Fluence Energy sees strong demand with $5.3 billion backlog, but $300 million revenue shortfall affects 2025 financials

Good day and thank you for standing by. Welcome TO Fluence Energy Fourth Quarter 2025 Earnings Conference Call at this time, all participants are in a listen only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session you will need to press star 11 on your telephone. You will then hear an automated message advising your hand is raised. Please note that today's conference is being recorded. I will now hand the conference over to your speaker host Chris Shelton, VP of Investor Relations and Sustainability. Please go ahead.

Good morning and welcome to Fluence Energy's fourth quarter and full year 2025 earnings conference call. Before we begin, I want to share my excitement. As our new Investor Relations Officer, I look forward to engaging with our analysts and investor community. I would also like to recognize Lexington May, who has recently taken on a new role at Fluence. Lex has been instrumental in leading our Investor Relations program since our initial public offering and his contributions have greatly benefited our company and its shareholders. Joining me on this morning's call are Julian Nobretta, our President and Chief Executive Officer, and Ahmed Pasha, our Chief Financial Officer. A copy of our earnings presentation, press release and supplementary metric sheet covering financial results, along with supporting statements and schedules including reconciliations and disclosures regarding our non GAAP financial measures are posted on the Investor Relations section of our website@fluence energy.com during the course of this call, Fluence Management may make certain forward looking statements regarding various matters related to our business and company that are not historical facts. Such statements are based upon current expectations and certain assumptions that are therefore subject to certain risks and uncertainties. Many factors could cause actual results to differ materially. Please refer to our SEC filings for forward-looking statements and more information regarding certain risks and uncertainties that could impact our future results. You are cautioned not to place undue reliance on these forward looking statements which speaks only as of today. Also, please note that the company undertakes no duty to update or revise forward looking statements for new information. This call will also reference non GAAP financial measures that we view as important in assessing the performance of our business. A reconciliation of these non GAAP measures to the most comparable GAAP measures is available in our earnings materials on the Company's investor Relations website. Following our prepared comments, we will conduct a question and answer session with our team during this time. To give more participants an opportunity to speak on this call. Please limit yourself to one initial question and one follow up. Thank you very much. I'll now turn the call over to Julian.

Thank you Chris I would like to extend a warm welcome to our investors, analysts and employees who are participating in today's call. This morning I will review the highlights of our fiscal 25 results, the accelerating demand for energy storage and how Fluence is positioned to lead in this growing market. I will also provide an update on our product roadmap, our domestic content strategy and progress towards all BBBA compliance. Ahmed will then cover our financial results and 26 outlook. Turning to Slide 4 and our financial performance first, I am pleased to report that during the fourth quarter we signed more than 1.4 billion of orders, which represents a record level. This brings our current backlog to 5.3 billion, setting us up for renewed growth in 2026 and beyond. Second full year revenue came in at approximately 2.3 billion, about 300 million below our expectations, mostly due to to delays by our contract manufacturer in ramping up our newly commissioned Arizona Enclosure manufacturing facility. We have implemented corrective actions, production is improving and we are confident in meeting delivery commitments and capturing the shortfall during fiscal 26. I will discuss these details further in a moment. Third, despite this revenue impact, we delivered a record of approximately 13.7% adjusted gross margin for the year and approximately $19.5 million of adjusted EBITDA, which was at the top end of our guidance range. These results were the product of good execution on projects and cost efficiencies. Fourth, in terms of annual recurring revenue or ARR, we then did fiscal 26 with 148 million slightly above our original guidance of 145 million. And fifth, and finally, we ended the quarter with approximately 1.3 billion in liquidity, which puts us in a strong financial position to fund our plans for growth. Please turn to Slide 5 for details on our order intake and pipeline. Our record 1.4 billion of order intake during the fourth quarter included contributions across all our core markets. Approximately half were for projects located in Australia. For fiscal 26, we currently expect the US market will be the largest contributor of order intake as reflected by our pipeline as of year end. Looking ahead, demand for energy storage solutions is accelerating worldwide, driven by both the rapid declining capital cost of storage and surging demand for electricity for intermittent renewals, data centers and industrial complexes. We have seen a significant increase in larger deals in our pipeline that as of September 30th includes 38 deals of at least 1 gigawatt hour, more than double the number from last year and nearly five times what we saw two years ago. Please turn to slide 6. Earlier this month we announced a landmark 4 GWh project with LEED representing the largest battery project in European history. These projects will use our new Smart Stack product and play a key role in Germany's energy transformation. We are very pleased to welcome LIG as a customer and look forward to supporting additional energy transformation projects across European markets. Please turn to Slide 7 for other emerging drivers supporting our pipeline growth we have seen significant pickup in demand from data center customers. We are currently in discussions with data center projects representing over 30 GWh. 80% of these engagements have originated since the end of the quarter. Fluency is ready to lead in this emerging market segment with SmartStack's industry-leading density, reliability and safety. In addition to its lower cost of ownership, another set of emerging opportunities is long duration storage which is driven by the need for six to eight hour duration batteries in markets with significant renewable penetration such as Europe and California. Specifically, in Europe, regulatory schemes are in place to procure this capacity. Today we have line of sight into 60 gigawatt hours of long duration storage tenders. SmartStack is well suited to compete in this segment due to its flexible architecture and a scalable dependency design. Please turn to Slide 8 for an update on our team. To capture the opportunities I have just described, we have sharpened our focus on sales and flawless project execution. To that end, we are excited to welcome Jeff Munday as our new Chief Growth Officer. Jeff leads our global sales and marketing teams. He brings deep experience from Qualcomm where he built their global enterprise and channel sales teams. Prior to that, Jeff spent 18 years leading sales teams at Apple. His expertise will help us expand the reach of of Fluence brand to new customers and industries such as the tech sector. In addition, we have also expanded John Sahuransky's role as Chief Customer Success Officer. As one of our company's founders and an industry pioneer, John will leverage our record of successful execution to further differentiate Fluence from our competition. He will also maximize the value of our solutions for our customers with our digital and services offerings. We believe that these internal changes will streamline our customer experience and position us to win a larger portion of our pipeline. Please turn to Slide 9 As I discussed our new SmartStack product, we are pleased with the market reception of SmartStack in addition to its role in winning our LEAC deal. This month we are deploying the first SmartStack unit in a project site in Taiwan. We designed SmartStack with the objective of reducing total cost of ownership for our customers. This means, in addition to a lower sales price, SmartStack offers lower cost to install and maintain the system or its useful life with top of the line operational metrics. SmartStack is the only product available today that offers battery density of 7.5 megawatt hour per unit, letting customers fit over 500 megawatt hours of storage per acre. That means bigger projects, optimized sites, and better economics, all else equal. Additionally, SmartStack maintains all elements of fire safety and cybersecurity that have been historically a salient element of our offering. Finally, SmartStack is developed with a flexible system architecture that can adapt to customers specifications. We expect this will be a key selling point for data centers as technology to reduce system latency evolves and SmartStack kits can be upgraded with new equipment quickly on site. We are engaged with many customers interested in SmartStack and expect it will represent a majority of our orders for this fiscal year. Please turn to Slide 10 for an update on our domestic content strategy. Our domestic supply chain is a critical advantage for our business, particularly given that we see the majority of our growth coming from the US Market. We have contracted with three key production facilities located in Tennessee, Utah and Arizona. The Tennessee and Utah facilities produce our battery cells and modules respectively, and they have successfully met production metrics in line with our expectations at the time of our last earnings call. The Arizona facility which manufactures enclosures has not met its production targets during this period. Without those enclosures, we were unable to deliver our completed products and recognize the corresponding revenue during the fourth quarter. The primary cause of the manufacturing delay has been the slower ramp in staffing the facility, especially for weekend shift. We have been working with our contract manufacturer to execute a plan to improve staffing levels and further optimize the workflow. As of today, the production rate has improved and staffing levels have in great measure been met which give us confidence that the manufacturer will meet our desired target rate by the end of this calendar year. We expect to fulfill all of our customer delivery commitments over the course of 26 and book the associated 20 fixed mix revenue. We will continue to work with our US Manufacturers to scale production and maintain our leadership position. We are committed to serving our US Customers with a competitive domestically manufactured solution. Please turn to Slide 11 for an update on our Prohibited Foreign Entity or PFE compliance strategy. A Quick Refresh the One Big Beautiful Bill or OBBBBA included regulations designed to restrict tax credit availability for products manufactured in the US both supported by companies deemed to be PFEs. To that end, our strategy aims to meet our growing volume demand for domestic content from a diverse set of qualified suppliers. I am pleased to report significant progress. More specifically, this month we have secured a second supplier for domestic battery sales. This manufacturer is compliant with all OBBBBA regulations and further de risk our future growth. Turning to our Tennessee facility, we continue to work actively with ASE to find a comprehensive solution to comply with PFE regulations. The three key pieces to achieve non PFE status include transfer of ownership, IP and material assistance. Significant progress has been made in addressing all these three items. The option of fluent purchasing the facility from ASC remains under consideration as a possible solution. We continue to view the incremental financing need of a potential transaction as being manageable within our available liquidity. Both parties are motivated and we continue to expect a constructive resolution in advance of the effective dates specified by the law. I will now turn the call over to Ahmed to discuss our financial results and fiscal 26 guidance.

Guidance thank you Julian and good morning everyone. Today I will Review Full Year 2025 Financial Results in our liquidity position followed by a discussion of our fiscal year 2026 guidance starting with slide 13 covering fiscal year 2025 performance. Over the course of the year we generated revenue of around $2.3 billion. As Julian mentioned, this figure falls short of our expectations by $300 million largely due to a slower than anticipated ramp up at one of our contract manufacturing facilities in Arizona. While this shortfall was a challenge, I want to highlight that our disciplined execution and operational focus enabled us to deliver on our profitability and bottom line objectives regarding production. Most of our US based contract manufacturing facilities have been operating at their targeted capacities, including both cell and module manufacturing. However, the newly commissioned enclosure facility in Arizona faced some challenges primarily due to the longer lead time to attract and train the workforce necessary to drive productivity. This was the primary factor that behind the lower than expected revenue in the quarter. Working in collaboration with our contractor, we have seen significant production improvements since September. The majority of personnel required to execute our plan have now been hired and we are on track to achieve our target production levels. Our adjusted EBITDA for the year was $19.5 million which came at the top end of our guidance range even as revenue fell short of expectations. This outcome underscores our operational excellence and strong execution. Turning to slide 14, we achieved a record level of 13.7% adjusted gross margin for the year above the top end of our expectations. In addition, our rolling 12 month adjusted gross margin is consistently at or above 13%. This reflects our strong focus on productivity and successfully leveraging our supply chain. Turning to slide 15, we also finished the year with a record of approximately 1.3 billion in liquidity, up $300 million compared to the end of fiscal 2024. This includes more than $700 million in cash with the rest available through our credit facilities. This strong position gives us confidence to make investments that will grow our business and strengthens Fluence's reputation as a reliable partner. Looking ahead to fiscal 2026, we intend to invest about $200 million in our business. This includes approximately $100 million in our domestic supply chain and the rest in working capital to support 50% return revenue growth. Turning to Slide 16 today we are introducing our guidance for fiscal year 2026. We expect revenue in the range of 3.2 billion to $3.6 billion. We begin this year with 85% of our guidance midpoint already in our backlog. This strong coverage materially de-risks our FY26 revenue compared to the historical level of around 60%. We anticipate realizing one third of this revenue in the first half of the year and the rest in the second half. We expect our adjusted gross margin to be between 11% and 13%. This range reflects a period of higher costs associated with the rollout of our Gridstock Pro product which will make up 70% of our 2026 revenue. We anticipate margin will improve over time as we continue to leverage our disciplined execution and our growing scale. We expect operating expenses to grow at less than half of the pace of revenue consistent with our guidance in prior years. This includes increased spending on sales, marketing and R and D to support future revenue growth. For adjusted EBITDA, our guidance of 40 to 60 million dollars reflects expected revenue, adjusted gross margin and higher operating cost from planned investments in sales and product initiatives. With respect to ARR, we are initiating guidance of approximately $180 million by the end of fiscal 26, representing over 20% year over year increase. In summary, with our strong liquidity, focused execution and robust order book, we are well positioned to deliver on our plan. With that, I would like to turn the call back to Julian for his closing remarks.

Thanks Ahmed. Before we take your questions, I would like to conclude with the following five takeaways Market Leadership Demand for energy storage is accelerating globally. Fluence is capitalizing on this environment with notable wins such as the 4 gigawatt hour LEEC project in Europe and a rapidly growing pipeline of data center customers and other large scale deals. Product leadership SmartStack is a key differentiator versus the competition. With increased density and a very competitive total cost of ownership, we expect SmartStack to drive a majority of future orders. Operational execution. We have made significant progress to strengthen our domestic supply chain advantage. We have addressed production issues at the Arizona facility and all our domestic manufacturers are now on track to meet our expectations. Compliance and readiness. We have strengthened our ability to deliver PFE compliant products to customers with the addition of a second domestic battery cell supplier. We continue to make progress towards OBBA compliance with our Tennessee manufacturer and expect resolution ahead of regulatory deadlines. Looking forward, these achievements position us to maximize stakeholder value by consistently meeting our commitments to customers and shareholders, reinforcing our reputation as a trusted industry leader.

Ladies and gentlemen, we will now begin the question and answer session. To ask the question, you will need to press Star 11 on your telephone and wait for your name to be announced. To withdraw your question, simply press star 11 again. As a reminder, in order to accommodate all participants in the queue, Please limit yourself to one question and one follow up. Please stand by while we compile the Q and A. Our first question coming from the lineup. George Jenerikis with Ganacourt. Your line is now open.

Hi, good morning, everyone and thank you for taking my questions.

Hey, George. Good morning.

I'm just curious if you can share any thoughts on what you're seeing in the competitive environment, any changes there in the US and internationally.

Thank you. Internationally, no real change. You know, the It's a very competitive market and the Chinese players continue to drive the competition. In a way, the US the competitive market is changing. We see more and more customers that prefer to use US or non PFE manufacturers, even if they are not required to do it under the. Because the projects are safeguarded under the law or, you know, that provision. So I would say that. But it's an evolving matter that we see coming. So that's kind of today where I see the market. Thank you.

And maybe as a follow up, Ahmed, I think I heard when you were talking about gross margin or margin guidance for 26 that you expect margins to improve over time. Were you referring to gross margins moving beyond the 11 to 13% range? You got it. For next year, say in 27 or 28. Thank you. Yes. Yes. Hey, George. Yes. I think our goal is to continue to improve the chart that we have disclosed. You know, I think our goal is to continue to show that chart going forward. You know, to show the trajectory and the difference we are making. Our guidance, as you recall, you know, was 10 to 15% in the past. You know, I mean, I think we haven't changed that going forward. So our goal is to continue to improve that Trend line.

Thank you. Thanks, George.

Thank you. Our next question coming from the line of Brian Lee with Goldman Sachs. Your line is now open.

Hey, guys, good morning.

Thanks for taking the questions. Kudos on the quarter here. I appreciate all the color. Julian, on the data center sizing. It sounds like that opportunity is coming, coming to fruition here pretty quickly given the timeline you expressed. But can you maybe help us a little bit understand first the sizing of the market? I guess if we take the 30 GWh of data center projects in the pipeline in Leeds, that's maybe if we estimate maybe 6 billion of the total $23 billion pipeline in that neighborhood. Is that kind of the way to think about it? What do you think the overall TAM is and what Fluence's market share could. Could ultimately end up looking like? Good question. Let's start with the time last quarter. We talked about a time of around 8 billion. So I think that is clearly the reality is proving that the number is significantly higher. The market has still very, very different numbers. I said we have seen numbers of the 10 times the 8 billion do not more than 10 times 8 billion. It's still unclear. We have to, I think, wait a little bit more. But clearly it's a market that is expanding. All the 30 gigas that we talked about, as of September 30, only 20% of it, one small portion were in our pipeline. The rest were contacts that we started with customers since then. And then today, if you ask me today, this morning, roughly half of the 30 gigas are in pipeline. The other half, we're working on it. And what we're looking is, will they happen in the next two years? Where do we see our product is suitable to do what they want? Generally, I think we're fine. So what's a big change from telling you a quarter ago, this is an $8 billion market requiring this very, very complex capabilities to today? I think there's a big change in terms of what we can do for what our technology and fluency in particular can do for data centers. And I would say the way to think about it is that there are three needs. One is what we call interconnection flexibility. The ability to manage the energy demand in a way that you can interconnect easier to the grid and you can manage and the distribution companies or the service provider can manage your demand to keep the. So that is by itself, I will say today the biggest driver. People who want to connect quickly to the grid and want to ensure that the data center meets the availability of the grid and can give the assurances to the grid operator that they will not disrupt the grid. And we can do that today with azwar work. We have no need to improvements in our technology stack to be able to do it. So great. The second one that is also in a rising need or rising need is backup power. Historically we haven't played that game, but with our costs coming down as they are and our ability to, to our density improvements, we can now provide backup power and significantly reduce, I won't say eliminate, but significantly reduce the need for diesel generators. So that's the second need that we're seeing. We can accelerate interconnection to the grid and we can reduce some of the cost of the diesel generators by providing backup power. The third one is the one we have talked about in our last call. This power quality, this idea that we can, we will have to manage the variability of energy demand by AI data centers. If you ask me today, that hasn't been. The first thing is that there are other technologies that can address that. That's the first one. The second one is that it is a need that is not as big as we thought it was going to be. So it's probably around that $8 billion number. And it is something that data centers, when they looked at what they're doing, their speed to power is a much more important element than this one because the other one they can manage in some other way. We are committed to delivering the three products, the interconnection flexibility to accelerate interconnection, the backup power capabilities and these two that we can do today and we're very well positioned to do. Smart Stack is the densest project in the world. It is a project that because of the way we're designed, provides very good safety. Better than I would say very, very good. And then third, our cybersecurity, our total control on software, our ability to ensure that no one else can get in. You know, so the, the power quality is something we're working on with our inverter manufacturers. We'll get it resolved quickly. But, but it is still, you know, it's still a working product, but we thought that was going to be a gating item. The backup power is going to be a gating item for us to serve this market. That's no longer the case. You know, it is a, I would say it's a cherry on the top if you can deliver the last two. And this one is great, but you know, is not a gating ivy. So great market multiples of what we told you in terms of what we do and we don't need to do a major technology. And my last point, we don't have a clear view today. This is just sorting or how much we can capture. But I will say we are very well positioned to do it. Safety, density. Some of our competitors are claiming density, which is 25% less than what we can do. So that tells you we can do very, very well. And we are, you know, we hired Jeff. Jeff comes with knowing how to serve this market. He's being, you know, one of the instructions, go and get this done. And this is not only happening in the US this is a global phenomenon. We have in our pipeline. It's mostly us today, but we're starting to see pipeline coming both in out of Australia and Europe. So sorry for the long answer about that. We're excited about this opportunity. Yeah, no, I can definitely sense that. I appreciate all the color. Maybe just one more question on that topic. From a P and L timing and impact perspective, can you give us a sense of the conversion timeline for this data center pipeline and is any of it embedded in your revenue guide for fiscal 26? And maybe just lastly, margins relative to core margins, Are these going to be higher margin just given the customer subset you're dealing with? Curious on the impact on margins as well. Thank you, guys. I'll say that of the 30 gigas have our 26 order intake, half of our 27, give or take, you know, and most likely projects that will be, you know, will convert to order intake later in the year, no revenue for 26. We have to see how much revenue for 27 is unclear in terms of margin. You know, hey, this is a new segment. I don't want to talk about it publicly, but what I will say is that we can provide a lot of value to our customers. A lot of value. We can deliver our product quickly, give them the confidence on our security, the best density. And we are, you know, and so we are. We are very confident that we can create a lot of value to our customers. That's what we're concentrating.

Thank you. Our next question coming from the lineup. Dylan Nassano with WOOF Research. Your line is now open.

Hey, good morning, everyone. Thanks for taking my question. Hey, Dylan. Just wanted to go back to the Q4 kind of under performance versus the guide. I know that in the previous quarter, manufacturing delays kind of came up, but it sounded like maybe those were resolved and you were operating on schedule again. So I just want to check what kind of change between the last Call and now and like, are these incremental kind of problems that popped up and anything you can give us just to kind of boost confidence going into the quarter that, you know, these are kind of resolved at this point. So we have, you know, thanks, Zealand. And, you know, clearly we're disappointed with what happened. No, I mean, first thing, but I don't want to say sound apologetic in what I'm telling you, but. So what do we have? We have our suppliers in the US many, but let's say the three main suppliers. Out of the three main suppliers, two are doing great. I will say even more. The two that have the more complex process, you know, are doing very well. So we're very happy, ahead of schedule, doing wonderful. We know no problem. We have a less complex process, which is enclosure manufacturing. When we met last quarter, we had a plan that was going to be able. Was going to allow the delivery of our revenue for the year, but that it required a major staffing process that I think we underestimated the ability to staff that facility. I think that today that we have done two things. We have clearly gone out and continue staffing and preparing people. And we're essentially done in terms of staffing. There's still some people, but it is essentially done. And we have made some changes in the way we are, you know, with our contract manufacturer to ensure that we meet our. That we need that to facilitate the manufacturing process. That's the right word. And I think the two combinations having sapped the place, and we're talking about significant number of people. This is roughly 5, 600 people that we needed for that facility to work with three chiefs and all of that. We're essentially fully staffed. And with the changes in operations, we are meeting our numbers. I think we are. We expect to do. We were doing at the end of last quarter, one and a half closure per day. We're already at five. And we are ramping up and I don't know if we will be able to meet our numbers very well. We are very confident today. Unfortunately, we did not meet what we do. We could not deliver on the revenue. We are disappointed. But we learned very quickly our operational manufacturing team is very, very good and they have put in place their correct measures to do this.

Yeah, Dylan, the only thing I would add is I think that from our perspective, as Julian said, you know, yes, because of the labor shortage, we were roughly 1 1/2 containers per day. Fast forward. We added 500 people. We are now running at five containers per day, which is in line with our Expectations for the quarter. So we feel pretty good where we are. But equally importantly, I think we pulled our levers to deliver on our profitability commitments. As you saw the margin and ebitda, we are in line with our top end of our range.

Got it. Thank you, I appreciate that. And then my follow up, I just wanted to check on this new cell supplier. Can you just give us any more color around how much incremental capacity this may get you? Are you prepaying for any cells like similar to what you did with aesc and yeah, so mostly just curious like does this get you net additional capacity to serve US market? Yeah, I can take that question, Dylan. Yes, I think this gives us enough capacity to serve our projected nodes for the next couple of years. So we feel pretty good what we have signed. And in terms of the deposits, no, no material deposit commitments. I think it's just as we get the deliveries, we make those payments.

Thank you. Our next question coming from the line of Amitakar with BMO Capital Markets. Your line is now open.

Hi, good morning. Thanks for taking my questions. I just wanted to kind of go back to the implied EBITDA margin for this year versus last year. I mean, it looks like the EBITDA margin is down and I know the gross margin is also kind of down sequentially, but it looked like the implied asps in your bookings are actually up pretty significantly, kind of quarter over quarter. I was just wondering if you could kind of walk us through why. I guess the gross margin is lower year over year versus kind of rolling 12 months.

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

The bottom line and Then I know you kind of talked about a couple of kind of uses of, of liquidity for next year, but just in terms of kind of like the kind of the free cash flow expectations relative to that $50 million kind of EBITDA guidance at the midpoint. Any kind of I guess guidepost there, please.

So yes, I think the 50 million EBITDA I talked about the working capital roughly $100 million as our revenue is growing from 2.3 to 3.4. So a billion dollars or so of additional as you if you recall, we said in the past, working capital needs, are roughly 10% of our growth in revenue. So about $100 million of working capital needs, and then $100 million of investments in the domestic content. As I mentioned in my remarks, beyond that we don't have any material commitments. So I think next year our goal is to be free cash flow positive as our revenue grows and our EBITDA grows. So I think that is the goal. But this year 50 million is the EBITDA. But then we have working capital needs, of $100 million. But I think more importantly or equally importantly is liquidity will remain very robust with this working capital use. So our goal is to continue to strengthen our balance sheet with growing cash and our credit facilities. So feel pretty good where we're going to land at the end of the year.

Thank you very much.

Thank you. Our next question coming from the lineup, Jillian Dumoulin Smith with Jefferies. Your line is now open.

Hey, good morning team. Thank you guys very much. Nicely done this quarter. Just following up Ahmed, a little bit about some of the margin commentary and just filtering that back in with aesc. Can you comment a little bit how.

You think about margins being tethered to whatever happens with respect to your domestic supply, whether that's with AEC or incremental supply. Is that part of the commentary about margin improvement? And then related, can you just give.

A little bit more of a detailed update around AESC specifically? I know that you sort of quote.

Unquote procured a backup here, if you will, but how is that relationshIP evolving here? How would you from frame out volumes from one side or the other side of that supply range at this point in terms of margins, in terms of AESC, I mean any deal we might do with ASC will be accretive. So that's the way you need to think about it. When and if it happens, we'll communicate what it means in terms of margins. And I think that Amit's point was more general when you looked at our performance, at least since I got here, we got the company with negative margins of 4%. We're now, you know, on a running average of top month average, we're now 13.7. So, you know, my point is we all here want to continue showing a growing line. That's kind of what we're doing and we're finding ways to do it today and continue to work on it. That was more of that coming in that direction. In terms of AESC, what I would say is that we are, you know, meeting the OB3 OBVA. Compliance is a complex process. We have been able to make a lot of progress and generally you can look at it from three areas. You need to meet the IP. And I think we have a solution that's done and we can. The IP for that production facility meets the criteria of Obbba 3. Obba will meet the criteria. Then we have the material assistance, the need that the suppliers of the facility cannot come from PfP suppliers. We have a plan that will deliver that and then we have the ownershIP and the ownershIP is the one where we are fill the baby. We are making good progress. We're committed to resolve it, but we haven't, you know, we have not. We. Have not reached a final deal. What we have always said we're not the only option in town. So, you know, there are other ways that they can resolve this issue. You know, I don't want to, you know, we clearly believe that we are the best option from my point of view. But, you know, they can do something different. So that. And then, you know, on the new supplier, I mean, what it is, is, you know, we're generally diversified suppliers as a rule of life. So we're diversifying suppliers and the demand we see is very, you know, very big. So we need to continue to meet the growing demand. So, you know, our philosophy of diversified suppliers and, you know, and the growing demand call for the second supplier. So that's where we are. We are. We see this as one of our competitive advantages. We are a first mover in this area and we want to continue being the first mover. So that's the reason for our strategy. So just to clarify that real quickly, basically your current plan and current margin.

Expectations assume that you're served with AESC. And would it be improved or detrimental. To shift the supply? If I heard you right, or understand. Yeah.

And I will say the following. As I said, a potential deal with AESC will be accretive to the current numbers that, you know, got it.. I can provide, you know, all right. You're already haircutting it. Okay, understood. No, I'm not having done the deal yet. Okay. All right, got it.. Thank you. No, no, that's why I asked. Thank you guys. I appreciate it. Thank you.

Thank you. Our next question coming from the line of David Arcar with Morgan Stanley Yellen is now open.

Hey, thanks so much.

Good morning. Good morning.

In terms of the data center pipeline.

I was curious just to get what you're currently seeing. Is this bringing larger project sizes versus your current backlog, Is it more US heavy in terms of region where you're seeing that demand and would be curious what kind of duration you might be exploring for those types of projects? Yeah, I'll say that generally. We talked during the call. One of the big drivers of the elasticity of demand, where you can see the elasticity of demand for our technology as price has come down has been how projects are getting bigger. And we have today 38 projects that are 1 gigaherta, 1 gigawatt hour or more. I don't think that the data centers are bigger, naturally bigger. They're in line with what we have. When you look at it, some are smaller, some are bigger, but generally in line in terms of where geographically today, you know, I'll say the majority come from the US and we have seen some the pipeline development in APAC and you know, Europe is a little bit behind, but you know, so that we'll see what. We will see this as a global market. So that's kind of our view in terms of duration. Depends on the use case we see from tool to, you know, long duration storage, both the whole, nothing below two, but that's what we are. Okay, got it. That's helpful.

And then I was just curious about. Strong order intake in the quarter in this past quarter. I was wondering if you could talk to what the. Whether there's a common driver there that you're seeing. It doesn't seem to be data center.

Growth just yet, if I'm interpreting that correctly. So what, what are you seeing in terms of what drove the strong order? You know, it was Australia, the big driver of the strong quarter in 2020, the strong order intake. We have these deals in Australia, as you know, that we were delayed in 2025. You know, we signed them all and they all, most of them occur late in the year. So that's a big driver of it. But you know, we see for 26, the US being the big driver and a little bit of a change and we'll see some, I expect to see some data center stuff happening in 2016, late in the year most likely. Okay, great. That all makes sense. Thank you so much.

Thank you. Our next question coming from the lineup marks Charles with JP Morgan. Elan is no.

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

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

Okay, and then on the long duration side, is Smart Stack the only go to market solution that you have there? You potentially looking to partner up, maybe being a systems integrator for some of the more emerging technologies that are out there. Thank you. Smart Stack will be what we're going to do and we believe that very competitive. So you will be smart.

Thank you.

Thank you. Our next question coming from the line of Kristin Cho with Barclays ELN is now open. Good morning. Thank you for taking the questions. With respect to the data centers, you mentioned the three different ways that you can serve data centers, the interconnection, backup and power quality. Would you be able to sort of break down the opportunity set here and maybe rank it like is half of the opportunity for power quality and backup is the smallest. And for duration you mentioned two hours is the low end. I'm assuming that's for, for power quality. Is it similar for those who are interested in getting storage for interconnection purposes?

Yeah, first point, that's what I would like to highlight. So we have these three needs. What's wonderful about our technology and now talking about battery storage, not necessarily ourselves, is that we can stack up these three needs with the same technology solution, while the other technology solutions can do one or the other. But they cannot do what we do, which is facilitate interconnection, do backup power and do quality. And that makes a difference. And I think that's what makes our solution so attractive to our data centers. Hey, we can resolve three problems with one technology. So that's very, very good. In terms of the, the two hours, these are depends on the need of the customer, so I cannot really put out can tell you this is what drives it. But generally you are right on the view that backup power and interconnection flexibility will tend to be longer duration while power quality will tend to be shorter duration. Generally that's true. But I think you need to think about this difference is the ability to serve the three needs with the same infrastructure. That's what we're aiming for because that's where I think that will make our technology the preferred technology solution to resolve to address these problems.

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

We always been diversified internationally. We're just being diversified locally. My view on this is that it is we convert any battery into a great technology solution. That's what we do as a company. So who the battery supplier is not as relevant, you know, shouldn't be as relevant. My customers shouldn't care and my financial, you know, the investor shouldn't care what the real value we bring is the ability to make any battery great no matter what. So that was my answer to it. I don't know what the mix will be but as I said for my customers it will be irrelevant from a product delivery and capabilities what batteries are produced.

But for you, doesn't it matter in that if you are using AESC and you're vertically integrated, it's higher margin for.

You versus yeah, I care about my. Customers, that's what I do. We will figure out that part. But you know, the important thing is the ability to success or the route to success in meeting your customer needs. You know, that's what drives a company. But you're right, you know, we might be able to get a capture if we were to be vertically integrated. You know, there will be more margin on one or the other. But my real the way to win is meet the customer needs. That's the way to win. Not, you know, if you try to optimize something else, you lose the side your customer needs and that drives profitability, that drives margin, that drives everything.

Thank you. Our next question coming from the line of Justin and Claire with Roth Capital. Your line is now open.

Hi, good morning.

Thanks for the time here. So I just wanted to follow up on the second source of the cell supply here. So I think you mentioned it'll be available in the next 10 to 11 months. So just at the beginning of the year, do you expect to depend on the source of cells from AESC for domestic US projects until that second source is available? And then so I'm just trying to get at, you know, how important is it for you to resolve the challenges with the FIAC restrictions by early calendar 2026 in terms of, you know, thinking. Through the outlook for the year? Very, very important. That's what I will say. We have a plan and we've been working on it and it's very, very important to do it. So that's what I can tell you. I mean, we will get it done. Okay, got it.

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

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

Thank you, ladies and gentlemen. That's all the time we have for our Q and A session. I will now turn it back to Chris for any closing comments.

Thanks Livia. And thanks to everyone for participating on today's call. We look forward to speaking with you again by the first quarter results, if not before then. And please do looking forward to to meeting with everyone as your questions arise.

This concludes today's conference call. Thank you for your participation and you may now disconnect.