Q2 2027 Nextpower Inc Earnings Call

Speaker #1: Good afternoon, everyone, and thank you for standing by. My name is Hilary, and I will be your conference operator today. Today's call is being recorded.

Speaker #1: I would like to welcome everyone to Next Power's second quarter fiscal year 2027 earnings call. After the speakers' remarks, there will be a Q&A session.

Speaker #1: If you would like to ask a question, please raise your hand. If you have dialed in to today's call, please press *9 to raise your hand.

Speaker #1: And *6 to unmute. At this time, for opening remarks, I would like to pass the call over to Ms. Sarah Lee, Head of Investor Relations.

Speaker #1: Sarah, you may begin.

Speaker #2: Thank you, and good afternoon, everyone. Welcome to Next Power's second quarter fiscal year 2027 earnings call. I'm Sarah Lee, Next Power's Head of Investor Relations, and I'm joined by Dan Sugar, our CEO and founder.

Speaker #2: Howard Wanger, our president, and Chuck Boynton, our CFO. As a reminder, there will be a replay of this call posted on the IR website, along with the earnings press release and shareholder letter.

Speaker #2: Today's call contains statements regarding our business, financial performance, and operations, including our business and our industry that may be considered forward-looking statements. In such statements, involve risks and uncertainties that may cause actual results to defer materially from our expectations.

Speaker #2: Those statements are based on current beliefs, assumptions, and expectations, and speak only as of the current date. For more information on those risks and uncertainties, please review our earnings press release, shareholder letter, and our SEC filings, including our most recently filed quarterly report form 10Q and annual report on form 10K, which are available on our website at investors.nextpower.com.

Speaker #2: This information is subject to change and we undertake no obligation to update any forward-looking statements as a result of new information, future events, or changes in our expectations.

Speaker #2: Please note we will provide gap and non-gap measures on today's call. The full non-gap-to-gap reconciliations can be found in the appendix to the press release and the shareholder letter, as well as the financial section of the website.

Speaker #2: And now I'll turn the call over to our CEO and founder, Dan.

Speaker #3: Good afternoon, and thank you for joining us. We're very pleased to report another quarter of strong execution and record financial results. Before discussing the company's performance, I'd like to remind everyone we will be hosting our capital markets day in Las Vegas at RE+ on November 16.

Speaker #3: We look forward to sharing our progress on our 2030 outlook and the long-term strategy we unveiled last year. Both of which have accelerated meaningfully.

Speaker #3: Given that upcoming event, we'll keep our prepared remarks brief today. Now, turning to our Q2 performance. Next Power delivered record financial results in the second quarter.

Speaker #1: 10Q, and annual report on Form 10K, which are available on our website at investors.nextpower.com. This information is subject to change and we undertake no obligation to update any forward-looking statements as a result of new information, future events, or changes in our expectations.

Speaker #3: Revenue was over $1.1 billion. Adjusted EBITDA was approximately $250 million. And we had record quarterly bookings growing our backlog to over $6 billion. Our core tracker business strengthened further, extending the momentum from the first quarter of fiscal 2027.

Speaker #1: Please note we will provide gap and non-gap measures on today's call; the full non-gap-to-gap reconciliations can be found in the appendix to the press release and the shareholder letter, as well as the financial section of the website.

Speaker #3: We continue to see strong customer demand for our tracker products and solid execution across our global operations. At the same time, demand for our non-tracker products is ramping fast, and accounted for approximately 22% of revenue this quarter.

Speaker #1: And now I'll turn the call over to our CEO and founder, Dan.

Speaker #2: Good afternoon, and thank you for joining us. We're very pleased to report another quarter of strong execution and record financial results. Before discussing the company's performance, I'd like to remind everyone we will be hosting our capital markets day in Las Vegas at RE+ on November 16.

Speaker #3: Energy storage contributed approximately $100 million of revenue and more than $20 million of adjusted EBITDA. Including revenue from a behind-the-metre storage project, for a Tier 1 hyperscalers AI data centre.

Speaker #2: We look forward to sharing our progress on our 2030 outlook and the long-term strategy we unveiled last year. Both of which have accelerated meaningfully.

Speaker #3: We also achieved record bookings in our foundation and EBOS businesses. With EBOS bookings over $100 million in the quarter. Additionally, we secured a $1.1 gigawatt inverter framework agreement covering 5 projects and we shipped our first Next Power branded power conversion system to customers in the quarter.

Speaker #2: Given the upcoming event, we'll keep our prepared remarks brief today. Now, turning to our Q2 performance. Nextpower delivered record financial results in the second quarter.

Speaker #2: Revenue was over $1.1 billion, adjusted EBITDA was approximately $250 million, and we had record quarterly bookings growing our backlog to over $6 billion. Our core tracker business strengthened further, extending the momentum from the first quarter of fiscal 2027.

Speaker #3: These results reflect the value of our customer relationships, differentiated technology, and execution discipline. Customers are looking for partners who can help them accelerate project schedules, reduce risk, improve economic outcomes, and execute at scale.

Speaker #2: We continued to see strong customer demand for our tracker products and solid execution across our global operations. At the same time, demand for our non-tracker products is ramping fast and accounted for approximately 22% of revenue this quarter.

Speaker #3: Our strategy remains grounded in that customer-led approach. Expanding our participation across the project lifecycle. Solving important customer problems. And growing profit dollars while maintaining attractive margins.

Speaker #3: Electricity demand continues to accelerate. Driven by end-use such as electric mobility, industrial growth, and reindustrialization, and the rapid build-out of AI data centers. Solar and storage are the fastest-lowest-cost and most scalable ways to add new capacity, we believe Next Power is well positioned to help customers meet these needs as the market moves toward terawatt-scale deployment.

Speaker #2: Energy storage contributed approximately $100 million of revenue and more than $20 million of adjusted EBITDA. Including revenue from a behind-the-meters storage project for a Tier 1 hyperscalers AI data center.

Speaker #2: We also achieved record bookings in our foundation and e-boss businesses. With e-boss bookings over 100 million in the quarter. Additionally, we secured a $1.1 gigawatt inverter framework agreement covering 5 projects and we shipped our first Next Power branded power conversion system to customers in the quarter.

Speaker #3: Finally, before turning the call over to Howard to discuss customer demand and commercial developments from the quarter, I want to thank our customers for their continued partnership and trust in our employees for their passion in driving innovation and customer satisfaction.

Speaker #2: These results reflect the value of our customer relationships, differentiated technology, and execution discipline. Customers are looking for partners who can help them accelerate project schedules, reduce risk, improve economic outcomes, and execute at scale.

Speaker #3: Thank you, Dan. Q2 was another great quarter. As we saw strong demand in both the US and rest of world markets, with bookings well over $1 billion in the quarter.

Speaker #3: Tracker sales drove sequential backlog growth to a new record, exceeding $6 billion. While our non-tracker businesses continue to gain momentum. Customers choose Next Power because of our technology, execution, supply chain, bankability, and customer focus.

Speaker #2: Our strategy remains grounded in that customer-led approach. Expanding our participation across the project lifecycle, solving important customer problems, and growing profit dollars while maintaining attractive margins.

Speaker #2: Electricity demand continues to accelerate. Driven by end-users such as electric mobility, industrial growth, and reindustrialization, and the rapid build-out of AI data centers. Solar and storage are the fastest-lowest-cost and most scalable ways to add new capacity, we believe Next Power is well-positioned to help customers meet these needs as the market moves toward terawatt-scale deployment.

Speaker #3: We believe these attributes are reflected in our growing backlog and leading market position. Our EBOS business delivered record bookings of over $100 million for the quarter.

Speaker #3: A clear proof point of our ability to integrate and scale acquired businesses. Our patented NX PowerMerge solution was a material portion of these bookings.

Speaker #3: And we are off to a great start, having secured over 2 gigawatts of firm orders. Further, we have now deployed PowerMerge at commercial scale and achieved an important milestone with a 100% pass rate in post-installation functional and quality testing at the project site.

Speaker #2: Finally, before turning the call over to Howard to discuss customer demand and commercial developments from the quarter, I want to thank our customers for their continued partnership and trust in our employees for their passion in driving innovation and customer satisfaction.

Speaker #3: Our foundations business also achieved record quarterly bookings, reflecting growing traction for Next Power solutions, addressing all soil conditions. Finally, on the new product line front, we are pleased to announce a $1.1 gigawatt inverter contract, which marks a major milestone in the build-out of the Next Power technology platform.

Speaker #3: Thank you, Dan. Q2 was another great quarter. As we saw strong demand in both the U.S. and rest of world markets, with bookings well over $1 billion in the quarter.

Speaker #3: Tracker sales drove sequential backlog growth to a new record, exceeding $6 billion. While our non-tracker businesses continue to gain momentum, customers choose Nextpower because of our technology, execution, supply chain, bankability, and customer focus.

Speaker #3: Regionally, the US remained our largest market, accounting for approximately 82% of quarterly revenue. As a complement to our very strong US market position, we continue to expand our international business.

Speaker #3: We believe these attributes are reflected in our growing backlog and leading market position. Our e-boss business delivered record bookings of over $100 million for the quarter.

Speaker #3: After quarter end, we completed the acquisition of Zimmermann PV Steel Group, which will significantly increase our European market footprint, as well as adding structural solutions to our product portfolio, with products such as fixed tilt agrivoltaics and wire management.

Speaker #3: A clear proof point of our ability to integrate and scale acquired businesses. Our patented NX PowerMerge solution was a material portion of these bookings, and we are off to a great start having secured over 2 gigawatts of firm orders.

Speaker #3: Zimmermann brings more than 20 gigawatts of cumulative project experience, and established customer relationships, and extends our reach into 15 additional countries, growing our global footprint to 68 total countries.

Speaker #3: Further, we have now deployed PowerMerge at commercial scale and achieved an important milestone with a 100% pass rate in post-installation functional and quality testing at the project site.

Speaker #3: This acquisition broadens the range of ground-mount solar applications we conserve and creates an opportunity to attach products across our platform through an extended European channel.

Speaker #3: Our foundations business also achieved record quarterly bookings reflecting growing traction for Next Power solutions, addressing all soil conditions. Finally, on the new product line front, we are pleased to announce a $1.1 gigawatt inverter contract, which marks a major milestone in the build-out of the Next Power technology platform.

Speaker #3: Turning to project timing. Our projects are large-scale, and typically span multiple quarters and years. It is normal for our projects to accelerate or push out based on things like weather, project schedules, and permits.

Speaker #3: Project timing for this quarter follows this pattern, with manageable movements across a large and diverse portfolio of customers and geographies. As Chuck will explain, we expect that our second half revenue will be weighted more toward Q4 deliveries, due to project timing factors.

Speaker #3: Regionally, the U.S. remained our largest market, accounting for approximately 82% of quarterly revenue. As a complement to our very strong U.S. market position, we continue to expand our international business.

Speaker #3: After quarter end, we completed the acquisition of Zimmerman PV Steel Group, which will significantly increase our European market footprint, as well as adding structural solutions to our product portfolio with products such as fixed tilt agrivoltaics and wire management.

Speaker #3: Average project sizes for both solar and storage are expanding in key regions with increasing attention to bankability and quality. This dynamic further plays to our strengths.

Speaker #3: We believe we are positioned well for the future with our technology, track record, customer relationships, and expanding product portfolio. We are excited by the multiple new growth vectors we have added in the past 18 months, including EBOS, power conversion, and storage, and we look forward to sharing more with you at our capital markets day in Las Vegas.

Speaker #3: Zimmerman brings more than 20 gigawatts of cumulative project experience, and established customer relationships, and extends our reach into 15 additional countries, growing our global footprint to 68 total countries.

Speaker #3: This acquisition broadens the range of ground-mount solar applications we conserve and creates an opportunity to attach products across our platform through an extended European channel.

Speaker #3: With that, I will now turn the call over to our Chief Financial Officer, Chuck Boynton.

Speaker #1: Thank you, Howard. As Dan mentioned, Q2 was the strongest quarter in the history of Next Power, with revenue of over $1.1 billion, up 23% year over year, and adjusted EBITDA of approximately $250 million, up 12% year over year, and driving a 23% adjusted EBITDA margin.

Speaker #3: Turning to project timing, our projects are large scale and typically span multiple quarters and years. It is normal for our projects to accelerate or push out based on things like weather, project schedules, and permits.

Speaker #3: Project timing for this quarter follows this pattern, with manageable movements across a large and diverse portfolio of customers and geographies. As Chuck will explain, we expect that our second-half revenue will be weighted more toward Q4 deliveries, due to project timing factors.

Speaker #1: Adjusted free cash flow was approximately $135 million for the quarter, and $240 million year to date, which helped to fund our acquisitions and stock repurchases in the quarter.

Speaker #3: Average project sizes for both solar and storage are expanding in key regions with increasing attention to bankability and quality. This dynamic further plays to our strengths.

Speaker #1: We ended the quarter with over $1 billion of cash and no debt. As our platform expands, we are managing the business for the long term, with a focus on cash generation and driving adjusted EBITDA dollars, while investing in future growth.

Speaker #3: We believe we are positioned well for the future with our technology, track record, customer relationships, and expanding product portfolio. We are excited by the multiple new growth vectors we have added in the past 18 months, including e-boss, power conversion, and storage, and we look forward to sharing more with you at our capital markets day in Las Vegas.

Speaker #1: The quarter included for the first time contribution from Next Power Energy Storage, our storage business delivered a very strong quarter with approximately $100 million of revenue and more than $20 million of EBITDA.

Speaker #1: The sales pipeline is strong, and we are on track for a solid second half of the year. We also closed the acquisition of Zimmermann last week.

Speaker #3: With that, I will now turn the call over to our Chief Financial Officer, Chuck Boynton.

Speaker #1: We expect this acquisition to be accretive out of the gates. The total deal consideration of $230 million euro is lower than we previously announced, and was changed to an all-cash deal.

Speaker #2: Thank you, Howard. As Dan mentioned, Q2 was the strongest quarter in the history of Next Power, with revenue of over $1.1 billion, up 23% year over year, and adjusted EBITDA of approximately $250 million, up 12% year over year, and driving a 23% adjusted EBITDA margin.

Speaker #1: We are also reducing our expectations for this business to approximately $100 million of revenue and $10 million of adjusted EBITDA for the balance of the fiscal year.

Speaker #2: Adjusted free cash flow was approximately $135 million for the quarter, and $240 million year to date which helped to fund our acquisitions and stock repurchases in the quarter.

Speaker #1: This transaction, while small, is strategic as it expands and diversifies our TAM with new products and new markets, leverages fixed costs and allows us to drive attachment of our new suite of products, such as EBOS, power conversion, foundations, and storage.

Speaker #2: We ended the quarter with over $1 billion of cash and no debt. As our platform expands, we are managing the business for the long term with a focus on cash generation and driving adjusted EBITDA dollars while investing in future growth.

Speaker #1: Driven by strong execution and bookings across all our businesses, we are increasing our fiscal year 2027 outlook. We expect revenue of $4.2 billion to $4.45 billion, adjusted EBITDA of $890 million, to $940 million, and adjusted diluted EPS of $4.61 to $4.87 per share.

Speaker #2: The quarter included for the first time contribution from Next Power Energy Storage, our storage business delivered a very strong quarter with approximately $100 million of revenue and more than $20 million of EBITDA.

Speaker #2: The sales pipeline is strong and we are on track for a solid second half of the year. We also closed the acquisition of Zimmerman last week.

Speaker #1: We are also increasing our free cash flow estimates from $450 million to over $500 million. We will expand on our financial outlook at our capital markets day on November 16th.

Speaker #2: We expect this acquisition to be accretive out of the gates. The total deal consideration of $230 million euro is lower than we previously announced, and was changed to an all-cash deal.

Speaker #1: Based on current customer delivery schedules, we expect second half revenues to be more heavily weighted toward Q4, with Q3 revenue down sequentially, from our record Q2, but up approximately 10% year over year.

Speaker #2: We are also reducing our expectations for this business to approximately $100 million of revenue and $10 million of adjusted EBITDA for the balance of the fiscal year.

Speaker #2: This transaction, while small, is strategic as it expands and diversifies our TAM with new products and new markets, leverages fixed costs and allows us to drive attachment of our new suite of products such as e-boss, power conversion, foundations, and storage.

Speaker #1: This dynamic sets us up for a very strong finish to the fiscal year with potential record revenue and adjusted EBITDA in Q4. Now some details on what we see for second half of the year and first part of fiscal 28.

Speaker #1: We are building out the NX Power Conversion product line for both solar and storage. Over the next 12 months, we expect to invest approximately $40 million of capex to build out our US manufacturing plant and, as previously disclosed, expect a P&L impact of approximately $50 million primarily R&D and COGS, as we ramp and scale this business.

Speaker #2: Driven by strong execution and bookings across all our businesses, we are increasing our fiscal year 2027 outlook. We expect revenue of $4.2 billion to $4.45 billion, adjusted EBITDA of $890 million to $940 million, and adjusted diluted EPS of $4.61 to $4.87 per share.

Speaker #1: This ramp recently started and is accelerating since we closed the transaction in Q2. We expect to ship products by the end of next summer and achieve over 10 gigawatts of capacity by the end of calendar 27.

Speaker #2: We are also increasing our free cash flow estimates from $450 million to over $500 million. We will expand on our financial outlook at our capital markets day on November 16th.

Speaker #1: On the supply chain side of our business, we are seeing significant cost increases in diesel, steel, freight, and logistics. Our globally distributed supply chain allows us to partially mitigate the impact of these cost increases, and helps protect Next Power and our customers.

Speaker #2: Based on current customer delivery schedules, we expect second half revenues to be more heavily weighted toward Q4, with Q3 revenue down sequentially from our record Q2, but up approximately 10% year over year.

Speaker #2: This dynamic sets us up for a very strong finish to the fiscal year with potential record revenue and adjusted EBITDA in Q4. Now some details on what we see for second half of the year and first part of fiscal 28.

Speaker #1: We treat our customers as partners, and our working with them to share the increased costs where appropriate. These dynamics are not new to our industry.

Speaker #1: At times, they are headwinds, and other times, they are tailwinds. We expect logistics and freight costs to eventually revert back to a more normal baseline, but likely beyond our fiscal year 2027.

Speaker #2: We are building out the NX Power Conversion product line for both solar and storage. Over the next 12 months, we expect to invest approximately $40 million of capex to build out our US manufacturing plant and, as previously disclosed, expect a P&L impact of approximately $50 million primarily R&D and COGS as we ramp and scale this business.

Speaker #1: For full year 2027, we continue to expect adjusted gross margins in the low 30s, and adjusted EBITDA margins in the low 20s, while in the back half of the year, we expect adjusted gross margin and adjusted EBITDA margin to be in the high 20s and high teens, respectively.

Speaker #1: We are investing for the future in both R&D and M&A, but also buying back stock to offset dilution. We remain focused on long-term growth of both free cash flow and EBITDA dollars.

Speaker #2: This ramp recently started and is accelerating since we closed the transaction in Q2. We expect to ship products by the end of next summer and achieve over 10 gigawatts of capacity by the end of calendar 27.

Speaker #1: With that, I'll pass it back to the operator for Q&A.

Speaker #2: On the supply chain side of our business, we are seeing significant cost increases in diesel, steel, freight, and logistics. Our globally distributed supply chain allows us to partially mitigate the impact of these cost increases and helps protect Next Power and our customers.

Speaker #2: Thank you. We will now begin the question and answer session. Please limit yourself to one question, and one follow-up. If you would like to ask a question, please raise your hand now.

Speaker #2: If you have dialed into today's call, please press star 9 to raise your hand, and star 6 to unmute. Please stand by while we compile the Q&A roster.

Speaker #2: We treat our customers as partners and are working with them to share the increased costs where appropriate. These dynamics are not new to our industry; at times they are headwinds, and other times they are tailwinds.

Speaker #2: Your first question comes from the line of Philip Shen from Roth Capital. Your line is open. Please go ahead.

Speaker #2: We expect logistics and freight costs to eventually revert back to a more normal baseline, but likely beyond our fiscal year 2027. For full year 2027, we continue to expect adjusted gross

Speaker #3: Hey, guys. Thanks for taking my questions. Can you hear me okay?

Speaker #4: Yes.

Speaker #3: Great. Okay. On bookings, congrats on the very strong bookings quarter. Just want to make sure we got our math right. We have greater than 1.6 billion in bookings.

Speaker #4: Margins in the low 30s and adjusted EBITDA margins in the low 20s, while in the back half of the year we expect adjusted gross margin and adjusted EBITDA margin.

Speaker #3: Are we close? And then if you can give us a sense for what the non-tracker contributions were to the bookings number, EBOS was $100 million, but were there dollar contributions from BESS and inverters?

Speaker #4: to be in the high 20s and high teens respectively. We are investing for the future in both R&D and M&A, but also buying back stock to offset dilution.

Speaker #4: We remain focused on long-term growth of both free cash flow and EBITDA dollars. With that, I'll pass it back to the operator for Q&A.

Speaker #3: And then going forward, would you expect the strength to continue in FQ3? Thanks.

Speaker #4: Hey, Phil. This is Howard. So we, as we noted in our letter and in our remarks, over $1 billion in bookings. And I will say that it was well over a book-to-fill of one, well over that.

Speaker #5: Thank you. We will now begin the question and answer session. Please limit yourself to one question and one follow-up. If you would like to ask a question, please raise your hand now.

Speaker #5: If you have dialed into today's call, please press star 9 to raise your hand and star 6 to unmute. Please stand by while we compile the Q&A roster.

Speaker #4: Non-tracker bookings in the quarter were greater than 20%. So we're very pleased with the performance there and adoption of other elements of our platform.

Speaker #5: Your first question comes from the line of Philip Shen from Roth Capital.

Speaker #6: Your line is open. Please go ahead. Hey guys, thanks for taking my questions. Um, can you hear me okay? Yes. Great. Okay. On bookings, congrats on the very strong bookings quarter.

Speaker #4: And as far as the outlook, we have a lot of momentum there, both on the tracker front, a lot of demand for that, as well as our non-tracker elements.

Speaker #6: Just want to make sure we got our math right. We have greater than $1.6 billion in bookings. Um, are we close? And then if you can give us a sense for what the non-tracker contributions were to the bookings number.

Speaker #4: So we're feeling very good about the quarter overall, the demand environment, both in the US and in select markets internationally. And overall, just a very strong bookings and sales quarter across the board.

Speaker #6: Uh, EVOS was $100 million, but were there dollar contributions from VESS and inverters? And then going forward, would you expect the strength to continue in FQ3?

Speaker #3: Great. Thanks, Howard. Second question here is on margins and the margin trend here. Clearly, back half is weaker. Can you give us a sense for the drivers?

Speaker #6: Thanks.

Speaker #4: Hey Phil, this is Howard. So, um, we, as we noted in our letter and in our remarks, um, over

Speaker #3: Is it the other kind of new businesses that's bringing margin down? We wrote a little bit about the shortage of truck drivers, causing maybe an increase in freight rates by 20%.

Speaker #6: $1 billion in bookings. And I will say that it was well over a book-to-bill of 1, well over that. Non-tracker, Um, non-tracker bookings in the quarter were greater than 20%.

Speaker #3: Has that a headwind in your FQ2, 3, or 4 kind of period? And if so, when can that resolve? And then if you can, give us maybe a little bit of a peek, Chuck, you talked about in your prepared remarks, into FY28.

Speaker #6: Uh, so we're very pleased with the performance there and adoption of other elements of our platform. And as far as the outlook, we, we have a lot of momentum there, both on the tracker front, a lot of demand for that, as well as our non-tracker elements.

Speaker #3: Can you give us a feel for do margins improve from the FQ3, 4 levels? Or do you think they stay kind of in that range for FY28?

Speaker #3: Thanks.

Speaker #1: Yeah. Thanks, Phil. We'll address 28 if capital markets stay in a couple of weeks. So we're going to keep this call limited to talking about this current fiscal year.

Speaker #6: So we're feeling very good about the quarter overall, the demand environment both in the US and in select markets internationally, and overall just a very strong bookings and sales quarter across the board.

Speaker #1: And the back half, it's going to be quite a strong back half. If you look at the overall margin profile, it's a little bit lower than where we were in the first half.

Speaker #1: But for the year, the structural margins are intact. And it's important to think of our business on an annual or multi-year basis. So you can't look at one quarter in isolation or even two and draw a conclusion.

Speaker #6: Great, thanks, Howard. Second question here is on margins and the margin trend. Clearly, you know, back half is weaker. Can you give us a sense for the drivers?

Speaker #1: Having said that, we've seen significant inflation in things like diesel and freight logistics and steel. That's not a surprise to people. And what we're seeing is effectively the margin impact kind of quarter over quarter, Q2 to Q3, is really a story of those cost increases that I think beyond 27 should stabilize.

Speaker #6: Uh, is it the, uh, other kind of new businesses that's bringing margin down? We wrote a little bit about the shortage of truck drivers, you know, causing maybe an increase in freight rates by 20%.

Speaker #6: Has that— is that a headwind in your FQ2, Q3, or Q4 kind of period? And if so, when can that resolve? And then if you can, give us maybe a little bit of a peek.

Speaker #1: It's hard to predict when that will happen. Our assumption is they stay elevated in the back half of the year. The other part of the margin impact, as we've talked about, are really investments for the future.

Speaker #6: You know, Chuck, you talked about in your prepared remarks into FY28. You know, can you give us a feel for, you know, do margins improve from the FQ3, Q4

Speaker #1: Think about that as a mix of new products to our older products. And ramping these new product categories. And what's really exciting if I look at something like foundations or EBOS, those margins initially out of the gates are low.

Speaker #4: Levels, or do you think they stay kind of in that range for FY28? Thanks. Yeah, thanks, Bill. We'll address '28 at Capital Markets Day in a couple of weeks.

Speaker #4: So we're gonna keep this call limited to talking about this, this current fiscal year. And the back half, it's gonna be quite a strong back half.

Speaker #1: But as you perfect the technology, you ramp and scale, margins improve. And we've seen that over and over again with the various deals that we've done going back years and years.

Speaker #4: You know, if you look at the overall margin profile, it's a little bit lower than where we were in the first half, but for the year, the structural margins are intact.

Speaker #1: And so this is really an exciting time for us because we're injecting hardcore engineering into these new products. That creates durable advantage and durable advantage manifests in terms of higher gross margins.

Speaker #4: And it's important to think of our business on an annual or multi-year basis. So you can't look at one quarter in isolation or even 2 and draw a conclusion.

Speaker #4: Having said that, we've seen significant inflation in things like diesel and freight logistics and steel. That's not a surprise to people. And what we're seeing is effectively, you know, the margin impact kind of quarter over quarter, Q2 to Q3, is really a story of those cost increases that I think beyond '27 should stabilize.

Speaker #2: Your next question comes from the line of Dimple Gosai from Piper Sandler. Your line is open. Please go ahead.

Speaker #5: Hi. Good evening, Howard and Dan. Thanks for taking the question here. Just coming back to the cadence of new orders here. Project timelines, weather, so forth.

Speaker #5: Is any of the delay today tied to module supply or commerce's Section 232 and people waiting, customers waiting for some type of clarity before December or permitting interconnection?

Speaker #4: It's hard to predict when that will happen. Our assumption is they stay elevated through the back half of the year. The other part of the margin impact, as we've talked about, are really investments for the future.

Speaker #5: And how do you feel about confidence on 4Q execution versus slippage into 28? And then I have a follow-up. Thank you.

Speaker #4: Think about that as, you know, mix of new products our older products and ramping these new product categories. And what's really exciting, if I look at something like foundations or eBoss, those margins initially out of the gates are low, but as you perfect the technology, you ramp and scale, margins improve.

Speaker #4: So hi, Dimple. This is Howard. So we are seeing continued demand strength. And when you talk about 232 and modules, we're talking about the US here now.

Speaker #4: And we've seen that over and over again. with the various deals that we've done going back, you know, years and years. And so this is really an exciting time for us because we're injecting hardcore engineering into these new products.

Speaker #4: We're seeing continued demand strength in the US. Both on the bookings and we're managing to customer schedules when it comes to the P&L. And so we can have some movement across quarters.

Speaker #4: That creates durable advantage, and durable advantage manifests in terms of higher gross margins.

Speaker #4: And we've talked about that before. As far as the modules go, we're not seeing significant pain there in terms of near-term projects. And there's nothing to indicate to us right now that there are concerns for Q4 execution.

Speaker #5: Your next question comes from the line of Dimple Gosai from Piper Sandler. Your line is open. Please go ahead. Hi, good evening, Howard and Dan.

Speaker #5: Thanks for taking the question here.

Speaker #7: Just coming back to the cadence of new orders here, project timelines, weather, so forth. Is any of the delay today tied to module supply or Commerce's Section 232 and people waiting, customers waiting for some type of clarity before December or permitting interconnection?

Speaker #4: But suffice it to say that the 232 and the tariff is having an impact on module pricing. There's and that's going to kick in further in December.

Speaker #7: And how do you feel about confidence on 4Q execution versus slippage into '28? And then I have a follow-up. Thank you.

Speaker #4: But a lot of what we're hearing when we talk with owners is they've secured largely secured supply for safe harboring. And also on the panel side.

Speaker #8: So, hi, Dimple, this is Howard. So, um,

Speaker #4: And we're not hearing that there are breaks in contracts or anything like that. So it's business is very predictable at the moment. So I think and on the permitting side, that was another thing that you asked about.

Speaker #6: We

Speaker #8: are seeing continued demand strength. And, you know, when you talk about 232 and modules, we're talking about the US here now. We're seeing continued demand strength in the US.

Speaker #8: both on the bookings and we're managing to customer schedules when it comes to the P&L. And so, we can have some movement across quarters, and we've talked about that before.

Speaker #4: There are some projects that are impacted with permit delays, but there are other projects that are accelerating. So for us, for our company overall, we're seeing across a broad portfolio of projects, we're able to manage our outlook in a way that we're able to provide predictable results, just like we did this quarter.

Speaker #8: As far as the modules go, We're not seeing significant pain there in terms of near-term projects, and there's nothing to indicate to us right now that there are concerns for Q4 execution.

Speaker #4: Where we again, beat plan and had a great quarter. So it's we're not seeing permitting being a material impact to our outlook.

Speaker #8: But suffice it to say that the, the 232 and the tariff is having an impact on module pricing. There's— and that's going to kick in further in December, but a lot of What we're hearing when we talk with owners is they've secured— largely secured supply for safe harboring and also on the panel side.

Speaker #5: Very good. Thank you, Howard. And then the follow-up is just non-track a mix is up from 14% to 22%, which you spoke about. Does that mean that there is more acquisitions or slower tracker growth?

Speaker #5: And how should I be thinking about that on a 27 basis? It was a lot bigger than I had anticipated, which is great. But just how to think about it on a go forward.

Speaker #8: And we're not hearing that there are breaks in contracts or anything like that. So, it's— business is very predictable at the moment. So, okay, I think— and on the permitting side, that was another thing that you asked about.

Speaker #1: No. We're seeing strong tracker growth. In fact, our record backlog of over 6 billion would have been over 6 billion without the storage acquisition.

Speaker #1: And so we're feeling very good about the core business. It's really the backbone of our overall solution. And that's driving attach. So we feel confident about the growth in tracker.

Speaker #8: There are some projects that are impacted with permit delays, but there are other projects that are accelerating. So, for us, for our company overall, we're seeing across a broad portfolio of projects, we're able to manage our outlook in a way that we're able to provide predictable results, just like we did this quarter, where we, again, beat plan and had a great quarter.

Speaker #1: Clearly, the new acquisitions are going to grow much, much faster. Because you're starting with a small base. So the 22% is a solid number.

Speaker #1: And that's and hats off to our storage team for delivering a fantastic quarter as well.

Speaker #8: So, it's, we're not seeing permitting being a material impact to our outlook.

Speaker #2: Your next question comes from the line of Ben Callow from Baird. Your line is open. Please go ahead.

Speaker #7: Very good. Thank you, Howard. And then the follow-up is just non-tracker mix is up from 14% to 22%, which you spoke about. Does that mean that there is more acquisitions or slower tracker growth?

Speaker #6: Hey. Good evening, guys. Thanks for taking my question. Maybe first, just when Zimmerman closed could you just could loop that in with the international opportunity that you see and what that acquisition helps with on that front?

Speaker #7: And how should I be thinking about that, you know, on a, on like a 27 basis? It was a lot bigger than I had anticipated, which is great, but just how to think about it on a go-forward.

Speaker #6: How we should think about that. I know you're going to do the analyst day coming up here. But any way we should think about that kind of mix going on a go forward basis.

Speaker #4: No, we're seeing strong tracker growth. In fact, you know, our record backlog of over $6 billion would have been

Speaker #6: And where that Zimmerman helps you out. And then I have a follow-up.

Speaker #9: over $6 billion without the storage acquisition. And so we're feeling very good about the core business. It's really the backbone of our overall solution.

Speaker #4: Okay. Thanks for the question, Ben. Howard here. So we're really excited about this acquisition and very pleased that it's closed. It had to go through some government approvals.

Speaker #4: And that's driving attach. So I— we're— we feel confident about the growth in tracker. Clearly, the new acquisitions are going to grow much, much faster because you're starting with a small base.

Speaker #4: And we got all those. And we're off to the races now. We have a great team there. We've really gotten to know them well.

Speaker #4: And that's the first thing we look at with every acquisition that we do is will that team perform? Do they fit into our culture?

Speaker #4: So

Speaker #9: The 22% is, is, you know, a solid number. And that's, you know, and hats off to our storage team for delivering a fantastic quarter as well.

Speaker #4: Do they have the same ethics? And we've got that in the Zimmerman team. That's foundational. They have a really excellent footprint in Europe that's complementary to ours.

Speaker #5: Your next question comes from the line of Ben Kalo from Baird. Your line is open. Please go ahead.

Speaker #4: They're very strong in Germany. For example, a very material part of their business is in Germany. They have a strong brand, Zimmermann brand. In Germany is very well known.

Speaker #8: Hey, good evening, guys. Thanks for taking my question. Maybe first, just, you know, with Zimmerman closed, could you just loop that in with, you know, the international

Speaker #4: They're a leader in structures, in Germany, for solar. Both in DG and ground mount and utility scale. Both in fixed tilt and tracker. So that's very complementary.

Speaker #9: opportunity that you see and what that acquisition helps with on that front, like how we should think about that. You know, I know you're going to do the Analyst Day coming up here, but anyway, we should think about that kind of mix.

Speaker #4: In fact, they're adding 15 countries to our country active country list. So we're now in 68 countries. So they brought 15 countries. Very complementary on the market footprint.

Speaker #9: Going on a go-forward basis, and you know where that, that Zimmerman helps you out. And then I have a follow-up.

Speaker #8: Okay, thanks for the question, Ben. Howard here. We're really excited about this acquisition and very pleased that it's closed. It had to go through some government approvals, and we, you know, got all those, and we're off to the races now.

Speaker #4: And then they've got products that are complementary to ours. We don't have a fixed tilt product in Max Power. They do. They have some Agri-PV products that are very interesting and complementary.

Speaker #4: They have a wire management system. They have a number of things that they're doing that we can cross-sell on. And then their team can cross-sell on our products.

Speaker #8: We have a great team there. We've really gotten to know them well, and that's the first thing we look at with every acquisition that we do: will that team perform?

Speaker #4: So we're going to extract a lot of synergies there on the sales side, market side, cost side with our supply chain. We have a much bigger supply chain footprint than they do.

Speaker #8: Do they fit into our culture? Do they have the same ethics? And we've got that in the Zimmerman team. That's foundational. They have a really excellent footprint in Europe that's complementary to ours.

Speaker #4: And unlock synergies across the board in products, market, and cost. And winning. So we're very excited about that. Thanks for the question.

Speaker #8: They're very strong in Germany. For example, a very material part of their business is in Germany. They have a strong brand. The Zimmerman brand in Germany is very well-known.

Speaker #6: Thank you. Just as a quick follow-up, maybe Chuck, on the fuel costs and maybe Dan, Howard too. Just how is it possible to negotiate a pass-through on fuel costs that are similar to other raw material costs that are pass-throughs?

Speaker #8: They're a leader in structures in Germany for solar, both in DG and ground mount and utility scale, both in fixed tilt and tracker. So, that's very complementary.

Speaker #6: Or just kind of any kind of appetite for that from customers on a go forward basis? Obviously, with old contracts as probably impossible.

Speaker #8: In fact, they're adding 15 countries to our country— active country list. So, we're now in 68 countries. So, they brought 15 countries, very complementary on the market footprint.

Speaker #4: Hey, Ben. This is Dan. Great question. First up, looks like pullback and contextualize. We've seen large increases in logistics, costs, and steel similar to the early days of the pandemic.

Speaker #8: And then, they've got products that are complementary to ours. We don't have a fixed tilt product and Nextpower, they do. They have some agri-PV products that are very interesting and complementary.

Speaker #8: They have a wire management system. They have a number of things that they're doing that we can cross-sell on, and then their team can cross-sell on our products.

Speaker #4: What's different now is that we strategically built out our domestic supply chain to provide a natural hedge to that. Because we're manufacturing finished goods much closer to the project sites.

Speaker #8: So, we're going to extract a lot of synergies there on the sales side, market side, cost side with our supply chain. We have a much bigger supply chain footprint than they do.

Speaker #4: So our total logistics spend on a per unit basis is way down from what it was. Protecting our customers and Next Power from the lion's share of what would have been a really huge spike in logistics when we diesel year to date is up roughly 80% as a result of the Gulf War.

Speaker #8: And it unlocks synergies across the board in products, market, and cost.

Speaker #10: and winning. So, we're very excited about that. Thanks for the question. Thank you. Just as a quick follow-up, maybe Chuck, on the fuel costs, and maybe Dan Howard too, just How is it possible to negotiate a pass-through on fuel costs similar to other raw material costs or pass-throughs or or just kind of any kind of appetite for that from customers on a go-forward basis?

Speaker #4: Okay. What the so we've massively reduced it. But we still have to get finished goods from a factory to a job site. As mentioned, earlier on this call, by Phil Shen, the it was a bit of a double hit because you had reported over 15,000 truckers that were disqualified from driving.

Speaker #10: Obviously, with old contracts, it's probably impossible.

Speaker #9: Hey, Ben, this is Dan. Great question. First off, let's pull back and contextualize. We've seen large increases in logistics, costs.

Speaker #4: In the United States, due to English language speaking requirements. Combined with this massive increase in diesel. And so it did have it does have an impact.

Speaker #8: And still, similar to the early days of the pandemic, what's different now is that we strategically built out our domestic supply chain to provide a natural hedge to that, because we're manufacturing finished goods much closer to the project sites.

Speaker #4: It typically is a would be a relatively minor impact on the overall cost of the system. In this case, with that combined impact, it was pretty significant.

Speaker #8: So our total logistics spend on a per-unit basis is way down from what it was.

Speaker #4: We're considering ways to work with customers it's unlike other things like steel. There's not readily available logistics commodity indices that one could easily apply.

Speaker #9: Protecting our customers and NextPower from the lion's share of what would have been a really huge spike.

Speaker #8: in logistics when diesel year to date is up roughly 80% as a result of the Gulf War. Okay.

Speaker #4: And without overly complicating things. But we're taking a look at that. But I think the main thing is when this happened before, we suffered a we still made money, but we suffered a five or six years ago a disproportionately higher impact.

Speaker #6: What the—so we've massively reduced it.

Speaker #4: But we still have to get finished goods from a factory to a job site. As mentioned earlier on this call by Phil Shen,

Speaker #4: We made strategic moves to reposition our supply chain closer to our customers, both in the United States as well as other major markets. We've protected customers.

Speaker #9: The

Speaker #6: It was a bit of a double hit because you had

Speaker #9: reported over 15,000 truckers that were disqualified from driving in the United States due to English language speaking requirements. Combined with this massive increase in diesel.

Speaker #4: We think our strategic footprint provides us an advantage. Customers are better served by working with us. And that generally is delivering a lot of value for customers.

Speaker #9: And so it did have— it does have an impact. It typically is a— would be a relatively minor impact on the overall cost of the system.

Speaker #4: As evidenced by our record bookings last quarter and continued growth of our backlog, which went up from over 5.5 billion over 6 billion in a single quarter.

Speaker #9: In this case, with that combined impact, it was pretty significant. We're considering ways to work with customers. It's unlike other things, like steel; there's not readily available logistics commodity indices that one could easily apply without overly complicating things.

Speaker #1: Your next question comes from the line of Christine Cho. From Barclays, your line is open. Please go ahead.

Speaker #5: Good evening. I just wanted to start on this energy storage comment of 100 million of revenue and 20 million of adjusted EBITDA. Are these the sort of economics that we should assume for this business?

Speaker #9: Well, we're taking a look at that, but I think the main thing is, when this happened before, we suffered a—we still made money, but we suffered five or six years ago a disproportionately higher impact. We made strategic moves to reposition our supply chain closer to our customers, both in the United States as well as other major markets.

Speaker #5: If you could just maybe talk about how you expect the cadence to go? Is it going to move around on customer delivery? And can you also talk about the opportunity for LTSAs with this business?

Speaker #5: And if so, does the 100 million include any LTSAs? Thank you. And I have a follow-up.

Speaker #9: We've protected customers we think are Strategic footprint provides us an advantage. Customers are better served by working with us. And that generally is delivering a lot of value for customers as evidenced by our record bookings last quarter and continued growth of our backlog, which went up.

Speaker #4: Yeah. This is Chuck. Christine, thank you. Yeah, the 100 million is a number of customers, but primarily one larger customer, tier one data center hyperscaler customer.

Speaker #4: Depending on the application, you'll see different margin ranges. At the initial announcement of the acquisition, we did outline a model where the operating margins or EBITDA margins would be in kind of the mid-teens.

Speaker #4: So this is a bit higher and you'll see some fluctuations over time depending on the applications and where we're selling. Yeah. And I'll pile on there.

Speaker #9: Over $5.5 billion, over $6 billion in a single quarter.

Speaker #5: Your next question comes from the line of Christine Cho from Barclays. Your line is open. Please go ahead.

Speaker #4: Building on Chuck's comment, we just couldn't be more pleased with the performance of the energy storage unit. Our first quarter after closing this transaction, it's really a testament to the outstanding team that we have the legacy Prevalon team that's in domiciled in Florida predominantly.

Speaker #7: Good evening. I just wanted to start with this energy storage comment of $100 million in revenue and $20 million of adjusted EBITDA. Are these the sort of economics that we should assume for this business?

Speaker #7: You know, if we— if you could just maybe talk about how you expect the cadence to go. Is it going to move around depending on customer delivery?

Speaker #4: The other thing this team has a lot of know-how. And I would also point out that as Chuck mentioned, on a previous call, the overhead structure they're very efficient.

Speaker #7: And can you also talk about the opportunity for LTSAs with this business? And if so, does the $100 million include any LTSAs? Thank you.

Speaker #4: They know what they're doing. They're very efficient. The overhead structure is in the mid-single digit areas for that unit. And we're really excited. We've had a lot of customer engagement on the battery offering.

Speaker #7: And I have a follow-up.

Speaker #4: This is Chuck. Christine, thank you. Yeah, the $100 million is a number of customers, but primarily one larger customer, tier 1 data center hyperscaler customer.

Speaker #4: Depending on the application, you'll see different margin ranges. At the initial announcement of the acquisition, we did outline a model where the operating margins or EBITDA margins would be in the mid-teens.

Speaker #4: And there's seems to be a tremendous appetite for what we can bring to that market. The margin profiles of function of the use cases and the end customer profile and the market is definitely ramping strongly.

Speaker #4: So this is, you know, a bit higher, and you'll see, you know, some fluctuations over time depending on the applications and

Speaker #9: and, you know, where we're selling. Yeah, and I'll pile on there, building on Chuck's comment. We just couldn't be more pleased with the performance of the energy storage unit our first quarter after closing this transaction.

Speaker #4: And we're fielding many, many inquiries from qualified customers that really appreciate our investment-grade status. And Christine, your part the other part of your question.

Speaker #9: It's really a testament to the outstanding team that we have—the legacy Prevalon team that's domiciled in Florida, predominantly. The other thing is, this team has a lot of know-how, and I would also point out that, as Chuck mentioned on a previous call, the overhead structure—they're very efficient, they know what they're doing, they're very efficient.

Speaker #4: On the LTSA side, immaterial for the quarter, what I would say is we're very excited about the long-term opportunity for LTSA for both power conversion and for storage.

Speaker #4: We think that as an American company, that's a will provide a significant value to our customers long-term by providing those services agreements across the portfolio.

Speaker #1: Okay. Great. And then just as a follow-up, a clarification question. I think you guys said the Zimmermann deal closed after the quarter. So does the backlog and updated guidance incorporate Zimmermann?

Speaker #9: The overhead structure is in the mid-single digit. areas for that unit. And we're really excited. We've had a lot of customer

Speaker #11: engagement on the battery.

Speaker #1: Or does it exclude it? I think you said 100 million of revenue and 10 million of adjusted EBITDA. For balance of the year, if we could get a backlog number.

Speaker #8: offering. And there's, uh,

Speaker #9: seems to be a tremendous appetite for what we can bring to that market. The margin profile is a function of the use cases. and the end customer profile.

Speaker #1: And then I'm sorry. Was the Prevalon backlog included last quarter? Or was it added this quarter?

Speaker #4: Yeah. So on the backlog, Prevalon Next Power Energy Storage was not in the opening numbers for Q2 because that deal closed in Q2. We've added it to our end of Q2.

Speaker #9: And the market is definitely ramping strongly and we're fielding many, many inquiries from qualified customers that really appreciate our investment-grade status.

Speaker #4: But as I mentioned before, even without their backlog, we'd be over 6 billion in backlog. So we said over 6 billion, but with or without still over 6 billion.

Speaker #4: And then, Christine, your part—the other part of your question on the LTSA side—immaterial for the quarter. What I would say is we're very excited about the long-term opportunity for LTSA for both power conversion and for storage.

Speaker #4: And then Zimmermann is included in our outlook, but their backlog is not included in our backlog. They're more of a turns business. So I don't expect that to be a very material impact to our backlog when we report in Q3.

Speaker #4: We think that as an American company, that will provide significant value to our customers long-term by providing those services agreements across the portfolio. Okay, great.

Speaker #1: Your next question comes from the line of Mark Strauss from JPMorgan. Your line is open. Please go ahead.

Speaker #7: And then just as a follow-up, a clarification question. I think you guys said the Zimmerman deal closed after the quarter. So does the backlog and updated guidance incorporate them or does it exclude it?

Speaker #4: Great. Good afternoon. Thanks for taking our questions. Maybe just following up on Christine's question there on Zimmermann. Chuck, I think you mentioned that you lowered the consideration.

Speaker #4: You also are lowering the financial impact from what you talked about back in June. Can you just give a bit more color on what's going on there?

Speaker #7: I think you said $100 million of revenue and $10 million of adjusted EBITDA for the balance of the year. If we could get a backlog number.

Speaker #7: And then, I'm sorry, was the Prevalon backlog included last quarter, or was it added this quarter?

Speaker #3: Yeah. This is Howard and then Chuck can follow up. So we announced a deal in June, and we just closed it a week or two ago, a couple of weeks ago.

Speaker #4: So on the backlog, Prevalon Nextpower Energy Storage was not in the opening numbers for Q2 because that deal closed in Q2. We've added it to our end of Q2, but as I mentioned before, even without their backlog, we'd be over $6 billion in backlog.

Speaker #3: So a few months went by. And during that interval, we looked very closely at their backlog, their forecast, their pipeline, and we conformed it to the way we look at things and how we put forecasts together.

Speaker #4: So we said over $6 billion, but with or without, it's still over $6 billion. And then Zimmerman is included in our outlook, but their backlog is not included in our backlog.

Speaker #3: The fundamentals and so as a result of that, we had we've updated our outlook for them, and we updated the deal consideration. Accordingly, the deal is still accretive to the company.

Speaker #4: They're more of a turns business, so I don't expect that to be a very material impact to our backlog. When we report in Q3.

Speaker #5: Your next question comes from the line of Mark Strauss from JPMorgan. Your line is open. Please go ahead.

Speaker #3: The fundamentals of the deal are intact. Nothing fundamental has changed. The pipeline is there. Etc. It's just a different way of forecasting. So we they had a very strong first half.

Speaker #4: Great. Good afternoon. Thanks for taking our questions. Maybe just following up on Christine's question there on Zimmerman. Chuck, I think you mentioned that you, you lowered the consideration.

Speaker #4: You also are lowering the

Speaker #3: And the outlook looks very good for Zimmermann. And we just want to reiterate that they're a business that's been around for quite some time, very mature leadership.

Speaker #9: The financial impact from what you talked about back in June—can you just give a bit more color on what's going on there?

Speaker #8: Yeah, this is Howard, and then Chuck can follow up. So we announced the deal in June and we just closed it, I don't know, a week or two ago, a couple weeks ago.

Speaker #3: They make money. They're very much like us. But they're a private company. And now they're part of a public company. Chuck, do you want to add anything?

Speaker #8: So a few months went by and during that interval, we look very closely at their backlog, their forecast, their pipeline, and we conformed it to the way we look at things and how we put forecasts together.

Speaker #4: I know. You said it well, Howard. Thank you.

Speaker #2: Okay. That makes sense. Thank you, Howard. And then can I ask, the 1.1 gig inverter contract that you got, has that been in the works for a while?

Speaker #2: Or did that potentially come about because of the FCC ban or the bulk power executive order? Just trying to get a sense if you're starting to see some traction because of the political environment.

Speaker #8: The fundamentals— and so as a result of that, we had— we've updated our outlook for them and we updated the deal consideration accordingly. The deal is still accretive to the company.

Speaker #4: Hey, Mark. This is Dan. That opportunity has been in works the works for a while. We try to ask customers in every meeting what are your biggest pain points.

Speaker #8: The fundamentals of the deal are intact. Nothing fundamental has changed. The pipeline is there. It's just a different way of forecasting. So we— they had a very strong first half.

Speaker #4: That particular customer told us inverter, inverter, inverter. A while back. And that request from that customer and a few others that we hold in highest regard really motivated us to move forward with an inverter offering.

Speaker #8: And the outlook looks very good for Zimmermann. And we just want to reiterate that their business has been around for quite some time, with very mature leadership.

Speaker #8: They make money. They're very much like us, but they're a private company, and now they're part of a public company. Chuck, did you want to add anything?

Speaker #4: Which we take very, very seriously. And so the we're really focused on delivering products that when you look back at the performance, on an annualized basis, they do do inverter what our tracker system does to tracker.

Speaker #8: I don't. You said it well, Howard. Thank you.

Speaker #4: Okay, that makes sense. Thank you, Howard. And then can I ask, the 1.1 gig inverter contract that you got, has that been in the works for a while or did that potentially come about because of the

Speaker #4: And some of our other products do in their areas, which is deliver unrivaled top-tier global performance that helps customers realize more energy from their solar power plants.

Speaker #9: the FCC ban or the bulk power executive order? Just trying to get a sense if you're, you're starting to see some traction because of the, the political environment.

Speaker #9: Hey Mark, this is Dan. That opportunity has been in the works for a while.

Speaker #4: Now, the FCC ban that came out and some of the cybersecurity and fiat concerns we've seen coming add to a tremendous tailwind to our decision.

Speaker #8: Um, We try to

Speaker #9: We ask customers in every meeting, "What are your biggest pain points?" That particular customer told us, "Inverter, inverter, inverter," a while back. And that request from that customer, and a few others that we hold in highest regard...

Speaker #4: And that decision was made several years ago to launch in this space. We went through quite a diligence process. We looked at I think the entire industry we were also our incubating a next-generation product to continue working on that.

Speaker #9: Really motivated us to. Move forward with an inverter offering, which we take very, very seriously. And So, the— we're really focused on delivering products that when you look back at the performance on an annualized basis, they do to inverter what our tracker system does to tracker.

Speaker #4: And that but we really see now a tremendous need in the US market and potentially the European market and other places. I want to underscore that the technology required, it's a skid.

Speaker #9: And some of our other products do in their areas, which is deliver unrivaled top-tier global performance. That helps customers realize more energy from their solar power plants.

Speaker #4: We have a 4.6-megawatt PV inverter skid with a parallel architecture that we and customers really like. And we have a 5.2-megawatt battery power conditioning skid that has a similar architecture.

Speaker #9: Now, the FCC ban that came out and some of the cybersecurity and fiat concerns we've seen coming add to a tremendous tailwind to our decision, and that decision was made several years ago to launch in this space.

Speaker #4: We have both UL listing on that inverter. We shipped our first UL-listed units to the United States with Next Power brand. Recently, and we've shipped IEC-listed units to the global seeds market.

Speaker #4: So we're in the market. We're building out double-digit capacity in the United States for a new factory. A greenfield factory. Not a greenfield, but a factory.

Speaker #9: We went through quite a diligence process. We looked at I think the entire industry, we're also, you know, we are incubating a next-generation product to continue working on that.

Speaker #4: That will be operating next summer as we've discussed. And we're seeing tremendous interest from our customers for that product line. The timing is really perfect.

Speaker #9: And that, but we really see now a tremendous need in the US market, and potentially the European market and other places. I want to underscore that the technology we acquired, it's a SCID.

Speaker #4: But the fundamental need was for bankable, reliable, suppliers that delivered very, very high reliability. And so that drove it. And then all these other tailwinds or complementary to the decision we were in the process of making.

Speaker #9: We have a 4.6-megawatt PV inverter SCID with a parallel architecture. That we and customers really like. And we have a 5.2-megawatt battery power conditioning SCID that has a similar architecture.

Speaker #1: Your next question comes from the line of Brian Lee, from Goldman Sachs. Your line is open. Please go ahead.

Speaker #9: We have both UL listing on that inverter. We shipped our first UL-listed units to the United States with Nextpower brand. Recently, and we've shipped IEC-listed units to the global SEAS market.

Speaker #5: Hey, guys. Good afternoon. Thanks for taking the questions. Maybe just going back to some of the questions around the energy storage segment. I know the shareholder letter mentioned a BTM project.

Speaker #9: So, we're in the market. We're building out double-digit capacity in the United States for a new factory, a greenfield factory, not a greenfield, but a factory that will be operating next summer, as we, as we've discussed.

Speaker #5: So be curious. If you guys had any additional commentary, you can provide around kind of the outlook in terms of traction for data center/hyperscaler winds.

Speaker #5: Maybe color around customer engagement there specifically.

Speaker #4: Yeah. Well, I'll first off, Brian, as I mentioned on the prior call, this is such an exciting category. And something at least I didn't anticipate a few years ago that a battery inverter system could do something to help new customers come online to the grid, that the grid can't do.

Speaker #9: And we're seeing tremendous interest from our customers for that product line. The timing is really perfect, but the fundamental need was for bankable, reliable suppliers that delivered very, very high reliability.

Speaker #9: And so that drove it. And then all these other tailwinds are complementary to the decision we were in the process of making.

Speaker #4: And a rotating machine can't do. If you have these loads, like a data center with learning models, the building can go from 0 to 100 percent in fractions of a second.

Speaker #5: Your next question comes from the line of Brian Lee from Goldman Sachs. Your line is open. Please go ahead. Hey guys, good afternoon. Thanks for taking the questions.

Speaker #4: We measure these in tens of milliseconds, these huge swings in power. But for this type of technology, the grid could not support without massive reinforcement, some of these particular loads.

Speaker #5: Maybe just going back to some of the questions around the energy storage segment—you know, I know the shareholder letter mentioned the BTM project.

Speaker #5: So I'd be curious if you guys have any additional commentary you can provide around the outlook in terms of traction for data center or hyperscaler wins, maybe some color around customer engagement there specifically.

Speaker #4: And rotating machines, you can't put a rotating generator out there be it a turbine or reset engine to support those loads. It'll physically damage the machine.

Speaker #4: And so it's a very, very exciting new category. Because it's kind of like a new pie. Customers you have this situation where customers want to get connected.

Speaker #9: Yeah, well, I'll, you know, first off, Brian, as I mentioned on the prior call, This is such an exciting category and something at least I didn't anticipate a few years ago that a battery inverter system could do something to help new customers come online to the grid that the grid can't do and a rotating machine can't do.

Speaker #4: Okay. Number one. Number two, it's really hard to build new transmission and distribution electric transmission distribution substations. Okay. And point three, this technology is available and can deliver.

Speaker #4: And so that helps these customers get on. And there's a bigger macro here, which it not only helps those customers get on, but now you have typically a couple hours of battery storage.

Speaker #9: If you have these loads, like a data center with learning models, the building can go from 0 to 100% in fractions of a second.

Speaker #4: So now you can actually they can use more solar. As part of their overall energy mix. We're very pleased this particular I spoke with the hyperscaler in diligence of this when we were considering acquiring the former Prevalon unit, now Next Power Energy Storage.

Speaker #9: We measure these in tens of milliseconds, these huge swings in power. But for this type of technology, the the grid could not support without massive reinforcement some of these particular loads.

Speaker #4: They were very complementary on the technology. They. And had witnessed some factory acceptance testing. And recently, our Next Power Energy Storage with the product is called the Hybrid Power Stabilizer.

Speaker #9: And rotating machines—you can't put a rotating generator out there, be it a turbine or a recip engine, to support those loads. It'll physically damage the machine.

Speaker #9: And so it's a very, very exciting new category because it's kind of like a new pie. Customers—you have this situation where customers want to get connected, okay?

Speaker #4: And you can see that on our homepage. It just recently passed full-scale testing at a major national laboratory which is really exciting. And so the tech works.

Speaker #9: Number one. Number two, it's really hard to build new transmission and distribution—electric transmission, distribution, and substations.

Speaker #4: It's UL-listed. And we have both a DC block and an AC block, UL-listed. To be able to support a variety of use cases and configurations for customers.

Speaker #5: Okay.

Speaker #9: And point 3, this technology is available. And can deliver quick. And so that helps these customers get on. And there's a bigger macro here, which it not only helps those customers get on, but now you have typically a couple hours of battery storage.

Speaker #4: And have a team of very experienced battery storage professionals that successfully delivered 38 projects over the last eight years. Now with this new data center segment growing quickly, it provides we provide a solution to help them come online, which also then provides help for additional renewables to deal with the intermittency issue.

Speaker #9: So now you can actually— they can use more solar as part of their overall energy mix. We're very pleased. This particular— I spoke with the hyperscaler in diligence of this, uh, when we were considering acquiring the former Prevalon unit, now Nextpower Energy Storage.

Speaker #9: They were very complimentary about the technology and had witnessed some factory acceptance testing. Recently, our Nextpower Energy Storage— the product is called the Hybrid Power Stabilizer, and you can see that on our homepage.

Speaker #4: So yeah, we just couldn't be more excited about that.

Speaker #1: Your next question comes from the line of Julian Dumoulin-Smith, from Jefferies. Your line is open. Please go ahead and select *62 unmute. I kind reminder.

Speaker #9: It just recently passed full-scale testing at a major national laboratory, which is really exciting. And so the tech works. It's UL listed. And we have both a DC block and an AC block, UL listed, to be able to support a variety of use cases and configurations for customers.

Speaker #4: Julian, please let me.

Speaker #1: Oh, please go ahead.

Speaker #4: Hey. Sorry about that. This is part of going on for Julian. Just a follow-up on the inverter business. The 1.1 gigawatt framework agreement, over what time period would that deliver?

Speaker #4: And then if we zoom out a little bit, the 10 gigawatts talking about for next summer, how should we think about the ramp in volumes there?

Speaker #9: And we have a team of very experienced battery storage professionals that successfully delivered 38 projects over the last eight years. Now, with this new data center segment growing quickly, it provides—we provide a solution to help them come online, which also then provides help for, you know, additional renewables to deal with the intermittency issue.

Speaker #4: Obviously, there's a lot of demand coming with the inverter band. But does that show up in '27, or is that a little bit longer dated?

Speaker #4: So just on the ramp there would be helpful.

Speaker #2: Yeah. Thanks. We'll be providing more color on the ramp at capital markets day and three weeks from now. We are going to start delivering units this summer from the they'll be shipping to job sites.

Speaker #2: And I think that's as far as I'm prepared to go right now on that. But very exciting stuff. Timing is perfect. And we're really focused on product quality, reliability, and making sure our customers' needs are met.

Speaker #9: So, yeah, we just couldn't be more excited about that.

Speaker #5: Your next question comes from the line of Julian DeMullen-Smith from Jefferies. Your line is open. Please go ahead and select star 1; star 6 to unmute.

Speaker #1: Your next question comes from the line of Corinne Blanchard, from Deutsche Bank. Your line is open. Please go ahead.

Speaker #3: Hey. Good afternoon, everyone. Thank you for the time and taking the question. Maybe two distinctive questions. The first one, on the upcoming midterms election, do you have any view on maybe what can be the outcome there 45X, maybe tax credit being extended?

Speaker #9: A kind reminder to— please go ahead. Hey, hey, sorry about that. This is Carter Gohman on for Julian. Just to follow up on the inverter business.

Speaker #9: The 1.1 gigawatt framework agreement, over what time period would that deliver? And then if we zoom out a little bit, the 10 gigawatts you're talking about for next summer, how should we think about the ramp in volumes there?

Speaker #3: I think those are the kind of talks that we've been hearing from the Congress. And then maybe the second question, coming back on the international revenue, maybe can you comment what are your what's your view or expectation as a percentage of total revenue maybe for the rest of '27 and '28 and the margin impact from having that international diversification?

Speaker #9: Obviously, there's a lot of demand coming with the inverter ban, but does that show up in '27, or is that a little bit longer dated?

Speaker #9: So just, just on the ramp there would be helpful. Yeah, thanks. We'll be providing more color on the ramp. at Capital Markets Day in 3 weeks from now.

Speaker #9: We are going to start delivering units this summer from the— you know, they'll be shipping to job sites. And I think that's as far as I'm prepared to go right now on that.

Speaker #4: Okay. Thanks, Corinne. I'll speak high level about the 45X. And then Howard will jump in on the international markets. Look, I think with respect to the manufacturing credits, they're really strongly supported across the aisle.

Speaker #9: But, you know, very exciting stuff. Timing is perfect, and we're really focused on product quality, reliability, and making sure our customers' needs are met.

Speaker #4: We've seen incredible job growth here. As in the US with new manufacturing build-out, next power has catalyzed new or expanded existing facilities with over 35 factory shipping finished goods.

Speaker #5: Your next question comes from the line of Corinne Blanchard from Deutsche Bank. Your line is open. Please go ahead. Hey, good afternoon, everyone. Thank you for the time and for taking the question.

Speaker #5: Maybe two distinctive questions. The first one is on the upcoming midterm elections. Do you have any view on what the outcome might be?

Speaker #4: It's a huge thing just what we've done. And we've seen on the solar panel manufacturing side, just very exciting activity. And we think over time, we'll see the US again enjoy a robust module manufacturing environment over time that'll help costs come down for domestically made.

Speaker #5: You know, 45X, maybe tax credit being extended. I think those are the kind of talks that we've been hearing from the Congress.

Speaker #8: And then maybe the second question, coming back on the international revenue, maybe can you comment what are your— what's your view or expectation

Speaker #4: Product. And we see it as sort of a supply security national security issue that's being supported for solar, for storage, and for critical power infrastructure.

Speaker #9: as a percentage of total revenue, maybe for the rest of '27 and '28, and, and the margin impact from having that international diversification? Okay, thanks, Corinne.

Speaker #4: We're doing our part, obviously, with the inverter. We expect our inverter program to participate in the 45X. And yeah, we've seen strong support for it.

Speaker #9: I'll speak high level about the 45X and then Howard will jump in on the international. markets. Look, I think with respect to the manufacturing credits, they're really strongly supported across the aisle.

Speaker #4: We're not calling the outcome of the election. I will say we gave a presentation at the BMP conference a few weeks ago, one of our customers spoke there.

Speaker #9: We've seen incredible job growth here. As in the US with new manufacturing buildout, Nextpower has catalyzed new or expanded existing facilities with over 35 factories shipping finished goods.

Speaker #4: And he said, generally, the market tends to overreact to both on the positive and the negative side to what's happening federally. Most of the action is at the state level and then so I'll just leave that there.

Speaker #9: It's a huge thing, just what we've done. And we've seen on the solar panel manufacturing side, just very exciting activity. And we think over time we'll see the US again enjoy a robust module manufacturing environment.

Speaker #4: Howard International. I'll take it. Okay. Thanks, Howard. So Corinne, yeah, international is quite frankly having a really nice kind of run here. We saw in Q2 international was up 25% quarter over quarter.

Speaker #4: Whereas the US business was up 17%, both impressive numbers, but we're excited to see acceleration of international. And then when we add in Zimmermann, we'll see yet even more international.

Speaker #9: Over time, that'll help costs come down for domestically made product. And we see it as sort of a supply security, national security issue that's being supported for solar, for storage, and for critical power infrastructure.

Speaker #4: So we're really excited about that. This is part of an intentional diversification play. For the full year, it looks to be about 80/20, but the back half, it'll be more high 70s, for US and kind of low 20s for international.

Speaker #9: We're doing our part, obviously, with the inverter. We expect our inverter program to participate in the 45X. And, yeah, we've seen strong support for it.

Speaker #4: So we're really pleased with the team for executing and accelerating international.

Speaker #9: Calling the outcome of the election. I will say, we gave a presentation at the BNP conference a few weeks ago. One of our customers spoke there, and he said, generally, the market tends to overreact—both on the positive and the negative side—to what's happening federally.

Speaker #2: The only thing this is Howard, I might add, is with storage, it's mainly focused right now in the US. And so that could skew the percentages.

Speaker #2: And somewhat.

Speaker #9: Most of the action is at the state level, and then—so I'll just leave that there. Howard, international? I'll take it. Okay, thanks, Chuck.

Speaker #1: Your next question comes from the line of Chris Dendrinos from RBC. Your line is open. Please go ahead.

Speaker #5: Great. Yeah. Thanks for taking the question and just one for me. And I think your last comment there is a good segue into this.

Speaker #9: So, Corinne, yeah, international is, quite frankly, having a really nice

Speaker #5: And can you maybe just talk about the cross-sell opportunities here over in Europe right now? And what kind of products are positioned to go to market and sort of leverage that Zimmermann relationship today?

Speaker #4: kind of run here. We saw in Q2 international was up 25% quarter over quarter, whereas the US business was up 17%. Both impressive numbers, but we're excited to see acceleration of international.

Speaker #5: Thank you.

Speaker #4: And then, when we add in Zimmermann, we'll see even more international presence. So we're really excited about that. This is part of an intentional diversification play.

Speaker #4: Yeah. So on the just generally speaking, both for the next power legacy and Zimmermann, teams in Europe we have significant teams there. We see a lot of opportunity to extend beyond the tracker.

Speaker #4: For the full year, it looks to be about 80/20, but the back half, it'll be more, you know, high 70s, for US and, you know, kind of low 20s for international.

Speaker #4: And we're doing that with foundations first who kind of go from the tracker outward to the inverter and then storage. And that's been the sequence.

Speaker #4: So we're really pleased with the team for executing and accelerating international efforts.

Speaker #8: The only thing—I might add this is Howard—is with storage, it's mainly focused right now in the U.S., and so that could skew the percentages somewhat.

Speaker #4: So we're also looking at bringing EBOSS and then one of the things that we're quite interested and excited about, we're getting a lot of demand pull for our in specific countries that have excess solar generation during the day.

Speaker #5: Your next question comes from the line of Chris Dendrinos from RBC. Your line is open. Please go ahead.

Speaker #4: They're looking at increasing storage. And so places like Germany and Spain, as examples, are quite interesting for storage. And that's part of our go-to-market plan.

Speaker #12: Great, yeah, thanks for taking the question. And just one for me, and I think your last comment there is a good segue into this.

Speaker #12: And can you maybe just talk about the cross-sell opportunities here over in Europe right now, and, you know, what kind of products are positioned to go to market and sort of leverage that Zimmerman relationship today?

Speaker #4: That's not something that will hit revenue. In our fiscal year '27, but we would expect to see that fiscal year '28. And we'll have more color at our capital markets day in Vegas in just a few weeks.

Speaker #12: Thank you.

Speaker #8: Yeah, so just generally speaking, both for the Nextpower legacy and Zimmerman teams in Europe—and we have significant teams there—we see a lot of opportunity to extend beyond the tracker.

Speaker #1: Your next question comes from the line of Sean McLaughlin from HSBC, your line is open. Please go ahead.

Speaker #6: Thank you. Good afternoon. I just wanted to come back to the cost inflation part. Just understanding, first of all, what level of cost sharing you think you have with your customers?

Speaker #8: And we're doing that with foundations first, to kind of go from the tracker outward—to the inverter, and then storage. That's been the sequence.

Speaker #6: Secondly, thinking about the commodity side, what is your level of indexation? What has changed effectively in terms of your ability to protect yourselves against things like steel price volatility if we think back to 2022?

Speaker #8: So, we're also looking at bringing eBOS and then One of the things that we're quite interested and excited about, we're getting a lot of demand pull for, are in specific countries that have excess solar generation during the day, they're looking at increasing storage.

Speaker #6: And lastly, has anything changed in your discussions with customers when factoring in higher costs?

Speaker #4: Certainly. So first on the freight and logistics, as Dan mentioned, we have an advantage with our model, which protects us and our customers given the 100-plus factories we have around the world with our partners.

Speaker #8: And so, places like Germany and Spain, as examples, are quite interesting for storage, and that's part of our go-to-market plan. That's not something that will hit revenue.

Speaker #4: Those are costs that basically we build into projects and quotes. And those quotes could be a year old or six months old. And they typically have not fluctuated that much.

Speaker #8: in our fiscal year '27, but we would expect to see that fiscal year '28, and we'll have more color at our Capital Markets Day in Vegas in just a few weeks.

Speaker #4: We could do some sort of hybrid derivative contracts, but I think that's it would be too difficult and too risky and so those are just costs that, in general, for long-term contracts, that we will absorb.

Speaker #5: Your next question comes from the line of Sean McLaughlin from HSBC. Your line is open. Please go ahead.

Speaker #9: Thank you. Good afternoon. I just wanted to come back to the cost inflation part. Just understanding, first of all, what level of cost sharing you think

Speaker #4: And for ones that are in flight, we would share with our customers. In terms of steel, we do have cost sharing arrangements that are structured.

Speaker #4: And we've talked about this before in our BCA contracts, but it depends on the timing. And there are other components that are not part of the BCA contract.

Speaker #11: you have with your customers. Secondly, thinking about the commodity side, what is your level of indexation? What has changed effectively in terms of your ability to protect yourselves against things like steel price volatility, if we think back to 2022?

Speaker #1: There are no further questions at this time. I will now turn the call back to Dan for closing remarks.

Speaker #11: And lastly, has anything changed in your discussions with customers when factoring in higher costs?

Speaker #2: Thank you all for thoughtful questions and your continued interest in XPower. We're focused on executing gets the opportunities in front of us. And basically, strengthening demand at our core tracker business, bringing our expanded inverter and power conversion product to market, and helping customers meet growing needs about solar storage and power conversion.

Speaker #4: Certainly. So first, on the freight and logistics—as Dan mentioned—we have an advantage with our model, which protects us and our customers, given the 100+ factories we have around the world with our partners.

Speaker #4: Those are costs that we basically build into projects and quotes, and those quotes could be a year old or six months old. They typically have not fluctuated that much.

Speaker #2: We'll continue to invest thoughtfully. Scale with discipline. And keep our focus for delivering for customers and creating long-term value for shareholders. And we hope to see you all at our upcoming capital markets day.

Speaker #4: We could do some sort of hybrid derivative contracts, but I think that's, you know, would be too difficult and too risky. And so those are just costs that, in general, for long-term contracts, we will absorb.

Speaker #2: Thanks for dialing in.

Speaker #4: And for ones that are in flight, we would share with our customers. In terms of steel, we do have cost-sharing arrangements that are structured.

Speaker #4: And we've talked about this before in our BCA contracts, but it depends on the timing, and there are, you know, other components that are not part of the BCA contract.

Speaker #5: There are no further questions at this time. I will now turn the call back to Dan for closing remarks.

Speaker #9: Thank you all for your thoughtful questions and your continued interest in NextPower. We're focused on executing against the opportunities in front of us, and on strengthening demand in our core tracker business, and bringing our expanded inverter and power conversion product to market.

Speaker #9: And helping customers meet growing needs about solar storage and power conversion. We'll continue to invest thoughtfully, scale with discipline, and keep our focus for delivering for customers and creating long-term value for shareholders.

Speaker #9: And we hope to see you all at our upcoming Capital Markets Day. Thanks for dialing in.

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