Q2 2025 Fluence Energy Inc Earnings Call
[inaudible]
Thanks for watching. Bye. Bye.
Speaker Change: Hello and welcome to Fluence Energy's second quarter, 2025 Earnings Conference Call.
Their autumn investor relations. Sir, you may begin.
Speaker Change: Thank you. Good morning and welcome to Fluence Energy's second quarter, 2025 Earnings Conference call.
A copy of our earnings presentation, press release.
Speaker Change: Joining me on this morning's call are Julien Nebreda, our President and Chief Executive Officer, and Ahmed Pasha, our Chief Financial Officer.
Speaker Change: During the course of this call, Fluence Management may make certain forward-looking statements regarding various matters relating to our business and company that are not historical facts.
Speaker Change: 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.
Speaker Change: 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.
Speaker Change: 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. Thank you very much.
Speaker Change: 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 gap measure is available in our earnings materials on the company's investor relations website.
Speaker Change: Following our prepared comments, we will conduct a question and answer session with our team.
Julian: During this time to give more participants an opportunity to speak on this call, please limit yourself to one initial question and one follow-up. Thank you very much. I'll now turn the call over to Julian.
Julian: Thank you, Lex. I would like to send a warm welcome to our investors and at least an employee who are participating in today's call.
Julian: This morning, I will briefly review RQ2 results, but I will concentrate primarily on the current environment.
and why will remain confident in the long-term growth prospects? [inaudible]
for Energy Store,
Julian: of the competitiveness of our SmartStack platform and the strength of our US supply chain strategy.
Starting with line 4 and our Q2 performance.
We deliver approximately 432 million dollars in revenue.
Julian: As our execution help us to deliver on project milestones earlier than expected.
We also earn double-digit adjusted gross profit margin.
and our annual recurring revenue increase to $110 million.
We ended the quarter with approximately 4.9 billion dollars of backlog.
including 200 million dollars of contracts added during the quarter. [inaudible]
Julian: Looking ahead, in the coming quarters, we are expecting a meaningful improvement in order volume from this past quarter.
Special International.
in particular, and inconsistent with our prior expectations.
Julian: We currently anticipate a strong grandpa in other volume in Australia, as we enter the second half of our fiscal year.
Julian: And finally, we ended the quarter with more than a billion dollars in liquidity.
Julian: including $610 million in total cash. These demonstrates are solid, low-level financial condition and provides us with a strong basis to deliver long-term value to our stakeholders.
Julian: Please turn to slide five. Since our last call, the market landscape has shifted meaningfully, due to the enactment of significant new targets.
Julian: which, with respect to China, have increased from roughly 10% to roughly 155% in a matter of a few months.
Julian: The change in tariffs and trade policy has led to considerable economic uncertainty in global markets.
Julian: Disoncertainty, from the number and magnitude of changes, has led the company uncertain of our customers to mutually agree to pause, execution of some of a U.S. contracts.
Julian: and the signing of new U.S. contracts as we wait for clarity on the tariffs on policy and market.
Julian: This path contributed to our decision to revise our fiscal 25 outlook, which Ahmed will discuss shortly.
Julian: Having said that, we believe that the current high-tars levels on Chinese
Aron Lagiri, to be sustainable.
Julian: The Trump administration has publicly stated their intention to pursue a new trade deal with China that may result in lower tariff rates.
Julian: A strain negotiations between the United States and other countries, including China, [inaudible]
Julian: We believe the markets will stabilize and provide a clear path forward for both our customers and the company.
Julian: Supporting a return to more normalized contract in activity in the US market.
Julian: Does we expect the contracting process where currently experiencing to be temporary and reaffirm our approach to a diversify supply change?
Julian: Although the current tires environment certainly impacts our customers in the short term, we remain optimistic about the future of energy storage in general, and particularly for fluids.
To that end, I will cover the following three topics.
Julian: First, the future of the man outlook for battery storage in our most relevant markets.
Julian: Second, how we view energy storage competitiveness against gas as a provider of capacity.
especially the U.S.
Julian: And finally, I will discuss how Fluence intends to create value for its stakeholders to its innovative smart start technology and U.S. domestic content strategy.
Turning to slide six
Julian: The man for energy continues to increase, this is driven by many factors, including economic growth, data center deployments, and electrification of transportations and other sectors.
Julian: In the U.S. alone, electricity demand is projected to grow 11% through 2030.
Julian: Signaling that annual energy storage capacity will increase to more than 400 gigawatt hours.
and just to put this in context.
Julian: Over the last five years, we have seen only 79 gigawatt hours of auditions in the US market.
Julian: This is a strong indication of the increasing significance of battery storage in the US market.
Julian: We see similar growth rates in other international markets, for example, in Australia. We expect battery stores to reach 51 gigawatt hours by 2,000 a.r.r.r.r.r.r.r.r.r.r.r.r.r.r.r.r.r.r.r.r.r.r.r.r.r.r.r.r.r.r.r.r.r.r.
up from the 2024 levels of 70-hour hours. [inaudible]
Julian: and in Germany, where we expect battery storage to reach a hundred and twenty gigawatt hours by two thousand and thirty, from its 2020 -four level of twenty gigawatt hours.
Turning to slide seven
Julian: Now I would like to touch on the competitiveness of energy storage.
battery prices have down by approximately 70% since 2000 and 22
making any historic competitive across several markets.
Julian: For the US, the current higher tariffs on Chinese imports are expected to essentially bring battery cost back to what we saw three years ago.
Julian: At the same time, capital costs for competing technologies, such as natural gas plants, have increased materially over the past few years, and are expected to continue to increase.
in the United States.
We anticipate 278 gigawatt hours of capacity additions through 2000 and 30 . . . . . . . . . . . . .
Julian: to meet growing needs. And we believe that any historic is well-positioned to meet this needs as it benefits from several factors.
Julian: First, battery storage is one of the most cost-effective solutions for meeting system needs.
Julian: and historic capacity prices, currently approximately $9 per kilo what a month, which is about half the price of a gas fire plant.
Julian: We believe that this significant price difference makes energy storage the most optimal choice even with low gas prices.
Julian: Second, any storage has the unique ability to take advantage of low off-peak prices, for example, in BJM.
Julian: Current of peak prices are more than 30% lower than on peak prices.
offering tangible arbitrage benefits to plan owners.
Julian: Particularly, when there are several gigawatts of excess capacity available during those of thick hours.
Sir.
Julian: and there has historically been fewer supply change constraints and shorter link times associated with energy storage compared to other competing technologies.
Julian: Butterstore Systems can typically be deployed within six to nine months versus the typical 36 to 40 months needed for gas combustion facilities.
Julian: Fourth, battery storage systems can be located in places with advantage, interconnection and permitting profiles.
Avoiding the long queue for development facing many power producers.
Julian: as the market seeks to rapidly meet growing demand for electricity. [inaudible]
Julian: Battery Energy Storage is one of the few options to provide firm this fashionable power at large scale over the next few years.
Julian: Finally, we believe that battery storage rapid response time and ability to adapt to the power bridge topology makes it the ideal technology to support bridge stability.
Julian: As high electricity demand, adds more pressure on electric grids, both in the U.S. and global.
Julian: In summary, we believe that battery storage technology remains the most optimal choice to meet the increase in demand for electricity.
Turning to Slide 8
Julian: Our backlog remains robust at approximately 4.9 billion dollars as of quarter end.
Julian: including more than 1.9 billion dollars that is scheduled for delivery this fiscal year.
Wild US, an international order intake was lowered this quarter. [inaudible]
Primarily due to tires uncertainty. [inaudible]
Julian: Our pipeline continues to expand, now exceeding 22 billion as of quarter end, with roughly half from the markets outside the US.
Julian: We believe this international diversification provides resilience and positions as well for renew growth as global market dynamics stabilize.
Julian: Now we like to discuss how Fluence intends to create value for stakeholders to its innovative smart stack technology and domestic content strategy.
Turn into Slide 9
Julian: As we discussed on our last call, we have recently launched a breakthrough technology called Smarster.
Julian: I am pleased to report that we have received positive feedback from our customers who appreciate the features offered by the state of the art technology. In fact, we have already signed our first contract for SmartStack.
Julian: We believe SmartStack offers a significant value for our costumes, including...
First, World Class Safety. [inaudible]
Smarstad distributes batteries into four distinct units, co-pots. [inaudible]
Julian: Each of these spots is designed to prevent fire preparation between spots. [inaudible]
which is intended to reduce thermal runaway risks. [inaudible]
Thank you. Thank you. Thank you.
SmartStack Design facilitates the integration of various battery capacity offerings.
and Foreign Affairs, enabling a more adaptable supply change strategy.
Speaker Change: Sir, Smart Thakkar is one of the densest products on the market. [inaudible]
Speaker Change: Enabling lower total cost of energy which should result in higher costumer returns.
and forth.
Smarter, offers a more moral and flexible prowl. [inaudible]
Speaker Change: By separating the batteries from all their equipment, SmartStug is designed to allow for faster service, better inventory management, higher availability and more efficient augmentation.
in Summary. [inaudible]
Speaker Change: Smart that is expected to be priced much lower than our previous Gris Thak Pro product.
Speaker Change: Not only because of the client in equipment prices, but because of a more efficient product design.
Speaker Change: This product is designed to deliver efficient and cost-effective solutions to our customers.
Speaker Change: What at the same time is expected to help us earn our targeted returns.
Turning to slide ten
Speaker Change: Ardomestic Content Strategy, which we began to implement over two years ago, offers a flexible approach to meet the domestic content requirements under the IRA.
This strategy benefits our customers.
Speaker Change: to Tariff and IRA incentives, including the 45X manufacturing credit and the 10% domestic content bonus.
Speaker Change: We are confident that future policy updates will continue to support local manufacturing.
Are discussions with regulars in Decade? [inaudible]
A consensus for continued incentives for local manufacturing.
which has created thousands of jobs to date.
Speaker Change: Ardomestic content strategy is resilient to multiple scenarios involving different terrorist outcomes and levels of policy support for domestic production.
As an example.
Speaker Change: At the current terrorist levels, our domestic content strategy of blending US cells with imported cells is approximately 10% cheaper than a strategy of using all imported cells from China.
even without considering the IRA domestic content bonus. [inaudible]
regarding our progress.
Speaker Change: All six partner facilities in our U.S. supply chain strategy are now producing or preparing to launch production in the current fiscal quarter, which allows us to offer up to 100% non-Chinese U.S. product.
Speaker Change: Ayuta, module manufacturer inside, has received its first shipment of U.S. manufacturer batteries from ASC.
Now with line one of the Tennessee Facility, fully operational.
Speaker Change: We are working with ASC to bring the second battery production line into operations.
which is currently expected to occur next calendar year. [inaudible]
Speaker Change: With our U.S. Cell Manufacturing Facility in Operations, we are able to offer our customers.
Speaker Change: for our Domestic Content Product, a range of domestically produced batteries, modules and closures.
Communication Systems, and Ibertors. [inaudible]
Speaker Change: These options are intended to enable our customers to achieve the domestic content bonus while mitigating the impacts of supply shocks and tarfs.
Speaker Change: By establishing the capability for up to 100% U.S. May content.
Speaker Change: We can also maximize the overall domestic content volume offering in the U.S.
Speaker Change: Once ASC Second Line is in production, we anticipate being able to serve 12 gigabar hours of annual domestic content volume in the US, assuming that US cells represent 50% of those using products.
We remain very optimistic about our US domestic content offering.
Speaker Change: and believe it will provide superior value to our customers in the medium and long term.
Speaker Change: With that, I'll turn the call over to Ahmed for the financial review.
www.lexington.ca
Ahmed Pasha: Thank you Julian, and good morning everyone. Today I will review our second quarter financial results and then discuss our liquidity and updated outlook for fiscal 2025.
Learning to slide 12.
Ahmed Pasha: In the second quarter, we generated 432 million of revenue, which was better than we expected as we were able to achieve project milestones faster than expected across America's and epic regions, as we benefited from efficiencies from our supply chain initiatives.
Ahmed Pasha: This brings our year-to-date revenue to approximately 618 million versus roughly 500 million of first-half revenue expectations discussed on our last call.
Ahmed Pasha: In terms of gross margin, we generated 45 million of adjusted gross profit representing an adjusted gross profit margin of approximately 10.4%.
Ahmed Pasha: This quarter makes our seventh consecutive quarter of double digit adjusted gross profit margins.
Ahmed Pasha: Year over year, operating expenses increased by $10 million to $84 million due to higher R&D spend and sales and marketing costs.
Ahmed Pasha: A good portion of this increased spending is focused on delivery of our new smart stack product line to market.
Thank you for watching. See you next time.
Ahmed Pasha: Running through adjusted EBIDA, we reported negative $30 million for the quarter. May we due to the more level fixed cost nature of our operating expenses compared to back end nature of our revenue as we discussed on our last quarter call.
Ahmed Pasha: Turning to slide 13, I will not discuss our strong liquidity which allows us to invest in innovative technologies and support our plan. We ended second quarter with more than 610 million of cash, consistent with the strong cash position we had at the end of last quarter.
Ahmed Pasha: Additionally, we have 532 million available under our revolver and supply chain facilities, which supports our total liquidity at more than $1.1 billion.
Ahmed Pasha: Looking ahead, we will be allocating a couple hundred million dollars of our available liquidity to fund working capital needs to deliver our revenue and execute on our domestic content strategy.
www.lexington.ca
Ahmed Pasha: Turning to slide 14, I will review our revised guidance for 2025, which we have lowered to reflect current market conditions in the US, which have impacted our full year revenue and EBDA expectations.
Ahmed Pasha: Aside from these sterif headbands, we are pleased with our performance as we are on track to deliver double digit adjusted gross margins.
Ahmed Pasha: We continue to see opportunities in our recurring digital and services revenue platform.
Ahmed Pasha: Accordingly, we are reaffirming our guidance for ARR of 145 million
Ahmed Pasha: Turning to slide 15, let me explain our revised revenue expectations further.
Ahmed Pasha: Recent data announcements made it clear that bringing products from China at these rates is unaccomical for our customers and for Fluence.
Ahmed Pasha: This led us to mutually agree with some of our customers to pause certain shipments and entry into pending contracts.
Ahmed Pasha: Until we have better visibility. Here I want to mention two things. [inaudible]
Ahmed Pasha: First, we do not expect any material cancellations. In second, we remain engaged with our customers.
Ahmed Pasha: We look forward to improve visibility that allows us to price these pending contracts with adequate returns for both Fluence and our customers.
Ahmed Pasha: Accordingly, the deferral of these contracts translates to 700 million of revenue previously expected for this year that has been pushed to the right.
Ahmed Pasha: As such, the midpoint of our revised guidance is now 2.7 billion. This guidance is largely de-risked as we have 100% of the required cells in the U.S.
Ahmed Pasha: Furthermore, 95% of the midpoint of our guidance is supported by our backlog plus revenue recognized to date.
Ahmed Pasha: Turning to slide 16, covering adjusted EBIDA. We are lowering our guidance to a midpoint of 10 million, which is 75 million dollars, less than our prior midpoint guidance.
Ahmed Pasha: Our revised guidance includes a combined 100 million of anticipated tariff-related headwinds which we believe will be partially offset through our proactive actions.
to go into this a bit more detail.
Ahmed Pasha: First, the 700 million lower revenue I just discussed will have an impact of approximately 80 million dollars.
Ahmed Pasha: 2. We are incorporating a $20 million incremental impact for tariffs that we were not able to avoid or pass through to our customers
Ahmed Pasha: These impacts were partially offset by the benefit of approximately 25 billion from currently in progress and planned operational efficiency improvements.
Ahmed Pasha: These include some renegotiations of equipment costs with our suppliers as well as carts to our budget trade operating expenses.
Ahmed Pasha: In summary, although current air policy has created some near-term challenge.
Ahmed Pasha: We are pleased with the underlying performance of the business. We remain confident in the long-term prospects of energy storage in general and particularly influences ability to deliver maximum value to its customers and shareholders.
Julian: With that, I would like to turn the call back to Julian for his closing remarks.
Thank you Ahmed, turning to slide 17
Julian: In closing, I will highlight the key takeaways from these quarters performance and our outlook moving forward.
Julian: First, the recently imposed U.S. tariffs have introduced substantial economic uncertainty.
which is impacting near-term costumer decision making and project execution.
Julian: Although this presents some immediate challenges, we are optimistic that they are temporary and manageable.
Second.
We remain confident in our long-term positioning.
Julian: We strongly believe there are proud of innovation strategy, and core in our new platform, SmartStack.
and our U.S. domestic content capabilities.
Julian: positionals to benefit materially overturned as the market overcomes the current economic uncertainty.
and regained its growth trajectory. [inaudible]
Sir, we are operating from oppositional strength.
Our backlog now is approximately 4.9 billion.
Providing a Saudi Foundation for Future Growth.
Julian: We believe our track record of capturing double-digit adjusted growth profit margins provides us with additional be severely done our future financial performance and profitability.
Julian: and Fourth. Our liquidity remains robust, with more than a billion dollars in total cash and committed, working capital-faceted.
www.lexington.ca
Julian: We believe that our solid financial condition will give us the flexibility to continue investing through
while executing on our long-term strategic priorities.
Julian: Together, these factors reinforce our confidence in fluency ability to navigate the current environment and emerge even stronger.
Julian: with that I would like to open up the call for questions.
Speaker Change: Thank you. Ladies and gentlemen, as a reminder to ask the question, please press star 11 on your telephone. Then wait for your name to be announced.
To withdraw your question, please first start one one again.
Speaker Change: We ask the key limit yourself to one question and one follow up.
Speaker Change: Our first question comes from the line of Bryant Lee with Goldman Sachs and Company. The line is open.
Bryant Lee: Hey guys, good morning. Thanks for taking the questions. Good morning, Brian . Good morning, Julian. I guess the first question just on the AESC Ram.
Bryant Lee: I appreciate some of the additional disclosures here but I just wanted to make sure I have the numbers right. I think in the past you had talked about like three to four gigawatt hours on line one and then line two would double that. I think I just heard you say by the summer of next year. I think it's better.
Speaker Change: You'd be at an annualized run rate of 12 gigawatt hours of capacity out of ASC in the Tennessee Facilities. Is there another line being contemplated there, or are there some specific gains that are getting you additional capacity? The 12 gigawatt hours seems a little bit more than we have in anticipated.
Speaker Change: Yeah, no, let me say a good question. Each of these lines have capacity to be in three and three and a half. The gig hour hours and contracts are at a minimum of three.
Speaker Change: but we can ramp them up to three and a half. What we do with domestic content is that we mix.
Speaker Change: Domestically produced manufactures with imported batteries, and that's how we convert the six.
Speaker Change: Jiggo and ours that we have available with the two lines in two-twelfth by mixing the two. So that's where the twelve come from. And these assumes a combination of half and half, half domestic half, half locally manufactured half, internationally manufactured.
Speaker Change: Clearly the decision on how much that makes will go will depend on the final tariff levels that we get from China and how all this process goes but that's generally a good assumption to go [inaudible]
forward.
Speaker Change: and the only thing I would add is Ahmed. So is that, sorry? Bye.
is that we make...
Speaker Change: Minimum Domestic Content. So I think that gives us ability to basically sell more volume at the same time give our customers what they want, which is the domestic content incentive. So I think that allows us to meet our growing need at the six gigawatt hours we can sell 12 gigawatt hours, the equivalent volume for domestic content.
Speaker Change: Okay, no, that's helpful clarification, but presumably, if you know the 150 plus tariffs, percent tariffs on China are made.
Speaker Change: The economics on planting and fixing at any ratio wouldn't make sense. So really it's six to seven gigawatt hours of domestic capacity run rate next year.
Speaker Change: I guess it implies like a two or three billion dollar revenue capacity that can be supported on your US domestic sales.
are you
Speaker Change: Yeah, as we said in the call, even with the current tariff levels, even with the current tariff levels.
Speaker Change: Mixing, imported and local Manufatu tariff, we can go with a price that beats.
Fully Imported
Speaker Change: batteries, you know, it beats about 10% even taking away, you know, even not considering the 10% bonus.
just using the 45X.
Speaker Change: We believe this, they say that if the situation were to stay in the current approach...
Speaker Change: We'll still believe, you know, with the current tariff level, we'll still believe a combination of important and non-important tariff. It will be a waste, it will be a way to go. So we...
Speaker Change: The likely scenario, most of the likely scenarios we see coming forward, we will offer a mix of, when we offer a product, we have a combination of important and important tasks.
Thank you.
Speaker Change: Okay, the last question just since you, you know, I'll have run those economics and kind of have that analysis. As you talk to customers obviously the tariff environment is fluid, but if you...
Speaker Change: You know, it sounds like no contracts are going to get canceled, they're just going to get renegotiated or potentially just done from a different sourcing strategy, but if you do mixing...
Speaker Change: Is there, have you had customer conversations as to kind of what you know pricing and then your margins would be because you know obviously you've taken out the revenue impact from tariffs.
Speaker Change: At that revenue comes back into the picture, whether it's later this year or if it gets embedded in fiscal 26 guidance at some point like what do you think the margin implications would be of bringing that revenue which [inaudible]
Speaker Change: Is now going to still have some tariff impact if you're blending it and you're having to set a different level of price I suppose with with customers. That's right. So let me tell our approach to this, which I think I'm answering your question. It's a little bit first point. The issue we have today is the uncertain. It's a little bit first point, but it's a little bit first point, but it's a little bit first point.
Speaker Change: The fact that we have a tariff level that is subject to a potential negotiation with the Chinese government.
Speaker Change: There is a likelihood that it will go down. So that's what we have. So it isn't clear. Very difficult for me to form a prize to my customers that I can tell them this is a prize that will work in any tariff condition because the tariff could work in different ways.
Speaker Change: and it is difficult for my customers to go out to their customers and tell them this is the way you should go because the cost structure is this, so that's the problem we have today.
Assuming the problem gets resolved. [inaudible]
Speaker Change: at the current level, at a lower level, whatever it does, I mean, let's not, you know, we have sufficient optionality to offer our customers a price that competes with alternative offerings, no, very very well, and that allows us to meet our margin object.
Speaker Change: In terms of the opportunity, the podium mentioned, okay, will this still work for the costumers?
Speaker Change: When we'll go out and look at it generally, and this is a general statement clearly, there are not many alternatives to battery storage to resolve the need of the U.S. Great.
Speaker Change: They're not that many, no? They're limited and we believe I'm not saying that there's no price elasticity, no please or that we are any price it will happen, I'm just saying they're limited.
Speaker Change: So, because they're limited, we believe that most of these countries, not all of them, will move forward potentially higher cause of what we originally thought, if that is where to stay at this end. So that's the way we think about it.
Speaker Change: and this is very, very important. We had the sign-up contracts in a way where the interests of our customers and ourselves are aligned.
Speaker Change: We shared some of these risks together, so our interns are aligned to resolve this in a way that our customers meet their profitability objectives and we meet our mark. So we're very confident when we looked at all these elements, all my optionality in supply change.
Speaker Change: The opportunity that a customer that their customers have and where with the value that batter stores can provide to the US grid that we will be able to address once the uncertainty gets clear, whichever way gets clear we will be able to regain our growth. [inaudible]
No?
Ryan: All right, thanks guys, I appreciate it, I'll pass it on, thank you Ryan.
Please stand by for our next question.
Speaker Change: Our next question comes from the line of George Gianarikas with Canacord. Your line is open.
George Gionerkis: Hi, good morning, everyone. Thank you for taking your question. Good morning, George [inaudible]
Speaker Change: Any solutions if that has to change due to any political concerns? Thank you.
Thank you very much.
Speaker Change: Thank you. So you are referring in a telegraphic mode to the potential FEOC restrictions on the current or if they were to put in place. So today, as we all know, there are no FEOC restrictions on the IRA benefits for
Speaker Change: There are for, you know, as you know, also known for the EV industry, not for our part, but what we have known as this is a potential risk we have worked with ASC to ensure and we have a plan.
Speaker Change: That we will put in place to ensure that we will meet any restrictions on ownership that might come up. That's what I can say to it. We cannot be more specific than that unfortunately. We cannot be more specific than that unfortunately.
Speaker Change: But this is something at risk that we have identified, that we have worked with the ESC to address.
Speaker Change: And we have a plan that we will put together to ensure that if...
Speaker Change: There are restrictions on ownership that we will add up to ensure those lines and those investments will be still be able to meet potential restrictions that come on. And the interest of ESC and ours are very much aligned in ensuring this goes on.
Speaker Change: So that's what I can say. This is not, you know, this is something we clearly having working on for some time and we feel confident that, you know, when, if, that we will be, it's not that we are, we're working ahead of the problem coming, no? And, you know,
Speaker Change: as the time goes along we will form more stuff but that's what I can communicate at this stage.
Thanks, and maybe...
Around.
Speaker Change: Competitive concerns. Last quarter you had mentioned that you had seen incremental competition from Chinese.
Speaker Change: in the US. And I'm curious as to what's happened from a competitive landscape. I know that a lot of
Speaker Change: The U S essentially to due to the uncertainty. The fact that is very difficult to price solutions with things potentially changing very very quickly is very difficult to see where competition is you know today to be very very clear because everybody.
Speaker Change: A I you know I believe that clearly that as we see some of these restriction happening it will be very very difficult for a some competitors who have you know essentially built everything in China and bring it here to compete in this market.
Speaker Change: Now that I, you know I want to say that we were ready for this level of certainty because it's not but we were ready for this scenario, we always expected that the U S market was going to become a domestically produced market and that's why we have been working so hard in developing a.
Speaker Change: House to build a solution in the U S. Even with U S. Steel that people say you cannot do it even with U S deals we gonna deliver we're gonna receive our first inclusure made with U S deal that we can put the flak you know ingrain on them and sell to our customers are very.
Speaker Change: You know I'm sure that a lot of people now are trying to do this and put it together we have a two two year leg up because we we were ambition in this world wearing.
Speaker Change: Vali, which is a little bit different you know, we see I will say you know the competi. The competitive landscape is the same as it was last quarter, you know very very intense but with smart stock and you know we had to accelerate a product launches to to be competitive but we are.
Speaker Change: The smart stock is going is a way to go you know and now just to give you. An example, you see people trying to copy it very bad copies is people do you know what we are doing it tells you that that's the best compliment that you have that we added right that people are trying to figure out how.
Speaker Change: So you know we're very confident that we can win in the international markets with Smartstype and win over you know the Chinese players and other Competitives we have.
Speaker Change: Thank you. Thank you please stand by for our next question.
Dylan Nasano: Our next question comes from the line of Dylan Nasano with Wolf Research. Your line is open.
Speaker Change: Good morning, David how are you doing well. Thanks, taking my question can you just talk a little bit about kind of the global alternative self supply situation, that's not China, and that's not I guess us and ASC.
Speaker Change: I mean limited, there's some production coming out of a.
Speaker Change: Ria Southeast Asia, and some in Japan, but but really the I would say the mayority of cell production today comes out of China. So that we are working with you know to diversify looking at some of it but a.
Speaker Change: Copshores Autochina are limited no. So that's what I would say I think that you know we're working to develop a U S supply chain very you know as much as we can and hopefully some more players will work on these and will have us stronger local supply.
Speaker Change: In the coming years, but today, we're very much a pending on Chinese this industry is a pending on Chinese equipment.
Speaker Change: Great. Thank you and then as my follow up so I I I'm at I think you mentioned Australia in your opening remarks can you just talk about was any of these these projects that you signed this quarter related to the stuff that was delayed previously like.
Speaker Change: We talk.
Speaker Change: Great. Thank you.
Speaker Change: Please send back for our next question.
Christine Cho: Our next question comes from the line of Christine Cho with Barclays. Your line is open good morning. Thank you for taking.
Christine Cho: How are you good how are you yeah go better I guess.
Christine Cho: So I appreciate your comment that you know today your mix of domestic content and non domestic content batteries is 10% cheaper versus 100% imported panels from China and that could be a fair statement today, but you know if we are to assume that.
Speaker Change: Let's call. It next year, and that's gonna be much cheaper than what Chinese imports with the current tariffs are so how should we think about that scenario and how it would impact your future bookings and you know how should we think about you know.
Speaker Change: Please I wouldn't you know we know where we are we know how but the cost structures of Chinese and we have a few on pricing for them. So I'm confident that we will continue to be let's say you know this is scenario, which is one escenario.
Speaker Change: If you know stay very high but you know our domestic our mixing of domestic content, we'll still be competitive the other point to take into consideration that is important is we also we also bring you know as I said, it's a mix of locally produced and internally. So we also.
Speaker Change: So they only sorry, the Chinese prices. So you know we we when we look at a scenarios. These strategy. We have gives us all optionality and and works well in many of these scenarios, including an Escenario, where you Chinese prices come down.
Speaker Change: I'm down by the way Yeah. So you know we're confident that we have this is a risk and you know you you talk about you guys, providing the mixing you know that that you're mixing it with your domestic.
Speaker Change: Supply and your imports, but can the is there an option for your customers to just get the batteries with domestic sells from you and get batteries with none domestic content cells elsewhere and do the mixing themselves with different manufactur.
Speaker Change: No. The real value is our you know the batteries are like gasoline you don't care, where you know the real value is our BMS or ability to integrate our services. That's what we create value you know I mean batteries are important are important.
Speaker Change: Well, that's not where the value is created butters are accommodated accommodity essentially the what we the value is creating in our ability to our logistics our intelligence our systems. The ability you know their ability to deliver you know high.
Speaker Change: Availability, that's where the value is you know takes this stuff. It's a you know this is not it doesn't work.
Speaker Change: Got it thank you.
Speaker Change: Please stand by for our next question and next question comes from the line of Amit The car with BMO capital markets. Your line is open good morning, Thanks for taking our questions. Good morning, Amit Hi, Good morning, just on the $700 million of contact.
Amit: Oh kind of I guess or kind of in a state of pause right now could you give us kind of like the mix between contracts that we're under advanced negotiations versus you know contracts that we're already executed out of that 700 million and then the contracts that were under advanced negotiations is there anything kind of obligat.
Amit: You know kind of like I, I guess stay with you I'd, rather not cancel that projects and I've got one follow up they were roughly half and half half of them were contrago already in our backlog that were pausing the execution and these were contracts that were very early in the execution and we had no.
Amit: To bring in the.
Amit: You know to bring into a country the equipment for that and the other half were contracts that were that were not signed you know and as I said with the way our approach to the contracts that were signed is an approach of sharing the tariff risk so that aligns our interest in the program.
Amit: I'm somehow you know if I can maybe give you a two second approach. This is completely different the approach that how the COVID-19 situation was managed remember after COVID-19, we have that major supply crunch and how do we end that we ended up with a lot of contracts, where we were under.
Amit: I need took us a year and a half to bring those contracts, but to neutrality. Today, you know with we have a completely different risk management, which are the risk with our customers in a way to ensure that we will align in the execution. Once the situation is clear to ensure that we can.
Amit: Margins, we care about and that they they can do have the profitability. They want to so that's a completely different approach. We think we're in a much better position to get out of the situation. As you know once there's clarity that we can get out of it very very quickly an.
Amit: Compared to what we had when we COVID-19 when it took off you know I almost a year a year more than a year and we were able to do a chest to bring the contracts to to meet.
Speaker Change: Need a neutrality no. So so I think we're in a good place alright. Thanks for all that color and just flow statement. It looks like you guys have kind of burned around 260 $270 million of of cash I think Ahmed kind of indicated me another couple hundred million dollars.
Speaker Change: Kind of domestic cells start coming back to you in terms of of cash.
Speaker Change: So hey, I mean I'm in here. So yes, you're right I think when you said 200 million I think that is year to date I think in the quarter. Our cash is roughly $40 million negative I think free cash flow and that is.
Speaker Change: The key is we if you look at we are building inventory to execute on our revenue plan that we have for the remainder of the year. If keep in mind, we have roughly $2 billion of revenue that we have to deliver I think that is what the inve.
Speaker Change: Hundred million dollars of inventory on a balance sheet to deliver our Q3 revenue and then the remaining I think is for we will be using cash as you mentioned couple of a million dollars half of that is roughly for our domestic content and the remaining half is for our Q4 Avenue, but.
Speaker Change: C. C. We will have receivables at the end of Q4, which will be collecting within next 30 to 60 days. After the year end. So net net I think this is all working capital long way of answering your question.
Speaker Change: Thank you. Thank you. Please stand by for our next question and next questions come from the line of Andrew Prococo with Morgan Stanley and company. Your line is open great. Thanks, so much.
Andrew Prococo: Thanks for taking a question I just most of my questions have been asked but but I just wanted to follow up on domestic content strategy here I guess I'm just curious why just given the uncertainty around.
Andrew Prococo: Tariffs on China, you know a 100% domestic sell.
Andrew Prococo: Battery from you guys wouldn't be something that customers would be willing to contract today totally get that there's uncertainty around what's going to happen to the China tariffs, but it seems like that's an easy work around for a customer.
Andrew Prococo: Is it because they're waiting to see what happens to China and they'd rather mix is it because you know 100% domestic cells is not cost prohibited just trying to get a sense for why that wouldn't be an easy solution for customers right now. Thank you.
Andrew Prococo: Question I think that as I said the main issue today is I don't sure you Pract you know where do you think things are gonna be when is the uncertainty gonna be resolved no. If you believe that the current tar.
Andrew Prococo: At the there will be known there's no there will be no reduction entire going forward in the short term clearly the the solution of a fully domestic offering will be very attractive no. However.
Andrew Prococo: Of our customers and I think generally there's a view that they go and is engaging with renegotiations with China and that they will be a change in the negotiations with China into that will convert into lower tariff with the near future. So it's very difficult.
Andrew Prococo: 20 year contract, you know and resolving a problem. If you believe that you know two weeks from now that will be an announcement, saying or what month from now whatever timeframe. You think it is saying hey, this retaliatory time that we had mentioned are no longer in the because remember what we had.
Andrew Prococo: Lot of.
Speaker Change: This is a tar level going forward. The probably you know a full U S offering will be very very competitive. Okay that that's helpful. Context appreciate that and just one follow up I guess, a little surprise to see the weakness in bookings in the first quarter being that.
Speaker Change: Hi Terrace really didn't go into effect until April. So just curious if you could talk more to what you saw was a competition driven in the international markets, which I know has been a headwind just curious to get more context around why first quarter was was such a significant drawdown, whereas you know maybe would have expected mor.
Speaker Change: With the China. Thank you. Good question I think that we're expecting a significant amount of U S contracts this quarter and I say once it was clear that liberation day was coming that the Trump administration was a oh say early mark.
Speaker Change: Late February around that timeframe people start, saying, Hey, you should take the risk or we should take the you know it started that part and that that made it very difficult to our approaches you know with share the risk but.
Speaker Change: Both of our customers wanted to wait until they have a better view on that happen you know a few weeks before before liberation day. So internationally, we were not expecting that much. We clearly I don't think it has been affected at all by the U S situation.
Speaker Change: Two eight we were not expecting major contracts, we do expect major contracts. This quarter. So you know that's what I'll tell you. So we and we don't see any real any real spill over of the of the U S situation into international markets at this stage.
Speaker Change: Great. Thank you.
Speaker Change: Please stand by for our next question.
Speaker Change: Our next question comes from the line of Julian Domulian Smith with Jefferies. Your line is open.
Speaker Change: Hey, Good morning. This is Hannah Velasquez on for Julian. Thank you for taking the question and squeezing me in so first good morning on the note about the couple of 100 million of additional working capital me can you just confirm that that specific to 2025 or do.
Speaker Change: 2026, and then as a related point when or you know could you speak directionally to when you expect to inflect back to positive free cash flow generation.
Speaker Change: Sure. So I think in terms of your question, Yes, I think this mostly for 2025, we will be as I mentioned to a meets question. You know I mean, I think we will have couple of hundred million dollars of receivables at the end of Q4, because we keep.
Speaker Change: F back unloaded revenue that we in our backlog that we will be recognizing in Q4. So I think that revenue we will be collecting those receivables in Q first next year. So I think that will give us enough cash to so we feel pretty good.
Speaker Change: And your second question is on.
Speaker Change: Cash flow Yeah, I think we continue to see we don't have any significant capital commitments. This year EBITDA is roughly $10 million, but at next year. We will give you guidance on Q4 call, but as Julian mentioned you know I mean, I think is we continue in the path.
Speaker Change: That we expect in terms of signing new contracts, we feel pretty good that we will be free cash flow positive next year, because we don't have any significant capex and it all boils down to the EBITDA you know if we our goal is to generate free cash flows next year and.
Speaker Change: Profitability, you know that is frankly, the key focus for everybody influence.
Speaker Change: Okay got Super clear. Thank you and then as a follow up question. The 700 million and pause revenues is that reflective of the pause projects and delayed signings that you have visibility into as of today or have you built in any potential or any extra cushion I suppose in case say.
Speaker Change: 700 million is what what we see the reason, we'll see any downside additional downside, even if tariff were to let's say that the entire Puerto.
Speaker Change: Given we have a confidence that we have as I mentioned in my comments you know we have already brought all required equipment in the country. So we have de risked that the revenue guidance, we have given given there's nothing to be imported you know forecast.
Speaker Change: Thank you.
Speaker Change: Thank you.
Speaker Change: Next question comes from the line of Cashy Harrison with Piper Sandler Your line is open.
Speaker Change: Tariff level that would make your cough you know exactly in line with imports of that you know 100% is a 50% just trying to think about what gets you to you know being in line with imports let me I'm in so yeah, I think I mean, obviously I think it's Frank.
Speaker Change: Castill, we in discussions with many customers why can't we more specific but I think in any likely scenario, where we think the tariffs gonna land, we we feel pretty good that our product will be competitive. Obviously 150 is is we already said.
Speaker Change: We continue to see in any we ran different scenarios in any any likely scenario, we feel pretty good I think that that we can tell you. Okay and then maybe maybe just a follow up.
Speaker Change: On the guidance you know you indicated that you're 95% covered but you've also you know you're not you're not you've paused U S bookings and so.
Speaker Change: How do we get to the midpoint of guidance if you've possible things is that just from international or is there something else. Yeah. I mean, 5% is essentially the revenue will rec, we would recognize out of the contract we expect to sign from now to year end as you know we recognize.
Speaker Change: Early once we deliver the engineer and stuff. So that's what it reflects to and anything in line with what we are expecting to sign in the coming in the coming months actually if I could just think one more indust.
Speaker Change: Okay. It doesn't include you S got it if I could just sneak one more in you know how what proportion where any of those projects that you delayed colocated with solar if so you know oh.
Speaker Change: It's a combination of both it's not one single so I think they're multiple projects that we have okay.
Speaker Change: Alright, thank you.
Speaker Change: [noise], ladies and gentlemen, due to the interest of time I final question would come from the line of Jordan Levy Mr. Levy. Your line is open with true Securities.
Jordan Levy: [noise] Oh, thanks, Thanks for all squeezing in it's more off with Jordan. So quick one here I understand 700 million reduction is mostly due to U S. Projects are you seeing any delays in international projects and can you maybe walk us through the supply chain for international shipments they have a quick.
Jordan Levy: No not real delays in international Processings are going well and you know in for we produce for international markets generally we produce our inclusions in the in Vietnam buy batteries from from China, Both you know and we bring the.
Speaker Change: Great. That's super helpful. I think the last quarter, you mentioned, 15% of backlog was exposed to tariff risk I'm just wondering what's the number in your current backlog. Thank you.
Speaker Change: You mean in the case of the U S where do we see the the way would you think about about our backlog today and our tariff race is that because we share the risk we are along with our customers to ensure that once the situation set up that will ensure that we meet our margins and their meet and they meet their objective as a way. It's not you know risk is a is a little bit of because the way. These these design is to ensure that we resolve the problem. So you know clearly risk will be a guess that the contracts could be delayed or delayed while we negot.
Speaker Change: We are not expecting the way we have defined this we will not move forward with contracts that have negative or or have margins that we do not find attractive. So that's the way to think about it appreciate the color. Thank you.
Speaker Change: Ladies and gentlemen at this time I would now like to turn the call back over to Lexington for closing remarks. Thank you for participating on today's call. If you have any questions feel free to reach out to me. We look forward to speaking with you again, when we report our third quarter results have a good day.
Speaker Change: Ladies and gentlemen that concludes today's conference call. Thank you for your participation you may now disconnect.