Q2 2022 Fluence Energy Inc Earnings Call

Good morning, and welcome to the <unk> Energy, Inc. Second quarter 2022 earnings Conference call. My name is Brandon and I'll be your operator for today at this time all participants are in a listen only mode. Later, we will conduct a question and answer session during which you may Dallas zero. One if you have a question. Please.

No. It is zero one that star one I will now turn the call over to <unk> you may begin.

Thank you good morning, and welcome to fluids Energy's second quarter 2022 earnings Conference call.

A copy of our earnings presentation, and press release, covering financial results, along with supporting statements and schedules, including reconciliations and disclosures regarding non-GAAP financial measures are posted on the Investor Relations section of our website affluence energy Dot com.

Joining me on this morning's call are men well per ads Dubuque, our chief Executive Officer, Dennis Fear, our Chief Financial Officer, and Rebecca Ball, our Chief product Officer, and Siad Modini, our Chief Digital officer.

During the course of this call fluids 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.

Shipments 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.

Reconciliation of these non-GAAP measures to the most comparable GAAP measure is available in our earnings materials on the Investor Relations website.

Following our prepared comments, we will conduct a question and answer session with our team.

At 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 will now turn the call over to Manuel.

Thank you Alex.

We would like to extend a warm welcome to our investors analysts and employees who are participating on today's call.

Let's begin on slide four on the earnings presentation.

I will provide an update of our performance in macro environment. In summary, first we continued to experience strong demand for our energy storage products and services.

Addition, fluence is well positioned to capitalize on Europe's growing desire for energy security I independency.

Second we achieved a record quarter for fluids, the adult and acquire nice breadth.

Later in the call our Chief Digital Officer say, yet met Diana will provide more color on this acquisition.

Sure.

<unk> raised prices on new contracts and rollout the new raw material index or are my base pricing to protect against raw material price volatility.

Four.

We have been encountering headwinds in battery production that have resulted in forced my you're in some customer contracts at the same time, we are making progress on diversifying our bodies suppliers, which is a key strategic objective for us.

And fifth we also have made progress in rolling out our Gen six technology.

But still need to tackle further cost improvement.

Later in this call Dan It's fair, our Chief Financial Officer will address our Q2 financial performance as he will discuss we now expect to be at the low end of our fiscal year 2022 revenue guidance range as a result of the headwinds I meant.

And it's early.

Turning to slide five we had an excellent quarter of order intake across the business. We've contracted 582 megawatts of energy storage during the second quarter illustrating the continued strong and secular demand we are experiencing.

We have been working closely with customers to reflect cost increases for batteries and raw materials in new contracts and demand remain unwavering.

In our services business, we contracted 343 megawatts during the second quarter illustrating an attachment rate of 58% in Q2 below our target of 70%.

Many of the energy storage contract that we executed well with utility companies that tend to signed service contracts several months after contract into storage equipment.

We anticipate follow on services contracts will be signed with this customers during the second half of this year.

Through our experience in fiscal year 'twenty one.

And pleased to know that fluids <unk> de lever at a record quarter in terms of revenue and new contract during the quarter. We added two eight gigawatts of new digital contract and as of March 31st we have deployed or contracted seven point.

<unk> gigawatt assets under management importantly, this does not include the additional eight gigawatts under management associated with our <unk> acquisition, there's significant growth influence IQ is our head of our business plan.

I will also like to point out that this quarter, we added our first pumped hydro contract for one two gigawatts.

Representing a new asset class for fluids Iq.

Which opens up new opportunities for fluids dating application.

I would also like to make a few comments related to the U S Commerce department's probe into solar anti circumvention and dumping.

Though it is too early for us to speculate what actions could result from this probe we know that during the first half of this fiscal year approximately 30% of our overall order intake was connected to Greenfield U S solar plus storage projects.

In regards to our backlog, let me clarify that we are not responsible for procuring soil panels.

In the event that these are not available it is still commercially beneficial to our customers to complete the energy stored in installation piece to start giving you on this asset.

We currently have not seen an impact on pipeline relating to this probe however.

However, we are knowledge this could change and could impact as much as 10% to 15% of our project pipeline.

At least.

With respect to timing.

However, fluids is a global company with diversified offerings across the geographies and segments.

For example, we expect to see increased demand from Europe that is not yet reflected in our product pipeline.

Turning to slide six.

We are excited to continue outgrowing on our business in Europe , especially as the need for energy independence and security becomes part of them out.

Their recent geopolitical events in Europe exacerbated the need for many European countries to reduce their dependency on foreign oil and natural gas.

And one of the key solutions to address this situation will be an increased use of renewables, which will require more energy storage.

In fact in early March the European Commission launched their three power EU initiatives that will accelerate the transition to renewables by calling four nearly a doubling of renewable asset additions for up from approximately 42 gigawatts to sell.

98 Gigawatts annually.

2030.

As you can imagine.

This increase in renewable asset generation will create more grid reliability and stability issues.

Thus necessitating additional energy storage.

We have already see any increased interest from our customers in Europe from energy storage as a market leader in Europe fluids is very well positioned to capitalize on these emerging neat enabler Europe to achieve its energy independency unsecured goals.

Now turning to slide seven.

I would like to update you on the progress we have made in advancing our strategy.

Through the plan addition of concert.

Contract manufacturing locations in the U S and Europe .

We will be protecting ourselves against the logistical interruptions in sourcing logistics costs.

I am pleased to report that we have fine.

And the agreement for a U S based contract manufacturing facility.

And we expect to initiate production there towards the end of this calendar year. We are on track for starting our European based facility in early calendar year 2023, and look forward to providing you with an update on our next call.

As you may recall from our first quarter call, we announced a strategic joint venture with renewable power in India. We expect to have the agreements finalized in the coming weeks and we will.

Begin ramping up operations accordingly.

Additionally, I'm pleased to report that we successfully deployed a two point 75 megawatt CNI for outlook for Google in April to provide them with emission free battery backup power for their volume data center in fan Gippsland.

We are proud to partner with Google for this first of its kind product.

As they strive to become carbon free by 2030.

While the C&I segment represent a small portion of our overall mix, we're seeing increased demand for the data Center segment.

Their backup power requirements of these socs salmon out approximately 20 Gigawatts waterway.

This commercial development represents a significant opportunity for fluids us all their major organizations increasingly replaced Korean fossil fuel power backup systems with emission free battery backup solutions.

Turning to slide eight.

I would like to provide a brief update on some of the headwinds that we have been facing and the actions that we're taking to mitigate their impact.

First <unk>.

Apply chain disruptions have affected us in a couple of areas.

The shipping and transportation front, we have seen keeping rates stabilized providing better visibility on how to price new contracts, we still see global shipping capacity challenges and port congestion, but we are mitigating some of these impacts Mike cheapen earlier where possible.

The supply of battery sales is another area that has been affected.

As you May also recall, we have contractually secure.

20 gigawatt hours, so batteries from our suppliers provide enough adequate supply for our 2022 2023 niche however.

Majority of the world's current battery supply come from China, which again under one significant lockdowns to enforce their zero carbon policy.

These lockdowns are affecting suppliers ability to produce and ship battery cells.

In a timely manner.

Therefore battery suppliers in China have recently declare force majeure to us and others in the industry.

Under our contracts our supplier force Majeure Declaration allows us to declare force majeure to several of our customers for whom we will not be able to meet contractual timelines.

We expect this to protect us from possible timing related charges on the affected contracts.

While we do not know how long the current situation with left.

Working closely with our body manufacturers, both in China and elsewhere.

As part of our regionalization strategy, we have already be working to reduce our exposure to Chinese battery manufacturers by diversifying our supply regionally as well as by the number of suppliers and pleased to report that non China made bodies would represent about 30% of our.

Supply in 2023.

And we expect this percentage to grow in 2024.

We also have reduced our supplier concentration by increasing the overall number of battery suppliers.

Second as Denis will address shortly our second quarter results reflect good progress on reducing the one off items that were previously associated with the compounding effect on COVID-19.

We expect to continue reducing this impact as we progress through the second half of this year.

Sir.

I noted earlier, we have been moving to our <unk> based pricing for new contracts to protect against that volatility we have seen in the cost of raw materials.

So far we have seen a broad acceptance by our partners to engage in finding optimal and creative solutions for all parties.

Finally, we have made progress on installing and commissioning our gen six product in the field.

As we discussed on our previous call, we have experienced delays and additional costs associated with the rollout of our gen six over the past six months.

During this time.

Have documented lessons learned and conducted more training for our crews.

Faulty or substandard components from some of our body and inverter suppliers, where one of the reasons for the delays.

Particularly at the large installations.

That is why we have assembly and new supplier quality control team. The team is working with our suppliers to ensure components operate at design, which will reduce the risk of delays unforeseen cost.

As you can see on slide nine and pleased to report that we are now fully caught up on our gen six installations scheduled.

We have successfully installed 10 Gen six system since the beginning of this year with a combined power of about 420 megawatts.

This includes several mega site installations, such as Diablo and high Desert both in California.

Furthermore.

Many of these feature first of its kind elements such as the first energy storage co located with geothermal generation or the first product that Guy and 650 Millisecond response time.

Our amazing accomplishment and showcase our ability to innovate and push the boundaries of what is possible.

I will now turn the call over to say yet to provide a bit more color on the Mr acquisition and its impact on Fluence Iq.

Thank you Manuel I am pleased to have the opportunity to discuss this acquisition. The first since our IPO last fall I'll begin on slide 11, as Manuel mentioned like Fluence like huge disparity is a SaaS company, providing many key applications for customers looking to monitor analyze and optimize the performance and.

The value of their renewable energy assets. The spirit currently has eight gigawatts under management their flagship offering is in this spirit asset performance management platform or a P. M, which is sold to customers on a dollar per megawatt basis.

Platform includes SaaS offerings, such as digital twin and performance analysis and portfolio overviews.

In addition to the APM platform.

<unk> also offers for other applications or modules that can be added onto the APM for an additional cost that has similar dollar per megawatt price.

These other applications are in the areas of predictive maintenance portfolio management O&M and forecasting.

One of the distinguishing characteristics of new spira as their extensive use of machine learning to drive value for their customers. They are embedded machine learning and they're forecasting app and predictive maintenance app for both wind and solar and are actively working on new machine learning enabled that this aligns well with fluids side accused bidding application.

Which also uses AI and machine learning to drive value for our customers.

As you may recall the bidding App is currently influence iqs flagship applications. We are in the process of developing a dispatch app manager and invest app.

<unk> tend to utilize this theres a P M. As the foundation for our manager, which we expect will accelerate the time to deploy this application to the market not only does this provide us with a solid foundation for a man of jobs, but it also expands our digital portfolio geographic footprint.

You can see on slide 12. This there is in 25 countries, which provides us with a powerful cross selling opportunity for our products and services.

Fitting out won't be immediately available in all of these countries, bringing on as spero will help accelerate our entrance into additional markets around the world from.

From a financial standpoint. This transaction is on the smaller side and we expect it to be EBITDA accretive by the end of fiscal year 2024. So in summary, we are very excited about adding this spirit and to our digital portfolio, which now has a combined 15 gigawatts contracted or under management and are encouraged by the tremendous.

This growth we've experienced without platform with that I'll turn it over to Dennis.

Thank you said, yet and good morning to everyone on the call looking at slide 14.

First I will cover our second quarter financial performance, highlighting our record Q2 revenue. The progress we have made in reducing adverse impacts to margin and strong cash collections and improve liquidity in the quarter.

We will then discuss our revised outlook for revenue and gross profit going forward.

Turning to slide 15.

S model stated in Q2, we had very strong orders across all our business lines. More importantly, this success also shows the ability for the market to absorb price increases.

I'd also like to highlight that in the first six months of this fiscal year, if contracted more than one one gigawatt of energy storage product of which greater than 95% of its unrelated third party.

That's the model and so you had mentioned we are very encouraged by the demand we have seen on the digital side in the first six months of this year if contract with more than three gigawatt.

Rich about 70% of its unrelated third party.

I'd also like to point out that our digital numbers.

Including all pipeline do not include the acquisition of <unk>, which occurred in April .

Turning to slide 16.

<unk> had a record quarter in terms of revenue the 343 million represents a 96% increase from Q1.

As we just closed on a prior call about 100 million of this revenue was attributable to Q2 completion of installations previously shifted out from Q1, demonstrating our ability to deliver on our commitments to customers.

Right the longer time required to fulfill these contracts.

In addition, about 60 million of our Q2 revenue was attributable to a higher percentage of completion of certain planned Q2 installations in Q2, which pulled forward revenue anticipated for Q3.

Turning to slide 17.

In addition to the strong revenue recognition in Q2, we also made progress on our gross profit and gross margins on a GAAP basis.

Gross loss of $15 million improved approximately 72% from negative $53 million in Q1.

Driven mostly by a reduction in nonrecurring expenses.

Our gross margin improved from negative 30% to negative 4%.

Adjusted gross profit for Q2 excludes $3 million of nonrecurring expenses, primarily related to the 2021 cargo lots into them.

We delivered an adjusted gross loss of $11 million as compared to negative $8 million in Q1, while gross margin improved slightly to negative 3% from negative 5%.

Turning to slide 18, it delivered adjusted EBITDA of negative $53 million as compared to negative $43 million in Q1 <unk>.

Adjusted EBITDA in Q.

Nonrecurring expenses adjustments, mainly related to the 2021 cargo loss incidents as well as 3 million for stock based compensation adjustment.

Now looking at our cash position on slide 19.

I am pleased to report total cash balance increased approximately $44 million to a total of 723 months.

This increase in cash was due to strong collections from our customers coupled with customer prepayments with certain contracts we.

Continue to remain focused on our cash balance when we deploy our capital in line with our strategic framework.

We expect that our cash balance will be up to $250 million lower at the end of this fiscal year in part due to expected working capital both in the second half of this year driven by revenue shifts towards the end of fiscal year 2022.

Turning now to slide 20.

As Martin mentioned, we source many of our battery some components from China recently, the country has had significant outbreak of COVID-19 that has resulted in lockdowns across the country.

Do you have dedicated production lines with our battery manufacturing partners. However, these are currently running at reduced capacity as a result of not receiving the number of batteries that we previously expected and contracted for this in turn has affected our ability to produce some of our emerging storage product.

Previously scheduled for production in the coming months.

S model, notably in some cases, we have declared force majeure to all customers at this time, we cannot provide a timeline for enforcement sure. It will be a relief, but I can confirm if not lost any contracts to date as a result.

Based on these developments, we now see our full year revenue were trending towards the low end of our guiding range of $1 1 billion to $1 3 billion.

With respect to our outlook for the second half specifically as I noted earlier, we pulled forward some of our Q3 revenue into Q2 as such we expect our second half revenue to be significantly back end weighted to Q4.

Turning to slide 21.

As you can see on the slide historically, we would place products into service and slightly more than 12 months following receipt of the signed purchase order from our customer.

System stuff.

Likely would recognize more than 90% of expected revenues under the contract in the first 12 months.

However, because of the increase in production and shipping related cycle time.

The new operating environment.

This new normal has us completing a contract and recognizing the majority of that revenue within 15 to 18 months on average as compared to 12 months previously.

This elongated timing for revenue recognition reduces our expectation for revenue progression in fiscal 'twenty, three and fiscal year 'twenty four by 10% to 15% as we expect this new normal will continue for the foreseeable future.

The rapid increase in inflation is another element of the new normal environment in which we're operating.

As a result, we have made changes to our approach to achieving margin expansion.

Also we continue to expect significant margin improvement over the next few years, we have tempered our outlook with respect to timing and the degree of improvement as we look at slide 22.

On the left hand side of the slide illustrates the current situation.

We're selling our products with expected positive gross profit margin. However, this expected margin is being eroded during the delivery and installation of our products. This is due to extra stripping costs, the compounding effects of COVID-19, and installation cost or.

We are now focused on two levels.

First.

To reduce the adverse impact from margin during delivery and installation.

And second to increase the as sold margin.

The chart in the middle of the slide shows the trajectory of improvement with respect to the first of these two levers.

During Q1, we incurred total impact of $53 million in Q2, we reduced this adverse margin impact to $23 million we are.

Focused on further reducing the margin impact in the second half of this year to approximately $35 million $40 million.

Water over quarter improvement expected in Q3 Q4.

Even with these improvements however, we expect that for the full fiscal year, our gross profit on GAAP basis will be negative.

The chart on the right illustrates our plan to X pump your asphalt margins.

Storage products during fiscal 'twenty three.

24.

The most significant driver of pricing. In addition, we are moving to a regional contract manufacturing business model that will reduce our shipping expense.

Increasing the proportion of our revenue mix associated with higher margins separately.

Transmission and data center and launching our Gen seven product in 2023.

Through these actions we believe we can achieve the required gross margins in the products business to achieve overall breakeven profitability in 2024.

In summary, we are.

Many unexpected challenges over the past six months ranging from the macro environment to a homegrown issues while we.

Our focus on reducing adverse margin impact by improving our product delivery operations and have made significant strides in several key areas.

Had to reset our expectations for financial performance for the next 18 to 24 months.

Certainly we have not lost sight of the bigger picture and favorable longer term outlook for energy storage.

As a management team are intensely focused on improving the here and now.

We acknowledge the change will not happen overnight, we are fully committed to providing our shareholders with attractive returns.

We continue to be bullish on the longer term and are excited about the prospects for our business.

This concludes my prepared remarks.

At this time I would like to turn the call back to model.

Thank you Dennis.

In summary.

We continue to see very strong demand for energy storage and have positioned fluids to capitalize on new opportunities as the world continues to transition away from fossil fuels.

We are executing our strategy of building the best in class ecosystem offering.

We increased our engagement in attractive market segments, such as transmission and data centers and continue to grow and expand our digital offerings.

While we have made some progress on tackling the challenges we are knowledge a lot.

Deal needs to be done.

All in all we are extremely encouraged by our future and will continue to transform the way we power our world for a more sustainable future.

I would like to extend my sincere gratitude to our employees around the world.

Without you.

None of this would be possible.

This concludes my comments operator, we are now ready to take questions.

Thank you we will now begin the question and answer session. If you have a question. Please don't zero one on your phone keypad, if you'd like to be removed from the queue. Please.

If youre on a speaker phone please pick up your handset first before dialing once again if you have a question. Please tell zero one on your phone keypad.

And from Jpmorgan, we have Mark Strouse. Please go ahead.

Yes. Good morning, Thank you very much for taking our questions.

You mentioned youre, adding some new battery suppliers can you just talk about where those suppliers might be located.

And kind of.

If you think about accumulatively your supply base, how much of your battery supply.

Today and kind of in the near future comes from China versus outside of China.

Hi, Mark Good morning, Thank you for your question.

First yes, I mean, this isn't a strategy that we started.

Some time ago, we already disclosed that.

We have these are strategic alliance with Northwood. So that is a key key key partner for us in the European market.

We will see and we expect to have Theyre, probably by the end of this calendar year. So we're very excited about that partnership we also talking to other body large manufacturers in Asia.

And the ones that are building new.

Facilities in the U S and the target is not having diversify ourselves by not having more than 30% of our overall demand just concentrated in one name I don't know Rebecca if you want to add something.

Yeah, I would add that we are on track to by the end of this year.

It's about a 30% mix that is not coming out of China. If that's your direct question and then moving into 2024, we'll move that up probably closer to 50%. So some of the players that we're talking to are establishing manufacturing in North America. So that's our next big move is to also acquire batteries in.

In this region.

Okay. Thanks, and then just as a quick follow up.

I appreciate the color on kind of the U S.

The U S pipeline, So you mentioned, 10% to 15% in the product pipeline in the U S.

Should we think about that.

Kind of setting the downside to your 2022 guidance in the event that there are disruptions from 80 CVD.

Yes, Mark I mean.

Are you, referring just to the solar plus storage segment right.

Yes, I mean, it's.

It is too early.

You want to say something.

No I'm sorry.

What you said, yes, yes.

Yes, okay. Good.

Yeah. It is.

It is too early to tell what will be the result of the prop.

We had.

<unk> seen a lot of the latest news emerging.

Some of our customers they are in.

Wait and see mode.

<unk> a bit.

Just waiting to see what is the final result.

Others are they just moving but as we mentioned in many of those cases, even if you. If you go ahead with the energy storage piece of the project you can start.

Making some money and.

And generating revenue so it makes sense in many of the markets to keep going ahead with the projects on at least on the on the.

Just sort of Si.

We.

We.

We see that we can offset a lot of these 10% to 15% which is it is important for us, but it's not.

That that big is that you will see a lot of demand from Asia, and Europe , especially in Europe , when we know all day energy in.

Independencia and say if reliance is becoming.

One of the main drivers of older policies around the community and then the Repower EU. We just mentioned that he is going to more than double.

The renewable capacity that is going to be installed.

A year until 2030, so that the market is very strong and we see a lot of our policy.

Makers really really working on.

And energy.

Energy Independency and self reliance and Mark just speaking just in regards to guidance. So when we think about the revenue guidance just wanted to clarify that fully based on backlog. So we're not depending on new bookings.

Thank you.

Right. Okay. Thank you.

From Siebert Williams shrink we have Chris <unk>. Please go ahead.

Hey, everybody how are you.

Dennis you have this great slide 22, I was going to ask you about.

As you've made some pretty significant progress on diversifying your supply chain.

A little bit surprised that the regionalization bar.

In terms of the margin step up that you're looking for is a little smaller.

Can you just sort of talk about that and also.

Given that you've had some installation challenges you don't seem to have anything in this chart that reflects improvement from installation can you just talk about those.

Yeah sure happy to do so so on the regionalization side, you will see a full impact form from regionalization. If you have really the complete supply chain localized that means batteries and a.

And then just storage products manufacturing so as Manuel just talked before one of the Big next step is to bring also the battery supply chain into the us but.

That's still a bit further out so in that regard, we're really factoring in here.

The benefit from the regionalization of the of the product manufacturing in North America and EMEA. All of you have the full benefit based on the oil northward partnerships. So that's why it is number may be in there.

At range here on the on the second question in regards to installation cost of installation cost reduction do you think that to be in the level one to reduce the adverse margin impact and to say that's really the key item, which we need to tackle them all for the second half of the year and to further reduce debt. So that's that's sitting over there.

That makes sense.

Sure.

Manuel you sort of touched on this a little bit about the energy security issue.

Can you give us any color on.

Who in particular.

As demonstrating interest in.

Can you kind of give us any sense of the increase in magnitude of interest that you're seeing especially from Europe .

Yes.

<unk> mentioned you know that.

The Cigna.

A significant amount of forecasted.

Our renewable deployments in Europe , we have seen in without going too much into details, but we have seen very strong demand.

From a from the UK in Ireland, we have several projects there.

The fact that and we mentioned this in one of our.

Communications to the market in Ireland, they broke their own record of 98% renewable clean energy doing one weekend that was.

A few months ago and that was just possible with the energy storage high ultra highs.

Speed responds.

Robert.

It was it was around three days.

It was a good.

Great achievement in the previous record was around 60% and and they have knowledge I mean, the whole the whole system operate or their knowledge that it would have been absolutely impossible to reach such a level of consistency of clean energy in a market with all the energy solar so that that is.

David already saw that and what we've seen is that other Microsoft looking at that and say well, if we really want to become carbon free we have to do the same.

So that that is.

They're looking at what happened in the market they will probably.

Imitate the same and they will start rolling out the <unk>.

Same type of solutions.

Solutions, we see a great demand for our transmission.

We are the only company that are doing this transmission booster.

<unk> that we started in Lithuania as a pilot and now we already mentioned about the 200 megawatt.

Concho that we got we see that in for example in Germany. There is.

Large.

Tender for four moving energy from the north to the south from the win of the north to the south of the industrial area.

The south of Germany, we participating in that so and we see a very very interesting demand for that for the transmission data centers in Belgium, and I think that what we did with Google is fantastic. We all know that every single data center around the world has.

Diesel backup engine and if we can replace that and replace that the number of.

Barrels of diesel.

The oil that is being burned doing some of that.

The unexpected events, though or.

Or not unexpected.

<unk>.

So suspension of energy.

Interruption with energy well. This is a this is a fantastic products. So if we can also take advantage of that C&I customer and then we can expand that to other customers as well.

Great. Thanks for the color I appreciate it everybody.

Thank you.

From Baird, we have George Junior Lucas. Please go ahead.

Hey, good morning, guys and thanks for taking my question first.

Slide in your deck that talks about gaining market share I'm curious as to whether you could help us paint a picture of what's happening out there with all the delays in projects and in cell supply.

What is the competitive dynamic like near term and how do you see that evolving over the next couple of years.

Yes.

Yeah.

Thank you very much George for your question.

We mentioned in our previous call that and some of our presentation that our target is to be around 20% market share.

We ended up.

I would say a little bit higher than that and I think that he has been a result of two to two things.

One is that we have seen.

Other other competitors.

Canceling.

Or customers cancelling contract with our competitors.

And also the lack the second the second element is the lack of availability of batteries.

In some cases, it's not about the price.

In some cases is about the supply that if you really can't get enough bodies to move ahead with one one or two projects in your pipeline.

The fact that we secure.

Stanley capacity he helped but also we haven't had any cancellations so far so far.

We still delivering.

With some delays while still delivering so it speaks very highly about the quality of our contracts and counterparty is a very tight market. We don't know what's going to happen with the COVID-19 situation in China, but we still get in deliveries. There are three factories in China. They are producing for us.

So that that also diversify a little bit the supply.

In our case, though we are not just relying on one factory for example in the Jiangsu province that he might be affected by the Lockdowns.

May I ask one follow up Dennis with regard to your slide 22 in your gross margin projections for the next it looks like two years is that about a thousand basis point improvement that you are projecting over the next two years. There and also you mentioned on the call that you expect breakeven.

<unk> and 'twenty four I would assume that's with regards to EBITDA. Thank you.

That is correct yeah, that's in regards to EBITDA.

Certainly if you sum up the numbers this year than you would.

Some will be around the 1000 basis points as a total.

As outlined here so that's the correct takeaway.

Thanks.

From Goldman Sachs, We have Brian Lee. Please go ahead.

Hey, guys. Good morning, Thanks for taking the questions maybe Dennis just a follow up to that I was looking at slide 22.

I'm trying to interpret.

Some of the moving pieces here 1000 basis points.

Can you kind of level set us youre doing negative low single digit gross margins I think.

You had been talking about kind of getting to mid single digit positive gross margin exiting this year is still is that still the baseline for.

Exiting fiscal 'twenty, two and off of which we should be modeling that thousand basis points I E. You're talking about kind of mid teens gross margin come fiscal 'twenty four when you get to Gen seven ramping.

Yeah no. Thanks for the question, Brian and let me, let me clarify on that so on the one side for the for the remainder of the fiscal year have been really focused on reducing this up gross margin impacts and cooling our solve one of the of the negative gross profit zone. So what have you.

What you don't see on the right side on the chart. This basically.

Based on the S sold which we had already over the last 12 months 400 to 600 basis points. So that's really the starting point. So you can think about.

Which is then excluding adverse margin impact so that's.

That's the one thing we need to tackle no more adverse margin impact that we're having the baseline instead of 400 to 600 basis points and then moving on top of that.

Four steps with up to 300 basis points pricing and so on so all of that then comes together too.

High single digits to low teens.

And the margin side of the of the products business.

Okay. That's super helpful. So something more like.

Maybe call it 10% in fiscal 'twenty for gross margin for just kind of using the midpoint.

It's helpful.

And then I guess on I might have missed this but you mentioned earlier in the call the pricing increases.

Can you help quantify that a bit and then when should we start to see those readout.

In terms of timing.

And then maybe just lastly.

It seems like the margins.

We are going to get helped by pricing a lot and buy some of these nonrecurring or I'm, sorry, nonrecurring charges going away, but can you give us a sense of how much of your costs.

Or kind of fully locked in for this outlook. This margin trajectory outlook and then what percent is maybe still variable just trying to get a sense of what.

What potential risks still still lies in the margin be here. Thank you guys.

Yes.

Brian first.

We have been able to increase our prices between 15% to 25%.

And the good news is that no cancellations after those.

Price changes.

One element of your question. The second is that okay. What about those contracts that are already fine and they are already in our backlog and we having a very.

Honest.

And friendly conversation with customers around the world. Because this is a long term relationship and they want us to stay supplying in providing more and more applications to them. So we having conversations with them in some cases, we are going back and tried to come up with.

The agreement to increase some.

Some of those prices and we have been successful in those in <unk>.

Some of those conversations.

And I think that the fact that we haven't had any any cancellations. So far he speaks that.

Even with the price increase that they still want.

To keep working with us and they see us as a long term partner.

And Brian for the kind of margin expansion outlook is really key to go to the online based pricing for us. So that means that we're having the same variability in our pricing to the customers as it may be happening to the underlying cost curve. So that's really the the risk mitigation measures that you have put in place too.

Alright fair enough. Thanks, a lot guys.

Thank you Brian .

From Bank of America, we have Julien Dumoulin Smith. Please go ahead.

Hey, good morning team. Thank you for the time I appreciate it hey, so maybe just following on Bryan's question here, a moment ago, just to keep going here.

On the back half of the year, how do you think about these timing related issues just to.

Chinese logistics improving.

You talk about being back half weighted it seems as if maybe third quarter is still somewhat impacted by I think is determined these nonrecurring items.

Logistics from China, or otherwise and its really looking towards the fourth quarter exit run rate can you try to tie that 10% margin say by 'twenty four back to how you see that exit by FY 'twenty two and also how much of an ongoing impact do you see in the third quarter here from some of these transient items.

Alright, So let me first talk about on the revenue side Julian before I go to the margin side on the revenue side keep in mind that we pulled forward.

Some of the revenue from the third quarter into the second quarter. Then of course now also the topics about the China Lockdowns.

Our production topics there what it means thats pushing revenue from the third quarter into the fourth quarter, but that's really driving the back end.

Weighting of the revenue in the second half year, and then on the margin side.

We are focused here on pushing.

To reduce the adverse margin impact in the second in the second half of the year, but overall, we expect that the GAAP gross profit will still stay negative and in the.

Second half and for the full fiscal year, and then pushing towards alone mid single digits in 'twenty, three and from there going into the high singles in the fiscal year 'twenty four.

Got it yes, so im just and can you talk a little bit more about how the force majeure is cascading through the <unk>.

Due to your customers and sort of.

The LDS right. So I'm just.

Ultimately how does that impact your margins there on that side again, how does that flow through the income statement and kind of a similar way.

Yes, hi, good.

Good morning.

Yeah Yeah.

First is that on the Fortunately your AE has been that in some cases, our body manufacturers. They they issued a force majeure and then what we're doing is just.

Doing the same we are translating that force majeure event due to our customers that just had happened so far entry with three customers and three contracts. So it's not I.

I would say across the board.

And the fact that.

He has been a reduction in the supply from China, but not any interruption, which is very good news and I mentioned about that.

They are using for us in three different locations study help us too.

To also diversify their lockdowns are not affecting every single.

Factory and manufacturing facility in China. So that's that is an important.

Element.

Dennis you want to add.

We really like Julien.

Personal stuff off the P&L side I mean at the end the first measures to protect them.

And just a contractual basis for not having liquidated damages to low expectation listen to not see that in the P&L for the battery production reason.

Yes, Julian I would add also that and this speaks very highly.

Our teams in and.

The engineering teams and the commission and teams around the world that we put in operation 10 projects are already in.

And you also we closed the gap.

That we we had delays in there in the last quarter last year, we had delays in the first quarter. This year. So we caught up everything so now.

That's it's a tremendous effort given all the headwinds.

I really want to thank the teams are working so hard to make that happen. So.

It means that our technology is.

It's working with fixing the issues and we're moving ahead. So that's very good news.

Excellent guys. Thank you.

From Wolfe Research, we have David Peters. Please go ahead.

Yeah, Hey, good morning, everybody.

Just curious on the <unk> acquisition, you said, you expect that to be EBITDA accretive in 'twenty four but I was just curious if you can give a sense of sort of the revenue contribution if any in 'twenty, two and then into 'twenty three.

Any sense on like the revenue per megawatt for that eight gigawatts that they have under contract.

Yeah.

And let me go first on the on the revenue on the modeling side and then maybe I'll have to say it.

But more on the second part of that question.

Think about it for us when we implement just taking one step back here.

Into a specific numbers here.

This acquisition is lets say you had outlined.

His part or part of the remarks this was really too.

Solidify our path towards to manage up and to secure basically the existing business plan, which could put all of those are part of the year IPO process.

Modeling the length.

Regard.

EBITDA accretive so it's really a kind of steady contribution of the business, but I really want to also clarify that at the end. This ecosystem. That's there to secure the business plan materials already put forward and Thats. What we are focused on this to make sure with this acquisition and then just.

Any additional thoughts from your side.

Sure. Thank you great question. So mixed there are the reason we're super excited about it.

Denis mentioned it really pulls forward our plans to execute on our digital strategy, which is to really pull forward a couple of applications, including the manage application.

It is spot on that regards and it really fits our three three main criteria that we've been talking about throughout these calls which is technology agnosticism portfolio optimization and really having an overview of predictive analytics.

What's really important and exciting about this there is the scalability of the product.

As you know with fluid psyches bidding application.

Expanding markets one by one and we're really dealing with the intricacies and complexities of wholesale market, which is totally.

Kind of.

A strength that we bring to the table.

But within this there given the scalability of the product. It's one product globally, we have a strong presence now in EMEA Americas and APAC with this product and we continue to grow it in terms of if there's questions around particular asp's.

We've talked about.

As for fluids IQ, we've given a range on this there it may fall on the lower end of that range, but the volume and the throughput and the scalability.

A strong factor.

Yes.

Perfect.

And then the other question I just had was just on the elongated revenue recognition timeline you guys are calling this the new normal.

Just curious if you could specifically.

Dive into what's what's driving this is it shipping is it battery availability that you've talked to and then I mean do you see a path to potentially get back to that initial timeline that you guys.

Lee.

You pointed to.

Yes, no. Thanks, thanks for that.

Clarifying question there so in general it's really the broad topics, what we see in the supply chain I mean, it's not really related to just one component, but overall, we're seeing that.

Supply chain, having the difficulties from.

Components side towards the shipping side, what's your mentioning so that's really we're factoring that in to the way of <unk>.

We contract with all our customers.

Way back, yes, absolutely but.

We just wanted to make sure that.

Just understanding that this is not a near term thing I mean, if you look at what's happening globally around supply chain.

It just doesn't look like it's going to swing. So therefore, we wanted to provide this clarification and could it become better yes, again, absolutely, yes and David.

We mentioned this in our previous earnings call.

Remember that the shipping times you know they can.

Yet from the pre Covid times up from Asia to the use of the West coast of the U S.

Changes from a date to it.

Three weeks.

So that is something that is still there theyre port congestion are still there.

So as we and these are just two factors and their orders about components high availability and a little bit higher than normal faulty rates on some of the equipment that we receiving.

And those are also as a result of everything that we've seen happening in it it does not not just our industry is in every single industry. So yes I am.

I personally I have no doubt that.

The World will.

Get back to normal and those challenges will be.

It was sold and mitigate it but it's a matter of how much time it will take it will take.

The different supply chains, and the realignment that we see in and around the world from the globalization into our regionalization.

The other element that might help at it is that if.

If we are going to see a reduction in the demand well. This this scoring in balance it was essentially change any can change really fast.

I don't know what the what you've seen on the on the overall macroeconomic environment, but if we see as a small slowdown in economic activity, we will see.

Kind of.

The reduction in demand that he will certainly help in that regard.

Perfect. Thank you for the color.

From Tuohy brothers, we have Craig Shere. Please go ahead.

Good morning.

The gross margin improvement sequentially.

Certainly nice to see and then of course, you've got ongoing price increases Youre rolling out.

But the G&A, excluding stock based comp seemed to stair step.

Pretty hard in the quarter.

And that weighed on the <unk>.

Total adjusted EBITDA.

What should we expect her ongoing trends in that G&A ex stock based comp.

And how volatile it cannot be quarter to quarter.

Yeah no. Thanks for the question so on the G&A side.

I mean on the one side, we ramped up the revenue almost doubled the revenue compared to the previous quarter and when you think about.

Full year guidance compared to last year.

Most also doubling.

In that number there, but less than doubling in that regard we are pulling the G&A.

In line with the growth in Greece recently have been really pushing on the organization.

Expansion in the first quarter as well as in the second quarter, but we feel now that you have kind of also reached a level of organizational strength, which kind of gears up to that level of volume. So therefore, we're not expecting a similar kind of increase on the G&A side in the third and the fourth quarter a bit stunned.

Third quarter was additional people at or certainly maybe still a little bit higher but definitely northern that stuff increased level as you have seen it.

Over the last two quarters.

Okay.

So we're getting close to a <unk>.

Relatively steady state rate say, the third quarter G&A can last you in the say next fiscal year.

Our run rate.

Yeah.

I mean, maybe if you'll take it if you think about it on a on a percentage of revenue I think that's a better comparison, because considering that we are still on a growth trajectory also fraud fiscal year 'twenty three but certainly overall much more focused at this stage on profitability.

And Thats very clear for us that we are focusing on.

Moving towards the breakeven point, but that still means that if we are having topline growth we still need to.

<unk> scaled the organization accordingly, but definitely not in that sense two two further.

Increase.

In terms of a percent of revenue and that should actually should come down over the next couple of quarters.

So maybe you can shorten the absolute basis may still increase on a percentage basis it will decrease.

Great. Thank you.

From Raymond James we have volatile Chinas. Please go ahead.

Thanks for taking the question.

You referenced Repower EU.

In that context have you noticed any.

Increase in incoming calls.

Our activity since the time the war started.

Yes, I mean.

First.

Thank you very much up Nevada, and good morning to you and the team.

Yes, there is.

No doubt about it I mean, there is a very strong interest.

Are the market leaders in Europe .

And that's good we are the market leader not just in volume we are the market leaders also in application.

And they see what is happening and in Ireland, while we have done in <unk>.

In Portugal.

Achieving in billion, the Lithuania case that our participation in Germany. So.

Our brand is their top of mind. The solutions are there and the interest is very very high I mean <unk> you just talk to every every single country. Every single customer is really thinking about how the European community can really assure that they can keep growing and operating.

As a as an economic ecosystem.

In a in a much better position in terms of energy independency and self reliance and and we are demonstrating.

Every one of them that with energy storage and our software and controls and.

And the quality of our response time.

They can they can make that happen.

And we all can make that happen.

Yes.

Understood.

And are there any additional logistics issues in terms of installing we're delivering your product to Europe .

That have been affected by the war as far as increased cost anything along those lines.

No no not nothing nothing that is really significant.

That might be some some components sold raw material that used to come from Russia in there.

Available anymore, but nothing nothing material.

And in terms of the lot.

Palace station.

In Europe , Rebecca you Wanna mention.

You mentioned about our contract manufacturing and processing and in iron ore, how that's going and the relationship with North wall, which is very exciting about how are we going to be localized.

And Colby signing with north what our our offerings in Europe share very quickly so more than a year ago, we announced our partnership with North Salt. We have engineering teams that worked together to design the product the product is at or very near state of readiness to launch for a complete sale and we actually do have our sales teams in Europe talking to customer.

About our Gen six solution with North fault is a key part of it. So we're at that stage, where we're engaging customers and it is part of the plan there is to manufacture it in your manufacturing in Europe as well and that manufacturer has also been selected and we're working on the specs of how that product will get designed designed and created in that factory and <unk>.

2023 that manufacturing will come to fruition. So so great progress there to have that footprint in Europe .

Got it thank you very much.

And Bob.

Let me take the opportunity.

To do also to mention that.

We are building.

A magnificent ecosystem I mean, we're right now combining all our three business lines, we have 20, Gigawatts and and this is this is a platform that is with the acquisition of <unk> with the new applications are coming with the services that their data driven services that the value that we create for our customers and the value.

The platform is significant and we keep we keep.

Pending on the ecosystem and its overall I see that the customers are really appreciating how.

How much and how much you will help and then and how much value we're creating for them.

Thank you we will now turn it back to me for closing comments.

Thank you everyone for your participation on today's call. If you have further questions. Please feel free to contact me, we look forward to talking with you again, when we report our third quarter results have a good day.

Thank you ladies and gentlemen. This concludes today's conference. Thank you for joining you may now disconnect.

Okay.

Okay.

Okay.

Yeah.

Yeah.

Okay.

Yes.

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Good morning, and welcome to the Fluence Energy, Inc. Second quarter 2022 earnings Conference call. My name is Brandon and I'll be your operator for today at this time all participants are in a listen only mode. Later, we will conduct a question and answer session during which you mean dollars zero. One if you have a question. Please note. It is zero one that star one.

I will now turn the call over to me and you may begin.

Thank you good morning, and welcome to fluids energy second quarter 2022 earnings Conference call.

A copy of our earnings presentation, and press release, covering financial results, along with supporting statements and schedules, including reconciliations and disclosures regarding non-GAAP financial measures are posted on the Investor Relations section of our website at Fluence energy Dot com.

Joining me on this morning's call are men well per ads Dubuque, our chief Executive Officer, Dennis Fear, our Chief Financial Officer, and Rebecca Ball, our Chief product Officer, and Siad Modini, our Chief Digital officer.

During the course of this call fluids 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.

Reconciliation of these non-GAAP measures to the most comparable GAAP measure is available in our earnings materials on the Investor Relations website.

Following our prepared comments, we will conduct a question and answer session with our team.

At 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 will now turn the call over to Manwell.

Thank you Alex.

We'll like to extend a warm welcome to our investors analysts and employees who are participating on today's call.

Let's begin on slide four on the earnings presentation.

Date, I will provide an update of our performance as the macro environment. In summary, first we continued to experience strong demand for our energy storage products and services. In addition, fluence is well positioned to capitalize on Europe's growing desire for energy security I independency.

Second we achieved a record quarter for fluids, the adult and acquire niche breath.

Later in the call our Chief Digital Officer say, yet met Diana will provide more color on this acquisition.

Third we successfully raised prices on new contracts and roll out the new raw material index or are my base pricing to protect against raw material price volatility.

Fourth we have been encountering headwinds in battery production that have resulted in forced by your in some customer contract at the same time, we are making progress on diversifying our bodies suppliers, which is a key strategic objective for us.

And fifth we also have made progress in rolling out our Gen six technology.

But still need to toggle further cost improvement.

Later in this call Dan It's fair, our Chief Financial Officer will address our Q2 financial performance as he will discuss we now expect to be at the low end of our fiscal year 2022 revenue guidance range as a result of the headwinds I meant.

Earlier.

Turning to slide five we had an excellent quarter of order intake across the business. We contracted 582 megawatts of energy storage during the second quarter illustrating the continuous strong and secular demand we're experiencing we.

We have been working closely with customers to reflect cost increases for batteries and raw materials in new contracts and demand remain unwavering.

In our services business, we contracted 343 megawatts during the second quarter illustrating an attachment rate of 58% in Q2 below our target of 70%.

Many of the energy storage contract that we executed well with utility companies that tend to signed service contracts several months after contract into storage equipment.

We anticipate follow on services contracts will be signed we discussed during the second half of this year similar to our experience in fiscal year 'twenty one.

And pleased to know that fluids IQ the lever at a record quarter in terms of revenue on new contracts during the quarter. We added two eight gigawatts of new digital contracts and as of March 31st we have deployed or contract at 7.8.

Giga Watt assets under management importantly, this does not include the additional eight gigawatts under management associated with our <unk> acquisition, there's significant growth in fluids. IQ is ahead of our business plan.

I will also like to point out that this quarter, we added our first compact hydro contract for one two gigawatts.

Representing a new asset class for fluids Iq.

Which opens up new opportunities for fluids DD and application.

I would also like to make a few comments related to the U S. Commerce department's probe into solar and the same convention and dumping. Although it is too early for us to speculate what actions could result from this probe we know that during the first half of this fiscal year at approximately a third.

Percent of our overall order intake was connected to Greenfield U S solar plus storage projects.

In regards to our backlog, let me clarify that we are not responsible for procuring soil panels.

In the event that these are not available it is still commercially beneficial to our customers to complete the energy stored and installation piece torstar anybody of any of these assets.

We currently have not seen an impact on private pipeline relating to this probe.

However, we are knowledge this could change and could impact as much as 10% to 15% of our project pipeline.

At least.

With respect to timing.

However, fluids is a global company with diversified offerings across the geographies and segments. For example, we expect to see increased demand from Europe that is not yet reflected in our product pipeline.

Turning to slide six.

We are excited to continue growing our business in Europe , especially as the need for energy independence and security becomes part of their.

Their recent geopolitical events in Europe have exacerbated the need for many European countries to reduce their dependency on foreign oil and natural gas.

And one of the key solutions to address this situation will be an increased use of renewables, which will require more energy storage.

In fact in early March the European Commission launched their three power EU initiatives that will accelerate that transition to renewables by calling four nearly a doubling of renewable asset additions for up from approximately 42 gigawatts to sell.

<unk> eight gigawatts annually until 2030.

As you can imagine this increase in renewable asset generation will create more grid reliability and stability issues.

Thus necessitating additional energy storage.

We have already seen any increased interest from our customers in Europe from energy storage as a market leader in Europe fluids is very well positioned to capitalize on these emergent need enabler Europe to achieve its energy independence and security goals.

Now turning to slide seven.

I would like to update you on the progress we have made in advancing our strategy.

Through the plan addition of.

Contract manufacturing locations in the U S and Europe .

We will be protecting ourselves against the logistical interruptions in saw in logistics cost.

I am pleased to report that it worked out fine.

And the agreement for our eight U S based contract manufacturing facility.

And we expect to initiate production there towards the end of this calendar year. We are on track for starting our European base facility in early calendar year 2023, and look forward to providing you with an update on our next call.

As you may recall from our first quarter call, we announced a strategic joint venture with renewable power in India. We expect to have the agreements finalized in the coming weeks and we will begin ramping up operations in India Accordingly.

Additionally, I'm pleased to report that we successfully deployed a two point 75 megawatt CNI for outlook for Google in April to provide them with emission free battery backup power for their volume data centre in San Gippsland.

We are proud to partner with Google for this first off the Sky broad.

As they strive to become carbon free by 2030.

While the C&I segment represents a small portion of our overall mix, we're seeing increased demand for the data Center segment.

Their backup power requirements of these socs salmon out approximately 20 Gigawatts Warwick.

This commercial development represents a significant opportunity for fluent as all their major organizations increasingly replace current fossil fuel power backup systems with emission free battery backup solutions.

Turning to slide eight.

I would like to provide a brief update on some of the headwinds that we have been facing and the actions that we're taking to mitigate their impact.

First supply chain disruptions have affected us in a couple of areas.

On the shipping and transportation front, we have seen shipping rates stabilized providing better visibility on how to price new contracts, we still see global shipping capacity challenges and port congestion, but we are mitigating some of these impacts might cheapen earlier where possible.

The supply of battery sales is another area that has been affected how.

As you May also recall, we have contractually secure.

20 gigawatt hours, so batteries from our suppliers provide enough adequate supply for our 2022 2023 needs. However, the majority of the world's current battery supply come from China, which again under one significant lockdowns to enforce their zero carbon policy.

These lockdowns are affecting suppliers ability to produce and ship battery cells.

In a timely manner there.

Therefore battery suppliers in China have recently declared force majeure to us and others in the industry.

Under our contracts our supplier force Majeure Declaration allows us to declare force majeure to several of our customers for whom we will not be able to meet contractual timelines. We expect this to protect us from possible timing related charges on the affected contracts.

While we do not know how long the current situation with left we are working closely with our body manufacturers, both in China and elsewhere.

As part of our regionalization strategy, we have already be working to reduce our exposure to Chinese battery manufacturers by diversifying our supply regionally as well as by the number of suppliers and pleased to report that non China made bodies would represent about 30% of our <unk>.

Fly in 2023, and we expect this percentage to grow into I need 24, we also have reduced our supplier concentration by increasing the overall number of battery suppliers.

Second as Denis will address shortly our second quarter results reflect good progress on reducing the one off items that were previously associated with the compounding effect on COVID-19, we expect to continue reducing these impacts as we progress through the second.

Half of this year.

Third as I noted earlier, we have been moving to our <unk> based pricing for new contracts to protect against that volatility we have seen in the cost of raw materials.

So far we have seen a broad acceptance by our partners to engage in finding optimal and creative solutions for all parties.

Finally, we have made progress on installing and commissioning our gen six product in the field.

As we discussed on our previous call, we have experienced delays and additional costs associated with the rollout of our gen six over the past six months.

During this time, we have documented lessons learned and conducted more training for our crews.

Faulty or substandard components from some of our body and even better suppliers, where one of the reasons for the delay.

Particularly at the large installations that is why we have that family and new supplier quality control team.

The team is working with our suppliers to ensure components operate at design, which will reduce the risk of delays.

<unk> cost.

As you can see on slide nine and pleased to report that we are now fully caught up on our gen six installation schedule.

We have successfully installed 10 Gen six system since the beginning of this year with a combined power of about 420 megawatts.

This includes several mega site installations, such as Diablo and high Desert.

Both in California.

Furthermore, many of these feature first of its kind element such as the first energy storage co located with geothermal generation or the first product that guarantees.

<unk> 50, millisecond response time.

These are amazing accomplishment and showcase our ability to innovate and push the boundaries of what is possible.

I will now turn the call over to say yet to provide a bit more color on the <unk> acquisition and its impact on Fluence Iq.

Thank you Manuel I am pleased to have the opportunity to discuss this acquisition the first since our IPO last fall.

On slide 11, as Manuel mentioned like flu inside <unk> necessarily as a SaaS company, providing many key applications for customers looking to monitor analyze and optimize the performance and value of their renewable energy assets disparate currently has eight gigawatts under management their flagship offering as it is.

<unk> asset performance management platform or a P M, which is sold to customers on a dollar per megawatt basis. This platform include SaaS offerings, such as digital twin and performance analysis and portfolio overviews.

In addition to the APM platform. This Bureau also offers for other applications or modules that can be added on to the APM for an additional cost that has similar dollar per megawatt price.

These other applications are in the areas of predictive maintenance portfolio management O&M and forecasting.

One of the distinguishing characteristics of Ms. Farah as their extensive use of machine learning to drive value for their customers. They are embedded machine learning and they're forecasting app and predictive maintenance out for both wind and solar and are actively working on new machine learning enabled apps. This aligns well with fluids side he was bidding application.

Which also uses AI and machine learning to drive value for our customers.

As you may recall the bidding App is currently influence iqs flagship application.

We're in the process of developing a dispatch app manage app and invest app.

Tend to utilize the ATM as the foundation for our manager, which we expect will accelerate the time to deploy this application to the market not only does this provide us with a solid foundation for a man of jobs, but it also expands our digital portfolio geographic footprint.

As you can see on slide 12. This there is in 25 countries.

It provides us with a powerful cross selling opportunity for our products and services.

They're bidding up won't be immediately available in all of these countries, bringing on this there will help accelerate our entrance into additional markets around the world.

From a financial standpoint. This transaction is on the smaller side and we expect it to be EBITDA accretive by the end of fiscal year 2024.

In summary, we are very excited about adding this spirit into our digital portfolio, which now has a combined 15 gigawatts contracted or under management and are encouraged by the tremendous growth we've experienced with our platform with that I'll turn it over to Dennis.

Thank you say, yes, and good morning to everyone on the call looking at slide 14.

First I will cover our second quarter financial performance, highlighting our record Q2 revenue. The progress we have made in reducing adverse impact to margin and the strong cash collection and improve liquidity in the quarter.

I will then discuss our revised outlook for revenue and gross profit going forward.

Turning to slide 15.

S model stated in Q2, we had very strong orders across all our business lines. More importantly, this success also shows the ability for the market to absorb price increases.

I'd also like to highlight that in the first six months of this fiscal year, if contracts with more than one one gigawatt of energy storage product.

Greater than 95% of its unrelated third party.

As Manuel and so you had mentioned we are very encouraged by the demand we have seen on the digital side in the first six months of this year if contract with more than three gigawatts of which about 70% of its unrelated third party.

I'd also like to point out that our digital numbers, including all pipeline do not include the acquisition of <unk>, which occurred in April .

Turning to slide 16.

We delivered a record quarter in terms of revenue the 343 million represents a 96% increase from Q1.

We just closed on a prior call about 100 million of this revenue was attributable to Q2 completion of installations previously shifted out from Q1, demonstrating our ability to deliver on our commitments to customers. Despite the longer time required to fulfill these contracts.

In addition, about 60 million of our Q2 revenue was attributable to a higher percentage of completion of certain client through through installations in Q2, which pulled forward revenue anticipated for Q3.

Turning to slide 17.

In addition to the strong revenue recognition in Q2.

So made progress on our gross profit and gross margins on a GAAP basis.

Our gross loss of 15 million improved approximately 72% from negative $53 million in Q1, driven mostly by a reduction in nonrecurring expenses.

Our gross margin improved from negative 30% to negative 4%.

Adjusted gross profit for Q2 excludes $3 million of nonrecurring expenses, primarily related to the 2021 cargo loss into them.

Deliver the non adjusted gross loss of $11 million as compared to negative $8 million in Q1, while gross margin improved slightly to negative 3% from negative 5%.

Turning to slide 18, and delivered adjusted EBITDA of negative $53 million as compared to negative $43 million in Q1.

Adjusted EBITDA. They are nonrecurring expenses adjustments, mainly related to the 2021 cargo loss incidents as well as 3 million for stock based compensation adjustments.

Now looking at our cash position on slide 19, I am pleased to report total cash balance increased approximately $44 million to a total of 723 months.

This increase in cash was due to strong collections from our customers coupled with customer prepayments with certain contracts we.

Continue to remain focused on our cash balance when we deploy our capital in line with our strategic framework.

We expect that our cash balance will be up to $250 million lower at the end of this fiscal year in part due to expected working capital both in the second half of this year driven by revenue shifts towards the end of fiscal year 2022.

Turning now to slide 20.

As Martin mentioned, we source many of our batteries and components from China recently, the country has had significant outbreak of COVID-19 that has resulted in lockdowns across the country.

Do you have dedicated production lines with a better manufacturing partners. However, these are currently running at reduced capacity as a result of not receiving the number of batteries that we previously expected and contracted for this in turn has affected our ability to produce some of our emerging storage products that were previously scheduled for <unk>.

<unk> in the coming months.

As Manuel noted in some cases, we have declared force majeure to all customers at this time, we cannot provide a timeline for enforcement sure. It will be a relief, but I can confirm if not lost any contracts to date as a result base.

Based on these developments we now.

Let's see how our full year revenue trending towards the low end of our guiding range of $1 1 billion to $1 3 billion.

With respect to our outlook for the second half specifically as I noted earlier.

Put forward some of our Q3 revenue into Q2 as such we expect our second half revenue to be significantly back end weighted to Q4.

Turning to slide 21.

As you can see on the slide historically people would place products into service on slightly more than 12 months falling received the signed purchase order from a customer.

Consistent with stuff you typically would recognize more than 90% of expected revenues under the contract in the first 12 months. However.

However, because of the increase in production and shipping related with cycle time.

The new operating environment. This new normal has us completing a contract and recognizing the majority of that revenue between 15 to 18 months on average as compared to 12 months previously.

This elongated timing for revenue recognition reduces our expectation for revenue progression in fiscal year, 'twenty, three and fiscal year 'twenty four by 10% to 15% as we expect this new normal will continue for the foreseeable future.

The rapid increase in inflation is another element of the new normal environment in which we are operating.

As a result, we have made changes to our approach to achieving margin expansion.

Also we continue to expect significant margin improvement over the next few years, we have tempered our outlook with respect to timing and the degree of improvement as we look at slide 22.

On the left hand side of the slide illustrates the current situation.

We're selling our products as expected positive gross profit margin. However, this expected margin is being eroded during the delivery and installation of our products. This is due to excess shipping costs, the compounding effects of COVID-19, and installation cost or.

We are now focused on two levels.

First.

To reduce the adverse impact from margin during delivery and installation.

And second to increase the as sold margin.

The chart in the middle of the slide shows the trajectory of improvement with respect to the first of these two levers.

During Q1, we incurred a total impact of $53 million in Q2, we reduced this adverse margin impact to $23 million we.

We are focused on further reducing the margin impact in the second half of this year to approximately $35 million $40 million this quarter over quarter improvement expected in Q3 Q4.

Even with these improvements however, we expect that for the full fiscal year, our gross profit on GAAP basis will be negative.

The chart on the right illustrates our plan to X pump your asphalt margins of our energy storage products during fiscal 'twenty, three and fiscal year 'twenty four.

The most significant driver is through pricing. In addition, we are moving to a regional contract manufacturing business model that will reduce our shipping expense.

Increasing the proportion of our revenue mix associated with higher margin segments, such as transmission and data centers and launching our jumped seven product in 2023.

Through these actions we believe we can achieve the required gross margins in the products business to achieve overall breakeven profitability in 2024.

In summary.

We have faced many unexpected challenges over the past six months ranging from the macro environment to a homegrown issues. While we are focused on reducing adverse margin impact by improving our product delivery operations and have made significant strides in several key areas.

We had to reset our expectations for financial performance for the next 18 to 24 months.

Certainly we have not lost sight of the bigger picture unfavorable longer term outlook for image and start however, as a management team. We are intensely focused on improving the here and now.

We acknowledge the change will not happen overnight, yet we are fully committed to providing our shareholders with attractive returns.

We continue to be bullish on the longer term and are excited about the prospects for our business.

This concludes my prepared remarks.

At this time I would like to turn the call back to model.

Thank you Dennis.

In summary.

We continue to see very strong demand for energy storage and have positioned fluids to capitalize on new opportunities as the world continues to transition away from fossil fuels.

We are executing our strategy of building the best in class ecosystem offering.

We increased our engagement in attractive market segments, such as transmission and data centers and continue to grow and expand our digital offerings.

While we have made some progress on tackling the challenges we are knowledge a lot.

Deal needs to be done.

All in all we are extremely encouraged by our future and will continue to transform the way we power our world for a more sustainable future.

I would like to extend my sincere gratitude to our employees around the world.

Without you.

None of this would be possible.

This concludes my comments operator, we are now ready to take questions.

Thank you we will now begin the question and answer session. If you have a question. Please don't zero one on your phone keypad, if you'd like to be removed from the queue. Please tell zero to.

With me on the Speaker phone please pick up your handset first before dialing.

Once again, if you have a question please tell zero, one and your phone keypad.

And from Jpmorgan, we have Mark Strouse. Please go ahead.

Yeah. Good morning, Thank you very much for taking our questions.

Mentioned, you're adding some new battery suppliers can you just talk about where those suppliers might be located.

And kind of if.

If you think about accumulatively your supply base, how much of your battery supply.

De and kind of in the near future comes from China versus outside of China.

Yeah, Hi, Mark Good morning, Thank you for your question.

First yes, I mean this isn't a strategy that we have started.

Some time ago, we already disclosed that we have these are strategic alliance with Northwood. So that is a key key key partner for us in the European market.

And we will see and we expect to have there probably by the end of this calendar year. So we're very excited about that partnership. We are also talking to other body large manufacturers in Asia and the ones that are building new facilities in the U S and the target is not <unk>.

Having diversify ourselves by not having more than 30% of our overall demand just concentrated in one name.

I don't know Rebecca if you want to add something.

Yeah, I would add that we said we're on track to by the end of this year.

About 30% mix that is not coming out of China. If that's your direct question and then moving into 2024, we'll move that up probably closer to 50%. So some of the players that we're talking to are establishing manufacturing in North America. So that's our next big move is to also acquire batteries in.

In this region.

Okay. Thanks, and then just as a quick follow up.

I appreciate the color on kind of the U S.

The U S pipeline, So you mentioned, 10% to 15% in the product pipeline in the U S.

How should we think about kind.

Kind of setting the downside to your 2022 guidance in the event that there are disruptions from 80 CVD.

Yes, Mark I mean, you I mean, you're you're referring just to the solar plus storage segment right.

Yes, I mean, it's.

It's too early.

You want to say something.

No I'm sorry.

I mean, what you said, yes, yes.

Oh, yes, okay. Good.

Yeah. It is too early to tell what will be the result of the prop.

We had.

<unk> seen a lot of the latest news emerging.

Some of our customers they are in.

A wait and see mode, they delayed a bit.

Just waiting to see what is the final result are there others that they just moving but as we mentioned in many of those cases, even if you. If you go ahead with the energy storage piece of the project you can start.

Making some money and air and generating revenue. So it makes sense in many of the markets too to keep going ahead with the projects on at least on their end.

Just sort of Si.

We.

We.

We see that we can offset a lot of these 10% to 15% with just now and it is important for us, but it's not.

That that big is that you will see a lot of demand from Asia, and Europe , especially in Europe . When we had you know we know all day energy in.

Independencia and self reliance is becoming.

One of the main drivers of all the policies around the community and then the Repower EU. We just mentioned that is going to more than double.

The renewable capacity that is going to be installed.

Every year until 2030, so that the market is very strong and we see a lot of our policy.

Makers really really working on the NDA.

On the.

Energy Independency and self reliance and Mark just speaking just in regards to guidance. So when we think about the revenue guidance just wanted to clarify that fully based on backlog. So we're not depending on new bookings Dan.

Thank you.

Right. Okay. Thank you.

From Siebert Williams shrink we have Chris <unk>. Please go ahead.

Hey, everybody how are you.

Dennis you have this great slide on 22, I was going to ask you about.

As you've made some pretty significant progress in diversifying.

Find your supply chain I am a little bit surprised that the regionalization bar.

In terms of the margin step up that you're looking for is a little smaller.

Can you just sort of talk about that and also.

Given that you've had some installation challenges you don't seem to have anything in this chart that reflects improvement from installation can you just talk about those.

Yeah sure happy to do so so on the regionalization side, you will see a full impact from regionalization. If you have really the complete supply chain localized that means batteries and.

And then just storage products manufacturing so as Manuel just talked before one of the Big next step is to bring also the battery supply chain into the U S. But.

That's still a bit further out so in that regard we are really factoring in here.

The benefit from the regionalization of the of the products manufacturing in North America and in EMEA, We will have the full benefit based on Oswald partnerships. So that's why this number may be.

In that range here on the on the second question in regards to installation cost of the installation cost reduction do you think that to be in the level one to reduce the adverse margin impact and to say that's really the key item, which we need to tackle them all for the second half of the year and to further reduce debt. So that's that's sitting over.

Yeah that makes sense.

Sure.

And then well you sort of touched on this a little bit about the energy security issue.

Can you give us any color on.

You know who in particular.

Is demonstrating interest and can you kind of give us any sense of the increase in magnitude of interest that you're seeing especially from Europe .

Yeah, well we are.

Already mentioned that.

The signal.

A significant amount of forecasted.

Our renewable deployments in Europe , we have seen in <unk> and without going into too much into details, but we have seen very strong demand.

From a from the UK in Ireland, we have several projects there.

The fact that and we mentioned this in one of our.

Communications to the market in Ireland, they broke their own break or of 98% renewable clean energy doing one weekend that was.

A few months ago.

And that was just possible with the energy storage high ultra highs.

Speed of response.

Yeah.

It was it was for around three days. It was a it was a great achievement in the previous record was around 60% and and they have knowledge I mean, the whole the whole system operate or they acknowledged that it would have been absolutely impossible to reach such a level.

Consistency of clean energy in a market with all the energy star. So that that is a product that you already saw that and what we've seen is that other Microsoft looking at that and say well, if we really want to become carbon free we have to do the same.

So that that is it.

They're looking at what is happening in the market they will probably.

Imitate the same and they will start rolling out the same type of.

Solutions, we see a great demand for our transmission.

Probably we are the only company that are doing this transmission booster.

<unk> that we started in Lithuania as a pilot and now we already mentioned about the 200 megawatt.

Concho that we got we see that in for example in Germany. There is a large tender for four moving energy from the north to the south from the win of the north to the south of the industrial area in the South of Germany, we participating in that so and we see a very very.

Interesting demand for that for the transmission data centers in Belgium, and I think that what we did with Google is fantastic. We all know that every single data center around the world has a.

Diesel backup engine and and if we can replace that and replace that that the number of.

Barrels of diesel.

And the oil that is being burned doing some of that.

The unexpected event, so or or not unexpected.

<unk>.

So suspension of energy.

Interruption of energy well. This is a this is a fantastic problem. So if we can also take advantage of that C&I customer and then we can expand that to other customers as well.

Great. Thanks for the color I appreciate it everybody.

Thank you.

From Baird, we have George G. In the weakest. Please go ahead.

Hey, good morning, guys and thanks for taking my question first.

Slide in your deck that talks about gaining market share I'm curious as to whether you could help us paint a picture of what's happening out there with all the delays in projects and in cell supply.

What is the competitive dynamic like near term and how do you see that evolving over the next couple of years.

Yes.

Yeah.

Thank you very much George for your question.

We mentioned in our previous call that and some of our presentations that our target is to be around 20% market share.

We ended up.

I would say a little bit higher than that and I think that he has been a result of two to.

Two things.

One is that we have seen.

All of our other competitors.

Cancel in or customers canceling contract with our competitors.

And also the lack the second the second element is the lack of availability of batteries.

In some cases, it's not about the price.

In some cases is about the supply that if you really can't get enough bodies to move ahead with one one or two projects in your pipeline.

The fact that we secure.

Stanley capacity he helped but also we haven't had any cancellations so far so far.

We still delivering.

With some delays, but still delivering so it takes very highly about the quality of our contracts and counterparties.

Very tight market, we don't know whats going to happen with the Covid situation in China, but we still get in deliveries there are three factories in China.

Using for us.

So that that also diversify a little bit the supply.

And in our case, though we are not just relying on one factory for example in the Jiangsu province that he might be affected by the Lockdowns.

May I ask one follow up at the dentist with regards to your slide 22 in your gross margin projections for the next it looks like two years is that about a thousand basis point improvement that you're projecting over the next two years. There and also you mentioned on the call that you expect breakeven in 'twenty four I would assume that.

With regards to EBITDA. Thank you.

That is correct yeah. That's in regards to EBITDA and certainly if you sum up the numbers last year, then you would somewhere be around those and based upon those with total.

As outlined here so that's the correct takeaway.

Thanks.

From Goldman Sachs, We have Brian Lee. Please go ahead.

Hey, guys. Good morning, Thanks for taking the questions maybe Dennis just a follow up to that I was looking at slide 22 and.

Trying to interpret.

Some of the moving pieces here, you know 1000 basis points.

Can you kind of level set us youre doing.

Negative low single digit gross margins I think.

You had been talking about kind of getting to mid single digit positive gross margin exiting this year is still is that still the baseline for.

You know exiting fiscal 'twenty, two and off of which we should be modeling that thousand basis points I E. You're talking about kind of mid teens gross margin come fiscal 'twenty four when you get to Gen seven ramping.

Yeah no. Thanks for the question, Brian and let me, let me clarify on that so on the one side for the for the remainder of the fiscal year. We were really focused on reducing this up gross margin impacts and cooling ourself of the all of the negative gross profit zone. So one of them.

What you didn't see on the right side on the chart. This basically.

Based on the sold which we had already over the last 12 months 400 to 600 basis points. So that's really the starting points you can think about.

Which is then excluding adverse margin impact so.

That's the one thing we need to tackle no more adverse margin impact. So that we are having the baseline instead of 400 to 600 basis points and then moving on top of that these four steps with up to 300 basis points pricing and so on so all of that then comes together to a.

High single digits to low teens.

And the margin side of the of the products business.

Okay. That's super helpful. So something more like.

Maybe call it 10% in fiscal 'twenty for gross margin for just kind of using the midpoint and that's helpful.

And then I guess on I might have missed this but you mentioned earlier in the call the pricing increases.

Can you help quantify that a bit and then when should we start to see those readout.

In terms of timing.

And then maybe just lastly.

It seems like the margins.

Are we going to get helped by pricing a lot and buy some of these nonrecurring or I'm, sorry, nonrecurring charges going away, but.

Can you give us a sense of how much of your costs.

<unk> are kind of fully locked in for this outlook. This margin trajectory outlook and then what percent is maybe still variable just trying to get a sense of what.

What potential risks still still lies in the margin be here. Thank you guys.

Yes.

Brian first.

We have been able to increase our prices between 15% to 25%.

And the good news is that no cancellations after those.

Rice changes.

One element of your question. The second is that okay. What about those contracts that are already fine and they are writing our backlog and we having a very.

Very honest.

And friendly conversation with customers around the world. Because this is a long term relationship and they want us to stay supplying in providing more and more applications to them. So we having conversations with them in some cases, we are going back and tried to come up with an agreement to increase some.

Some of those prices and we have been successful in those in some of those conversations.

And I think that the fact that we haven't had any any cancellations. So far he speaks that even with the price increase that they still want to.

Keep working with us and they see us as a long term partner and.

And Brian for the kind of margin expansion outlook is really key to go to the online based pricing for us. So that means that we are having the same variability in our pricing to the customers as it may be happening to the underlying cost curve. So that's really the <unk>.

Risk mitigation measures that you have put in place too.

Alright fair enough. Thanks, a lot guys.

Thank you Brian .

From Bank of America, we have Julien Dumoulin Smith. Please go ahead.

Hey, good morning team. Thank you for the time I appreciate it hey, so maybe just following on Bryan's question here, a moment ago, just keep going here.

On the back half of the year, how do you think about these timing related issues just to.

Chinese logistics improving.

Just you talked about being back half weighted it seems as if maybe third quarter is still somewhat impacted by I think as you term. It these nonrecurring items.

Be it logistics from China, or otherwise and its really looking towards the fourth quarter exit run rate can you try to tie that 10% margin say by 'twenty four back to how you see that exit by by 'twenty, two and also how much of an ongoing impact do you see in the third quarter here from some of these transient items.

Alright, So let me first talk about on the revenue side.

And before I go to the margin side on the revenue side keep in mind that we pulled forward.

Some of the revenue from the third quarter into the second quarter. Then of course now it's also the topics about the China Lockdowns.

Our production topics there what it means that's pushing revenue from the third quarter into the fourth quarter, but that's really driving the back end.

Weighting of the revenue in the second half year and then on the margin. So it's really it will focus you on pushing.

To reduce the adverse margin impact in the second in the second half of the year, but overall, we expect that the GAAP gross profit will still stay negative and in the.

Second half and for the full fiscal year, and then pushing towards alone mid single digits in 'twenty, three and from there going into the high singles in the fiscal year 'twenty four.

Got it yeah. So can you talk a little bit more about how the force majeure is cascading through the.

Through to your customers and sort of the LDS right. So I'm just.

Ultimately how does that impact your margins there on that side again, how does that flow through the income statement and kind of a similar way.

Yeah, Hi, good.

Good morning.

Yeah Yeah.

Firstly is that Fortunately your AE has been that in some cases, our body manufacturers. They they issued a force majeure and then what we're doing is just you know.

During the same we are translating that force majeure event due to our customers that just had happened so far entry with trade customers and three contracts. So it's not a I.

I would say across the board.

And the fact that.

It has been a reduction in the supply from China, but not any interruption, which is very good news and I mentioned about that.

They are using for us in three different locations thought he help us too.

To also diversify their lockdowns are not affecting every single.

Factory and manufacturing facility in China. So that's that's that isn't important.

Element.

I don't know if Dennis you want to add.

I really like Julien.

Personal stuff off the P&L side I mean at the end the force majeure is there to protect and just the contractual basis for not having liquidated damages to low expectation listen to not see that in the P&L for the battery production reason.

Yeah, Julian I would add also that and this speaks of very highly.

Our teams and and and and and.

The engineering teams and the commission and teams around the world that we put in operation 10 projects are already and it's Andrew also we closed the gap.

That we we had delays in there in the last quarter last year, we had delays in the first quarter. This year. So we caught up everything so now.

It was a tremendous effort given all the headwinds.

So I really want to thank the teams are working so hard to make that happen.

So it means that our technology is.

It's working with fixing the issues and we're moving ahead. So that's very good news.

Excellent guys. Thank you.

From Wolfe Research, we have David Peters. Please go ahead.

Yeah, Hey, good morning, everybody.

Just curious on the Niobrara acquisition, you said, you expect that to be EBITDA accretive in 'twenty four but I was just curious if you can give a sense of sort of the revenue contribution if any in 'twenty, two and then into 'twenty three.

Any sense on like the revenue per megawatt for that eight gigawatts that they have under contract.

Now let me go first on the on the revenue on the modeling side and then maybe I'll.

So a bit more on the second part of that question.

Think about it for us when we implement just taking one step back here.

Not going into specific numbers here does the acquisition of let's say you had outlined.

And as part of part of the remarks this was really too.

Solidify our path towards to manage up and to secure basically the existing business plan, which could put out as part of the year IPO process.

Our modeling.

Regard.

Is EBITDA accretive if it's really a kind of steady contribution of the business, but I really want to also clarify that at the end does that concession was there to secure the business plan. The trail for already put forward and that's what we're focused on this to make sure with this acquisition and then just.

Any additional thoughts from your side.

Sure. Thank you.

Great question. So missed there the reason we're super excited about it.

Denis mentioned it really pulls forward our plans to execute on our digital strategy, which is to really pull forward a couple of applications, including the manage application.

It is spot on on that regards and it really fits our three three main criteria that we've been talking about throughout these calls which is technology agnosticism portfolio optimization and really having an overview of predictive analytics.

What's really important and exciting about this there is the scalability of the product.

As you know with fluids iqs bidding application.

We're expanding markets one by one and we're really dealing with the intricacies and complexities of wholesale market, which is totally.

Our our.

Kind of a.

Strength that we bring to the table.

But within this there given the scalability of the product is one product globally. We have a strong presence now in EMEA Americas and APAC with this product and we continue to grow it in terms of if there's questions around particular asp's.

We've talked about the Asp's for fluids IQ, we've given a range on this there it may fall on the lower end of that range, but the volume and the throughput and the scalability is really a strong factor.

Perfect.

And then the other question I just had was just on the elongated revenue recognition timeline you guys are calling this the new normal.

Just curious if you could specifically.

Dive into what's what's driving this is it shipping is it battery availability that you've talked to and then I mean do you see a path to potentially get back to that initial timeline that you guys.

Initially.

Pointed to.

Yes, no. Thanks, thanks for that.

Your final question there, but in general it's really the broad topics, what we see in the supply chain I mean, that's not really related to just one component, but overall, we are seeing the supply chain, having the difficulties from.

Components sides tool the shipping side, what's your mentioning so that's really we're factoring that in to the way home.

When we contract with all our customers and is still way back yes, absolutely but.

We just wanted to make sure that.

First understanding that this is not a near term thing I mean, if you look at what's happening globally around supply chain.

It just doesn't look like it's going to swing. So therefore, we wanted to provide those clarifications and could it become better yes, again, absolutely, yes and David.

We mentioned in our previous earnings call.

Remember that that shipping times, you know they can get from the pre Covid times up from Asia to the use of the west coast of the U S.

Tianjin from a date two or three weeks.

That is something that still there theyre port congestion are still there.

So as we and these are just two factors in there.

Theyre, all theres about component availability and a little bit higher than normal fall day rates on some of the equipment that we receiving.

And those are also as a result of everything that we've seen happening in it it does not not just our industry is in every single industry. So yes I am.

I personally I have no doubt that the.

The World will.

Get back to normal and those challenges will be.

It was sold and mitigated that.

As a matter of how much time, it will take it will take.

The different supply chains, and the realignment that we see in and around the world from the globalization into our regionalization.

The other element that might help at it is that.

If we are going to see a reduction in the demand well. This this scoring in balance it was essentially change any can change really fast.

I don't know what the what you've seen on the on the overall macroeconomic environment, but if we see as a small slowdown in economic activity, we will see a kind of a reduction in demand that he will certainly help in that regard.

Perfect. Thank you for the color.

From Tuohy brothers, we have Craig Shere. Please go ahead.

Good morning.

The gross margin improvement sequentially.

Certainly nice to see them.

Of course, you've got ongoing price increases youre rolling out.

But the G&A, excluding stock based comp seemed to stare step pretty hard in the quarter.

And that weighed on the total adjusted EBITDA.

What should we expect per for ongoing trends in that G&A ex stock based comp.

How how volatile cannot be quarter to quarter.

Okay.

Yeah no. Thanks for the question so on the G&A side.

I mean on the one side, we ramped up the revenue almost doubled the revenue compared to the previous quarter and when you think about it.

Our full year guidance compared to last year.

Almost also a doubling in that number there, but less than doubling in that regard we are pulling the G&A.

In line with the growth in Greece recently have been really pushing on the organization.

Expansion in the first quarter as well as in the second quarter, but we feel now that you have kind of also reached a level of organizational strengths, which kind of gears up to that level of volume. So therefore, we're not expecting.

A similar kind of increase on the G&A side in the third and the fourth quarter, but still in the third quarter was additional people at or certainly maybe it's still a little bit higher but definitely northern that stuff increased level as you have seen it.

Over the last two quarters.

So we're getting close to a.

Relatively steady state rate say, the third quarter G&A can last you in the say next fiscal year.

The run rate.

Yeah.

I mean, maybe if you'll take it if you think about it on a on a percentage of revenue I think that's a better comparison, because considering that we're still on a growth trajectory also fraud fiscal year 'twenty three but certainly overall much more focused at this stage on profitability.

And thats very clear for us.

We are focusing on.

Moving towards the breakeven point, but that still means that if we are having topline growth we still need to.

<unk> scaled the organization accordingly, but definitely not in that sense tool to further.

Increase.

In terms of personnel of revenue and that should actually should come down over the next couple of quarters.

Yes.

So maybe just what an absolute basis. It may still increase on a percentage basis it will decrease.

Great. Thank you.

From Raymond James we have volatile Chinas. Please go ahead.

Thanks for taking the question.

You referenced Repower EU.

In that context have you noticed any.

The increase in incoming calls youll customer activity since the time the Warner started.

Yes, I mean.

First.

Thank you very much pavan and good morning to you and the team.

Yes, there is.

No doubt about it I mean, there is a very strong interest.

Are the market leaders in Europe .

And that's good we are the market leader not just in volume we are the market leaders also in applications.

And they see what is happening and in Ireland, while we have done in in our important.

Achieving in building in the lead 20, a case that our participation in Germany. So.

Our brand is their top of mind. The solutions are there and the interest is very very high I mean <unk> you just talk to every single country. Every single customer is really thinking about how the European community can really assure that they can keep growing and operating.

As a as an economic ecosystem.

In a much better position in terms of energy independency, and self reliance and and we are demonstrating.

Every one of them that would energy storage and our software and controls and the quality of our response time.

They can they can make that happen.

And we all can make that happen.

Yes understood.

Understood.

And are there any additional logistics issues in terms of installing we're delivering your product to Europe .

That have been affected by the war as far as increased cost anything along those lines.

No no not nothing nothing that is really significant.

That might be some some components, so raw materials that used to come from Russia, and theyre not theyre not.

Billable anymore, but nothing nothing material.

And in terms of that.

Thank you.

In Europe , Rebecca you want a.

You mentioned about our contract manufacturing and processing and in here or how that's going and the relationship with north wall, which is very exciting about how are we going to be localizing.

And Colby signing with north what our our offerings in Europe .

Very quickly so more than a year ago, we announced our partnership with North Salt, we have engineering teams that work together to design the product the product is at or very near state of readiness to launch for a complete sale and we actually do have our sales teams in Europe talking to customers about our gen. Six solution with North fault is a key part of it. So we're at that stage, where we're engaging custom.

And it is a part of the plan there is to manufacture it and manufacture it in Europe as well and that manufacturer has also been selected and we're working on the specs of how that product will get designed designed and created isn't that factory in early 2023 that manufacturing will come to fruition. So so great progress there to have that foot.

Print in Europe .

Got it thank you very much.

And <unk>.

Let me take the opportunity to.

To do also to mention that we.

We are building.

A magnificent echos.

Ecosystem I mean, we're right now combining all our three business lines. We have 20 Gigawatts and this is this is a platform that is with the acquisition of <unk> with the new applications are coming with the services and the data driven services that the value that we create for our customers and the value of the platform is significant and we keep.

Expanding on the ecosystem and its overall.

Overall I see that the customers are really appreciating how.

How much and how much it will help and then and how much value we're creating for them.

Thank you we will now turn it back to me for closing comments.

Thank you everyone for your participation on today's call. If you have further questions. Please feel free to contact me, we look forward to talking with you again, when we report our third quarter results have a good day.

Thank you ladies and gentlemen. This concludes today's conference. Thank you for joining you may now disconnect.