our solutions, our offerings are a lot broader than what we do in the U. S. And second, as you know, we have been selling our Ultra Stack offering in Europe, our transmission assets.
So you generally will see higher SAPs ASPs on the international markets. In terms of the composition of our backlog, 60 1 third, 2 thirds is kind of where it's going right now. So it will tend we have seen a lot of progress in the international markets. So when you looked at the pipeline, more like fifty-fifty. What I will say today when we looked at our backlog is essentially 2 thirds I've really been saying roughly 2 thirds in the U.
S, 1 third international. So that's the way just to look at it. And the last point is that this is one of the drivers of the lumpiness in terms of our margins and our ASPs as we move forward. How they what type of projects come into revenue for which type of project will recognize revenue on a quarterly basis. And that lumpiness will stay, not because not all projects are the same.
Christine Cho, Analyst, Barclays: Okay. And then for my follow-up, is there a way to give us a sense of how much of your current backlog for U. S. Projects require U. S.
Sales? I know you've mentioned that you could eventually supply all of U. S. Demand with the AEC contract. But curious to know if the majority of your U.
S. Customers were mandating that in the contract before the domestic content and Section 301 update came out a couple of months ago, how those conversations have evolved since that update? And is there some sort of rule of thumb that we can use around how much higher the ASPs are maybe percentage wise for your batteries that use domestic cells versus imported cells for your U. S. Customers for bookings going forward?
Julian Nobreda, President and Chief Executive Officer, Fluence Energy: I will say that you will you have seen a lot of interest come up as people have realized the with the new IRA guidelines and the new tariffs. And I think that generally now everybody realizes this is the right move and we're ahead of everybody. So you'll see it a lot more than what we have seen before. I prefer not to go into how that plays out because then we'll get into a rabbit hole of that, that I think will not help anybody. In terms of cost, what I can tell you and this is very competitive information for us.
So what I can tell you is that the costs are very competitive and very attractive even though they include some additional costs by producing in the U. S. So they are very, very competitive and our customers do very, very well when they contract with off the U. S. Domestic contract.
That's the best way I can tell you. But at this stage, we'll prefer not to disclose information on the actual pricing, the content offering.
Conference Operator: Our next question comes from Dylan Massaro at Wolfe Research.
Julian Nobreda, President and Chief Executive Officer, Fluence Energy: Hey, good morning. Good morning, Mather.
Dylan Massaro, Analyst, Wolfe Research: So just doing the math on the updated guidance here. So it looks like you're taking $250,000,000 out of the midpoint this year. You're holding 2025, dollars 100,000,000 of what came out of this year is the late multiple years. So that seems to suggest up to $150,000,000 shifted from this year to next year. So I guess if that math is correct, did anything shift out of your prior 2025 outlook?
Because if you're adding 150 this year, like wouldn't that put you at the top end or above the 35% to 40% growth?
Julian Nobreda, President and Chief Executive Officer, Fluence Energy: Well, I would say, Stefano, we are working on a 25 budget for next year, and we'll give you more details on how 25 looks. But today, what we can confirm is that we can confirm 35% to 40% growth out of our original target of midpoint of $3,000,000,000 So that's what I will say. We'll give you more details when we in our next earnings call in late November.
Andrew Percoco, Analyst, Morgan Stanley (NYSE:MS): Okay. And then as a
Dylan Massaro, Analyst, Wolfe Research: follow-up on the Board investigation that you spoke about, can you just speak to kind of what was the scope of that investigation? Which specific claims from the Shore Report were you guys looking into?
Julian Nobreda, President and Chief Executive Officer, Fluence Energy: Our audit committee hired an independent law firm and brought in a forensic auditor, so forensic accounting firm. And they looked at area code, everything that was there, the irrelevant stuff that has no all the elements there and found that all of them had 0 merit. There's no merit in any of it. So we feel we're clean bill of health that was and that's what we can say. It was really, really a very detailed investigation, looking at all the everything that there, even things that were implied that were not necessarily written.
And both the independent law firm with the support of the accountants came out with that all of that stuff has 0 merit.
Dylan Massaro, Analyst, Wolfe Research: Great. Thank you very much.
Julian Nobreda, President and Chief Executive Officer, Fluence Energy: Welcome.
Conference Operator: Our next question comes from Andrew Percoco at Morgan Stanley.
Andrew Percoco, Analyst, Morgan Stanley: Good morning. Thanks for taking the question. I just I want to come back to the domestic content piece for a second. Just curious, there's obviously strong demand for those products. How do you feel in terms of the capacity that you're getting from AESC?
Do you see a need to expand that agreement anytime soon just given the level of demand you're seeing? And just kind of curious on maybe how pricing conversations with AESC have shifted just given obviously the higher demand for domestic sales over the last 3 months or
Julian Nobreda, President and Chief Executive Officer, Fluence Energy: so? Very good question. So we contracted two lines with the SE-one that is coming start producing in late 2024 to deliver it in early 2025 and another one that will come into operation in 2025. And we have a right of first refusal for any additional lines, for an additional line is they bring it up. So we have ample capacity to meet the demand that we see today and our clearly to meet our commitments to the Street.
So we are very happy. In terms of the deal with ASC, we had a remember, we had to pay for this. We had to make them we make that prepayment that we disclosed to all of you. So it's a firm deal with prices and we haven't seen any discussion on pricing or ASE is not requesting any additional price from the fact that this is becoming more much more popular. What I will say is that we were convinced that this was the way to go and I think the reality and the reaction of our customers proven us right and we are very happy with that.
And now our view is to accelerate this as possible and solidify our 1st mover advantage in domestic
Andrew Percoco, Analyst, Morgan Stanley: content. Okay, perfect. And then maybe as a follow-up question, you mentioned AI and tech as a driver of demand. I'm just curious if there's any difference in attributes in terms of duration, sizing that you're seeing for maybe some of those conversations and maybe how that's impacting your offering or the pricing that you're achieving in the market? Thank you.
Julian Nobreda, President and Chief Executive Officer, Fluence Energy: No, not real difference from a technical point of view. What I will say is a level of urgency. Our that's what I will say, the need for speed, which is also something that we have market. That's where I think that's a little bit of a difference from the past where when we were not where projects which are not necessarily data center related.
Dylan Massaro, Analyst, Wolfe Research: Understood. Thanks so much.
Julian Nobreda, President and Chief Executive Officer, Fluence Energy: Yes, Andrew. Thank you.
Conference Operator: Our next question comes from Justin Clare at Roth Capital Markets Partners.
Leslie Timmai, VP of Finance and Investor Relations, Fluence Energy: Hi. Thanks for taking our questions.
Julian Nobreda, President and Chief Executive Officer, Fluence Energy: Yes. Good morning, Justin.
Leslie Timmai, VP of Finance and Investor Relations, Fluence Energy: Good morning. So I wanted to start off just asking about how do you expect the gross margins for your domestic supply chain using compare to margins when you're using international sales? And then just curious as you ramp the domestic supply chain, do you anticipate the margins to initially be lower and then increase as you scale up or will you be kind of at full potential right away?
Julian Nobreda, President and Chief Executive Officer, Fluence Energy: In terms of margin of our U. S. Domestic offering, prefer not to go into that detail. As I said, this is very competitive, especially today. But I will say that our what I can say is that our U.
S. Domestic content makes us even more confident of our 10% to 12% at 10% to 15% sorry, margin guideline that we provided you. And if I can add up a little bit of publicity, we came from minus 5 to 12 today. And I think that and a lot of some people were not convinced that we could deliver the 10 to 50 we're telling you today. Well, I think that today not only our territory, but where we see coming out, it makes us feel very, very confident on that part.
And then in terms of our ability to realize margins on the initial offering, we have put in a significant investments. 1st, we're bringing the line the module line earlier to ensure that it runs very well. And we have put in investments in our labs to test our new products ahead of going publicly in a way that to ensure that we do not we can realize our margins from day 1. So we feel very confident that both our U. S.
Domestic give us a confidence that we are going to be able to monetize on the margins on U. S. Domestic content, our new products from day 1.
Leslie Timmai, VP of Finance and Investor Relations, Fluence Energy: Okay, got it. That's really helpful. And then just on your backlog, curious how much of the backlog do you anticipate recognizing in fiscal 2025 at this point? And if you could just comment on project timelines, how they're evolving and then just the anticipated average timeline from when you book a project to when you're able to complete a project? And then maybe if you could comment on just the bottlenecks that you're seeing and whether you can pull timelines forward?
Julian Nobreda, President and Chief Executive Officer, Fluence Energy: Yes. Great. In terms of our 25 revenue, what we have in our backlog for 25 revenue, it's roughly onethree. So in line with what we had last year, we feel very well about it, good to rate. In terms of our projects, our projects timeline, we have invested a lot in accelerating our capability of delivering projects.
And that, I think, has given us a competitive position when customers are in a hurry or as I mentioned, data centers, they want things very, very quickly. Now that gives us a competitive position. However, what has become, I mean, a little bit clearer now is that some of the timing is not necessarily set by us, what's set by other external factors. However, our shortened project time lines allows a much more from an economic point of view, a much more efficient project. In terms of project timelines, I think we should continue to use the 18 months that we told you.
We brought it we have been bringing it down, but I think that's a good guideline for it's a good guideline for our financial projections and a good guideline for you to look at our backlog. We will let you know if things improve change materially.
Leslie Timmai, VP of Finance and Investor Relations, Fluence Energy: Okay. Appreciate it. Thank you.
Conference Operator: Our next question comes from Leanne Hayden at Canaccord Genuity.
Leanne Hayden, Analyst, Canaccord Genuity: Good morning, everyone. Congrats on the quarter and thanks so much for taking my question. To start, I know you reiterated 2025 revenue growth expectations. I was just wondering if you still expect to see the same profitability as previously guided. I believe it was a 10% to 15% gross margin?
Julian Nobreda, President and Chief Executive Officer, Fluence Energy: Yes. We do expect the same profitability of 10% to 15%. And I will tell you that performance this year gives us even more confidence that we would be able to deliver in the 10% to 15% range. So we are very happy. This was our transformation when we took over the company to today, from minus 5% to now being able to feel very confident in the 10% to 15%.
We're all very proud of the work that we have done here.
Leanne Hayden, Analyst, Canaccord Genuity: Great. Thanks. And then just one more from me. On increasing data center demand, Are your data center discussions focused mostly on hyperscalers or small providers as well? Or any color you could provide on that would be great.
Julian Nobreda, President and Chief Executive Officer, Fluence Energy: As you know, we work with top tier developers in the U. S, so it's mostly hyperscalers. There might be a 1 or 2 that are midsized, but generally hyperscalers. That's what I'll say.
Leanne Hayden, Analyst, Canaccord Genuity: Understood. Great. Thanks so much. I'll jump back in queue.
Julian Nobreda, President and Chief Executive Officer, Fluence Energy: Thank you. Thank you, Lianne.
Conference Operator: Our next question comes from Jordan Levy at Truist Securities.
Jordan Levy, Analyst, Truist Securities: Good morning all and appreciate you taking my questions.
Ahmed Pasha, Chief Financial Officer, Fluence Energy: I just wanted to get
Jordan Levy, Analyst, Truist Securities: a sense of what you're seeing specifically in the international market from a competition perspective with a large entrant kind of into that market earlier this year, I think, particularly in Europe?
Julian Nobreda, President and Chief Executive Officer, Fluence Energy: Yes. Each market is different. I'm being very clear. There are markets are with some of the players we see in the U. S.
Do not are not active. However, I will say about the European market, it tends to be especially the U. K, more than Europe, let's say, let's talk about the U. K. The U.
K. Is probably the most competitive market and it's a market we are very, very happy that we can win and we continue progressing a lot because it is a very competitive market because it is very open to a lot of entrants and it also is a market that requires very good capabilities in terms of delivery. So that combination makes it an interesting market to work. The rest of Europe, I would say the intensity of competition in Europe is also a little bit higher. However, because it's a new market, it has 1 hour and not all players offer 1 hour.
It tends to be not that, it's a little bit less than the U. K.
Jordan Levy, Analyst, Truist Securities: Appreciate that. And then maybe just kind of a follow-up on your prior question on the data center market. I know you all have had probably a lot of conversations in the space with key players. And I'm just curious if those conversations from your commentary last quarter, if those conversations have evolved at all in terms of what customers might be looking for a more direct storage solution as it relates to duration or anything like that?
Julian Nobreda, President and Chief Executive Officer, Fluence Energy: Yes. Most of our data center demand is indirect is comes indirectly. We support PPAs that the big top tier developers offer data centers for big and large tech companies. So I will say the great majority it is indirectly. There's very little that we do directly and that also seem to be a market that is opening up.
We'll continue we believe that most of our sales to that connected to data centers will go through large through PPAs with the large tech companies.
Jordan Levy, Analyst, Truist Securities: Thanks so much.
Conference Operator: Our next question comes from David Saker at BMO Capital Markets.
Julian Nobreda, President and Chief Executive Officer, Fluence Energy: Hi, good morning. Good morning.
Dylan Massaro, Analyst, Wolfe Research: Just real quick, it looked like the implied ASPs this quarter were I think like around $430 a KWH. I was just wondering if you could kind of speak to were there any kind of one off factors that kind of drove that, or are we looking at it maybe not perhaps not the right way? Thanks.
Julian Nobreda, President and Chief Executive Officer, Fluence Energy: Yes. Thanks.
Ahmed Pasha, Chief Financial Officer, Fluence Energy: Hey, Amit. This is Amit. So yes, I think the if you're looking just for the quarter, you're right. And I think that is more to do with the mix of the contracts, because we have more international during the quarter, where we have EPC elements embedded in those contracts. But I think if you look at for the year, year to date versus year to date, ESPs are roughly 25% less and that reflects the pricing what we have seen in the commodity prices.
But so that is the right way to think about on a year to date basis is pretty is declining, but that reflects the lithium mine prices.
Dylan Massaro, Analyst, Wolfe Research: Great. Thank you.
Conference Operator: Our next question comes from Kashy Harrison at Piper Sandler.
Leslie Timmai, VP of Finance and Investor Relations, Fluence Energy0: Good morning, Kashy. Good morning. Hey, good morning, Julian, and thanks for taking my questions. Congrats on the impressive bookings backlog and also the execution. So I wanted to focus on the backlog and booking.
I noticed that the total backlog increased significantly in 3Q, but the implied 12 months from the Q was flat quarter over quarter around 2 $300,000,000 It is a 12 month look, so it's only good through June 30 next year. And I was just wondering if you were to extend that to September, can you give us a sense of what would happen to that implied $2,300,000,000 estimate? I'm just wondering if there's another big jump in 4Q of next year just because of the general weighting 4Q weighting of the business.
Ahmed Pasha, Chief Financial Officer, Fluence Energy: So yes, you're right. I think this is the nature of our business where the revenues are lumpy and frankly that is partly driven by the nature of the contracts that we have and the customers who want their deliveries during the summer peak months. So yes, I think we I mean, I think probably 60% to 70% of our revenue is second half back end loaded this year and we think probably that would be the case next year as well.
Leslie Timmai, VP of Finance and Investor Relations, Fluence Energy0: Scott, so the $2,300,000,000 would is probably significantly higher if I if you were to include 4Q of next year?
Ahmed Pasha, Chief Financial Officer, Fluence Energy: So yes, but I think the key there is the percentage of completion. I think as we sign more contracts, we as we execute on those contracts, we will continue to realize. But net net, you will see more back end loaded. That's the lumpiness that we have in our business. Got
Leslie Timmai, VP of Finance and Investor Relations, Fluence Energy0: it. I appreciate that. And then for my follow-up question, I know it's tough to guide to forward bookings, but I wanted to try to ask this question anyway. Do you think you can hold that $4,000,000,000 $5,000,000,000 flat exiting the year? I only ask since next quarter is a very big revenue quarter.
And so I was just trying to
Leslie Timmai, VP of Finance and Investor Relations, Fluence Energy: get a sense of if
Leslie Timmai, VP of Finance and Investor Relations, Fluence Energy0: you could hold $4,000,000,000 $5,000,000,000 through year end. Thank you.
Ahmed Pasha, Chief Financial Officer, Fluence Energy: Yes. I think that is the expectations like we did last year. I mean, I think we are pretty much in the same position where we were last year at this stage. Q3 call, we were about 1 third of our revenue for 2024 locked in our backlog and we are at the same place and expectation is as we sign more and more contracts, I think we will be in the similar situation. I mean, this last quarter, we signed 5 gigawatt hours as you saw.
And frankly, that is equivalent to the full year 2023 deliveries. So we are seeing significant growth in volume and hopefully that trend will continue.
Julian Nobreda, President and Chief Executive Officer, Fluence Energy: Thank you.
Conference Operator: Our next question comes from Ben Campbell at Baird.
Leslie Timmai, VP of Finance and Investor Relations, Fluence Energy1: Hey, good morning guys. Thank you for taking my question. Good morning, David. Thank you. My first question was just on your pricing environment.
You guys talked about the ASPs and where they've trended this year. As you look out to next year, could you just maybe talk to us about how we square the 12% to 15% gross margin with pricing if you expect it to continue to go down, maybe what your levers for decreasing costs, I know as you transition to U. S. Manufacturing. So if I put all that together, maybe just the levers on bringing down costs so you can keep up with price declines?
And then my second question is just what you're seeing in competition in the U. S. In terms of international players and specifically Chinese or Korean players coming to the U. S. For to produce the U.
S. And how competitive they are in pricing right now and if that's impacting any of your business as you look out into next year? Thank you.
Julian Nobreda, President and Chief Executive Officer, Fluence Energy: Great. Thank you, Ben. On the pricing, what do we see today? Maybe go back one step. Lithium carbonate was have been stable up to May, came down around 10 to 15 around 20, let's say, since May.
So it is getting softer. That gives you a sign that somehow the battery storage market is getting softer. Lithium or the price of lithium has become a lot less relevant in terms of how this is priced. So that's an important point to add. Having said that, we do believe that we will continue seeing some price reductions going forward and we plan for it and we work for it.
And our guidance takes into consideration the fact that our pricing was going to will continue coming down. We see strong elasticity of demand in this market, strong. You see it in our pipeline, 65% growth in less than a year. See it in our backlog, just looked at our orders this year, we were able to contract the same volume we recognized last year,
Julian Nobreda, President and Chief Executive Officer, Fluence Energy: just in a quarter. So that tells
Julian Nobreda, President and Chief Executive Officer, Fluence Energy: you the tremendous electricity of the plant. So we're as I said, the prices are not we're not going to see a repetition of 24. We will see prices continue to soften and we're ready for it. We have a view of what how it will work and we can commit to our 35% to 40% growth out of our $3,000,000,000 midpoint our prior midpoint with that information. In terms of competition, this has been always been a very competitive market.
It is not getting more competitive. It is essentially maybe the names change because people realize that they cannot deliver what they say they can deliver and they cannot go away. But the competition has not been down. I haven't seen there are a lot of players that are talking about stuff, but when we talk to our customers, these are mirages. There's nothing behind it.
We're going to do this in Dallas, in Arizona. And when you when I've clearly, I don't a lot of these competitors, I do not get the information. But when I talk to my customers, I think we went there. There's nothing. You cannot touch it.
You can it's so it sounds very, very good, does not exist. So, hey, we do expect more competition in the U. S. Market, and we are ready for it and we love competition. So we're ready for that, but I do not think that it will take a while for a lot of these dreams to become reality from their part of it.
Leslie Timmai, VP of Finance and Investor Relations, Fluence Energy1: Great. Thank you. I appreciate it.
Conference Operator: Our next question comes from Joseph Osha, Aguahe Partners.
Leslie Timmai, VP of Finance and Investor Relations, Fluence Energy2: Good morning, everybody. My first question relates to domestic cell supply. It was in an industry event a while ago. Saw some numbers suggesting that by 2026 when this 301 tariff comes into effect, The industry is only going to be able to meet maybe a quarter to a third of demand with domestic resourced sales. I'm wondering if you have a reaction to that and if you're seeing kind of the same numbers?
Julian Nobreda, President and Chief Executive Officer, Fluence Energy: We heard that all there are people who said whether we're going to be a surplus and there are people who say if you looked at all the products that are around and people that have the view you have that this is going to be this market is going to have a huge deficit. Probably somewhere in the middle. It's going to be a tight market, I believe, but I think that there will be enough to cover I don't know about 26, that's a little bit. But over time, we'll have enough to cover the demand in the U. S.
This is very important and it will happen. We will work to meet that demand from our part. So I think that there will be more players. So we don't expect a market where we'll be so tight as you probably have read some of the reports around.
Dylan Massaro, Analyst, Wolfe Research: Okay. Thanks.
Leslie Timmai, VP of Finance and Investor Relations, Fluence Energy2: And then my follow-up, I'm just wondering, lots of chatter out there about project timing. I'm wondering if you look at if your storage only business relative to your storage plus solar business, if you're seeing perhaps any greater level of volatility or movement and uncertainty in the solar plus storage business because it certainly seems like we're picking up those signals from some of the other folks in solar world. Thank you.
Julian Nobreda, President and Chief Executive Officer, Fluence Energy: I mean, the reality is we haven't seen anything get any worse or deteriorated in any way. Normal project when we get involved, normal project delays that a transformer is late, but we thought all counted in weeks or not in years or in months. It is the normal delays you get in a project that permit to move things through a street or things of that sort. So I will not we haven't seen and it's not any different between the projects that we do, batteries, stand alone, which are is mostly in our international markets than the ones we do batteries and solar. It's the same type of delay.
But as we have said, and we get into this project a lot later in the process. So when we're there, our customers have signed PPAs, they have financing, they have all the permits in place. So the stuff that gets these things delayed are things that delays by weeks, never mind.
Leslie Timmai, VP of Finance and Investor Relations, Fluence Energy0: Thank you.
Conference Operator: Our next question comes from Brian Lee at Goldman Sachs (NYSE:GS).
Leslie Timmai, VP of Finance and Investor Relations, Fluence Energy3: Hey guys, this is Tyler Bisson on for Brian. Thank you for taking our questions and congrats on the solid results here. Your pipeline appears to have grown the strongest in APAC and EMEA. But I guess I would have expected to see continued strength in the Americas given growth from data centers as well as domestic content. I see the CAGR growth is higher in both regions, but from a lower base.
You called out growth in Germany and Australia. So are you seeing certain products getting better than expected traction there? Or are there any other markets where you're seeing outsized growth?
Julian Nobreda, President and Chief Executive Officer, Fluence Energy: I think the ones we talked about, Germany is a new nascent market that is very, very attractive. Australia has been growing and we see big prospects for continuous growth. So as you said, we have seen the growth rate out of a much lower base, but the growth rates in our international market growing more strongly. And the thing is that because our international markets are a mix. Things move here or there differently, and they're not affected.
So very, very happy with our global strategy. I think that's kind of what I would like maybe highlight. This concentrating globally and working with globally gives us an ability to manage headwinds that you might get here or there much more effectively than if we were only a company working in a few markets or only in a couple of markets.
Leslie Timmai, VP of Finance and Investor Relations, Fluence Energy3: And then you guys called out 40% of your U. S. Pipeline data centers. How do you expect that number to trend going forward?
Julian Nobreda, President and Chief Executive Officer, Fluence Energy: Yes. I hope that I think it will continue to grow. I think it will continue to grow and it's difficult to know. As you know, we get this demand indirectly. As we all listen to the calls of all our competitors all our customers and we know what they're doing.
They are talking about a game in the data all of them about a game in the data center market that I think it will be a multiple of what we have seen up to date. So I expect that number to grow.
Leslie Timmai, VP of Finance and Investor Relations, Fluence Energy3: Perfect. Thank you very
Julian Nobreda, President and Chief Executive Officer, Fluence Energy: much.
Conference Operator: Our last call comes from Biju Perincheril at Susquehanna Financial Group.
Julian Nobreda, President and Chief Executive Officer, Fluence Energy: Hey, Biju. Good morning.
Leslie Timmai, VP of Finance and Investor Relations, Fluence Energy: Hey, good morning. Thanks for taking my question. I wanted to ask about sort of the opportunities to use batteries for transmission applications in the U. S, sort of especially coupling that with DLR technologies? And also I want to see if there is sort of any regulatory changes that need to take place for that to be deployed here?
Julian Nobreda, President and Chief Executive Officer, Fluence Energy: Good point. We continue this is a great technology that has been very successful in Europe. We are promoting that technology in the U. S. I will say that the main and as you know, or as you probably know, the FERC allows batteries to be a transmission asset, so that's good.
A lot of the system operators are allowing it in their systems. Maestro came out with the rules in the New York Northeastern system allowed. So there are some rules. However, what we see is that there are restrictions on the ownership of the batteries by the owners of the transmission assets. You can put them, but they cannot be owned by the same entity.
And that I think is a restriction that needs to be and that comes out of the view that a transmission operator or owner cannot dispatch the generation or call in demand. And that's what Navator essentially does that. So that creates a regulatory hurdle that we've been trying to explain to regulators. You need to allow the same owners the same owner of the transmission asset to own the batteries in order for this to work. And we're working on it.
And I think that this become more and more of a success in Europe, but we'll see it happening in the U. S. So we're confident that it will
Conference Operator: happen. Okay. Thanks. This concludes the question and answer session. I would now like to turn it back to Lexington for closing remarks.
Leslie Timmai, VP of Finance and Investor Relations, Fluence Energy: Thank you for participating on today's call. If you have any additional questions, feel free to reach out to me. We look forward to speaking with you again when we report our Q4 results. Have a good day.
Conference Operator: This does conclude the program. You may now disconnect.
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