Fluence (FLNC) Q2 2026 Earnings Transcript

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DATE

Thursday, May 7, 2026 at 8:30 a.m. ET

CALL PARTICIPANTS

• President and Chief Executive Officer — Julian Jose Marquez
• Chief Financial Officer — Ahmed Pasha
• Unknown Executive

TAKEAWAYS

• Order intake -- Approximately $2 billion of signed orders year-to-date, double the value from the same period last year, with over $600 million signed in the third quarter to date.
• Backlog -- Record backlog reached $5.6 billion at quarter-end, and management expects further growth based on current execution.
• Adjusted gross margin -- 11.1% for the quarter, within the full-year guidance range of 11%-13% and a meaningful improvement over Q1 levels.
• Fiscal year guidance -- Full-year guidance for revenue ($3.2 billion to $3.6 billion), ARR (approximately $180 million), and adjusted EBITDA ($40 million to $60 million) was reaffirmed.
• Revenue -- $465 million for the quarter, reflecting 8% year-over-year growth; approximately $80 million of revenue was pushed into Q3 due to resolved shipping issues in Vietnam and Spain.
• Total liquidity -- Ended the quarter with about $900 million, including $430 million in cash, with expectations to maintain this level by year-end.
• Customer base expansion -- 50% of orders year-to-date originated from new customers, attributed to expanded commercial efforts.
• Master supply agreements (MSAs) with hyperscalers -- Two MSAs were executed with major hyperscalers after extensive competitive validation processes; Fluence was the first to qualify and is positioned for near-term data center project orders in Q3.
• Pipeline growth -- Commercial pipeline increased by 35% since the start of the fiscal year, with the data center-specific pipeline rising over 30% since the last call to around 12 gigawatt hours.
• Smartstack progress -- First Smartstack reached commercial operations; market interest reflected in a growing backlog.
• Domestic supply chain -- U.S. production for all major components, including battery cells, established; new supply agreement signed following facility ownership change in Tennessee, ensuring continued eligibility for applicable tax credits.
• Inventory investment -- $220 million invested in inventory this quarter, with an additional $100 million planned for Q3 to underpin second-half revenue deliveries.
• Adjusted EBITDA -- Negative $9 million for the quarter, an improvement of $21 million from the prior-year period, due to higher gross margins, lower operating costs, and a $6 million derivative gain offsetting a Q1 loss.
• Average selling price (ASP) trends -- ASPs have declined approximately 50% over two years; management anticipates further declines, yet forecasts about 50% revenue growth and sustained margins due to expanding demand.
• Revenue phasing -- Around 70% of annual revenue is expected in the second half, with roughly 30% of that in Q3 and the remainder in Q4.

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RISKS

• None indicated during the earnings call.

SUMMARY

Fluence Energy (NASDAQ:FLNC) delivered record backlog, demonstrated disciplined execution in gross margins, and advanced key strategic priorities, including deepening its engagement with leading hyperscale data center customers. Management signaled sustained demand acceleration, highlighted by substantial pipeline growth, and underpinned the fiscal outlook with concrete liquidity plans and operational investments. The company confirmed the rollout of its Smartstack platform, secured new supply arrangements maintaining U.S. domestic content eligibility, and positioned itself to capture further market share across both core and emerging customer segments.

• Julian Jose Marquez emphasized that, "50% of our orders this year come from new customers," reflecting success in reaching additional customers within the utility and developer segments.
• Smartstack’s commercial launch was positioned by management as a step change in product reliability and capacity density, with reported operational reliability exceeding 98% and the ability to deliver over 500 megawatt-hours per acre.
• Data center opportunities—primarily from signed MSAs—now comprise the majority of the pipeline’s 12 gigawatt hours, with a first data center order expected within the third quarter.
• Ahmed Pasha reported, "we invested $220 million in inventory to support deliveries that underpin our second half fiscal 2026 revenue," underlining execution planning for projected sales volume ramp.
• Management confirmed all revenue delays in the quarter stemmed from resolved logistics issues, with no further disruptions expected and no material exposure to geopolitical transit risks.

INDUSTRY GLOSSARY

• ARR (Annual Recurring Revenue): Contracted, subscription-based revenue expected to recur annually from service agreements or digital offerings.
• MSA (Master Supply Agreement): Framework contract establishing commercial terms with large customers, permitting repeated purchase orders for future projects.
• Smartstack: Fluence’s proprietary, high-density modular energy storage solution, used for long-duration and data center applications.
• Hyperscaler: Large-scale data center operator (e.g., cloud and internet giants) requiring vast, highly specialized energy storage and power quality solutions.
• ASP (Average Selling Price): The average price at which storage systems or components are sold, referenced to describe market pricing trends.

Full Conference Call Transcript

Unknown Executive: Good morning, and welcome to Fluence Energy's Second Quarter Earnings Call. Joining me on this morning's call are Julian Nabrita, 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, 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's management may make certain forward-looking statements regarding various matters related 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 related to pipeline, order intake and contracted backlog future results of operations, the impact of the -- on e 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 are, 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 measures 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.

Julian Jose Marquez: Thank you, Chris, and welcome to everyone joining us today. Turning to Slide 4. Since our February call, we made meaningful progress on order intake, our U.S. domestic supply chains and our product road map as we position Fluence to capture expanding global demand for energy storage. Our business model keeps us close to customers so we can anticipate their needs early and respond quickly with the right products, applications and commercial structures. This morning, I'll highlight our momentum across the business, and then Ahmed will review our financial results for the quarter and our current fiscal '26 outlook. Here are the key highlights for the quarter. First, order activity is accelerating versus fiscal '25.

As of today, we signed approximately $2 billion of orders this year, which is double the amount signed through the same period last year. Our record backlog was $5.6 billion at the end of the second quarter, and we expect it to grow further based on execution so far this year. Second, second quarter adjusted gross margin was 11.1% which is within our full year expectation of 11% to 13%, a meaningful improvement versus Q1 and more reflective of the disciplined execution we delivered historically. Third, based on our first half performance and visibility into the remainder of the year, we are reaffirming our fiscal '26 guidance for revenue, ARR and adjusted EBITDA.

And fourth, we ended the quarter on March 31 with approximately $900 million of total liquidity, reinforcing our strong financial position. Please turn to Slide 5 for more details on order intake. Our expanded commercial effort is translating to stronger conversion into signed orders. During the quarter, higher lithium prices temporarily slowed some customer decisions, but momentum reaccelerated as prices stabilized. For third quarter to date, we have signed over $600 million of additional orders. For the first 7 months of this fiscal... Year order intake totals approximately $2 billion, and we expect the total for all of fiscal '26 to significantly exceed the level from fiscal '25.

Most of the orders this year have come from our core customer segment, developers and utility. It is important to note that 50% of our orders this year come from new customers, a signal of the early results from our expanding commercial app. Please turn to Slide 6, as I detail our progress with new customer segment. Since our February call, we executed master supply agreements with 2 major hyperscalers. The selection process for both of these MSAs was subject to multiple rounds of review, and in each case, Fluence was chosen after meeting criteria specific for each customer.

In 1 case, the customers process began with 26 different best vendors, -- and Fluence was the first to complete all qualifications to sign a global MSA. In the other case, the customer had requirements which made it hard for many competitors to comply with. In both cases, we believe Fluence understanding of customer requirements, rapid response time and the peretiated products were key in driving this engagement. These MSAs established Fluence as a qualified supplier, positioning us to build on expected near-term data center projects for both hyperscalers with additional progress with 1 of these customers over the past few months, we expect to find the initial order from 1 of the data center projects within the third quarter.

In addition, since our prior call, we have successfully developed a proprietary solution to handle the extreme power usage fluctuations experienced in data centers. Fluence excels at this based on our deep experience with advanced controls and track record managing fast response systems. Based on our discussion, we believe these capabilities will be an important differentiator for data center customers concerned with quality of power. Finally, we're seeing increase in interest in Smartstack for applications requiring longer duration energy storage. Smartstack density provides a competitive advantage for these applications because of its smaller footprint. Please turn to Slide 7, as I discuss our growing pipeline.

A key piece of our commercial strategy have been the growth of our pipeline, which has increased by 35% in so far this fiscal year. We are seeing opportunities in the U.S. market beginning to outpace our other market with projects concentrated in California and Arizona, as well as the MISO market in the mid 1. Most of the growth is from our core customer base, as I mentioned earlier, but also in part by new customer segments, including data centers and other large energy users increasingly adopt historic solutions. Since our last call, our data center pipeline has increased by over 30%, including projects from both major hyperscalers, I just discussed.

We expect data center projects to make an increasing contribution to order intake during the fourth quarter of this year, building on the initial order we expect in the next few weeks. Fluence business model is intended to keep us close to customer, which we believe puts us in a previous position to stop evolving needs early and to respond quickly. That insight informs our product design, the applications we support and the technical operational and commercial terms our customers require back by a sales organization with deep long-standing relationships. In short, we have positioned Fluence to be on the leading edge of best.

We view the components with use as commodities, which we integrate into finished products to meet customer needs. Combined with our long-standing technical expertise, and hands-on experience and our deep understand of different markets around the world, we believe Fluence is uniquely positioned to deliver and help our customers maximize the benefit of invested in battery projects. We have evolved our product to accommodate a growing number of customer demand, including market-leading density, digital solutions, optimizing operations and profitability, reduce total cost of owners, large-scale fire testing and industry-leading reliability. Fluence was also the first to offer a complete U.S. domestic supply chain and important advantage for our U.S. customers.

We offer a one-stop solution primarily project development through delivery and installation and continuing over the full operating life of each project. We combine in-house EPC expertise with a dedicated service organization that optimizes performance and extend asset life resulting in industry-leading operational net. Please turn to Slide 9 for an update on Smartstack. Product innovation remains another key differentiator for Fluence. Smartstack set the industry standard for energy density, enabling customers to feed more than 500-megawatt hours of storage per acre with additional improvement plan. With a science Smartstack to lower total cost of owners through modular architecture, easier maintenance accidents and more than 98% reliability delivering more electricity and more value to our customers.

And a flexible design supports a broad range of cell types across multiple manufacturers, including pouch cells, commonly used in electric vehicles. Importantly, smart packaging and modular architecture addresses the density challenges. Typically associated with pouch form in stationary stores. I'm pleased to report that our first Smartstack has reached substantial completion and commence commercial operations. Our growing Smartstack backlog reflects this market's strong interest in our product. Please turn to Slide 10 for an update on our domestic supply strategy. As I just mentioned, we recognize the importance of a U.S. domestic supply chain early. Today, we have U.S. production for all major components, including battery cells from our supplier in Smyrna, Tennessee, which has been operating since '25.

Building on our existing U.S. supply, as we announced in February, we signed an agreement with another source of domestically produced battery health beginning in fiscal '27. We believe this incremental capacity strengthened our supply position and supports delivery against our growing order book. We're also evaluating additional supply options to help support Fluence growth beyond '27. Our current position gives us flexibility as additional proposed U.S. supply comes online. Based on our experience, converted EV battery production to best cells can take a year or more. When exploring additional proposed supply lines, we plan to evaluate each facility stand line to first production, is run speed.

It's technical characteristics and how its location could strengthen and optimize our core in U.S. domestic supply network. Let me also update you on PFE compliance for our cell supply in Smyrna, Tennessee. ASC closed a deal to sell a majority interest of its facility to fixed energy, a subsidiary of Lombard Capital. Ownership changed on March 31, 26 and the facility continues to produce sales that qualify for tax credits under the 1 Big Beautiful Bill act. We moved quickly to establish a relationship with a new owner and have signed a new supply agreement covering the next few years. We are confident in their plan to sustain the strong production level we see this year.

Looking ahead, we believe we are well positioned to benefit from growing diversity in U.S. sales supply and the impact additional capacity may have on battery price internationally, we competed in markets that have seen meaningful declines in average sales prices for several years. And those lower prices expanded demand by enabling new applications. It's reasonable to expect similar dynamics in the U.S. Importantly, we have executed successfully through the inflationary pricing cycles before. With an approximate 50% decline in ASPs over the past 2 years we more than doubled adjusted gross margin. Although we expect ASPs to continue to decline for the balance of fiscal '26.

We are forecasting approximately 50% revenue growth with adjusted gross margins in the range of 11% to 13%, reflecting the strength of our execution and operating mode. To conclude, we are seeing accelerating demand improving execution and expanding opportunity across both our core and emerging customer segments with a record backlog, a strengthening U.S. domestic supply position. and a differentiated product platform, we are committed to delivering for customers and creating long-term value for shareholders. With that, I'll turn the call over to Ahmed to discuss our financial results.

Ahmed Pasha: Good morning, everyone. Since our previous earnings call, we have continued to capitalize on strong demand trends in our industry while maintaining our disciplined focus on delivering on our fiscal year 2026 commitments. We also maintained a strong liquidity that provides us flexibility to execute on our growth petitions. More specifically, starting with Slide 12. We generated Q2 2026 revenue of $465 million, up 8% year-over-year. Approximately $80 million of revenue was pushed into Q3 due to 2 issues. Specifically, roughly half was attributable to a customs issue in Vietnam, with the remainder due to shortage of loading equipment in Spain, both issues have self been resolved.

The delayed shipments have been received, and we are current on the quarter's deliveries with no further delays. Also to confirm, we do not have any material exposures to the Middle East conflict as none of our shipments utilize the Strait of Hormuz. Our adjusted gross profit for the quarter was $51 million, representing an adjusted gross margin of 11.1%, this result is within our full year expectations of 11% to 13% and reflects a meaningful improvement from the first quarter level as well as comparable quarter for fiscal 2025. The primary driver of the improvement was consistent execution and operational discipline across our portfolio.

Adjusted EBITDA for the second quarter was negative $9 million an improvement of $21 million compared to the second quarter of last year. The improvement reflects higher gross margin, lower operating costs and $6 million gain from unwinding and FX derivative. This offset a $6 million loss on the same FX derivatives recorded in the first quarter of 2026, with no net year-to-date impact. Turning to Slide 13 for an update on our adjusted gross margin progression and how disciplined execution translates to returns for our stakeholders. As you can see, our rolling 12 months adjusted gross margin is 12.4%, marking 2 full years of consistent double-digit returns.

We believe this progression underscores the durability of our margin profile. -- even in the dynamic pricing environment. Importantly, it reflects the product, commercial and supply chain actions we have taken across the portfolio. These actions position us for continued margin improvement beyond this year. Turning to Slide 14 for an update on our liquidity position. We ended the second quarter with total liquidity of approximately $900 million, which includes approximately $430 million in total cash. During the quarter, we invested $220 million in inventory to support deliveries that underpin our second half fiscal 2026 revenue. In addition, we will invest approximately $100 million in inventory during Q3 to support second half deliveries.

Liquidity is expected to return to $900 million levels by the fiscal year-end, driven by execution on our backlog and new orders. Bottom line, our lability position fully supports delivery of our fiscal 2026 commitments. Turning to Slide 15 for our fiscal year 2026 guidance. We are reaffirming our guidance ranges for revenue, ARR and adjusted EBITDA reflecting our strong visibility into the year and continued momentum we see across our business. More specifically, we expect revenue in the range of $3.2 billion to $3.6 billion, with a midpoint of $3.4 billion. We expect approximately 70% in the second half, consistent with the rating of revenue last year.

We expect roughly 30% of second half revenue in Q3 and the remainder in Q4, again, consistent with last year. With all equipment ordered and production tracking as planned, we are confident in delivering on our customer commitments and our full year revenue goals. We expect annual recurring revenue, or ARR, to reach approximately $180 million by the end of fiscal 2026, up from $148 million in fiscal 2025. And we continue to expect adjusted EBITDA in the range of $40 million to $60 million for the full year. In summary, we are submitted to achieving core revenue and profitability outlook for fiscal 2026.

We remain rather focused on ensuring disciplined execution for our customers and delivering value to our shareholders. With that, I will now turn the call back to Julian for his closing remarks.

Julian Jose Marquez: Thanks, Ahmed. Let me close with a few key takeaways. First, strong execution. Our second quarter performance, record 5.6 billion backlog and on track production levels support our content in our fiscal '26 guide. We ended the quarter with approximately $900 million of liquidity, which we believe provides always the flexibility to fund growth. Second, all the momentum accelerated. Order intake has doubled year-to-date, led by orders from both new and existing customers, an indication of strong demand in the U.S. and the positioning of our business. And third, expanding customer base.

We are in an excellent position to capture a portion of the rapidly expanding data center demand with the signing of MSC with 2 major hyperscalers after meeting all of their commercial and technical requirements. We expect to execute the first purchase order with 1 of these customers within the third quarter. In conclusion, we are positioning our company to continue profitable growth and to deliver value to our customers and shareholders. With that, we are now prepared to take your questions.

Operator: [Operator Instructions] Our first question comes from George Gianarikas from CG.

George Gianarikas: My first 1 is on the competitive landscape. How are you viewing the recent trend of some cell manufacturers vertically integrating? And specifically, how are you looking at their push for market share and any impact on pricing? .

Julian Jose Marquez: We have seen both CATL and BYD become common and integrate particularly we have not worked in the past would be way, but we have worked with the CAPL. It hasn't really changed the intensity of the market, if you talk the truth. The value the ability to meet customer needs at a reasonable price that hasn't changed effectively. So we continue -- we're growing our backlog. We're growing our winning projects the same as we are. And so we feel confident we haven't really made a big difference in the competitive American. So we attracted 50% of our new sales are new customers. So we are -- I don't see it as a challenge.

It's not new, by the way. I mean, it has happened in the past. The change of CTL was they bought, but not a major change in the competitive landscape from our point of view.

George Gianarikas: And maybe as a follow-up, first, congrats on the 2 hyperscaler MSAs. If you could -- you did this a little bit, but if you could pull back the curtain a bit on the mechanics of those wins? What did specifically what did the validation process look like? And what do you think was the primary differentiator for you that larger win theres?

Julian Jose Marquez: Yes, two things. We went through a very strict commercial and operational and technical evaluation. In 1 of the cases, there were 26 players, I would say the majority would not make it -- so there's a limited number of people or companies that could meet this very stringent requirements. Our ability -- our deep knowledge, our deep experience managing fast response systems in Europe as special. And having the infrastructure and the technology capability to prove their case to them very, very quickly is a negative. We have the lab, we have the termination we do this every day. We know how the applications work. We understand how the critical work globally.

And that made a big difference as we were the first one. So I think that we believe that will continue to be what will keep us ahead of the market because we are now -- some of our competitors are still trying to figure out how to meet the criteria. We're thinking how to exceed their what they need and trying to offer them more value and more capabilities, and that's what we bring to the table.

Operator: Our next question comes from Julien Dumoulin-Smith from Jefferies.

Julien Dumoulin-Smith: I got to hand it to you guys really kudos here, I'm seeing it through. In particular, look, I wanted to ask you, in particular here, as it pertains the hyperscale orders, what specific product are they following up with you guys with? I know there's been some ambiguity in the marketplace as to whether or not you have the right product and the product positioning for the hyperscalers to get this kind of confirmation with 2 as you guys have flagged, in particular, is quite notable. Can you speak to the specific deployment permutation that they're using you guys with. Is it a BTM FTM, -- is it a capacity support load shifting?

And then also, how do they think about the domestic content or fiat compliance. Is that another nuance that we should consider? Just can you speak to the product and more broadly in these wins? And whether this is a leading indicator for further orders like this in coming quarters?

Julian Jose Marquez: Yes. So in terms of what they're asking for different what I said in the last call, when we had, we're looking at a portfolio that was a little bit more mixed. Now that we concentrated in the hyperscalers, their main need is quality of power, helping them manage the fluctuation of the data centers and happen so quickly and effectively. So -- and that's what they need, and that's what we proved with our advanced controls and our products, we can prove very, very quickly to them that we can do it. I will say, if I can brought better than anyone else. And that's what is driving this.

If you go beyond the hyperscalers into kind of the developers of the world, it seems to be that -- or seems to be what we have experienced more of speed to power and meeting great calls and is a little bit more mixed, but when it's too hyperscale, it has been quality of power they may ask. In terms of domestic content, it wasn't a requirement from them or something that we're specifically looking at we clearly are selling it. And I think that as we have explained to them the competitive position of domestic content, the value it can create.

And the tremendous branding opportunity of having a product that is built here by American for America here especially as this to hyperscalers most of the businesses in the U.S. I think they have -- they are seriously considering as -- but their objectives were meeting the quality of power, meeting their technical commercial objective, and that's where they concentrated on, and that's how we move it. In terms of these 2 MSAs, they have behind a significant pipeline, that we expect that within the next year, will convert into the orders.

We won't necessarily win them all, but it will be a significant amount of demand that we see behind this that we will convert having these MSAs gives us puts us in a very, very good position to capture. This is the hard in order to compete. Now many people can do it. And I think this was a stop of approval that when we make an offer, they know that we will deliver what we are promising.

Julien Dumoulin-Smith: Awesome guy. And quickly, Ahmed, can you speak to this slide has this interesting commentary that says you're going to invest additional inventory during the third quarter. but you're going to rebuild liquidity towards $900 million by fiscal year-end. When you say rebuilding liquidity, is that going to capitalize in some ways? Or is that just kind of cash flow?

Ahmed Pasha: I would not. Julien, I would not read too much in between the lines there. I think it was more as we invest because we have roughly $2.5 billion of revenue in the second half. So we will be delivering that. We're building up the inventory. But as we deliver the inventory, we will be collecting -- so at the end of the day, our liquidity will be back at $900 million levels by the end of the year, consistent with what we told you when we gave our guidance for the year. So that was the intent there.

Julien Dumoulin-Smith: Awesome. And just to clarify from earlier, how many other supplied MSAs with you guys?

Julian Jose Marquez: I mean, very, very selective, Julien, they all fit in my hand, I think, and have fingers left. We don't know we have the significant information, but we understand they are very, very selective, very few people. I've been able to go to it, they might -- they're probably working on it, but let's see if they get it.

Operator: Our next question comes from Brian Lee from Goldman Sachs.

Brian Lee: Congrats on the strong backlog here in the hyperscaler updates. I had a couple of questions, I guess, on the hyperscaler MSAs. I'm not sure how much you can provide, but would love to maybe get some detail around quantification of the size of the deals, how many megawatts over what years -- and is it over multiple sites that are already identified? Maybe just if you could elaborate a bit more on kind of the scope of these 2 MSA deals and how meaningful they are in terms of quantitative impact?

Julian Jose Marquez: SP1 Yes. So I'll tell you, the majority -- or the great majority of our pipeline is supported by deals that are behind these two MSAs, and these deals will -- and those -- that pipeline is several different data centers around that they have around the U.S. mostly. So that's what it is. In terms of financial -- and our current paper is 12 giga, so that'll give you a sense. We're not providing the financial numbers around it. As it's too early, and we are competing, as you know.

So we are not providing those numbers today, but -- my expectation is that as we end the fourth quarter and bring hopefully, a good number of these projects, and I can offer numbers in included in everything and do not necessarily be providing commercial, I will provide you more financial metrics of this.

Brian Lee: Okay. Fair enough. Yes, we'll look forward to that. And then maybe just zooming out a little bit because this is a new business for you, and obviously, very, very high growth potential. What's sort of the deployment schedule, I guess, can you help us kind of visualize as you go into some of these, whether they're RFPs or bake-offs -- what's the time line for submitting your design and your proposal to when 1 is finalized? And then when you get a PO to when you're going to deliver to sit kind of what are the sequence of events and how long is that.

Julian Jose Marquez: They are in a hurry, generally. Most of these projects, as I said, that -- I don't know if I mentioned about the pipeline we have, we believe will convert into orders during the year, evening a year, so quicker than generally, we're in a pipeline that comes into our things. And very, very tight schedules for delivery that we commit because we've been working on our speed for some time. So I cannot give you today a specific rule. This is the one.

But generally, I will say a lot faster than the conversion rate we have for our order from pipeline to orders and a lot faster on the conversion rate for orders to revenue, than what we do in our normal utility developer to, especially with these 2 hyperscalers. The case of the developers, and it's a little bit different as those are more project tied they are looking for pyramids and stuff. So those will probably take a little .

Brian Lee: Okay. Understood. Maybe last one, if I could squeeze in just on the gross margin bounce back. I know that's been a focus for you guys for a little while. So nice to see it back to the range, even on the lower volume here in 2Q, that was a pretty impressive gross margin rebound. What does that maybe entail for the back half of the year? Is there volume leverage and some of the efficiencies from this quarter that can spill over? And is there any potential upward bias to margins as you kind of move through the rest of the year?

Ahmed Pasha: So in terms of the gross margin, you're right, an 11% gross margin we earned, which is higher than what we had in Q1. In year to go, we just reaffirmed our guidance where we said 11% to 13%. So we will be somewhere in the middle of that range a year to go. I think at least that is our goal is about 12%. So we will definitely be better than what we earned in Q2.

Operator: Our next question comes from Dylan Nassano from Wolfe Research.

Dylan Nassano: Just wanted to check on the broader data center pipeline. Any updated thinking there in terms of how much of that kind of fits your previous criteria of pipeline versus leads? And then I noticed there's this 6 gigawatt hour kind of target for what gets included -- just how did you come up with that number? Any thinking around there would be helpful.

Julian Jose Marquez: I'll tell you that there a number for our pipeline it. Our pipelines went up like 30% from last quarter. we concentrated a lot on the hyperscalers. And so a good driver of that has been the hyperscalers who are roughly at 12 gig. And our leads are 3x generally the same as close to where essentially the same as we had last quarter, we come to some into pipeline and we were able to replenish as a rule. The 6 gig, I don't know what the you're referring to Dylan, sorry,.

Dylan Nassano: It's on Slide 6 at the bottom, and just classified the system 6 gigawatts hours or more.

Julian Jose Marquez: Let me check. But in any event, strong growth great opportunity here. And I think that by concentrating on hyperscale extra, we get the point on this. we are in a market segment that we expect will test faster and that we will convert into execution quick.

Unknown Executive: Yes. Dylan, that's 6 gigawatt hours. That's -- it's not a pipeline, how we classify an LDS project. So anything over 6 gigawatt hour. Sorry. .

Julian Jose Marquez: Yes, for long duration storage, yes, those are loan duration stores, so they need to be more than 6 hours, in order to be long duration as a definition of loan duration for 6 and more.

Dylan Nassano: Yes, my mistake. And then just a follow up on the quarter. I mean, it looks like revenue was kind of lower than analyst expectations even kind of including this $80 million. So I just wanted to check, was there any other seasonality in the quarter beyond or other disruptions beyond the shipping stuff some guys noted.

Ahmed Pasha: No, there was none. I think if you recall, when we gave our guidance in Q4, we did see about 1/3 of our revenue in the first half and the rest given fact that we don't give quarterly guidance, I think that was the only reason what is the difference. But overall, from an internal perspective, as I mentioned, the $80 million of this shipping delay was the only reason why we were lower on the revenue for Q2, but that we have the shipment we have already received. So we feel pretty good on year to go. .

Julian Jose Marquez: And if I can add 1 point, our indication of where we see revenue divided among quarters more indicative, so you can model it and so, but we don't run the company on a quarterly basis to be very clearly. We'll run it on a yearly basis. That's why we intend to meet our yearly numbers. We try clearly to what we indicated to me about is not -- we do not provide quarterly guidance. I know it creates some confusion, but -- it's a way of try to help you model and at the same time, keep the flexibility to manage things effectively and efficient within the company. .

Operator: Next question comes from Joseph Osha from Guggenheim Partners.

Joseph Osha: I wanted to drill down a little bit on 2 product details. Julian, you said that hyperscalers and data center more broadly, tends to be more about product quality or power quality. So is the implication then that we're seeing shorter duration configurations, say, an hour or 2 as opposed to 4? That's my first question. And the second question, just to confirm, thinking about the inverters, are you generally being asked to deliver a response time of 10 milliseconds or less. Those are my 2 questions.

Julian Jose Marquez: Yes. On the first one, they tend to be shorter duration, you're right. So they are -- I'll say, we don't provide anything smaller than 2 hours or 2 hours is what we and general that's where the market is trading, but they tend to be shorter than even though our main point to the data centers as we engage with them and the developer have test the great beauty of that our technology compared to other technologies that are trying to resolve is that we can stack business models on top. And we can do quality of power, help them with to some of the work of resolving some of the efficiencies of interconnection or backup.

We can help them on solve them voltage. We can help them on many, many fronts. So -- that's -- I think that as we're looking at the assets, they are expanding also their view of what is on that was on that point. On the second one, generally, I will say that -- sorry, the second 1 can. We need to -- we're not providing the actual number, but it's very short, not the way over it. So we're not providing the actual number because it is proprietary to the solution and to the people we're working with, but it is very, very short, significantly shorter than 100 milliseconds, we tend to do for transmission systems and European Valifications.

Joseph Osha: And just to follow up on that very quickly. That would probably assume create the need for inverters with wideband gap MOSFET you've got it off SP-5.

Julian Jose Marquez: Yes. You need inverters. I can provide that. That capability is very much dependent on the inverter you use. We work with inverter companies that -- we have done this in Europe for many years, so we're not exactly who leave, how they do it and their strategy very well. So we have that. And our advanced controls work very well with these Abertis and have the processing time to ensure the whole system, response on that, not behind the inverter as healthy suppose.

Operator: Our next question comes from Jon Windham from UBS.

Jonathan Windham: Nice result. I was wondering if you could talk about the U.S. storage market continues to grow at a rapid pace. Where are you -- are you able to provide us sort of where you are on being able and sort of capacity in gigawatt hours to provide over the next 12 months? And then just sort of thoughts on the road map to keeping up with the market growth over the next 2 or 3 years.

Julian Jose Marquez: Yes. Yes, we see the U.S. market growing expanding significantly. So that's right. What we have, we have, as you know, our domestic products, our flagship solution in the U.S. We have the ASE capacity, we enter with another supplier for additional capacity, and we are looking at additional capacity for the '28 going forward. So we have enough capacity to forward the pipeline we see and the conversion rate we affected we don't provide specifically the numbers, but we -- it's multigigacapacity, and we have seen no problems getting the -- and we are putting the whole infrastructure that delivers that multidealer the U.S. with our domestic content offer.

We can also import equipment if we need to, but our preference is to do the domestic content solution.

Jonathan Windham: Perfect. And maybe just a quick follow-up. There's been a lot of commentary on the gross margin. But historically, some of the issue has been that operating OpEx as a percentage of revenue has basically been offsetting the positive gross margin. So just your thoughts on internal initiatives to get the OpEx number down to drive bottom line profitability and free cash flow.

Julian Jose Marquez: Yes. The operating costs are percentage of revenue is essentially a function of growth or growth of the top line. So if you follow it carefully, you'll see that our operated revenue goals it's very much vital. Our costs are very, very stable and how much of our cost represents that of our revenue depends on how much we can grow revenue. So we have seen -- and we have an operating leverage that we believe that we can grow this company that we can keep our costs down and half the rate of growth of our top line, which will be -- which adds tremendous value. And you'll see when you look at the numbers, it's very, very clear.

It's an operating leverage formula. Unfortunately, as you know, last year, we didn't grow. So that's where the operating revenue -- the percentage of revenue of cost of revenue was a little higher than what we had parted.

Ahmed Pasha: Our goal is that we basically create the operating leverage and we do have that as the revenue grows, our costs, we will maintain that cost discipline and cost will be reduced -- increasing less than half of the growth in our revenue as Julian just mentioned. So I think that's our key focus from my perspective.

Operator: Our next question comes from Ameet Thakkar from BMO Capital Markets.

Ameet Thakkar: It looked like ASPs, if we'll get revenue and kind of your revenue recognition megawatts for the quarter were up nicely quarter-over-quarter. And I was just wondering, was there a lot more EPC work this quarter? Or is this kind of maybe the level we should be thinking about for the balance of the year for modeling purposes?

Julian Jose Marquez: This number, as you said, it moves up and down quarter after quarter based on the mix of the cells. So I wouldn't read too much on it. We are designed to meet our financial objectives independent of where the ASPs go up or down. And our planning assumptions that they will continue coming down. And we are deciding to make money and make it successful. And I'll say even more every time we have seen ASPs come down, what happens that demand is plans at a rate that is much bigger. -- the reduction in revenue at on the lower ASP. So we -- I wouldn't read too much on it.

I know that something that you care about a lot, I mean, the analysts care a lot about, but -- it is not a big driver of our business financial results. .

Ameet Thakkar: Great. And then I know you had mentioned earlier in answering 1 of the kind of questions before about kind of your long -- and I think you said that the vast majority of that is data center related. Is that right? Is it a little bit over half? Or is it substantially all of that 1 gigawatt pipeline is data center related.

Julian Jose Marquez: Yes. Now we have a 12 gigawatt pipeline of data -- all of its data center related. What I said that a great majority was connected to the 2 MSAs that we just signed. So the 12 gigawatt hours are -- all of it is data center related, of which the great majority of more than 1 or been a good portion of it. I want to give a number come from the -- supports these 2 MSAs, which is high.

Operator: Our next question comes from David Arcaro from Morgan Stanley.

David Arcaro: I was wondering, are there other MSA opportunities that you're currently working on? Is that something that you would expect most hyperscalers to be pursuing on the storage front.

Julian Jose Marquez: Yes. We're looking at it. These are the 2 that we have more urgent needs. And so -- but we're looking to work with all of them. So we believe the problems are similar and that we can meet their needs with our capacity. So we hope to work with all of them.

David Arcaro: Yes, makes sense. Any -- are there any active now or any sense of timing as to when those opportunities might pop up? It seems like they're all very active on the data center side of things, and I imagine looking at storage. So is that also a near-term opportunity? .

Julian Jose Marquez: I think that -- well, I cannot give you a real sense of time when it will happen as it would depend on where they are and what they do. I mean, -- the tool that we have signed are people are very clear what they need. They are in a hurry to win, and they seem to be ahead of the market if you ask -- so -- but we're working with everybody. We are contacting all of them, working with them, and the chassis to are ahead.

David Arcaro: Got it. Okay. Great. And then the 50% proportion of new customers, I thought was notable. I was just wondering, could you give any characteristics of kind of who those customers are? What type of customers they are? Is it the traditional profile of developers and utilities that you would see or any specific locations? Curious if it's a new profile.

Julian Jose Marquez: This is a result of the great work that Jeff Monde, who joined us as our VP of Growth has done since he arrived. It really had invested significant business development identify all these customers, which are -- I would say, we're not a typical we used to work before, for our deal developers or utilities, that we have not contacted in the past and now we have made significant progress. And this is a global effort that we're doing, not only in the U.S. but outside of the U.S. So -- but I would say that, as we said during the call, these are customers that are within our normal or core customer segments, utilities and developers growth.

But great calls to our sales organization that has really invested into developing and bringing these new customers and into the mix. .

Operator: Our next question comes from Ben Kallo from Baird.

Ben Kallo: Could you just talk a little bit because of the specific product they're looking for in the size. If you could talk about just pricing and margin, how we should think about that all these better deals? And then also my second question just outside the U.S. where you see pockets of demand and then just remind us how margin compares internationally versus the U.S.

Julian Jose Marquez: In terms of data center, I will say, as we said, duration shorter term. And I'll say the margin is in line with our guidance of 10% to 15%. That's what we'll say. So generally, that's what it is. And both of their needs are quality of power, which we do this for grades globally, we're doing for them here, and I think it worked well and versus -- so in terms of margins, margins changed market for market depends on the competitive environment. As we go in our 10% to 15% range, but there are markets that are a little bit more -- they go through more competition than us.

I will say that markets like the U.S. and the U.S. is probably a little bit on the high side, the U.K. on the lower side. And so it changes a little bit on changes market per market. But our 10 to 15 range works for all these markets. .

Operator: Our question comes from Maheep Mandloi from Mizuho.

Maheep Mandloi: A question on the MSAs with the hyperscalers. Do they have any special requirements on the battery types is like the general batteries you have for the best industry? Or is it high searate? Just curious if -- on the supply side, if you need to make any changes on the sales sourcing of that.

Julian Jose Marquez: We make any battery grade. We make any battery grade. So the battery is a commodity whatever they need. I think the main driver is Nitsure, and that comes our packaging, our capabilities. So no real need on -- clearly, the LFP to nobody as to the M&C for many reasons, but a brand or supplier is not relevant for them. Whatever battery we put in our systems, we can make it to [ Gen 6 ].

Maheep Mandloi: And then separately, like we saw some battery deployers proposing high ceded batteries, which go inside the data center for 800 volt TCs? Is that something of interest are you exploring? Or your're looking at outside that did so.

Julian Jose Marquez: Yes, yes. We're looking at our product road map includes not only these many other elements that we're looking at to continue improving our offering to data centers and to our solutions, 1 option is this high seed rates batteries that will go into that. And they don't have some limitations, but it's part of our program that we have for the will happen or not, we'll see, but it's not any time soon. .

Operator: Our next question comes from Moses Sutton from BNP Paribas.

Moses Sutton: Congrats on the great update. Have these data center opportunities convert into reality, how do we think about the ratio at for what, meaning the loss of load to the watts of storage. We've seen examples out there of gig data center might need 800 megawatts of batteries and examples that could be of that, right, depending on their need. So what do these projects start to look like right now as we're connecting sort of a data center TAM in gigawatt terms do the storage opportunity that you're converting against?

Julian Jose Marquez: Too early to give you a rule of thumb that we can calculate clearly have some views, but it's too early to give you -- too premature to give you a rule of thumb. How do you think a gigawatt would take this amount of battery. So we will -- over time, I think that we'll be able to develop that as it becomes more clear, but today, we -- that we cannot do. What we have, as I said, 12 giga pipeline ahead of us, which we want to convert into orders a good portion of it within the next 12 months. So -- that's what we're concentrated on.

And as we learn more about this and we see how the industry develops, we'll provide you a rule of thumb that will give you a better sense of the whole market.

Moses Sutton: Got it. Got it. That's helpful. We'll look forward to that. And then on the MSAs, what's the nature of the exclusivity from what you've won? Are there multiple vendors? I couldn't tell if you were answering that in some of the earlier questions. So for those hyperscalers, are you 1 of the few players? Are you exclusive? Is that a geographic exclusivity...

Julian Jose Marquez: One of a few players, 1 of a very, very limited number of players. But this is a competitive process. These are not directed at least not yet. I may be able to take them there and so forth very limited players and a competitive process as we moveforward. Well, thank you, everybody, for participating today, and we'll be available. Chris will be available, I also will be available to answer any questions you may have. Bye-bye.

Operator: Thank you for your participation in today's conference. This does conclude the program, and you may now disconnect.

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