Fluence Energy, Inc. Class A Common Stock 2026 Q3 Earnings Call

Good morning, welcome to Fluence Energy's third quarter earnings conference call. Joining me on this morning's call are Julian Nebreda, 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 non-GAAP financial measures, are posted on the investor relations section of our website at fluenceenergy.com.

During the course of this call, Fluence management may make certain forward-looking statements regarding various matters relating to our business, including but not limited to, statements related to our future financial and operational performance, future market growth and related opportunities, anticipated growth and business strategy, liquidity and access to capital, expectations relating to pipeline, order intake, and contracted backlog, future results of operations, and impact of the One Big Beautiful Bill Act, projected costs, beliefs, assumptions, prospects, plans, and objectives of management, and the timing of any of the foregoing. Such statements are based upon current expectations and certain assumptions and therefore subject to certain risks, uncertainties, and other important factors, which could cause actual results to differ materially. Please refer to our SEC filings for more information regarding these risks, uncertainties, and important factors.

You are cautioned not to place undue reliance on these forward-looking statements, which speak only as of today. Also, please note that the company undertakes no duty to update or revise forward-looking statements for new information. This call will also reference non-GAAP measures that we view as important in assessing the performance of our business, including adjusted EBITDA, adjusted gross profit, and adjusted gross profit margin. A reconciliation of these non-GAAP measures to the most comparable GAAP measure is available in our earnings materials on the investor relations website. Following our prepared remarks, we will conduct a question and answer session with our team. Thank you very much. I'll now turn the call over to Julian.

Thank you, Chris, welcome to everyone joining us today. Turning to slide four. Today, I will provide an update on the progress we have made in driving new order intake and building our backlog, both of which were at record levels this quarter. All these costs are growing business, which includes robust demand from our core customers, combined with a rapid expansion of data center customers, from which we receive our first orders and contract awards totaling $850 million. We believe that the momentum of the past few months will continue in the quarters to come, driven by our differentiated product offering and our team's longstanding ability to meet customer needs. Following my remarks, Ahmed will review our financial results for the quarter and our outlook for the remainder of the year. Starting with key highlights for the third fiscal quarter.

First, we signed $1.44 billion of orders during the quarter, which is nearly triple the $509 million we signed in the same period last year. Second, included in our record order intake was our first deal with a data center developer worth $300 million. During July, we were awarded an additional $550 million of business across multiple data center sites by one of the hyperscalers that we discussed last quarter. Third, we ended the quarter with a record backlog of $6.4 billion, representing 14% growth over the second quarter and more than 30% growth since the third quarter of last year. Four, we ended the quarter with total liquidity of approximately $860 million, in line with our expectations.

Fifth, Ahmed will discuss our third quarter financial results shortly, but revenues were affected by delays in expected project deliveries driven by the ramp-up of two new contracted manufacturing facilities. Accordingly, we are lowering our guidance midpoints for 2026 revenue and adjusted EBITDA to $3 billion and negative $10 million respectively. We do not take this reduction lightly and have instituted changes in an effort to ensure we deliver on our growing market demand. I will detail our plan further in a moment. Please turn to slide five for more detail on our order intake. With $2.7 billion now signed to the third quarter of this year, our orders are 80% higher than the amounts from last year, with utilities and IPPs making up approximately 90% of this total.

We expect fourth quarter orders will be another record level for the company. We see reason for this strong momentum to continue in future quarters given our current demand and competitive position. Please turn to slide six as I detail our progress with data center customers. Our announcements on last quarter's call that we have signed two Master Service Agreements with hyperscalers raised our profile with other potential data center customers. Overall, our data center pipeline has increased to 16 gigawatt hours, representing a more than 35% increase compared to the second quarter. Our pipeline now includes a mix of projects from both hyperscalers and data center developers. During the quarter, we signed a $300 million order for a behind-the-meter project with a developer. We were introduced to these customers by one of the hyperscalers we have been working with.

The sales cycle for this customer was much faster than our traditional market segment, converting from lead to order in three months. We continue to see the developer segment centered on speed-to-power solutions. We are pleased to be positioned to meet their needs. Hyperscaler customers continue to focus on quality of power solutions, where we also stand out in terms of our ability to deliver. We were pleased to receive approximately $550 million of awards under one of our MSAs in July. These are not yet purchase orders. We expect these will add to our total of signed orders in the coming months. These data center customers have a pipeline of projects that we continue to believe we are well-positioned to beat out. We look forward to expanding our business with them in the near future.

Please turn to slide seven as I discuss five backlog and pipeline growth. Our backlog has benefited from record orders in two of the past four quarters and sets a strong base for revenue growth in fiscal 2027. As of June 30th, approximately $2.2 billion of our $6.4 billion backlog is expected to convert to revenues in fiscal 2027. This compares to the $1.5 billion of fiscal year 2026 revenue coverage we had as of June 30th, 2025. Turning to our pipeline, we exited the quarter at $33.1 billion, which is an increase of $1.6 billion compared to last quarter. This indicates $3 billion of new opportunities after considering our conversion of pipeline into orders during the quarter. We continue to see a growing percentage of our pipeline coming from the U.S. market compared to previous years, mostly attributed to the data center segment.

Please turn to slide eight for details on the expansion of our supply chains. We have been expanding our supply chain capacity to meet the strong demand for our products as reflected in the growth of our backlog. New, larger contracted manufacturing facilities globally are expected to increase our capacity and also deliver the quality our customers expect. A major driver of our revised revenue expectation for this year is attributable to ramping up production at two of these new factories. In the U.S., we will be the off-taker of a new, fully automated facility located in Houston with expected capacity of 15 gigawatt hours per year. Completion of this new facility has been delayed by a few months due to delays in construction and issues relating to the automation equipment. Limited production commenced this quarter, and our manufacturer is taking steps to address outstanding issues.

We expect the facility to reach full production levels during our fiscal first quarter of 2027. I will highlight this contract manufacturer has been our main enclosure supplier from Vietnam, which is a very similar facility to this new one in Houston. We believe their knowledge and experience will be helpful as this factory moves towards full production. Our new international facilities are now fully ramped, and our product is being shipped to customers on a delayed timeline because initial production did not meet our quality expectations. Corrections were implemented, and we have resumed shipping high-quality products to projects all around the world. Given the importance of timely, consistent, and high-quality production to our business, we recently made organizational changes to ensure more direct oversight of and accountability for our production capability.

Today, we announce that Roman Lucan will assume leadership of our supply chain, and Peter Williams will concentrate on product, with both leaders reporting directly to me. Roman currently serves as our Chief Enterprise Operations Officer and brings more than 20 years of global leadership experience at Siemens, where he held senior operational and business leadership roles with responsibility for supply chains, manufacturing, and business transformation. Roman will lead a set of managers with deep experience and skill sets in supply chains and manufacturing that have joined our company over the past few months. I am confident that this new management team will strengthen our supply chain and manufacturing to meet the growing demand for our products. When combined with our supply of domestic sales, we expect the Houston facility will expand our annual capacity for domestic content significantly compared to our current footprint.

Once it is fully run and added to our current supply chain, we expect to have capacity to meet our current backlog of projects and confidence to meet the growth of the U.S. market. Please turn to slide nine for details on how we are differentiating in the current market. We have been successful in growing our backlog and penetrating the new and important data center customer segment in a very short period of time. Fluence has new and repeat customers who appreciate our advanced product designs, leading energy density, and focus on total cost of ownership. In addition to these factors, our proprietary software stack, including an operating system, is designed to enable our customers to optimize their solution over its long-term life and allow for remote monitoring. These features can increase availability and extend the life of our solution for customers in all use cases.

Specifically, for data center customers, the ability of our operating system to efficiently help smooth loads and handle periods of low voltage have contributed to new awards and orders. Smartstack has been gaining favor in terms of orders these years, representing 75% of our orders year to date. One of the attractive features of Smartstack is that we design it as a product platform with the ability to upgrade over time. During the quarter, we announced the first evolution with Smartstack 10, which increases density of each unit from 7.5 megawatt hours to 10 megawatt hours. The ability to upgrade our Smartstack offering over time with speed and efficiency allows us to quickly adapt to evolving customer needs, which is valuable for both Fluence and our customers. To conclude, we believe we have the right product and team to win in this rapidly growing market.