Fluence Energy, Inc.

Q1 2026 Earnings Call — February 5, 2026

open the call for questions. Thank you.

At this time, we'll conduct a question and answer session.

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To withdraw your question, please press star 1-1 again. Please stand by. We'll compile the Q&A roster. And

our first question comes from the line of George . Your line is now open. Hi. Good morning, everyone, and thank you so much for taking my question. Good morning, George. So maybe just to focus for a second on AESC, and I know you're in the process of resolving the ownership stake, but can you just help guide us as to what resolution will look like? Because there are several potential outcomes to this. So just help us understand how you're framing this for us. Thank you. Great. Thank you, Arch. Our main objective in our relationship with AESC is ensuring that we have access to PFP-compliant sales at competitive terms. That's our main objective. That's our priority number one. As part of that, we've been working with them on ensuring that they meet all the different conditions of the OBBA, OBBBBA. In terms of ownership, which is your specific question, we made them a proposal Our understanding today is that they will resolve that problem in some other form. So we got assurances from them that they will meet the conditions of the law, that they will resolve that problem, and they will resolve it without the need for us to get involved in the ownership structure of that plan.

So, you know, for us, you know, as you know, we have been working with them for many years. We trust them very much. things they're going to do and you know we're working with them and waiting for them to give us more light today they have not communicated to us the details of the expect to do it but we're very confident they will meet the deadlines of the law and the conditions you know in terms of the other ones related to material assistance and ip and all of that we as part of our process where we have all that information that's why it's the ownership where we still need to wait but And I will make a point that I think is very, very important if you let me, which is a side point here. The market for sales in the U.S. is expanding like crazy. We have all these EV battery lines that are converted into now into us. So we're seeing for the first time, you know, plethora of projects of people offering all types of things. So we are, if you tell me, we will see here in the U.S. something similar what we saw in China two years ago, you know, or three years ago when all these EV lines converted into us.

We're very excited about what the prospects for a company with our structure and our strategy will do in the U.S. during the next couple of years. So, you know, I think this is a great time. This is a great opportunity. We are very confident on AFC, and we are very, very optimistic about the future for the market for battery storage in the U.S. due to how the market is changing the dynamics. We saw what happened in China. last couple of years with the Chinese, when the EV demand came down and how that allowed for our markets to grow and brought in more suppliers, better quality. It really changed how the pet market changed. So we're excited about this time. If I may ask a follow-up segue into what the competitive environment looks like. And I would imagine some of these data center bake-offs, Some of the big hyperscalers don't want to use one of their competitors as a supplier, but are you seeing any increased competition from the likes of Ford, who's doing the exact thing that you mentioned, converting some of their cell supply into energy storage-related cells? So help us understand what the landscape currently looks like, particularly in data. Thank you.

I think the competitive landscape has changed today. There have been other people, but some... But I don't think the competitive landscape has changed at all. What we have seen is a significant diversification of battery cell suppliers. It probably will change over time. I don't disagree that it might change. Some people might decide to do different things. But what we have today is not real changes in the competitive environment, but a real change in the way they supply for battery cells in the market, especially for the second half of 2016. You know, and I agree, you know, there will be new entrants. This market is exciting. You know, it's growing crazy. There will be new entrants in the market. And we compete in the world with the, you know, with the Chinese state, you know, with our Chinese competitors who are the support of their government. So here competing against some of these players, I don't think it will be more difficult than what we do globally. So, you know, we like competition. It's a great driver of of our innovation and gives me wake up – allows me to wake up early. Let me put it away. I sleep very well. But wake up early, excited about what we're doing.

So excited about the prospects for the U.S. market. This is going to be, you know, the golden years of battery storage are coming. Thank you. Thank you, George. Thank you. We'll move it for our next question.

Our next question comes from the line of Brian Lee of Goldman Sachs. The line is now open. Good morning. Good morning. How are you doing? Good. Thank you for taking the questions. Um, I guess just starting on, uh, the data center related pipeline, you know, the 36 gigawatt hours, it's, it's pretty impressive. Google again, quarter on quarter. Um, I guess the focus and the execution question now is, you know, uh, First, how much have you actually converted to backlog? And is there any of that in the 750 million bookings you reported this quarter? And then secondly, it's a big number, 36 gigawatt hours. Can you just kind of give us a sense of the outlook in conversion ratio, timing that you're targeting? Maybe when do we really start to see this move into bookings and PML impact for you? Yeah, great. I mean, to tell you the truth, there's no – these are the new type of use cases, no? We have served data centers with a – behind, you know, in front of the meter solutions with the renewal companies. Those were not included in these services. These are, you know, behind the center or dedicated lines to data centers. So it's behind the meter or dedicated lines to data centers.

So it's slightly different than what we have done global, just the first part. Answering your question concretely, we have not converted into backlog any of the new data center targets. That's today. This is a new market segment for us. These are markets that we have not served directly before, before September or before a couple of months ago, we were serving this company indirectly. There's a new market segment. We are engaging with them, but it's very, very difficult for us at this stage. to give you a clear, you know, view of how much of that will convert and how will it work over time. However, we do, when we looked at the pipeline and we looked at what we are, the maturity of the project that we're working with, we should expect something happening, you know, in the second half of the year, but, you know, say fourth quarter, third or fourth quarter of the fiscal year, of the calendar year. That's what we should expect to do some conversion of this. We clearly would love to do it earlier. And this is coming to such an important segment that as we learn more about it, we'll probably communicate more.

But as of this stage, unfortunately, you know, we are learning how to do this, working with them for the first time. As you can imagine, some of these companies have been, you know, are very, very, you know, their supply chain teams are very detailed and they're really, There's a lot of value involved, big projects. So it's a lot of work we're going through that, you know, our teams are selling, you know, learning and working very well. But today we do not have an actual number that I can share with you. What's exciting about this, if I can give you, Brian, the point, is how fast it's growing, you know? That's today what we are communicating. This is going very fast. You know, we think we have a competitive advantage. We look at the other technologies. We believe we can do better than anybody else. And we're working very hard using – it goes very much to our capabilities of how to interconnect, you know, the things that – where we excel. So that's what we're so excited about. But today, as it is a new market segment, we cannot provide more clarity on it. Absolutely. No, that's great, Carlos. Maybe just two quick follow-ups on the guidance.

One, on the $20 million of incremental costs here related to the two projects, can you elaborate on kind of what those costs exactly were and then how you plan to recover those costs through the course of the year, the $20 million? And then secondly, Julian, obviously you're pretty bullish on the outlook for energy storage, whether they go to center or not. And you're saying that the guide is fully covered by backlog. So, you know, with pipeline and bookings continuing to grow, maybe it's a little bit too early. It's only fiscal Q1. But how would you characterize the upside potential to your kind of 2026 guidance outlook here starting off the year? Thank you, guys. I will go with the guidance for the year, and then Ahmed can give you details on the gross margin on the two projects I had. Well, I'll tell you on the guidance, you know, our approach, to our performance that we wanna, we're working towards meeting our guidance, we're committed to meeting our guidance, that's where you should expect from us. And that we, most of what we wanna like to provide you the better opportunity will be for 27 hours. That's what we wanna do.

So if you ask me today, our order intake for this quarter will be the lowest one of the year. It will be the low point of the year and we should be able to go and deliver better order intake that will provide stronger visibility for 27 and that's how we expect to drive and giving you a quarter to quarter you know appointment we want to keep this year where it is or in line with our guidance hopefully you know the top or whatever but not not we do not want to exceed we don't we do we are look we're working towards making 27 to making 27 you know, good news to the market. That's what we're working on. Today we cannot provide guidance on 27, but we will, that's what we're working on, and that's the way you should think about our company. So on the 20, on the- Sure. Hey, Brian. So the $20 million impact, so this is, the impact is at two projects, non-US projects. Two different countries, different technologies, different stages of completion. And the change is essentially the change in scope of the project in both cases. One is the scope change in equipment, and the other one is in the schedule.

So I think our plan is to basically, as we have done in the past, is whenever these changes happen, we always recover those under the contract from our customers. And that is what we plan on doing. during the rest of the year. So feel pretty good that we can recover this impact. Okay, helpful. Thanks, guys. I'll pass it on. Thank you, Ryan. Thank you. One moment for our next question.

Our next question comes from the line of Dylan Asano of Wolf Research. Your line is now open. Good morning, David. Thanks for taking my question. Just wanted to check. So Tesla mentioned on their earnings call that they foresaw some mega pack margin pressure this year. They named some things like competition tariffs and the like. So just wanted to check. Have you seen any kind of intensification on any of these issues recently or you feel like you've already accounted for this all in your current outlook? Yeah, I mean, yes, we also saw that. We don't see any major competitiveness, no real changes. Unless Tesla is referring to us, maybe. That's the only thing I can think of. They're saying that, hey, we're too fluent, I mean. But in terms of tariffs and all of that stuff, I think we are very much online. So we are confirming our guidance with a view that there's no real change. So we are not very clear what they were referring to. Got it. The competitive environment, which has always been very, very intense, not any different. And the tariffs have been very stable. So we don't expect any major changes in 26 numbers.

There's some movement, not real movement, so we're confident in what we're confirming to us. Got it. Thanks. Appreciate that. And then for my follow-up, just kind of given some of the margin headwinds this quarter, can you kind of confirm that if you do end up being the acquirer of the ASC facility that, you know, you feel good about kind of the, uh, your liquidity situation and no need for any kind of external capital to... Yeah, no, from ASC perspective, we already talked about in the last call, you know, we have affected that in our forecast that we shared in the last quarter outlook for the year. So I feel pretty good. Well, as I said, I don't think we don't expect that they will resolve this issue some other way. That's our understanding. Got it. Thank you. Thank you. One moment for our next question.

Our next question comes from the line of Julian DeMunion-Smith of Jeffery. See, the line is now open. Hey, good morning, team. Can you guys hear me okay? Yeah. Hey, Julian, how are you? Hey, pleasure. So maybe just to follow up on the data center opportunity here, I wanted to press a little bit further. How are you thinking about your products fitting into what the data center community wants, especially when it comes to ramp time, interactivity? Again, I get that the product could work, but how do you think about it fitting into your product roadmap, if you think about this? Again, there's probably an iterative nature of what they're looking at versus what you're providing here. Can you speak to that a little bit and then separately relate it How do you think about setting expectations to include explicitly data centers into your pipeline and backlog specifically? In terms of our product roadmap, I think as we have communicated, there are different needs that we're meeting. I will say in the great majority of needs, there's no real change. And we have a very strong competitive advantage. Why? Denses products. You know, very safe. We are designed...

The risk of a terminal runaway is very limited. Reliability, we have our reliability last year was close to 99. Very few people can do this. So we've done very, very well. Cyber security, nobody, we've been working very, very strong. So we're very, very happy on that part. Therefore, one of the needs, which is the quality of power, they need response time of below 10 milliseconds. And we have a roadmap to deliver that part. But when I looked at the pipeline, that's one of the areas where we are competing with other technologies. And we're not necessarily the first. That's not what's driving the contracting we see today. There are some projects that are connected to that, but that's not what's driving it. We want to serve it. We want to do it. We're offering this high, very, very quick response time. But just to be clear, today it is more connected to speed to power and to bring your own generation, you know, applications than necessarily to quality of power, you know? So we're very, very, you know, we're very confident. We're also, you know, we're not a competitor of the data center.

We've been very, you know, historically a company that has been very customer-centric, so we And these are big buyers, so we are adapting the way we contract, the way we think to them. So I think that we are in a very, very good position. In terms of how to, you know, as I said, unfortunately, on your second question, on our ability to give you a proper guidance on when will things will go into the pipeline and when we'll convert it into a backlog, it's a new customer segment. So for us, we're learning, you know, we We are moving forward and I think we're getting better and better every day. And my sales team is really excited about this. And we brought in Jeff, who's doing a great job on this. But today, you know, it's very difficult to commit to this. Additionally, as you know, I have to be very careful with my competitive information. So we will try to provide you as much information as we can without necessarily playing our card or what we're doing. Because, you know, there are a lot of people trying to do this job. and we don't want to provide them with competitive information. So that's where we are.

We're excited about the growth, excited about how we fit into it, excited about the way we approach our customers that will work very well with customers, and our product will do a wonderful job, and hopefully we will see more and more coming up. And as this market segment develops for us, we should be able to provide you more clarity. Got it. All right. Just maybe not quite ready. And then on AESC, just to clarify earlier, you would not expect an ownership outcome. This is more of a contracting relationship. And ergo, perhaps we could see other potential counterparties that you'd be negotiating with for your domestic cell supply? I will say we have an MSA. The MSA will say we respect it. But, you know, we were looking, we have made a, We provided ASC an opportunity for us to take ownership on it, which they now have resolved with that. So our contract will not change at all. We will be an off-taker. Our technologies are very much intertwined, and we understand that the solution that ASC is working on, which I don't have the details, will not affect in any way any of the issues we have.

We were trying to resolve this issue for them, so we had given them that, which was a good offer, but clearly they have something better, some other solution that is much more attractive. So we'll be an offtake. We'll continue being an offtake facility as we move forward. Right. And you could add a second offtake just to expand your data. Oh, we already, remember, last quarter we already added a second offtake, and as I told you, you know, So we already are working with some of the EV lines that are converted into VEST. And that market is getting, you know, very, very exciting. This is no different than what we saw in China two years ago or three years ago when you had all that EV capacity that suddenly didn't know where to go. So I think this is, you know, it's a good opportunity. Yeah. Awesome. All right, guys, I'll leave it there. Thank you. Thank you. One moment for our next question.

Our next question comes from the line of Mark Staus of J.P. Morgan. Your line is now open. Hey, good morning. Thanks for taking our questions. Julian, I just wanted to go back to something you said in the prepared remarks. When you're talking about some of the data center opportunities not being in the pipeline, Are you saying that that would be in addition to the 36 gigawatt hours that you're specifically calling out for data centers? Are you saying some of the 36 gigs of data center pipeline is not included in your $30 billion kind of overall pipeline? And then maybe just some color on kind of what delineates what goes in and what stays out. Yeah, good. So the 36 gigawatt hours we have there are projects we're working on. someone in the pipeline, someone, some of them are leads. We're giving you a number because that compares to the 30 gigas we gave you last quarter. In order to get into our pipeline, we need to ensure that we believe there's more than a 50% probability of the project occurring within the next two years. So some of these projects, you know, these are new things.

So we are trying to, and we're very careful because we want to be sure that what comes into our pipeline That drives another set of decisions internally on how we invest manager. So we're very careful looking at this. As these things coming in very, very quickly, we're looking at them and deciding which go into a pipeline. Some of them will probably not become part of our pipeline over time, but the ones that come into our pilot because are the ones who are gonna be investing money and providing offers and doing the engineering and working on them. So that's it. The 36 gigas, If they were all to convert into a pipeline, it's an upside to the pipeline we have today, to the 30 billion pipeline we have in front of us. Okay. All right. That's helpful. Thank you. On the long duration side, don't think this as a complaint. 30, 34 gigawatt hours is a very big number, but it is down from what you were talking about last quarter. So I just want to ask, Ask kind of what's going on there quarter over quarter. No, that's a good point. Last quarter, we talked about what we believe the time was. The rest of the market was 60 gigas, of which we had a small portion.

We put our things to look at that. And these are now, these 30 gigas are projects that we are either in pipeline or in fleet. People that were working on preparing the engineer, looking at it, identifying. So the numbers are different. The other one was more of a time. I'm sorry that I saw that in a few notes that we created that confusion. The 60 gigawatts last time was a more total addressable market that we saw at the time. That included projects that were in markets that we do not serve or customers we don't work with or things like that. So now the 30 are projects that have the potential to become part of our pipeline because they are in markets we serve and customers we like to work with and we're just going over the work on how much of it we believe has a 50 percent chance of really – and the 50 percent chance looks at interconnection, land rights, ensuring that that thing is actually a project that has not a pie in the sky. Great. Okay. Thank you. And I'm sorry for the confusion at that point. I read that in a couple of notes, and we probably were not clear enough the last time that the 60 was a time. not projects and leads that we're working on. Thank you.

One moment for our next question.

Our next question comes from the line of Tempo Gozai of Bank of America. Your line is now open. Good morning, Ahmed. Morning. Thanks for taking this question here. Just given your commentary on strengthening the domestic supply chain and modules all out but ahead of plan, Can you give us a sense of the mix of U.S.-made versus imported cells that's kind of embedded in your 26th delivery plan? And specifically, how much of that supply is kind of already on hand or contracted for the year? And then I have a follow-up. Yeah, okay. I'll have Ahmed walk you through the number. The mix is – hi. Good morning. So mix is roughly half and half, I think, is the domestic versus import. Yeah. Okay. And your second question was? Sorry, I missed that. That's fine. And then I asked how much of that supply is already on hand or kind of contracted for the year? So we have secured 100% of our domestic and international needs for this year. Okay.

And then secondly, just to draw on that, right, as we kind of think about this gross margin or structural gross margins, can you help us frame, you know, the gross margin delta between, you know, systems that are built with non-PFE US-made cells versus, today's imported mix under the current 48% tariff load? So I think we look at, frankly, from our perspective, is blended trade. I mean, the guidance we have given is 10% to 15%. It all depends on the project scope. Sometimes we have EPC, sometimes we don't. So I think net-net, that is what we are looking at between 10% to 15% margins. Regardless of where the cells come from, regardless, like when it's non-PFE and with the tariffs, with extra tariffs. Yeah. I think, I mean, it could be, you know, depending upon situation, you know, so I think, but net-net, that's where we land in that range. Thank you. Thank you. One moment for our next question.

Our next question comes from the line of Ben Calo of Bayer. Your line is now open. Hey, good morning. Thanks for taking my question, guys. My question is around leverage, but I want to get at it from volume. Could you talk to the amount of volume, because you have this massive pipeline that you could execute on. Just how do you think about your contract manufacturers and your own supply chain? people and capital constraints that you guys have. If you want to go up to, say, 10 gigawatts a year or something like that, what is the process for that and how much flexibility do you guys have to ramp and execute that? And then specifically outside of manufacturing and your contract manufacturers, on the liquidity side, because we did see you do a capital raise for working capital. And as these numbers get bigger, I know you have a billion dollars in liquidity plus, but that might not be enough as we start talking bigger numbers. So if we could just address that. Thank you. So I will address the supply chain, and I will ask Ahmed to talk about working capital and capital, you know, the capital plan.

A supply chain, the way we work, is we have a long-term plan of volume that, you know, has a base case, that has an upside case, and it has a, you know, hit it out of the park case. And we serve those needs with different sources of, you know, suppliers that work either way, you know, so we have base suppliers that support our normal work, upside suppliers that have attrition capability, and we also identify players of which we can play. So we feel very comfortable. We have the supply chain to go even beyond what, you know, what we are, our upside cases that we communicate to significantly above that. So it is a work of working with our suppliers with, you know, building a little bit of spare capacity, providing suppliers that have for some capacity they can deliver. So it's a little bit of a renegotiation starting. And it has been working well. And my ambition will be to use it. You know what I mean? To be able to use it today. And we believe that the world we're entering into, this might be probably an option that will happen. In terms of capital, I will ask Ahmed to Sure. So I think you're right.

We have a billion dollar liquidity, which we believe is sufficient to support our current plan. And I mean, in terms of the additional capital needs, I mean, Julian talked about today, you know, significant opportunities we see. And those opportunities will require additional capital, you know, once they materialize, I think. And then we will be frankly opportunistic, you know, to see what happens. how we can raise that capital. But at the end of the day, we will be very mindful of creating value for our shareholders. I think that's our job as a management. And then just a follow-up on the leverage side, could you just talk about what type of scale and translate in that operating leverage? the current gross margin, if that's what we should expect, even if, you know, as your volume grows, or does that gross margin get bigger? Is there any leverage there? And then how that translates into operating margin. If you can give me any framework there, Kelso. Yeah, I'll tell you.

The way we've been communicating, I mean, the way we think about this, actually, is that you should assume that our gross margins stay the same and our ability to grow are a bit that will come out of our operating leverage. And how do we think about it? and to tell you, A, that our top line growth, our overhead would only grow at half and no more than half of the growth of our top line growth. So, you know, say if we grow at our, you know, top line growth goes at 100, our overhead will grow at less than 50%. And that's where the operating leverage is, and that's what you should think about. If you believe that we can grow, let's say, at 100, then that operating leverage gives you significant appetite Thank you. Thank you. One moment for our next question.

Our next question comes from the line of Vikram Bagri of Citi. Your line is now open. Hi. Good morning, everyone. A lot of discussion about competition and you highlighted significant opportunities as well. I wanted to ask, how important is it for you to be vertically integrated given the rising competition? How are the M&A opportunities that you see today? And then finally, could you share the threshold of return for you to make an acquisition, whether it's a ESC or someone else? How do you look at the possibility of M&A in terms of accretion or return on invested capital? What's that threshold? So how do we think about vertical integration? We are very much integrated with our suppliers because our suppliers sell back to us. our designs, our IPs, our, that's how that would work. Very much they were using our own engineering is what's driving our supplier base. So generally our contractor manufacturers are allowing us to have a competitive cost with access to the technology we need. So we don't really see a strong need for vertical integration. Things change that you could think about it, but today we don't see any strong need to do it.

We can work with contractor manufacturers that integrate our technology into hardware and our software into hardware that we can then convert into product at a very, very competitive price. So we're happy on that. In terms of any acquisition, generally, it'll have to be accreted for us. So that's how we looked at it. You know, when we were doing, evaluating the potential acquisition of AAC or participating in that deal, you know, we have to be accruing. So it has to make sense. So, you know, and the accretion needs to create, you know, needs to reflect the additional risk that you take when you integrate vertically. Because what the great capability we have is that we are very agile. We can have three or four different battery manufacturers integrated into our system that we have developed our Smart Start that it can integrate any battery. I'll te

Q4 2025 Earnings Call — November 25, 2025

Analyst George Giannourakis (Canaccord): Hi, good morning, everyone, and thank you for taking my questions. I'm just curious if you can share any thoughts on what you're seeing in the competitive environment, any changes there in the U.S. and internationally. Thank you.

Executive Name (Title): I mean, internationally, not real change. You know, it's a very competitive market, and, you know, the Chinese players continue to drive the competition in a way. The U.S., the competitive market is changing. We see more and more customers that prefer to use U.S. or non-PFE manufacturers, even if they are not required to do it because the projects are safeguarded under the law or you know, of that provision. So I will say that, but it's an evolving matter that we see coming. So that's kind of today where I see the market. Thank you.

And maybe as a follow-up, Ahmed, I think I heard when you were talking about gross margin or margin guidance for 26 that you expect margins to improve over time. Were you referring to gross margins moving beyond the 11 to 13% range you got it for next year, say in 27, 28. Thank you.

Executive Name (Title): Yes. Yes, hey, George. Yes, I think our goal is to continue to improve the chart that we have disclosed. I think our goal is to continue to show that chart going forward, to show the trajectory and the difference we are making. Our guidance, as you recall, was 10% to 15% in the past. I think we haven't changed that going forward, so our goal is to continue to improve that trend line. Thank you.

Analyst Brian Lee (Goldman Sachs): Hey, guys. Good morning. Thanks for taking the questions. Kudos on the quarter here. I appreciate all the color, Julian, on the data center sizing. It sounds like that opportunity is coming to fruition here pretty quickly given the timeline you expressed. But can you maybe help us a little bit understand, first, the sizing of the market? I guess if we take the 30 gigawatt hours of data center projects in the pipeline and leads, that's maybe, if we estimate maybe $6 billion of the total $23 billion pipeline in that neighborhood. Is that kind of the way to think about it? And what do you think the overall TAM is and what Fluence's market share could ultimately end up looking like?

Executive Name (Title): Good question. Let's start with the TAM. Last quarter, we talked about a time of around $8 billion. So I think that it's clearly the reality is proven that the number is significantly higher. The market has still very, very different numbers. We have seen numbers of 10 times the $8 billion or more than 10 times the $8 billion. It's still unclear. We have to, I think, wait a little bit more. But clearly, it's a market that is expanding. The 30 gigas that we talked about as of September 30th only 20 percent of it one small portion of wearing our pipeline the rest were contacts that we started to do with customers since then.

And then today if you ask me this morning, roughly half of the 30 gigas are in pipeline the other half we're working on it and you know what we're looking is, will they happen in the next two years? Do we see our product is suitable to do what they want? Generally, I think we're fine. So what's a big change from telling you a quarter ago, this is an $8 billion market requiring these very, very complex capabilities to today? I think there's a big change in terms of what we can do for what our technology and fluency in particular, can do for data centers.

And I would say the way to think about it is that there are three needs. One is what we call interconnection flexibility. The ability to manage the energy demand in a way that you can interconnect easier to the grid and you can manage and the distribution companies or the service provider can manage your demand to keep the data. So that is by itself I will say today the biggest driver, people who want to connect quickly to the grid and want to ensure that the data center meets the availability of the grid and can give the assurances to the grid operator that they will not disrupt it. And we can do that today. That's what works. We have no need for improvements in our technology stack to be able to do it.

So great. The second one that is also an arising need or rising need is backup power. Historically, we haven't played that game. But with our costs coming down, as they are, and our density improvement, we can now provide backup power and significantly reduce, I won't say eliminate, but significantly reduce the need for diesel generators. So that's the second need that we're seeing. Accelerating the connection to the grid, and we can reduce some of the cost of the diesel generators by providing backup.

The third one is the one we have talked about in our last call, this power quality, this idea that we will have to manage the variability of energy demand by AI data centers. If you ask me today, the first thing is that there are other technologies that I can't address that. That's a front one. The second one is that it is a need that is not as big as we thought it was going to be. So it's probably that eight, you know, around that $8 billion number. And, you know, it is something that data centers, when they looked at what they're doing, their speed to power is a much more important element than this one because the other one they can manage in some other way.

We are committed to delivering the three products: the interconnection flexibility to accelerate interconnection, the backup power capabilities, and these two that we can do today. And we're very well positioned to do. SmartStack is the densest project in the world. It is a project that, because of the Pulsar, the way we're designed, provides very good safety. Better than, I would say, very, very good. And then third, you know, our cybersecurity, our total control on software, our ability to ensure that no one else can get in, you know? So the power quality is something we're working on with our inverter manufacturers. We'll get a result quickly, but it is still, you know, it's still a working problem. But we thought that was going to be a gating item. The backup power is going to be a gating item for us to serve this market. That's no longer the case. You know, it is, I would say it's a cherry on the top. If you can deliver the last two, and this one is great, but, you know, it's not a gating idea.

So great market, multiples of what we told you in terms of what we do, and we all need to do a major technology. And my last point, we, you know, we don't have a clear view today. This is just our, how much we can capture. But I will say, are very well positioned to do it safety density you know some of our competitors are claiming density which is 20 25 percent less than what we can do so that tells you we can do we can do very very well and we are, you know, we have we hired Jeff, Jeff comes with knowing how to serve this market he's been, you know, one of the instructions go and get this done and this is not only happening in the US it's a global phenomenon we have in our pipeline it's mostly US today but we're starting to see pipeline coming both out of Australia and Europe. Sorry for the long answer, but we're excited about this opportunity.

Yeah, no, I can definitely sense that. I appreciate all the color. Maybe just one more question on that topic. From a P&L timing and impact perspective. Can you give us a sense of, you know, the conversion timeline for this data center pipeline? And is any of it embedded in your revenue guide for fiscal 26? And maybe just lastly, margins relative to core margins. Are these going to be higher margins just given the customer subset you're dealing with? Curious on the impact on margins as well. Thank you, guys.

Executive Name (Title): I'll say that of the 30 gigas half hour 26 order intake, half of our 27, give or take, you know, and most likely projects that will be, you know, will convert to new order intake later in the year, no revenue for 26. We have to see how much revenue for 27, it's unclear. In terms of margin, you know, hey, this is a new segment. I don't want to talk about it publicly, but what I will say is that we can provide a lot of value to our customers, a lot of value. We can deliver our product quickly. give them the confidence on our security, the best density. And we are, you know, and so we are, we are very confident that we can create a lot of value to our customers. That's why we're concentrating. Thank you.

Analyst Dylan Nassano (Wolf Research): Hey, good morning, everyone. Thanks for taking my question. I just want to go back to the Q4 kind of underperformance versus the guide. I know that in the previous quarter, manufacturing delays kind of came up, but it sounded like maybe those were resolved and you were operating on schedule again. So I just want to check, you know, what kind of changed between the last call and now, and like, are these incremental kind of problems that popped up and anything you can give us just to kind of boost confidence going into the quarter that, you know, these are kind of resolved at this point?

Executive Name (Title): So we have, you know, same thing, and, you know, clearly we're disappointed with what happened. No, I mean, first thing, but I don't want to sound apologetic in what I'm telling you. So what do we have? We have our suppliers in the U.S., many, but let's say the three main suppliers. Out of the three main suppliers, two are doing great. I will say even more, the two that have the more complex process, you know, are doing very well. So we're very happy ahead of schedule, doing wonderful, you know, no problem.

We have a less complex process, which is enclosure manufacturing. When we met last quarter, we had a plan that was going to be able to, was going to allow the delivery of our revenue for the year, but that it required a major staffing process that I think we underestimated. The ability to staff that facility. I think that today that we have done two things. We have clearly gone out and continued staffing and preparing people. And we're essentially done in terms of staffing. There's still some people, but it is essentially done.

And we have made some changes in the way we are, you know, with our contract manufacturer to ensure that we that we need to facilitate the manufacturing process. That's the right word. And I think the two combinations, having staffed the place, and we're talking about a significant number of people. This is roughly 500, 600 people that we needed for that facility to work with three chiefs and all of that. We were essentially fully staffed. And with the changes in operations, we are meeting an No, I think we are, we expect to do, we were doing at the end of last quarter, you know, one and a half enclosures per day. We are already at five and we are ramping up and I don't know if we will be able to meet our numbers very well. So we are very confident today. Unfortunately, we did not meet what we could not deliver on the revenue. We are disappointed, but we learned very quickly. Our operational manufacturing team is very, very good. and they have put in place the correct measures to do this.

Yeah, Dylan, the only thing I would add is I think that from our perspective, as Julian said, yes, because of the labor shortage, we were roughly one and a half containers per day. Fast forward, we added 500 people. We are now running at five containers per day, which is in line with our expectations for the quarter. So we feel pretty good where we are. Equally importantly, I think we pulled all levers to deliver on our profitability commitments. As you saw, the margin and EBITDA, we are in line with our top end of our range.

Analyst Dylan Nassano (Wolf Research): Got it. Thank you. I appreciate that. And then my follow-up, I just wanted to check on this new cell supplier. Can you just give us any more color around how much incremental capacity this may get you? Um, any, are you prepaying for any cells like similar to what you did with ASC and, and yeah, so mostly just, just curious, like, does this get you net, uh, additional capacity to serve us market?

Executive Name (Title): Yeah, I can take that question. And Dylan, yes, I think this gives us enough capacity to serve our projected loads for the next couple of years. So we feel pretty good what we have signed. And in terms of the deposits, no material deposit commitments. I think it's just as we get the deliveries, we make those payments.

Analyst Amit Thakkar (BMO Capital Markets): Hi. Good morning. Thanks for taking my questions. I just wanted to kind of go back to kind of the implied EBITDA margin for this year versus last year. I mean, it looks like the EBITDA margin is down, and I know the gross margin is also kind of down sequentially, but it looks like the implied AHPs in your bookings are actually positive. pretty significantly, kind of quarter over quarter. I was just wondering if you could kind of walk us through why I guess the gross margin is lower year over year versus kind of over 12 months. Thanks.

Executive Name (Title): So I think the ASPs

your question is yes I think is is down but no surprise I think ASPs are down roughly I think give or take 10 or so in terms of the gross margin I think we basically are pretty much in line I think the EBITDA margin as you ask, you know, it's obviously the operating leverage, you know, because volume was less. Last year, our overall revenue was 2.7. This is 2.3. So, yes, I think, but the more important thing, frankly, from our perspective is as we grow the top line, we will benefit from the operating leverage, and our goal is to continue to grow EBITDA. Obviously, that is what the shareholders care. At the end of the day, top line is great, but at the end of the day, that should translate into the bottom line. And that's what we as a management team also are on the same page. So stay tuned. I think our goal is to continue to improve the top line and also the bottom line.

And then I know you kind of talked about a couple of kind of uses of liquidity for next year. But just in terms of kind of like the kind of the free cash flow expectations relative to that $50 million kind of EBITDA guidance at the midpoint, any kind of kind of, I guess, guideposts there, please?

Executive Name (Title): So, yes, I think the $50 million EBITDA, I talked about the working capital, roughly $100 million, as our revenue is growing from 2.3 to 3.4, so $1 billion or so of additional. If you recall, we said in the past, working capital needs are roughly 10% of our growth in revenue, so about $100 million of working capital needs. And then $100 million of investments in the domestic content, as I mentioned in my remarks. Beyond that, we don't have any material commitments. So I think next year, our goal is to be pre-cash flow positive as our revenue grows and our EBITDA grows. So I think that is the goal. But this year, $50 million is the EBITDA, but then we have working capital needs of $100 million. But I think more importantly or equally importantly is liquidity will remain very robust with this working capital use. So our goal is to continue to strengthen our value sheet with growing cash and our credit facilities. So it feels pretty good where we're going to land at the end of the year. Thank you very much.

Analyst Jillian Dumoulin-Smith (Jefferies): Hey, good morning, team. Thank you guys very much. Nicely done this quarter. Just following up, Ahmed, a little bit about some of the margin commentary and just filtering that back in with AESC. Can you comment a little bit on how you think about margins being tethered to whatever happens with respect to your domestic supply, whether that's with AESC or incremental supply? Is that part of the commentary about margin improvement? And then related, can you just give a little bit more of a detailed update around AESC specifically? I know that you sort of quote-unquote procured a backup here, if you will, but how is that relationship evolving here? How would you frame out volumes from one side or the other side of that supply range right now at this point?

Executive Name (Title): In terms of margins, in terms of AESC, I mean, any deal we might do with AESC will be accretive, so that's the way you need to think about it. When and if it happens, we'll communicate what it means in terms of margins. And I think that image point was more general. When you looked at our performance, at least things I got here, the company was negative margins of 4%. We're now on a rolling average of top month average. We're now at 13.7. So, you know, my point is we're all here. want to commit to continue showing and growing. That's kind of what we're doing and we're finding ways to do it today and continue to work on it.

In terms of ASC, what I would say is that we are, you know, maybe the OB3, OBVA compliance is a complex process. We have been able to make a lot of progress and generally you can look at it from three areas. You need to meet the IP and I think we have a solution that's done and we can the IP that in that for that production facility meets the criteria of OBVBA 3 OBVA or will meet the computer then we have the, you know, material assistance the need that the suppliers of the facility cannot come from FPF suppliers we have a plan that will deliver that. And then we have the ownership. And the ownership is the one where we are still debating. We're making good progress. We're committed to resolve it, but we haven't, you know, we have not reached a final deal. What we have always said, we're not the only option in town. So, you know, there are other ways that they can resolve this issue. You know, I don't want to, you know, we clearly believe that we are the best option from my point of view, but, you know, they can do something different.

So that, and then, you know, on the new supplier, I mean, what it is is, you know, we're generally diversified suppliers. That's a rule of life. We're diversifying suppliers. And the demand we see is very, you know, very big. So we need to continue to meet the growing demand. So, you know, our philosophy of diversified suppliers and, you know, and the growing demand call for the second supplier. So that's where we are. We are, you know, we see this as one of our competitive advantages. We are a first mover in this area, and we want to continue being the first mover. So that's a reason for our strategy.

And so just to clarify that real quickly, basically your current plan and current margin expectations assume that you're served with AESC, and would it be improved or detrimental to shift the supply, if I heard you right or understand?

Executive Name (Title): Yeah, and I will say the following. As I said, a potential deal with ASC will be accretive to the current numbers.

Analyst Jillian Dumoulin-Smith (Jefferies): Got it. All right. You're already haircutting it. Okay. Understood.

Executive Name (Title): No, I'm not haircutting it. I haven't done the deal yet.

Analyst Jillian Dumoulin-Smith (Jefferies): Okay. All right. Got it. Thank you. No, no. That's why I asked. Thank you, guys. I appreciate it.

Analyst David Arcaro (Morgan Stanley): Hey, thanks so much. Good morning. In terms of the data center pipeline, I was curious just to get what you're currently seeing. Is this bringing larger project sizes versus your current backlog? Is it more US-heavy in terms of region where you're seeing that demand and would be curious what kind of duration you might be exploring for those types of projects.

Executive Name (Title): Yeah. I'll say that generally, you know, we talked during the call with one of the big drivers of the elasticity of demand, that where you can see the elasticity of demand for our technology as prices come down, has been how projects are getting bigger. We have today 38 projects that are one gigawatt hour or more. I don't think that the data centers are, you know, bigger, naturally bigger, they're in line with what we have when you look at it. Some are smaller, some are bigger, but generally in line.

In terms of where geographically today, you know, I will say the majority come from the U.S., and we have seen some of the pipeline development in APAC and you know Europe is a little bit behind. But you know so as that will see what we will see this as a global market. So that's kind of our view in terms of duration use depends on the use case we see from a tool to you know long duration storage both the whole the whole nothing below two but that's what we are.

Analyst David Arcaro (Morgan Stanley): Okay, got it. That's helpful. And then I was just curious about strong order intake in the quarter, in this past quarter. I was wondering if you could talk to whether there's a common driver there that you're seeing. It doesn't seem to be data center growth just yet, if I'm interpreting that correctly. So what are you seeing in terms of what drove the strong order rebound?

Executive Name (Title): You know, it was Australia, the big driver of the strong quarter in 2020, the strong order intake. have these deals in Australia as you know that we were delayed in 20 25 you know we signed them all and they all most of them occur late in the year so that that's a big driver of it but you know we see for 26 the US being the big driver and you know and a little bit of a change and we'll see some I expect to see some data center stuff happening in 26 so late in the year mostly.

Analyst Mark Strauss (JP Morgan): Yes, good morning. Thanks for taking our questions. I just wanted to go back to the second domestic content supplier. Ahmed, I think you said that you're your needs are met for the next couple of years, but I just wanted to clarify, is that capacity available today, or is there kind of a ramp period that we should be expecting?

Executive Name (Title): No, I think the capacity is available, will be available in about the next 10, 11 months. But I think the capacity that we need to serve our load, as we discussed during the call, you know, we have about 85, 90% of our revenue in our backlog, and we have already secured the capacity for that. So we don't need this capacity, but we are now locking in additional capacity to basically secure our future business.

Analyst Mark Strauss (JP Morgan): Okay. Okay. And then on the long-duration side, is SmartStack the only go-to-market solution that you have there? Are you potentially looking to partner up, maybe being a systems integrator for some of the more emerging technologies that are out there? Thank you.

Executive Name (Title): SmartStack is what we're going to do, and we believe that it's very competitive, so it will be SmartStack.

Analyst Kristin Cho (Barclays): Good morning. Thank you for taking the questions. With respect to the data centers, you know, you mentioned the three different ways that you can serve data centers, the interconnection backup and power quality. Would you be able to break down the opportunity set here and maybe rank it? Is half of the opportunity for power quality and backup is the smallest? And for duration, you mentioned two hours is the low end. I'm assuming that's for power quality. Is it similar for those who are interested in getting storage for interconnection purposes?

Executive Name (Title): Yeah. First of all, that's what I would like to highlight. So we have these three needs. What's wonderful about our technology, and now talking about battery storage, not necessarily ourselves, is that we can stack up these three needs with the same technology solution. While the other technology solutions can do one or the other, but they cannot do what we do, which is facilitate interconnection, do backup power, and do quality. And that makes a difference. And I think that's what makes our solution so attractive.

To our two data centers, hey, we have resolved three problems with one technology. So that's very, very good. In terms of the two hours, these are, depends on the need of the customer. So I cannot really put out, can tell you this is what drives it, but generally you're right on the view that backup power and interconnection flexibility will tend to be longer duration. Well, power quality will tend to be shorter, but generally that's true. But I think you need to think about this differently, is the ability to serve the three needs with the same infrastructure. That's what we're aiming for, because that's where I think that will make our technology the preferred technology solution to resolve, to address these problems.

Analyst Kristin Cho (Barclays): Okay. And then if you are able to vertically integrate with AESC, how should we think about what the mix will be between the AESC supply and the second supplier? And with this second supplier, is the contract for a set amount of time? And then lastly, for your international projects, are you also diversifying your cell suppliers there?

Executive Name (Title): We've always been diversified internationally. We're just being diversified locally. My view of this is that we convert any battery into a great technology solution. That's what we do as a company. So the battery supplier is not as relevant. It shouldn't be as relevant. My customers shouldn't care. And my financial... The investor shouldn't care. The real value we bring is the ability to make any battery great, no matter what. So that was my answer to it. I don't know what the mix will be, but as I said, for my customers, it will be irrelevant.

Analyst Kristin Cho (Barclays): But, doesn't it matter in that if you are using AESC and you're vertically integrated, it's higher margin for you versus...

Executive Name (Title): Yeah, but, you know, I care about my customers. That's what I do. Yeah, we will figure out that part. But, you know, the important thing is the ability to success or the route to success in meeting your customer needs. You know, that's what drives a company.

You're right, you know we might be able to get a capture if we were to be vertically integrated you know it will be more marginal one or the other but my real the way to win is meet the customer that's the way to win not you know if you try to optimize something else you get you you lose decide your customer needs and that drives that drives profitability that drives margin that drives area.

Analyst Justin and Claire (Roth Capital): Hi, good morning. Thanks for the time here. So I just wanted to follow up on the second source of the cell supply here. So I think you mentioned it'll be available in the next 10 to 11 months. So just at the beginning of the year, do you expect to depend on the source of cells from AESC for domestic U.S. projects until that second source is available? And then, so I'm just trying to get at, you know, how important is it for you to resolve the challenges with the FEOC restrictions by early calendar 2026 in terms of, you know, thinking through the outlook for the year?

Executive Name (Title): I mean, very, very important. That's what I will say. We have a plan, and we've been working on it, and it's very, very important to do it. So that's what I can tell you. I mean, we'll get it done.

Analyst Justin and Claire (Roth Capital): Okay. Good to hear. And then just a follow-up on the data center opportunity. I was wondering, you know, are you seeing – You know, or could you talk about the ability to kind of successfully accelerate interconnection with storage being added to data centers? Is this being done today, or do you need the regulatory framework to change in order to support this use case? And then wondering, you know, what the timing of orders associated with that use case might be.

Executive Name (Title): We haven't signed any of these contracts yet, so this is a work in progress. But we believe we have the ability to ensure that the data centers meet the interconnection restrictions that they have. So I'll say yes. I don't think you need a major regulatory change. It's just ensuring that you meet whatever the grid is offering.

Executive Name (Title): Thanks, Livia, and thanks to everyone for participating on today's call. We look forward to speaking with you again by first quarter results, if not before then. And please do, looking forward to meeting with everyone as your questions arise. This concludes today's conference call. Thank you for your participation, and you may now disconnect.