Q4 2023 Fluence Energy Inc Earnings Call
Okay.
Good day and thank you for standing by welcome to <unk> Energy incorporated fourth quarter 2023 earnings Conference call. At this time all participants are in a listen only mode. After the speaker's presentation there'll be a question and answer session to ask a question. During the session you will need to press star one on your telephone you will then hear on.
Automated message advising your hand this race to withdraw your question. Please press star one again, please be advised that today's conference is being recorded I would now like to hand, the conference over to Lexington, Vice President Investor Relations. Please go ahead.
Thank you good morning, and welcome to fluids Energy's fourth quarter 2023 earnings Conference call.
Copy of our earnings presentation press release, and supplementary metric sheet covering financial results, along with supporting statements and schedules, including reconciliations and disclosures regarding non-GAAP financial measures are posted on the Investor Relations section of our website at Fluence energy Dot com.
Joining me on this morning's call are who land, Nebraska, our president and Chief Executive Officer.
The new Seattle, our Chief Financial Officer.
Tobacco ball, our chief product Officer, and Ahmed Pasha, our incoming Chief financial 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.
And uncertainties that could impact our future results.
You are cautioned to not place undue reliance on these forward looking statements, which speak only as of today.
Also please note that the company undertakes no duty to update or revise forward looking statements for new information.
This call will also reference non-GAAP measures that we view as important in assessing the performance of our business. A reconciliation of these non-GAAP measures to the most comparable GAAP measure is available in our earnings materials on the company's Investor Relations website.
Following our prepared comments, we will conduct a question and answer session with our team.
During this time to give more participants an opportunity to speak on this call. Please limit yourself to one initial question and one follow up also note that while I'm at it is participating on today's call. He is not going to be participating in the Q&A session and that's please direct your questions to the other members of the team.
Thank you very much I'll now turn the call over to Julio.
Thank you Alex I would like to start my warm welcome to our investors analysts and employees who are participating on today's call.
This morning, I will provide a brief update on our business and then review our progress on our strategic objectives.
Following my remarks, Mike who will discuss our financial performance for the fourth quarter, and then I will discuss our outlook for fiscal 'twenty four.
Before we begin our discussion on the fourth quarter results I'd like to spend a few moments addressing the announced when we made a few weeks ago.
Mono has decided to step down as CFO of fluids. He has done a remarkable turnaround job here and that's as a result, he called that things in the waters.
You receive an offer he could not refuse and more importantly, one that would could not much I thought you will believe in effective December 31.
To become CFO of another company in a different industry.
On behalf of the board I would like to send my one to sustain our future. Thank you demand for the value. He helped create afterwards, the past 15 months.
Finally, I would like to send my warm welcome to Ahmed Pasha, our incoming CFO.
Matt will officially assume this role on January 1st.
And sure enough sufficient transition period.
Ahmed comes to offer me, yes, where he had a 30 year career, most recently serving as the CFO of the utility business unit.
I personally have worked with them for many years and I am excited to continue that at fluids.
Now I would like to turn the call over to them and to make a few remarks.
Thank you Julian and good morning, everyone I am excited to be trying to influence at the time and energy transition is achieving critical momentum, which presents so much opportunity for the company and our energy storage in general.
As some of you mean, no I have had some experience working with fluence during my tenure at Aes, including during the IPO process and more currently as CFO of the U S utilities business spear Fluence is playing a critical role in helping to transform our energy mix.
Since the announcement about two weeks ago I have had the opportunity to meet with some members of fluids team and I'm very impressed with their experience and commitment to enabling the global energy transition.
I look forward to working with them and help influence to achieve its ambitious growth and profitability goals increase shareholders value and deliver on its mission to transform the way we power the war.
I would like to express my.
Depreciation to maneuver for his invaluable contributions to influence, particularly the strong foundation. He has established to position us for continued success in the future.
In the near term I will be getting up to speed on things, but I expect to meet with many of our investors and analysts in the coming months I look forward to hearing their views and sharing how we plan to achieve our key financial and strategic objectives with that I will turn the call back to <unk>.
Yes.
Thank you Amit.
Beginning on slide four with the key highlights I'm pleased to report that in the quarter, we recognized $673 million of revenue.
We continue to experience strong demand for our products and services with new orders totaling approximately $737 million highlighted by our solution business contracted 2.1 gigawatt hours our services business.
One six gigawatt hours and our DSW Society 1.8, Gigawatts of new contract.
Furthermore, our signed contract backlog as of September 30 remain at $2 9 billion due to acceleration of satellite projects ahead of schedule.
Turning to adjusted EBITDA, we delivered approximately $20 million for the quarter is that the remainder of the milestones as we achieve this level ahead of schedule.
As you recall, we expected to be close to adjusted EBITDA breakeven for the fourth quarter.
However, we were able to accelerate select projects that have resulted in higher revenue and margins for the quarter one.
One of the areas, we're concentrating on is organizational speed, especially with using our project cycle times, we see a lot of value in reducing our cycle time from the roughly 18 months to closer to 12 months.
We believe it will take us at least two years to reduce our cycle times down to 12 months.
This quarter results at a perfect example of what speed can do to bring increased value to both our customers and our shareholders.
Lastly, our services and digital businesses, which together represent our recurring revenue stream continue to see traction or deploy service attachment rate, which is where he is on a cumulative active service contracts relative to our the blood storage remains about 90%.
As I've noted previously we typically see a lag between signing solution contracts and entering into a service contract, which is why we believe that <unk>.
Run rate is important to monitor.
Turning to our digital business, we had a very strong quarter and as we were able to contract 1.8, Gigawatts more importantly, our digital assets under management increased more than eight gigawatt and the total number reached 15 five gigawatts as of September 30.
Turning to slide five I'd like to highlight some of Oracle accomplishment of the lot of the past fiscal year.
As you may recall, a year ago, when barak on the transformation of our business I am pleased to report that we deliver on our commitments to the market.
We grew our new ironwood revenue by 85% and achieved our first profitable quarter.
Importantly, we exceeded our original revenue guidance by more than $600 million same store improve execution.
Supply change and project timeline acceleration.
We burned through almost all our legacy lower margin backlog and will diversify our supply chain.
Securing U S made battery cells with ASC with the rollout of fluids. All seven we have integrated <unk> into our hardware solutions on a go forward basis. So that now every new star solution sell has spurred a bundled into it.
We build out our India Technology Center, and we publish our inaugural sustainability report.
A successful year that sets the tone for the years to come.
Turning to slide six I would like to discuss progress on our five strategic objectives. If you'll recall at this time last year, we laid out five years.
Is that will guide our actions on.
And Mark is that our investors to monitor and measure company performance again.
As we generate our first profitable water I'm pleased to say the first phase of our transformation is complete.
The second phase is just getting started which will continue the theme of profitable growth now measure to the girl Varna nominal adjusted that'll be done on annual recurring revenue or Ah along alongside the strategic objectives that will continue to guide us on the second phase of our Jordan.
First on delivering profitable growth I am pleased to report that we exceeded our fiscal year 'twenty three guidance for both revenue and adjusted gross profit.
Today, we're initiating guidance for fiscal 'twenty four we expect total revenue for fiscal 'twenty four to be between two 7 billion and $3 3 billion in line with our commitment from our last call. We are initiating guidance for adjusted EBITDA for fiscal 'twenty four to be between 50 and $80 million.
Second we will continue to develop products and solutions that our customer need.
I'm pleased to report that in October we launched Greek stack pro our larger enclosure provide in higher density faster installation enhance performance and industry leading safety.
In conjunction with the launch of several we also launched fluence all seven the latest fluids operating system defined with enhanced capabilities and fully integrated within new fluids battery management system, which I will touch on more in a few minutes.
Sir I'm pleased to report that we execute all of about their need for fiscal 'twenty four 'twenty five.
Four we will use fluids digital as a competitor competitive differentiator and a margin driver.
I am pleased to report that we are initiating guidance for our annual recurring revenue from our combined service and digital businesses, we expect to generate around $80 million of <unk>.
By the end of fiscal 'twenty four.
And finally, our fifth objective, which is to work better I am proud to say that just recently, we havent, we have launched a new $400 million asset backed lending facility or ABL.
This credit facility secured by our U S inventory and we expect it will provide us increased flexibility more importantly, we believe that the ABL facility provide us additional tools to manage our work impacted our working capital as we continue to grow.
Turning to slide seven.
Demand for our new stores continue to accelerate in fact, our pipeline now sits at $13 billion, which is an increase of approximately 600 from the third quarter and a 50% increase compared to this time last year.
Additionally, as I mentioned with our backlog remained consistent at $2 9 billion, even after recognizing almost 600 family of $5 million during the quarter.
Importantly, we have several contracts our client just subsequent to quarter end amounted to approximately $400 million.
Which provides us with strong visibility to achieving our 2020 for revenue guidance.
This is the eighth consecutive quarter, we added more backlog than revenue recognized further illustrating the growing demand for our new stores.
Based on the conversations we're having with our customers and potential customers, we're expecting to see top line year over year revenue growth from fiscal 'twenty four to fiscal 'twenty five of approximately 35% to 40% showcasing the robust market for utility energy storage.
Turning to slide eight.
As I mentioned earlier, we launched our Greek stack pro and <unk> seven in fiscal year 'twenty four.
This program launches or something or take holders just spec.
Loss, and we continue to innovate and identify new ways to serve our customer needs.
When you look specifically, our Greek stack pro solution. This is a much larger problem that integrate six battery racks and at this time for the largest and most complex utilities Gulf projects globally.
We expect pro will offer our customers, adding sip product with leading safety measures faster deployment first class reliability and the flexible model. This time that defines our program offerings.
More importantly for the U S market.
The fluids battery pack will be available U S manufacture battery cells and modules.
This position great stack pro as one of the first any historic solutions.
To qualify for the 10% investment tax credit domestic content bonus on the inflation reduction Act.
In conjunction with grade stockpile, we launched or seven the next generation of our operating system.
This iteration is meant to handle bigger and more complex projects and can reliably control more than one giga watt, our safety and it's fully integrated with their fluids battery management system.
This software also provides a foundation for future enhancements to the architecture.
And enables component Commoditization Jos.
As DC to DC converters.
Provides new tools targeted to reduce our commission in times, which as I mentioned earlier is a key area for the company.
And importantly, or seven common standard within the spirit platform or revenue per load.
One important feature and we expect to provide all our pro Liberal augments with basic Ms payer access for a certain amount of time.
After which customers will be required to sign a longer term contract if they wish to continue using the APM platform for the <unk>.
Australia of which to upgrade to our agent locations.
Turning to slide nine.
I am pleased to say that earlier this week, we secured a new $400 million ABL facility.
This provides us with an additional tool to help manage our working capital.
UA ABL facility features a lower cost of capital relative to our legacy revolving credit facility by approximately 50 basis points and.
And is secured by our U S inventory balance.
To provide us with more flexibility.
At our U S inventory balance increase in sold off our borrowing capacity.
ABL facility replaces a smaller 200 million revolving credit facility that required cash collateralization.
As we enter fiscal year 'twenty four we believe we have a very strong balance and an ample working capital facilities.
Sorry to scale, our platform and achieve our 24 guidance.
Shifting to slide 10, we're introducing guidance for annual recurring revenue.
For our combined digital and business enterprises, our objective is to reach approximately $80 million EMEA or by the conclusion of fiscal year 'twenty four.
Implying a notable increase of 40% from the preceding year.
This target is well supported by a robust service attachment rate achieved in 90%.
100% attachment rate for me spare out moving forward.
Our strategic efforts are concentrated on advancing our mosaic offerings.
Currently operational in three markets, Australia Queso Antarctica.
To note there were in the process of refining this platform with substantial contributions not anticipated before 'twenty five as previously communicated.
In conclusion, I'm pleased with the achievements of the fourth quarter, Although we're mindful theres still work to be done we will look to continue this momentum as we progress into a new fiscal year I will now turn the call over two months.
Thank you Ian I will begin by reviewing our financial performance for the fourth quarter, and then I will pass it back to <unk> to discuss our guidance for fiscal year 'twenty four.
Please turn to slide 10.
Our fourth quarter revenue was $673 million, an increase of 52% from the prior year same period and 25% above the third quarter.
We continued to execute well as even able to accelerate some of our legacy backlog previously anticipated for fiscal year 2024, resulting in higher than expected revenue for the fourth quarter.
We continue to expect a small portion of our legacy contracts will be recognized in the first quarter of 2024.
Looking at our adjusted gross profit for the quarter, we generated approximately $78 million or approximately 11, 6% in line with our commitment discussed on our third quarter call and reflects an increase from our third quarter margins of approximately 4% more importantly.
This is an increase from the previous fiscal year of two 8%.
I'm pleased to say, we have demonstrated cost discipline as our operating expenses, excluding stock comp as a percentage of revenue continued to decline and ended up around 9% for the quarter.
But on a year over year comparison, our 2023 opex percentage of revenue excluding stock compensation came in at around 10%, which is below our 2022 results of around 15% further illustrating our cost discipline.
As a result of our strong execution in the fourth quarter, we were able to generate $20 million of adjusted EBITDA and as Julian mentioned the signals. The first phase of our transformation is complete.
As we have now become profitable our focus will shift to growing our nominal adjusted EBITDA and <unk>, which we will discuss further.
Turning to our cash balance I am pleased to report we ended the fourth quarter with $463 million of total cash, including short term investments and restricted cash.
Represents an increase of more than $45 million from the third quarter.
And as Julie mentioned, we secured a new $400 million.
ABL facility. This facility replaces our existing revolving credit facility and upsize the amount of available borrow and should enable us to better manage the peak to trough elements of working capital.
When you look at our total cash balance combined with our new ABL facility and supply chain financing, we have ample liquidity, putting us in an excellent shape to capitalize on the massive diamond sacrifice Beast.
Please turn to slide 13.
From a cash standpoint, we increased our total cash position by 11% relative to the third quarter.
For 2024, we will continue to invest in technology, resulting in an expected use of cash of approximately $85 million.
From a recurring Capex assumption a good run rate is between 20 and $25 million as this is the level we expect.
Steady state environment without large nonrecurring investment items, such as the technology and systems investments, we expect to make in fiscal 'twenty going forward.
As Richard will expand we expect to generate around $65 million of adjusted EBITDA in fiscal 2024, and we expect to see approximately $65 million to $70 million change in operating cash due to increase in working capital requirements and includes our deposits for a U S manufactured back.
<unk> sells from ESC.
As we mentioned on our last call.
Our U S battery cell supply agreement with ASC called for a down payment of $150 million reserve this capacity, which will be paid in installments over fiscal year 2004 in fiscal year 'twenty five and will be funded by liquidity in customer deposits of these batteries. The first 35 million.
We will be paid in Q1 of fiscal year, 'twenty, four and another $35 million.
<unk> paid in the second quarter of fiscal year 'twenty painful.
As <unk> mentioned earlier, we have a strong balance sheet entering 2024 and have ample cash and facilities to support our 2024 guide and investments that could support multi year industry growth. We also expect to generate free cash flow in fiscal year 2025.
Before I turn the call back to Hulu and our express like to express my appreciation to the fluids Board management team employees and shareholders for their trust.
So I think as the CFO of fluids has been one of the highlights of my career.
If I were to participate in the energy transition space today. This would be my preferred spot I take comfort in the influence is in an excellent position from a balance sheet perspective, as I pass the baton to Ahmad who will take fluids into the next chapter with that I will turn the call back to Hilton.
Thank you Mike turning to slide 14, as we previously these costs were initiating guidance for fiscal 'twenty four of revenue between $2 7 billion and $3 3 billion.
We expect our fiscal 'twenty for adjusted EBITDA to be between $50 million and $80 million.
And we're targeting <unk>.
<unk> to be around $80 million by the end of the fiscal 'twenty four.
I'd like to point out that our revenue guidance represents an increase of $300 million.
When compared to our prior fiscal year 'twenty three guidance midpoint, plus our implied revenue growth was 35% to 40%.
We now expect our fiscal 'twenty four revenue spread of 30% in the first half and 70% in the second half, which is an improvement to what we previously communicated to the market.
As a result of this we do expect our first quarter to produce negative adjusted EBITDA due to lower revenue and the execution of the remaining legacy contracts.
From a margin perspective, we expect fiscal 'twenty four adjusted gross margins to be between 10, and 12%, which is an improvement from the fiscal 'twenty to be adjusted gross margin of nearly seven.
From a cash standpoint, we currently expect to use approximately $85 million of cash in fiscal 'twenty, four mostly funding nonrecurring incremental investments in systems and infrastructure necessary to support our continuous growth.
When looking out to 'twenty, five we expect 35% to 40% year over year top line revenue growth.
Certainly we expect to begin generating free cash flow in fiscal 'twenty five.
Turning to slide 15, we have established ourselves as the preferred choice for utility scale storage solution.
Our competitive advantage is fortified by being able to offer customers a full breadth of features including bank of agility scale and supply chain management power electronic engineering and innovation digital software services safety and cyber security.
While some of our competitors may focus on only a couple of these elements, we often win because we aimed to excel in all and provide them universally to our customers.
This is corroborated by the 2023 S&P Global battery energy storage systems Integrator report.
Which ranked the top 10 integrators globally based on installed and contracted capacity.
I am pleased to say that fluids was ranked number one both globally and in the U S.
In conclusion I want to emphasize.
The key takeaway from this quarter our results firstly.
We had a robust financial performance contributing to our record breaking annual revenue.
Attaining profitability for the first time is a significant milestone and we aim to capitalize on this achievement in fiscal 'twenty four.
Second we proactively set your future by solidifying our battery supply for fiscal year, 'twenty, four and 'twenty five thus, ensuring our ability to meet our growing demand.
Finally, the introduction of our new 400 million ABL facility provides an additional tool to continue capturing their robust growth of the utility scale.
As a reminder, while I'm at it participated onto less coal he will not be answering any questions.
This concludes my prepared remarks, operator, we're now ready to take questions.
Thank you.
As a reminder to ask a question you will need to press star one on your telephone to withdraw it.
Question. Please press Star one again, please wait for your name to be announced again, we ask that you. Please limit yourself to one question and one follow up until all have had a chance to ask a question after which we will answer any additional questions from you as time permits. Please standby, while we compile the Q&A roster one moment for your first question. Please.
Question comes from the line of George <unk> with Canaccord Genuity. Your line is now open.
Hey, good morning, George.
Good morning, Thank you for taking doing great. How are you. Thanks for taking my question.
So.
Maybe just to start a lot has been made of the interest rate environment, having an impact on project.
Project timing in the general renewable space and economics.
<unk> sort of speak of themselves for themselves, but what impact if any are you seeing on your business from the change in interest rates. Thank you.
Great. Thanks, Thanks George.
As we have talked in the past we work with.
The top tier.
Hello per center in the U S.
Well this is where it is.
It happens.
And.
When you look to them they don't really see any problems raising capital accessing capital or put in the projects together. So we have not seen any delays due to cost of capital or access to capital in general.
I'll tell you even more in our case because as you all know our Bravo costs have come down with battery prices coming down significantly this year in a way when you do the math between what our costs are lower costs when compared with the high <unk>.
Three basis points generally.
As I've gone debt cost of ammonia have gone up during the year, it's essentially it's a wash or maybe actually is.
Julie can do even better returns our doing their parcel we haven't seen any real effect of today, we know customers that we don't get the same information and Youll get from all the parties, who would tend not to work with where they had some problems you know raising more than you're racing Montana at competitive rates, while but.
We haven't seen anything that we we segmented with a top tier group in that top tier group essentially has no problem of accessing capital.
Thanks, maybe if I can ask one follow up.
Recently, one of your competitors announced that they're exploring strategic alternatives for their energy storage business, what any thoughts on that and any impact that it could have on your strategy going forward. Thank you.
Okay.
I was surprised by it because of the prior quarter do they say that this was going to be the growth engine this quarter, they say that.
It's difficult to know what we've been trying to understand where they come from I prefer not to speculate.
At this stage, but you know I was surprised that this is a market that is as offering tremendous growth.
Tremendous opportunity to create value for shareholders to.
Play in the in the.
New energy space so.
Why are they are revising their view on the market.
I have no idea.
Budd.
I've been doing I've been reading that investors they call in their rationale at least it wasn't clear to me, but we will continue looking at it.
We are on the on the other side of that spectrum.
You know doubling down on these easy.
Once in a life opportunity.
Doesn't get any better than that what this market offers story.
Thank you.
Thank you.
One moment for our next question please.
Our next question comes from the line of Brian Lee with Goldman Sachs. Your line is now open.
Okay.
Good morning.
Hi, Thanks for taking the questions.
Guys.
First off congrats and best of luck on your new role.
Looking forward to working with you more or less thing going forward.
Couple of questions I had was I guess I appreciate the breakout.
Breakout.
$80 million and a share this fiscal year.
40% growth it sounds like Chris said last years number.
If I look at your bookings, though in services.
A lot faster.
So can you give us a sense of I know, there's a little bit of a delay, but as we think about your initial.
25 revenue guidance consolidated.
How fast can you grow that balance up to AED.
I kind of look at your bookings volume.
Growing at a much faster rate across services on digital and then also what.
Sort of the margins implied.
Our balance I suppose I would presume, it's pretty high but can you give us a sense of what.
Ranges.
I mean on the growth rate I do think that our view is that a <unk> to grow at a higher rate than our solution basis no.
The way it works.
It's very simple we will.
We have an expert and mosaic and our services business, our services business, 90% of our growth rate.
Our solid base is paid out roughly around 100, and then we'll say it gets on top of that so.
That will be but we cannot do it. So I don't think that we will see that growth being ahead of it. So that's conceptually what we are and we are growing 40% compared to what the 35 to 40 that we that we have.
From last year.
In terms of margins the margins differ nor will I think that for our.
Digital basis, they're more on the you know around.
Around 70%, while our service business is between 20 and 30, depending on the on the type of service that deal that we agree so the combined theres not a combined.
Theres not a combine our margin, but you have to think about it this way.
And then in terms of the order.
Today.
Think that the grade or the majority already services, but I'll see the immuno our view is that digital will grow at a higher rate than than our services business that youll see digi.
Digital becoming a much more relevant part of our <unk>.
As we move forward in the US can you just think about all of this.
That's great, yes, I appreciate that color Thats Super helpful.
Second question from me and I'll pass it on.
Looking at that.
Larry.
25, <unk> revenue guidance is 35 to 40, that's quite robust.
Of that.
$4 billion top line range.
You kind of get to the midpoint can you it sounded like you were.
<unk>.
Part of the backlog.
Tom.
Awesome.
Brian.
Lastly, we are losing you a little bit I don't know.
You mentioned that you were talking about the 25 robust growth and then somehow you got you.
Can you repeat maybe thats clear.
It turned out the budget.
It's.
Just wondering what beyond customer conversations do you have.
And yes, let's say is contracted backlog like what what else are you able to sort of key upfront to get comfortable with the 35% to 40% additional growth into fiscal 'twenty five and then when you talk about batteries being cared for 25.
I mean, I would assume that is matching up to that revenue growth potential youre looking at is it fixed pricing or is it indexed are you subject to.
Any kind of cost volatility out of the battery side of just having a locked in the volume maybe could you remind us where you are on.
On the pricing side of things as well thank you.
So on the growth.
Clearly I think that that.
The best evidence of our growth capabilities comes out of our pipeline.
We looked at our pipeline for this last quarter, we grew our pipeline by six on that.
Roughly.
On top of converting 735 to backlog. So in reality, we added $1 3 billion into our pipeline this quarter and Thats, where it gives me the INR view on top of that somebody that we don't disclose we have Lee.
Projects that were working on with customers that we do not really today, we can you know.
Consider right.
50% chance of happening within the next three years.
Our elite.
We're talking to our customers one while we're doing it gives them a good we feel very confident that we can do a 35% to 40% 45. So that's essentially what it is.
In terms of you know on that this number compared to where prices you know we build our planning based on our current view of oil prices are on costs.
Hey.
As long as prices stay within what we think you know where we are today generally which is kind of what we're seeing is going to save for their foreseeable future.
I think what youll be fine, but what we have also seen just to be clear that you know if prices will continue to come down I think that generally what we see is that the volumes increase we don't feel that.
Thirdly day, 35% to 40% today, we don't believe that this 35% to 40% growth will be affected by cost coming down with battery cost coming down so much that we won't be able to meet it because of that because at the end of the day, what happens a lot more projects.
They say are 50% more of our pipeline projects convert into a reality because they are easier to meet the economics of it.
The customer saw.
So I think that's the.
Our view on that one your second point sorry.
You had a second point.
You covered most of it I guess.
Question around costs towards whether or not I guess, you have margin risk either up or down based on <unk>.
<unk> supply in bottle.
Volumes.
Awesome.
We continue to be to be.
Our strategy is not to take battery.
Price cost risks, so we transferred to a customer that you know on that and our view has always been.
We the Rmi. So my view has always been is there a.
Prices of lithium come down as well as to our customers about where to up our customers will pay a higher number.
And we don't want to become a commodities that are much better players. They are much better ways of betting on the commodity movements and then our stock. So we'll continue to work Friday that Hasnt changed we feel very very confident on that 10% to 15% margin.
So I don't think that that will be affected in any way, Brian Martin dependent up.
The battery prices materially different today than they were back and not only help that.
Right so.
From that perspective, I think it.
It's fairly comparable.
No.
I think the lower by snapping the lower battery prices I don't know if at all it no.
No no not at risk.
You know we have organized ourselves in a way that it will not be not affect Europe changes affects our margin. While they are generally will see them as an opportunity.
Thank you.
Thank you guys.
Thank you one moment for our next question. Please.
Yeah.
Okay.
Our next question comes from Andrew <unk> with Morgan Stanley. Your line is now open.
Great. Thanks, Andrew Good morning.
Morning, how are you.
Thanks for taking the question I guess just to come back to Brian's question I, just want make sure I understand this correctly.
For the 2025 battery supply.
Have you locked in the pricing with your suppliers on that I'm, just kind of curious if battery prices continue to fall and you've locked in your pricing for 2025 is it can it be more difficult to see.
10, 15% gross margin.
Contract, if you have a higher priced battery versus where prices go from here.
I think that.
I'll put it this way we are we have come.
Contracts with our suppliers.
Aligns with the current market the world in a world where prices are coming down. So that's the earlier so we're not committing to it.
Significant volumes at fixed prices that will be arrow, that's conceptually wildfire.
No that's very very important window.
Very very important from our point of view to have very competitive pricing that is.
At market or better.
And they are really the access to volumes I mean, it seems like we have been able to refine our contracts in a way that meets those goals and in terms of margins as I said, you know I see this as.
I don't think the lower pricing will affect our margins are 10 to 15 margins going forward. This is more of good news no more than that negative news.
10 to 15, we feel very confident that the way we do deals.
People may argue that your volumes are going to come down because now youre going to come out of a lower price, but the reality is that as I said a lot of more projects meet meet the return criteria of our investors of our customers. So you know.
The volume more than covers any potential price reduction you might see around sodium.
So definitely.
This is a group this is that as I said earlier.
You cannot dream.
I looked at when I arrived.
You know a $180 per megawatt hour prices do not.
And when I say, a price not to be led my competitors know about.
It's a different world.
And it doesn't get any better.
Well, maybe I'll be surprised next year, it will be a bit.
But.
Understood.
Helpful context, and then I guess my follow up would be as you look at your backlog or even a pipeline.
What percentage of it is new renewable energy projects that are adding battery storage versus maybe a retrofit opportunity obviously the IRA.
We're seeing opportunity there for retrofit. So I'm just kind of curious how thats breaking down as you look at the pipeline and backlog.
Today, I will say that if you looked at our pipeline and the ones that have more than a 50% is mostly new projects, you know retrofits and things of that sort of more in the lead spot.
Mostly greenfield.
If not essentially all today, however, I will see you can see you know a lot of our customers are looking at talking to us either retrofits.
Placing you know.
Some you know coal facilities. So that there are some in our in our in our pipeline are in our control backlogs that are they're building it into a format called facility, but generally they are greenfield.
Understood. Thank you.
Thank you one moment for our next question. Please.
Our next question comes from the line of Joseph Osha with Guggenheim Partners. Your line is now open.
Hello, Congratulations on the great outcome I've got a couple of questions first.
Looking you've alluded to the gross margin, but as we look at that FY 'twenty five guide I'm wondering how we might think about operating cost absorption than what that implies roughly for.
The ability of the enterprise to grow EBITDA.
I have a couple of other questions, but I'll start with that one.
Good morning, I'll, let Matt.
So look I think consistent with what you said.
As we think about 25.
EBITDA profile gross margins are probably at the midpoint of 10% to 15% range and then.
We've been very disciplined around operating expense and we expect to grow operating expense at little bit less than half of our topline growth and you saw that in 'twenty, three and we expect to see that in 2004 and quantified that.
We are continuing to invest in the business on the backs of a growing market and $13 billion of pipeline.
Okay.
Could we begin to see any material benefit from 45 X credits in FY 'twenty five given how so availability and in the U S is evolving.
Yes, and the short answer is yes, but I think.
From modeling perspective, I'd still stick within the lanes I just talked about.
But to be clear that number you've put out there. It is not built in any any 45 axis is that correct.
The way we have.
Our view on the 45 <unk> is that they will be within the range. So that we will see that the <unk> will take us outside of the range of 10 to 15, that's the way you should think of it.
Remember we are building a new lines, we're putting it together we're starting from you know this.
It will require some you know taking it up to more if we get.
Very to get to scale and efficiency. It takes a little while so we believe that.
Modify that will help us.
Paid for some of that.
Learning curve.
Sure sure.
It's early days I just wanted to clarify so it does sound like to the extent that those numbers do flow through the P&L and 25, it would be additive to that range, you're you're discussing is that that kind of what youre, saying.
Well.
Put it differently as I said I do not today, where we are.
You know I believe that the fortify backs will have both bringing our.
Your line into you know it will cover it will it will cover the cost of the learning curve. That's our view today, we might we might be able to do as much better than what you know, what we expect but havent gone through processes like this.
Usually carry some risk and you need to be so I don't want our promise on this.
Okay, and then just a last one for me on business mix I'm wondering how you are looking in terms of a storage only freestanding products versus wind and solar coupled projects. Thanks.
Thats It for me thank you.
Yes.
They see more and more coming into in the first outside of the U S. That's unknown.
To be clear in the U S, we'll see them come more and more and more and more.
So now we've signed a few last during the year, we see more coming into our leads in our pipeline and it will be I cannot give you an exact number but I don't have in the top of my head, but we do see that.
Overtime.
The bet that we that will take off in the U S. The U S will start looking more like the rest of the world where battery storage are standalone tools.
It will take a little time, you know these projects they need to be people were working on projects that were you know with renewable assets. They will take a little time until they actually got them permitted in the Q and all of that process.
Okay. Thank you.
Thank you.
One moment for our next question please.
Our next question comes from the line of Dylan Maisano with Wolfe Research. Your line is now open.
Yeah, Hey, the elimination.
Thanks for taking my questions welcome Ahmed and wishing you the best in your new role mono.
Wanted to touch on the domestic content offering I mean, how are those conversations going with the customers right now how much volume I guess are you seeing it drive within the pipeline based on the latest IRS rules that came out.
That kind of give any kind of incremental certainty to move the needle at all.
We said I think our volume growth.
Is based on our view of our of domestic content.
As we mentioned it also there might be an opportunity for margin expansion. We said in the past it's too early to say today.
But you know we are working with our customers.
Cost of living is going well, but it's too early to say, whether we can expand margins based on it.
But volumes were already what where the growth of our offering essentially includes what our view on where we see our.
Yeah.
Our domestic content offering.
And generally.
Generally our view on this I think that potentially could be in margin expansion that we've said and as soon as we have we see a reality, we will share that with the market to let you know if it changes that might be a potential upside for our 25 margins you're absolutely sure. They wont I don't think you will see any any real significant revenue.
In 'twenty four it will be at 25 revenue.
We'll let you know.
As the year progresses, and we start signing contracts will give you our view of what we do.
And the regulations were to step forward I think like all these regulations.
At respawn a set of questions.
Opening a new set of questions, but I think that in general is that.
It was good to see it got more coming there feels we're still waiting for more clarification of bought it was good to see some clarification and then a lot of Asia.
We're addressing were not related to our industry, but the ones that were related to our industry to have lots of storage already in line with what we expected.
Got it. Thank you and then just a quick follow up.
Can you just talk a little bit about the geographic breakout of the current backlog and were in the pipeline are you may be seeing incremental opportunities pop up.
Yes.
Yes.
At the same as <unk>.
As our revenue two thirds.
The U S.
I started at Rs, we see in terms of markets I think we've talked to all of this is already kind of as we come on now a new market, where we'd be not very active.
Doing very well.
Besides that I think that generally we see a lot of growth in Australia, Europe is in Germany, and Germany, I guess is the other market, where we have done the two transmission projects and we are continuing to see growth of movement. So well.
Very very strong market all around in the U S still leads the pack.
Got it. Thank you that's it for me.
Thank you one moment for our next question.
Our next question comes from the line of Ben <unk> with R. W. Baird. Your line is now open.
Hi, Good morning, Thank you Hey, Matt how are you.
Good.
Just following up on the last question, how do we think about your cell supply.
Matching up with your <unk>.
Grab the opportunities just just being you.
<unk> cell supply.
The rest of the project are you guys thinking about that.
25, 26 and beyond with those contracts.
We have you know I think we are.
Besides the U S sales, we manage the rest of the world is a global market soul.
Today, we are we know there is no risk from from from cells not be not having supplied to any of our markets.
And then a specific deal.
For the U S supplier as a multi year deal that will cover a few years and I would expect that.
That becomes a.
<unk>.
Solidifies.
We'll continue for many years and I would tell you something that I think is important we do we don't see that the U S will have both domestic.
Important content. So we will have a mix at the end of the day. So it's not like the U S market will become a fully only domestic content market.
At least not getting there for a while you'll see both.
Ported batteries and domestic on them, but it is competing here so.
Thank you in the past great acquisitions, I'm just wondering about.
Looking at your slide 21.
Different technologies hardware or software.
Areas that you see opportunities going forward.
You know we have said from day, one that we weren't no one other way any M&A until we had a.
Profitability. So that continues to be a case clearly this quarter has been good.
No.
If I my view on on potential acquisitions as a final one.
We clearly we see M&A as an opportunity even if it will be.
Maybe one or a value ways of offering value to our customers. If we were to do any acquisitions, where we connect that most likely to AR.
Broke the element accelerating our program, but we have no no. We're not working on any acquisitions. There is nothing in the works so were not talking to anybody so.
Don't be.
There is enough work with our current business.
For us to make it happen so.
Okay.
And there will be you know more on the technology side, and then connect that to a probe roadmap.
Great. Thank you.
Thank you one moment for our next question. Please.
Our next question comes from the line of coffee Harrison with Piper Sandler Your line is now open.
Got you good morning.
Hey, good morning, Thank you for taking the questions.
Maybe just a quick follow up on gross margins.
Fiscal 'twenty four guidance calls for 10% to 12%.
But manu discussed 10% to 15% as we think about 'twenty fiscal 'twenty five and so just wondering what are some of the factors that could.
Potentially push you towards the high end of that range that 15% versus the low end of the range of 10%.
I think that clearly.
Clearly our execution capability.
Or we will fire up, but I think something as I mentioned that could be.
Material.
A material driver will be the U S content offer and if we can capture higher margins on that on that offering.
When you looked at it so it will be a combination of maybe you know better even better execution. So we can.
Do better than what we expected and.
The U S content.
Operating which Mike.
Mexico buffer, which as.
As I said this is something that we might see an opportunity for higher margins.
That's helpful. Thank you and then just my follow up.
Manav said this as well and just doing the quick math.
It's clear that you guys I think youre going to be generating free cash flow.
As we think about fiscal 'twenty five I know, it's very early but if you actually do successfully.
Influence actually successfully begins generating a free cash flow.
Do you think about capital allocation priorities for that free cash flow.
Is it.
Are you going to look to.
M&A are you going to look to returning capital to shareholders just shore up the balance sheet, maybe just thoughts on how you want to use our free cash flow to create shareholders. I think my view on that today I don't always supporting our growth.
Technology, that's why I think that that where will you I don't see us distributing cash flows or distributed dividends or anything of that sort of.
The growth is so so if the growth continues as we expect that the continuum I would say in the world. We will need all of those resources to meet our customer needs to create and that's why I think it will be the best use of ammonia and they will create the most value for shareholders.
It might change over time, but if you ask me about 25 that the way I think about it.
Got it thank you.
Thank you one moment for our next question. Please.
Our next question comes from the line of Hawaiian demolish Smith with Bank of America. Your line is now open.
Good morning, guys, it's actually Hey, Julio.
It's Alex variable on for Julian.
<unk>.
Well congratulations to you guys congrats to your model, we will Miss you.
And your next journey, but great results here.
Maybe my first question just you guys, obviously, a lot of growth guided for next year.
Obviously, the indication for fiscal 'twenty five robust as well Im curious just when we think about the bookings cadence to support that.
I look back in time, it seems like you guys see a pretty big step up in the first quarter, and then things seem to be sort of level wise.
One times are a little bit greater book to build throughout the rest of the year is that what we should look for kind of next year or is there any kind of.
Gyrations or things you should watch for on cadence around irate allow.
Allowing projects to move forward or not that we should think about just as far as getting confidence in 2025.
Hey.
Maybe what I think will be kind of the next step will be the domestic content going back to it so that it will happen over the year.
If these three cold too.
Hum.
However, seasonality on order intake to be very very sincere with you it changes.
Over time, so I cannot give you a guide you to expect.
The much bigger first quarter, and then everything kind of staying the same it's difficult to give you our view on that from where we are today. We what we can say is that we feel very very comfortable about our hour $24 95 guidance and you know.
When we see how our.
Our converting pipeline into backlog and when we will we are in discussions with or without <unk>.
Customers, we feel that we are going to be able to meet very very comfortably.
24% and 35 volume guidance that we just mentioned so.
Got it Super helpful. That's what I can say.
I don't want it first I don't want to manage a company like water.
All my team lift.
The right deals done the worry of meeting a quieter number because in terms of backlog.
Really.
Nothing really matters as long as we feel confident that we can make it happen.
Do it whenever we get it.
Yes, many of our peers that they are in the large project business and are they sort of quite to the same.
Maybe if I can just ask.
Obviously, a strong environment for storage, obviously, serving very price elastic product as far as how the returns evolve but the other thing I wanted to ask about is.
How much of this is just I mean as far as the volume growth that you guys are able to put up how much of this is sort of new customers or a higher win rate as opposed to the size of the projects Youre seeing are just ballooning in size because if we look at the developer side. It seems like we've gone from 200 megawatt hours to two gigawatt hour.
Our projects.
A year and a half and I'm just sort of curious how much of that is really kind of driving the confidence here, where it's not just we have to win a bunch of new customers. It's literally.
It's the same customers the project suggest five times bigger than they used to be two years ago. So you can kind of expand on that my view is that all of the above we don't clearly our customers are doing bigger projects were great.
Entering new markets like Canada, which are new customers that we didn't have before and doing more work in Germany. So you know.
I will say in the U S is mostly are.
Projects getting bigger in outside of the U S. New customers were working with and that's kind of what the way I would put it so.
We have a lot of repeat customers constantly all the time, but we're also looking to for customers and meet our our profile trying to entice them to come and work with us So.
I think in general as the project sizes get bigger across at least in the U S and also outside the U S. Given the fact that we have.
Select set of providers that can provide multitude of attributes between great Safety Records bank capability supply chain.
Flexibility on attribute management I think.
Current customers keep coming back to us and you're starting to see new customers, who now want to work with partners, who can manage large project projects with multiple attributes start to come out of it.
That's the way to think about how we step up as we go through the years.
Yes, it's a very fair point, well again gets care guys. Congrats again, Mario will Miss here, but good luck.
Thanks, a lot. Thank you. Thank you one moment for our next question. Please.
Our next question comes from the line of Chris Allen House with Steven Williams Shank. Your line is now open.
Hey, good morning, everybody.
<unk> Ahmed.
Good morning, Chris.
Fourth quarter adjusted.
Adjusted gross margin was 11, 6%.
Is that informative for 2024.
Relative to the guidance or were there some special circumstances, there, particularly related to the legacy contract.
I think that our guidance is it 10 to 12, so if you would.
Midpoint is 11.
In the fourth quarter.
<unk>.
There was some change orders that helped that was what I would say that that helped bring it up beyond below above.
And those are difficult to predict.
That's the way I would put it.
Okay.
Julio.
<unk> talked a lot about battery costs, but.
There's a bit of a slowdown in EV sales are you expecting that to maybe be a tailwind for battery costs and 24.
I think that.
Today My view is that I don't think prices will continue coming down Thats. Our current view of it will stay kind of where they are.
They wont go up but I don't see these prices.
Lotteries.
Tune in lithium carbonate coming down below where we are.
If I knew where they were going to trade I wouldn't be doing this job, but what we do is something where youll make a lot more money.
But we are ready to share with you, but that's our view and I think that talking to our suppliers.
We're talking to the markets on our basics business So China.
We're in kind of that's kind of what it seems.
Comfortable that that's the way to think about it.
Absolutely I appreciate it.
Thank you one moment for our next question. Please.
Our next question comes from the line of Pavel <unk> with Raymond James Your line is now open.
Yeah. Thanks for taking the question.
Look to boost your services and software revenue would you be open to the idea of placing some back.
Battery asset on your own balance sheet from the perspective of virtual power plants peak shaving.
Rate arbitrage any of these services that lewins could participate indirectly, yes, no not really.
And my view on this is that.
Our customers are.
Customers job that you'll do it if I started doing by my customers do is a recipe for disaster.
You know.
So no no I'm not planning, we're not going to get into the storage business.
Using storage as a service to third parties.
Understood a quick follow up on M&A.
As you look at potential software acquisitions, and like Ams couple of years ago is it fair to say that valuation multiples.
In our <unk>.
That company Arena have.
Come down quite a bit since am's for example.
Yes, I mean.
That said, we're not actually in the market or not I'm not testing prices. So I cannot give you.
Evidence of where we are.
Where prices are for four potential acquisitions, so, but generally I heard what you are telling me that what I hear from the banks is that when they come and pitch meet stock.
All of these great opportunities around but as I said, we're not we're not.
Jumping around whether or not we are in the process of capturing growth.
Okay. Thanks very much.
Thank you.
Thank you one moment for our next question. Please.
Our next question comes from the line of Amit <unk> with BMO capital markets. Your line is now open.
Hi, Good morning, Thanks for squeezing me in.
Hopefully two quick ones here.
It looks like we talked a lot about asps.
And 24, but it looks like in the current quarter for.
Your revenue recognition megawatts were kind of flat at 600 megawatts.
The Big revenue increase I was just wondering what kind of caused that big kind of step up in Asps was it the change orders you mentioned a little while ago.
That is correct I think it's a combination of project mix and change orders.
So we should kind of think of that as a little bit of a kind of a one off.
Yeah look remember as we run off our legacy projects. Some of them were signed way back in 'twenty two early 'twenty three.
You shared.
You should expect the asps to kind of reflect what's happening with the battery prices, but as we said our margins continue to be intact and drill.
Through 'twenty, four and 'twenty five.
Great. Thank you and then.
I think in your.
Cash flow guidance you included.
The impact of deposits for the Aes.
<unk> battery cells I was wondering if you can kind of give us a little bit of clarity on what the magnitude of that as and when that cash comes back to you.
Yes, so what we've said is.
I think it's $150 million over a two year period, I think it's roughly half and half between 24 and 'twenty five half of it gets financed through customer deposits and the other half we get financed through our own liquidity sources and as.
You can see we have ample of them.
And then as the product starts coming through.
Got it.
<unk>.
Literally but abbvie as ASC ships, the product to us so should start to see some of that deposit come back to us.
Starting end of 'twenty four 'twenty five along with the supply of this house.
Great. Thanks for that and good luck with it.
Okay. Thanks, Ron.
Thank you one moment for our next question.
Our next question comes from the line of Thomas Horan with Seaport Research Partners. Your line is now open.
Thanks for going into overtime here, guys mono curve on making so many positive contributions in such a short period of time and best of luck on the private side of the auto parts World Ahmed congratulate back something.
Yes, yes, we have we are quick to pounce on it and then.
And then congratulations on stepping into some big shoes authority collaborating with you.
A follow up on how the nature of storage projects had been evolving.
It was just touched on about how the size of them has soared over the last 18 to 24 months. We've also seen an uptrend.
And the average duration of systems being installed would you expect.
That.
For a longer duration trends continue and if so.
What are some of the specifics of how you are positioning <unk> to ensure that strategically technologically and supply chain wise youre staying ahead of that trend.
Yeah, Hi, Thomas this is Rebecca so will we.
See right now and what we're developing and delivering from the product roadmap really is still on that two four and six hour duration system. So kind of in the next 18 to 24 months, we're going to deliver what we deliver which is not yet the multi day or longer duration than that what we're doing from a product roadmap.
Our perspective is we're examining what's out there in the.
Our crystal ball of battery Chemistries that allow for longer duration solutions and we're just starting now to engage with those suppliers and put prototyping efforts in place so when those things.
Become more viable in the market, we will be ready.
Makes sense, thanks for that Rebecca and then just looking to dissect the contracted backlog a bit further was hoping you could share too.
Percentages with us first.
Whats the portion.
Uh huh.
The current backlog Thats non related parties, and then could you give us a rough estimate for how much of it represents.
Mega projects and storage of the transmission assets combined.
So on the unrelated party.
75%, who said we want to I want to bring it to around 20. So we're kind of it will be bumpy over bought but now on us.
It's probably it's a big but I think we are it's been coming down on around 'twenty will be a number I feel comfortable with.
Today, I think is around 75%.
Kind of in line worldwide and our if you looked at our revenue for the year I think it was around 29.
With 2009 with related parties on 61, Witzel and it should tend to award towards the 75% revenue and then at some point get to 80%.
And then you were saying on a standalone that was the second part of your question.
Just trying to get a sense either if you want to break them out that would be great, but even if you just want to look at them on a combined basis the percentage of the contracted backlog, that's either a mega project or storage as a transmission asset.
Difficult to prefer not to go into that and then also these days.
We have a we have a lot of flavors in that pipeline that will help with it.
Yeah.
Hence my curiosity.
But anyway.
You know I think it's better to keep it.
With this view and allows us all of us to work better as we move forward.
Fair enough.
Thanks for taking my question.
The question on this I think this is one of our successes that their ability to continue growing with known.
One unrelated party transactions that is growing at a much higher rate than the 35 to 40.
You can see April where our pipeline stands today.
Our.
Revenue.
Thank you for your questions. This concludes today's conference call. Thank you for participating you may now disconnect everyone have a wonderful day.
Okay.
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Okay.
Okay.
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