Fluence Energy Stock

Hello, and welcome to Fluence Energy Investor Update Call. [Operator Instructions]

I would now like to turn the call over to Chris Shelton, Head of Investor Relations. You may begin.

Good afternoon, and thank you for joining us. Joining me on today's call are Julian Nebreda, our President and Chief Executive Officer; and Ahmed Pasha, our Chief Financial Officer.

A copy of our press release is posted to 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 related to our business and the company that are not historical facts. Such statements are based upon current expectations and certain assumptions and are therefore subject to certain risks and uncertainties.

Many factors could cause actual results to differ materially. Please refer to our SEC filings for our forward-looking statements and for more information regarding certain risks and uncertainties that could impact future results. 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 financial measures that we believe are useful in evaluating the performance of our business. We are unable to reconcile our projected fiscal 2026 adjusted EBITDA to the most directly comparable GAAP measure because certain items that may affect future results are outside our control or cannot be reasonably estimated at this time. Following our prepared remarks, we will conduct a question-and-answer session with our team. During this time, to give more participants an opportunity to speak, please limit yourself to one initial question and follow-up.

Thank you very much. I'll now turn the call over to Julian.

Thank you for joining us today on very short notice. Earlier this afternoon, we issued a press release reducing our fiscal year '26 guidance to reflect the impact of supply chain issues affecting our U.S. production, particularly at our new contract manufacturing facility in Houston. These issues have had a significant impact on expected revenue for the fourth quarter of fiscal year '26.

Today, I'd like to first provide more color on these issues and the impact on our anticipated '26 financial results. Second, cover the action plan we have put into place; and third, provide an outlook on how we are approaching our fiscal year '27 plan.

First, to address the issues affecting our U.S. production. On our last earnings call, we discussed the slower-than-expected ramp-up of our Houston facility and the production levels we projected to achieve during the remainder of the fiscal year. Since then, we have experienced additional delays. Our team underestimated the complexity of the ramp-up of the Houston facility. Specifically, the major issue that has emerged has been the underperformance of the customized automated welding process, which is operating significantly below its targeted level.

Another issue has been the speed of final assembly of components into finished product, which lags our expectations due to shortages of skilled labor. In order to address these challenges, our contract manufacturer has taken the following corrective actions: first, they switched to manual welding, which require hiring additional skilled labor. Manual welding is slower than automated and requires more detailed quality inspections.

Second, they engaged 3 subcontractors across different locations in Houston to increase the capacity of both the welding and the assembly processes. Implementation of these corrective actions is taking longer than expected. As a result, we don't expect to achieve our previously targeted production levels during this fiscal year.

Our previous guidance midpoint assume an average of 11 units per day during ramp-up of August and September. Actual production in August has averaged under 1 unit a day. But with the corrective actions implemented, production levels have increased to an average of 3 units per day during the first 2 weeks of September. We expect to continue improving production to achieve the targeted capacity of the facility.

Separate from the Houston facility, we have recently experienced delays in the delivery of balance of plant equipment, such as transformers and inverters at a couple of projects due to supplier logistical constraints that will chip revenue out of this fiscal year.

Turning to the impact on our fiscal '26 guidance. We are now expecting to recognize approximately $2.4 billion of revenue. This represents a reduction of approximately $600 million from the guidance we provided in August. More than 80% of the expected revenue decrease is attributable to U.S. production issues. This includes approximately $450 million of production delays, primarily from the Houston facility and approximately $65 million of penalties, largely associated with late delivery. The remaining approximately $85 million reflects logistics, primarily due to bottlenecks and customer credit.

We now expect to record an adjusted EBITDA loss of approximately $200 million as compared to a loss of $10 million in our prior guidance. Approximately 2/3 of the increased loss is attributable to missed project milestones, including approximately $65 million of associated penalties and approximately $65 million from gross margin tied to revenue shifted into fiscal '27. The remaining $60 million impact includes $35 million costs associated with the initial rollout of new products and an estimated $25 million of additional cost to achieve volumes and quality standards on initial production from the Houston facility.

In response to these developments and to better position us to execute on our backlog in fiscal '27, we are implementing a plan to strengthen our supply chain, production systems and processes and execution discipline. To that end, we have made structural changes to our management, including appointing Bernerd Da Santos as our new Chief Operating Officer. Some of you may know Bernerd from his many years at AES, including as COO and most recently as Head of AES Clean Energy. He has extensive experience managing operational turnarounds, including an end-to-end transformation of AES supply chain organization.

Bernerd and his team will be developing a plan to address the process weaknesses that contributed to the production shortfall, define corrective actions and track execution against clear milestones. Additionally, they will be developing a framework to effectively evaluate our contract manufacturers and future production schedules. We are approaching this with urgency to incorporate findings and recommendations from this process into our fiscal '27 operating plan.

We have identified several critical areas to be addressed, including strengthening our integrated planning process across all aspects of materials, production and delivery and upgrading the resiliency of our supply chain. We plan to provide an update on our action plan in November when we report fiscal '26 results and provide guidance for fiscal '27. Beginning in November, we plan to report U.S. production levels each quarter, both actual and forecast, so that our stakeholders may track our progress on production and delivery performance.

At this time, we wanted to provide you the framework from which we are developing our fiscal '27 operating and financial plan. First, our plan is to deliver on our '27 backlog estimated at $2.9 billion as of today, which provides a strong foundation for revenue. Second, we intend to rightsize our revenue growth and corresponding investment so that we do not have need for additional capital in fiscal '27. Third, we are targeting neutral to positive operating cash flow in fiscal '27. And finally, we will address the seasonality aspect of our business, reducing execution concentration and supporting a more balanced delivery profile.

In closing, while today's guidance revision is disappointing, the underlying issues have been identified, concentrated in our domestic supply manufacturing ramp-up and addressing. Our international operations are on track and demand for energy storage remains robust. Importantly, recent progress at Houston reinforces our belief that these challenges are operational in nature and can be resolved through targeted execution.

Operator, we are now ready for questions.

[Operator Instructions] Our first question comes from the line of Dylan Nassano with Wolfe Research.

When you talked in your last quarter earnings call, you spoke about access to power being a headwind. Is that still an issue here? Or have we moved past that and these are kind of unrelated issues?

The facility is still not connected to the grid. However, we have provided additional generators that essentially addresses the issue. Today, where we stand, the automated welding is the main critical path and we know that we haven't had -- the power hasn't been a limiting factor. We expected connection to the grid -- sorry, we reconnected connection to the grid first quarter of '27, so sometime between October and November.

Okay. Got it. And then secondly, just on the financial outlook here, you're speaking to neutral or positive operating cash flow. But does this kind of change kind of how you're thinking about the need for capital next year at all?

Yes. I mean our view is to -- we are rightsizing the plan to ensure there will be no need for additional capital in '27. So we are evaluating -- we started evaluating the new order intake in terms of the need for additional capital, and we will ensure that we will have no additional -- we will not need any capital. And second, we will look at our costs, something that we do to ensure that it will be a combination of -- so the plan for next year is no need for cash, a balanced plan based on our backlog and with a cost structure that allows us to have neutral to positive cash flow in '27.

Our next question comes from the line of Justin Clare with ROTH Capital Partners.

First one here, just wondering if you could quantify what the targeted production level is at the Houston facility at this point, When you expect you might reach that run rate? And kind of what is necessary in order to support the fiscal '27 delivery plan? And then just curious on the shift to manual welding, does that solve the near-term bottleneck at the expense of potentially higher unit costs? Like is there any trade-off in making that shift?

Yes. I'll start with '27 first, I think with that -- so we have $2.9 billion of backlog for '27, of which $1.2 billion needs to be produced out of the U.S. and primarily or the majority, potentially majority of it, will come out of the U.S. facility. We have built a plan, and we have looked at the ability to monetize that backlog against a purely manual welding operating scheme, not what we expect to happen.

But to ensure that we could today communicate firmly that we believe we're going to deliver on the $2.9 billion, we built a plan based on that. It clearly carries more cost, and it will take a little longer, but that's the plan we're doing today. In order to reach the targeted levels of the facility of Houston, we need to resolve the automated welding. The automated welding is in the learning process. So it's going through a process of learning how to weld our GSP 5000. It is progressing well, but it is taking much longer than expected. We believe this is a time issue that it will be resolved and it will become operational. But in order to be able to confirm the numbers, we wanted to ensure that we will -- that we could offer you a plan that was based on manual welding.

As you have said -- as we said in our numbers for '26, now going to '26 and the additional cost, we identified additional $25 million of costs connected to meeting all the volumes and quality numbers. This is an estimate at this time, and it could become -- it could be potentially a lower number or there was some uncertainty around it, but clearly represent the additional cost of putting manual welding and bringing some of these additional subcontractors to support the process.

As I said, even though we are presenting a plan based on minor welding for '27, we're working actively to resolve the constraints we have today connected to automated welding and final assembly to be sure that we can make -- confirm the guidance, the margin metrics that we have in those contracts.

Got it. Okay. I appreciate that. And then just one more. You had talked about rightsizing the business to support growth here so that you don't require additional capital. Wondering with the $2.9 billion of backlog already scheduled for fiscal '27, what does the rightsizing mean at this stage? Do you have to limit the incremental orders that you take for 2027? Is there any sort of revenue level that could be supported while still maintaining a neutral to positive cash flow?

Good question. No, the rightsizing means limiting additional backlog that will convert to '27, especially in the U.S. and ensuring that any additional backlog provides positive cash flow to the plan. As you know, our main use of capital as a company is working capital and sometimes these programs, even though they're generally positive in cash flow during most of the execution of the plan, it changes case by case. So we're being very, very careful on what comes into '27 in terms of supporting '27 revenue. So there is spare capacity in the international business to bring additional production, and we are -- our sales teams are looking and working on that. But on the domestic production level, we are being very, very selective on what we can commit in '27.

Our next question comes from the line of George Gianarikas with Canaccord Genuity.

So maybe -- and maybe it's early, but I'd love to understand any impact that you're seeing to your market share so far? And you sort of mentioned, I think, in some of your answers that you're limiting what you're going to put into backlog. So does that -- are you sort of competing less for certain projects? Or are you seeing any negative impact to the market share dynamics that you had?

I would say that in the following, in the international side or anything that doesn't need production out of the U.S., we continue actively and working in terms of anything that goes beyond '27, we are actively working on. Where we're limiting is U.S. -- any products that require U.S. productions and the U.S. delivery on '27. That's what we're working on. So I think that this will have -- it could have an effect, as I said, as we're talking to customers in delaying some projects or saying no to some projects, but it should not have a meaningful impact in our ability to meet customers.

And the only thing I would add, George, this is Ahmed, is that there are many customers in the U.S. who want not necessarily domestic content. So I think we will continue to look at those opportunities in the U.S., particularly the data centers in the U.S.

Maybe as a follow-up, you did mention some issues in securing some supply of components, particularly transformers, I think, inverters you mentioned. Do you know if that has anything to do with the recent announcement from the Trump administration around the U.S. bulk power system?

These are usually small delays of days or weeks that would have been within our guidance range that we are presenting the number and presenting only a final approximate result and not providing a range, these things move. But we're talking at a few weeks or a few days of movement that means that projects that we're expecting late in September are now looking to be more in '28, with none of that has connected to the new restrictions both in the U.S. and Europe on imported inverters or transformers -- inverters from certain countries ahead.

Any impact from that announcement?

We have seen a major, major change in the way most of our customers requesting that we use -- we do not use any inverters from both here and in Europe from certain countries. And as you know, we have a good supply chain in terms of inverters outside of China -- sorry, avoid mentioning them, but that we have no issues meeting those requests from us.

Our next question comes from the line of Vikram Bagri with Citi.

Just in terms of thinking about the methodology for setting the guidance, is there any change in the thinking there in terms of the coverage level that's being set with the typical 85% ratio? Just thoughts on that.

Very good question. We are not setting guidance for '27 today. What we're setting is the parameters of what we believe will be our guide. We'll monetize all our backlog. We'll have no need for additional capital. We'll have operating positive -- neutral to positive operating cash flow, and we're leveraging on that front. Having said that, the 85% rule and part of the plan to be able to do that is limiting or rightsizing some of the order intake to ensure that we don't need that it aligns with all these 3 objectives. So the 85% rule will -- I wouldn't say that it will apply our main objective meeting the 4 points as we move forward.

Got it. And then just as a follow-up on the need for capital, is there anything from a covenant standpoint that would require additional capital either this year or next?

No, we -- currently, we are not required. I mean, obviously, we will keep an eye on our covenants. But no, there's nothing we are in compliance as of today. And I think as Julian mentioned, our goal is to continue to generate neutral to positive cash flow. So we feel pretty good about it.

Our next question comes from the line of David Arcaro with Morgan Stanley.

I was wondering, do you have any recourse to the contract manufacturer that you're using in terms of financial damages or anything like that or costs that they would cover? And then going forward, is an option that you might consider to use a different contract manufacturer for that process?

So let me start with the beginning. This is a contract manufacturer we have used since the inception of Fluence, essentially since the inception of Fluence. They have been very successful delivering our products with quality and on time all the time. They have experience producing in the U.S. this project has been a project that has had significant challenge, and they have not been able to success. We do have some recourse, however, in our plant, but not material enough to change significantly the number, if we have to share it with you.

In terms of manufacturing strategy, I think that one of the elements that we clearly comes very, very evident from the situation. There are the one I want to highlight is the need for a more resilient supply chain. That does not put us at risk of a simple process affecting our numbers. In this case, the delay in resolving or putting into place the manual welding created essentially $1 billion of miss in our revenue for the year or represent the great majority of the $1 billion miss. So that is clearly not a resilient plan. And as we're looking at our '27, we will look at ways of reducing our dependence on any -- not only on suppliers, but also on any single process.

Understood. That's helpful. And then I guess, looking ahead to the backlog and executing against that, I guess I was wondering if there are any -- have you had conversations with customers on the 2027 deliveries? Is there any -- has there been any change in commitment levels within the backlog as a result of this or potentially any financial risk to you to the extent there are challenges achieving the backlog projects that are coming for next year?

So we have communicated with all the customers who have delays due to the issues in '26 that will move into '27. So that has been communicated. And we are reflecting in our numbers, the LDs that come out of those delays. So that's part of that already here. We're working with our customers to ensure that the delays in production do not affect or the effect on their meeting the commercial operation dates that are reduced.

So we're putting plans to ensure we do commissioning in parallel, both cold and hot commissioning, to try to reduce the amount of delays that these delays in production will have in their commercial operations. So we're working with them. You can imagine that this is clearly something that they do not -- it's not in the plans that creates problems for them and in the process of addressing it.

Our next question comes from the line of Joseph Osha with Guggenheim.

I have 2. Julian, I'm setting aside some of the stuff from this current announcement, you indicated earlier that one of the challenges here is simply the back-end loading of the fiscal year and the fact that you're having to flex your organization so much, which just kind of inherently creates risk. And you said you're trying to address that. But I guess my question is how, right? Because we've been seeing this back-end loading continue to take place. How are we going to address that?

Yes. Very good question. The thing we're doing this year is we're limiting the amount of production and revenue we have per quarter and not taking any additional obligations beyond what we believe is a reasonable number. That by itself has let us balance the production and revenue levels. quarter per quarter for '27. And we will continue to do that for '28 and onward, we'll reduce significantly our risk.

That's really interesting then. So might one conclude that we could see kind of much, much, much greater, more even loading across the 4 quarters in FY '27 than we've seen to date as a result of that?

That's what we're planning to do. I think that we're looking at both production levels and revenue. So even though you might see on revenue, at least they are not equal, the production levels are organizing in a way that are as equal as possible. So yes, that's the work we're doing right now.

Ladies and gentlemen, at this time, I would like to turn the call back over to Julian for closing remarks.

Yes. Thank you, everybody, for joining in such a short notice. I would like to end up with, clearly, what happened today does not meet the standards of how we want to work, does not meet what we want to do as a company. It's something that we understand we should have identified earlier and corrected earlier. And we're working actively and now with Bernerd joining the company and with the executive team here to ensure at Fluence to ensure that we put the corrective actions to this doesn't happen again, and we can continue serving our customers with a good quality product with on-time delivery. There's no way of success out of this process without pleasing and meeting our customer needs. So thank you very much for your support, and thank you for participating on today's call.

Ladies and gentlemen, that concludes today's conference call. You may now disconnect.

Good morning, and 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's 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 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 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, and welcome to everyone joining us today. Turning to Slide 4. 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. I'll discuss our growing business, which includes robust demand from our core customers, combined with a rapid expansion of data center customers, from which we received 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 long-standing 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. Fourth, 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 2 new contracted manufacturing facilities.

Accordingly, we are lowering our guidance midpoint for 2026 revenue and adjusted EBITDA to $3 billion and negative $10 million, respectively. We do not take this reduction rightly 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 5 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 amount 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, and we see reason for this strong momentum to continue in future quarters given our current demand and competitive position.

Please turn to Slide 6 as I detail our progress with data center customers. Our announcements on last quarter's call that we have signed 2 master supply 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 3 months.

We continue to see the developer segment center on speed to power solutions, and 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, and we expect this 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 bid on, and we look forward to expanding our business with them in the near future.

Please turn to Slide 7 as I discuss backlog and pipeline growth. Our backlog has benefited from record orders in 2 of the past 4 quarters and sets a strong base of revenue growth in fiscal '27. As of June 30, approximately $2.2 billion of our $6.4 billion backlog is expected to convert to revenues in fiscal '27. This compares to the $1.5 billion of fiscal year '26 revenue coverage we had as of June 30, 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 8 for details on the expansion of our supply chain. 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 2 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 related 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 '27.

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 time line 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 announced that Roman Lewsen 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 chain, manufacturing and business transformation. Roman will lead a set of managers with deep experience and skill sets in supply chain 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 9 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 our 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. [indiscernible] has been gaining favor in terms of orders this year, 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. With our first data center awards adding to our record backlog and a growing global supply chain size to meet future growth, 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 and outlook for the rest of this year.

Good morning, everyone. While our results this quarter were disappointing, the challenges we experienced were primarily related to construction and production start-up delays at new manufacturing capacity and scaling of our new products. We have taken actions to address issues and improve execution and are now tracking to our revised production plan. Importantly, these investments strengthen our supply chain globally and position us to support our growing backlog.

As these new facilities move beyond the initial ramp-up phase, we believe Fluence will be better positioned to deliver profitable growth and create shareholder value.

Starting with Slide 11. We generated Q3 2026 revenue of $650 million, up 8% year-over-year. This was approximately $90 million below the expectations we discussed on our last quarterly call. This shortfall was primarily driven by production delays at 2 new contract manufacturing facilities that are currently ramping. Production from the encloser manufacturing facility in Houston was pushed by a quarter due to construction and automation delays. The facility has begun limited production and is expected to achieve full production levels in the first quarter of fiscal 2027. The other issue occurred at 1 of our 2 new facilities in China, where initial production of components of SmartStack did not meet stringent standards and required rework. The facility is now producing consistently to our standards and has achieved full production in the fourth quarter.

While we expect to realize the revenues associated with the Q3 projects that were delayed, the slower ramp-up compresses the time line for production in the fourth quarter, pushing a portion of previously planned 2026 deliveries into fiscal 2027.

Our Q3 adjusted gross profit reflects the lost margin from revenue shortfall and an approximately $15 million costs associated with new product rollout and production delays. In addition, we recorded $15 million loss on a planned battery supply agreement, most of which was associated with a single project. Despite the upfront cost, this arrangement secures the long-term supply and attractive pricing, strengthening our ability to support growing demand and price future orders with greater confidence.

Turning to Slide 12 for our fiscal 2026 guidance. We have revised our outlook to reflect our updated expectation for production through the end of this fiscal year. More specifically, we expect revenue in the range of $2.9 billion to $3.1 billion with a midpoint of $3 billion. The approximately $400 million reduction versus the prior midpoint is largely the result of manufacturing ramp-up delays that pushed revenue recognition into 2027.

In terms of EBITDA, we now expect adjusted EBITDA of negative $30 million to positive $10 million with midpoint of negative $10 million compared to our prior midpoint guidance of $50 million. While there are several puts and takes relative to our prior guidance, the $60 million reduction is largely explained by 2 items, about $44 million of lost margin from shift of approximately $400 million of revenue into 2027 and $15 million related to the proposed long-term battery supply agreement discussed earlier. And we are maintaining our expectation for annual recurring revenue of approximately $180 million by the end of fiscal 2026.

Turning to Slide 13 for an update on our liquidity position. We ended the third quarter with total liquidity of approximately $863 million, which includes approximately $365 million in total cash. Consistent with what we said on the last call, we expect total liquidity will return to $900 million level by fiscal year-end, driven by execution on our backlog of projects included in the guidance.

Bottom line, our liquidity position continues to support our near-term working capital needs, particularly heading into our highest revenue quarter. Regarding liquidity needs for 2027, we are comfortable that our existing liquidity has us well positioned for success. That said, as Julian noted, our expected order intake is reaching new highs and to support that growth may require an additional $300 million to $500 million of working capital over the coming year. We will remain disciplined and pursue financing only where there is a clear line of sight to profitable growth and shareholder value creation.

In summary, while we have more work to do, demands remain strong, our backlog continues to grow and we are taking actions needed to improve our execution and support long-term profitable growth.

With that, I will turn the call back to Julian.

Thanks, Ahmed. Let me close with a few key takeaways. First, order momentum continues. Our third quarter order intake, our record of $6.4 billion backlog and the initial order with the data center developers all evidence our successful product strategy and sales effort. We currently expect orders to reach a record level again during the fourth quarter of this year.

Second, additional production capacity. We're adding new contract manufacturing capacity in the U.S. and abroad and have realigned our organization with new leadership to strengthen execution. Third, product offering. The integration of SmartStack density, safety and reliability metrics with our software and controls capabilities allowing for fast response, flow smooth and remote operation puts us in a dominant position to meet the growing demand of the diverse customer segments we serve.

In conclusion, we are positioning our company to continue profitable growth and to deliver value to our customers and shareholders.

[Operator Instructions] Your first question comes from the line of George Gianarikas from Canaccord Genuity.

George, before you ask, I really want to apologize for the technical mishap we have this morning, which we'll figure out what it is, but we've been waiting in hall for some -- at the same time you were waiting and we were not have been connected. So sorry for that, everybody, we really appreciate and value your time, and we know it was a little bit of a waste of time, but George, Good morning.

Maybe first, if you could provide some additional granularity around the production delays and just sort of go into a little bit of detail what's happening in the facility?

Yes. Great. So we have -- as you know, as we are scaling up the company, we are increasing our production capacity. As part of that, we brought in 2 new manufacturer groups, one to serve the international market and one to serve the U.S. market. On the international market, we're working with reputable, well-known and seasoned contract manufacturers. One of these manufacturers, as you are aware, they are producing our SmartStack for the international markets. One of those manufacturers producing our parts, the ones that things that go on top of the skids that we have. And the initial production had some quality -- was not meeting our stringent testing, and we had to significantly delay production to ensure that we got the production in line with our quality. And that meant significant delays that have been significant. But since then, we have fully resolved and now we are producing that are working full time. We are fully ramped up. They're doing a great job, but we won't be able to recuperate the full amount of the volumes we had -- we lost during the quarter -- during the year. So that's that case. And we feel confident and we're seeing it today that they can meet our quality, our volumes going forward, and it will really put us in a good position to serve the international market with a competitive product.

The U.S. is slightly different. The U.S., we're putting a fully facility with our contract manufacturer that works out of Vietnam. The same one is putting up fully automated facilities, an improved version of the one we have in Vietnam, fully automated -- a lot more automated because of the U.S. labor cost somehow, but fully automated system. And they experienced construction delays where the construction delays were then we got delays in connected to the utility. And out of the -- we've been running the plant with generators, and that meant that we had to manage -- we could not do all the works in parallel. That meant that some of the automation took longer than. And it's the same thing as these delays got stuck one another, there was a moment that was clear that we will not -- we were not going to be able to recuperate the volumes for '26 and that we had to volumes to '27.

That facility is ramping up, it's producing today. It will connect to the grid in the next couple of weeks. The issues are being resolved. And as I said, this is very much a sister company to the one that's in Vietnam. So we're confident that the production levels we have set for ourselves for the quarter that will be met, that the issues that we have identified are fully resourced and resolved. So we're very confident on it.

I would say on a more general point, this facility will be -- will provide us a competitive advantage in the U.S. market that we believe is a very, very important of our strategy here in the U.S. market. It will allow us to produce 15 gigas of fully U.S.-made products, fully automated integration. So we are really, really happy with what we will receive. However, we're going to the delays that, unfortunately, we could not fully resolve on time.

And maybe just as a follow-up, an update on your recent commercial traction in data center, specifically, how would you characterize the competitive dynamics and your win rates and deals you participated in? And what are the key differentiating factors that lead to your wins?

Yes. Very great question. I think that -- how we win? We win because of the density, safety and reliability of Smartstack as it combines with our operating systems that allows for very efficient load management and very, very good response times to the low voltage ride through. So it's a combination of technical of our operating systems and our enclosures, which are our delivery equipment, which are safe and reliable. That's how we win.

Generally it has been very, very good. It's not -- and we're very happy with the traction we had. This is significantly better than our plans, and we are very, very confident that as that industry growth, that will be an important part. What's interesting for us also is that we are now looking not only in the U.S. with most of the activities we have and the contracts we have signed today are from, but also looking at some of our markets to -- with some of the hyperscalers and some of the same developers to help them in other markets, which I think will put us -- our global footprint will help us on capturing that demand more globally.

Your next question comes from the line of Brian Lee from Goldman Sachs & Co.

I wanted to ask about the battery cell cost uplift. It sounds like it's an international supplier, but can you give us a little bit more detail? Does this have anything to do with the new AESC ownership? Or maybe just walk us through what's changing to impact costs here? And is this also a drag into your fiscal 2028 procurement and cost as well?

Yes. Great question. No, this is an international -- this is for the international market. It's not connected to AESC. And it is -- we entered into a long-term agreement that is not only a supply, but also some technological alignment in how the batteries will work in our modules and how we work going forward. And it's a longer-term contract that we believe will put us in a very good position for '27 and '28 and going forward. However, we had to take a charge in one project that we had that was being supplied by the same customer that as part of the deal we -- as the deal adjusted, we needed to take. So that's what it was. But the NPV of the project is significantly higher than the charge we're taking. So we decided that to take the charge and move forward. That's what it is. I think that we -- as we have continued to grow, we believe that integrating our technological road map with the technological road map of our [indiscernible] suppliers is fundamental for our success longer term.

Yes. Fair enough. Okay. And then maybe just a question on sort of the conversion cycle because this is -- if you look at Slide 7, obviously, a lot of backlog growth in the past couple of years, a lot of pipeline growth, especially the past couple of quarters. So you have a lot of top of the funnel momentum heading into fiscal '28. Obviously, there's some operational challenges here that are tripping you up in terms of meeting expectations this year. But how should we think about the conversion cycle on these record backlog levels and kind of the impact of these data center and hyperscaler bookings? Just any sense of how quickly we should start to see these turn into P&L impact? And does it differ from your historical backlog conversion cycles?

I mean, as you said, I mean, we are starting -- just starting with data centers. So we have no -- we have limited proof points of what it is. Our -- the proof points we have is that they work at a much faster conversion cycle. We have the deal with the developer. We signed it from lead to contract in less than 3 months, so tremendously fast, and they will also have a very fast conversion cycle going forward. So we believe those will help accelerate our conversion cycle.

Our normal -- the other 90% today or our other segments are working on the same conversion cycle of roughly a year to 18 months that we had had. So as you know, we recognize revenue, so the revenue recognition occurs in accordance to the milestones of the program. And I would say in a period of 18 months, we recognize the full revenue, some of it is recognized fairly quickly as we recognize the milestones as we move on the execution of the project. Not like it all happens at the end.

Your next question comes from the line of Julien Dumoulin-Smith from Jefferies.

A couple of things real quickly, just to rehash. Number one, you made comments about the expedited nature of the VTM -- the potential customers here with VTM. Can you elaborate a little bit more about how you're thinking about the potential cadence for incremental bookings from here against some of these arrangements? And also elaborate a little bit on the composition of customers in as much as, obviously, last quarter, we talked about a couple in particular. VTM could be an array of different kinds of counterparties as well. Can you talk about sort of the nature of these counterparties? And I got a quick follow-up.

Yes. So last time, we talked mostly about hyperscalers. And now we have -- the hyperscalers have brought on into -- which was our plan, go to the hyperscalers because we know that's the door for the developers. And what we have seen with the develop -- and there has been the change when you talk to hyperscalers, mostly speed to power, mostly quality of power solutions. That's where they're looking to spend very technical analysis, very deep understanding. When we're talking to the developers, it's mostly speed to power. And what we have seen is that the need -- the developers are -- I would say, I don't know at least what we have seen today are in a much of a hurry than compared to the hyperscalers. So we see that market a lot more active, and we see those activities, especially moving from leads to pipelines to orders more quickly. So that's what we can say is what we have seen up today.

The pipeline today, hyperscalers have the majority, but the developers represent the growing segment that is working right now.

Understood. Excellent. And then just quickly, I see a comment here about strategic expenses just of late here. Just would love to -- how are you thinking about the company strategically, if there's anything to flag there? I don't know, on the quarterly expenses? Just is there anything we should watch participating?

We have -- this is -- we're looking at -- we're always in the market, and we're always looking at it. So as you know, earlier in the year, we look at AESC as an option, and there some of the costs are connected to the AESC review and all the analysis we have to do for the AESC review. So there is nothing to announce.

Got it. But still looking at alternatives on that front on procurement?

We are seeing -- we are spending a lot of time looking at -- talking to all the battery capacity in the market and talking to them. Nothing really to talk about at this stage, but that's where we're spending our time as we see an opportunity to work more closely with the battery manufacturers in the U.S.

The next question comes from the line of Dylan Nassano from Wolfe Research.

Just wanted to check, so in terms of the scope of the delays that you guys are seeing from the manufacturing facilities, to what extent, if any, are those impacting the hyperscaler MSAs and these orders that you guys are talking about here?

Yes. No, no, not at all. These are issues of contracts that we have today and that are -- that we signed a year, 1.5 years ago, and they have nothing. They are normal contracts that normal contract there are difficult segments. So no affection to -- in no way affecting the MSA of the contracts we're signing with data centers.

Got it. Okay. And then I mean, maybe it would just be helpful if you could just level set us again on the number of MSAs. I believe it was 2 last quarter. And how many hyperscalers exactly does that include? And can you just clarify, so you have the $300 million first order and then the $550 million awarded? Are those from the same hyperscaler? Or is that 2 different hyperscalers?

So we have 2 MSAs with 2 hyperscalers. As we have the engagement in working with the hyperscalers, they have referrals to developers that work for them. And we are now, as I said, our pipeline and our work, we're spending a lot of time with developers as they continue to work with the hyperscalers a lot. But as they have a pipeline that requires very quick response time.

In terms of the contracts we signed, we signed the $300 million contract with a developer that was referred by one of the hyperscalers we have an MSA with. So this was a contract that a developer building a data center for one of the hyperscalers that we will be providing our equipment. Then we have -- one of the hyperscalers, there was a tender we got awarded the $550 million we sold and that we're in the process now of finalizing all the final technical points to be able to convert this into backlog and we should convert into backlog in the coming months. And we continue to work to engage with more hyperscalers, and we have seen both hyperscalers we're working on several projects, both in the U.S. and internationally that we will provide -- that we will want to bid on and we would like to serve them with our products.

Your next question comes from the line of Vikram Bagri from Citi.

I wanted to ask about the margins first. One of your larger peers indicated margin pressures in storage. I was wondering how you feel about the 10% to 15% margin guidance. You have backlog converting $2.2 billion next year, $2.8 billion after that. So pretty long-dated backlog at this point. Are there any variance -- is there a variance in margins when you look at the sort of like backlog in the near term, medium term and long term? Are you witnessing the same pressures your peer talked about?

The reality is that we are still very comfortably within the 10% to 15% range. Even when you look at our results this year, if you take out some of the onetime stuff that we had during the year, we will have been in around the 12% that we guided the market toward. So we are confident. We don't see in our backlog or in the new orders, they are in line with the 10% to 15%. We do not understand the pressure that the other big supplier announced that they were coming out with this. We don't really there might be something in their cost structure that is different. As we move forward, our big issue is scale in this company. That's the issue. That's kind of the pains we're having going to are connected to scale and scale drives competitiveness, probably in the case of our competitors that some of them have already reached scale, they're finding some other issues that for us, they are not [indiscernible].

Got it. And you talked about scale. And my next question is loosely tied to that. We'll be talking about guidance for next fiscal year on the next call. I was wondering what is the mechanism, how you're thinking about setting the guidance? You have $2.2 billion of backlog for fiscal '27. Is 85% coverage the right way to think about it? Or it should be connected to the capacity that's coming online, how much you can bring online, the capacity from a supplier perspective and/or the 85% coverage should be higher?

Relative to that, very encouraging to see the executive management changes to improve execution. I was wondering what specific changes Roman and Peter will make in next 12 months? You're dealing with contract manufacturers, so they have relatively less control over their operations. So what sort of like changes that the new team will make to ensure on-time deliveries?

Let me start with your second question. So I'm bringing Roman to lead our manufacturing and supply chain due to his deep transformation and his work on supply chain and manufacturing, but he's very experienced in transformation. One of the things you realize as you scale a company, and we move to a very different scale is that you need a transformation that your systems and your processes need to transform to the new scale. So that's what he's working on. We have very good suppliers. We have great manufacturing partners. So it's not a strategic change, it's an execution. That's what he will concentrate on, on delivering.

Peter has been leading the development of SmartStack. So I think that he will continue ensuring that continue developing SmartStack. And for '27 and forward, the main point is continue the integration of our software and our hardware in a way that we can provide a much more stringent customers than what we had historically. So that's what these 2 groups are going to do, transformation of our manufacturing, which is not changing suppliers, it's just ensuring our processes, our systems, our planning is aligned with our bigger scale and continue developing Smartstack and our platform and continue strengthening the connection between one and the other. So very happy. And your first question was on the...

Coverage.

On the coverage. This is -- I still believe that 80% to 90% is the right one, the 85%. So that's our view. We clearly, clearly, and this is a learning, new facilities -- even though we put in a plan, we put a hedge and a contingency, and we are -- what happened with this is that we had a hedging -- we went over the hedge and we had the contingency. We went over the contingency, and that is when the problem becomes a problem. So to the extent that we have new facilities coming up, we will probably hedge them for next year.

Having said that, we do not expect any nonclosure facilities. We do not expect any major new manufacturing capacity out of that will support our revenue in 2027. So I feel confident that 80% to 90% coverage will be the right coverage in 2027, but we will look at it clearly as we look at it.

The next question comes from the line of Justin Clare from ROTH Capital.

So just wanted to ask about the guidance here. So based on the revised revenue and adjusted EBITDA guide, it looks like the fiscal Q4 gross margin could be roughly 12%, around that range. Just wondering if you could clarify what's embedded in the assumption for the gross margin in Q4? And then are there any costs associated with the new products or the production delays from fiscal Q3 expected to extend into fiscal Q4?

Sure. Justin, this is Ahmed. So I think the implied gross margin we are looking at roughly 11% for Q4 based on the guidance we discussed. It's a little less at the midpoint if you're looking at midpoint to midpoint. And yes, we have considered additional costs that we may incur based on the outlook we see today. There are many puts and takes, but I think net-net, we feel pretty good that after taking those additional costs for delays, the guidance we gave, we should land at the guidance that we gave based on the outlook that we see today.

Got it. Okay. That's helpful. And then just on the supply chain here, I was wondering if you could discuss the potential impact of the FCC's restrictions on inverters here. I know you have access to U.S.-based inverter supplier. Wondering if you have any exposure to sourcing inverters from China? And then just curious, if compliant domestic sourcing of inverters could be a competitive advantage here as your customers kind of reassess exposure to imported inverters.

We only work with non-Chinese inverters in the U.S., mostly U.S. made, some of them imported out of Europe. So we feel that we will not be affected in any way. That has been our policy since then. We do see that those restrictions on inverters will also increase in Europe that, that will happen also and we expect and we are working towards continuing -- in Europe -- we work with a mix of Chinese and non-Chinese, but we're working towards getting ready for a fully European solution for the European market. We see the market, our view from day 1 when we started, that there will be more technological restrictions on this technology as it continues to grow and plays a more important role in the grid.

Your next question comes from the line of Christine Cho from Barclays.

Okay. So I wanted to start with the order intake of $1.44 billion this quarter. So $300 million of that was for the behind-the-meter project and the rest, the $1.1 billion was your typical front-of-the-meter project. For the $1.1 billion, how should we think about the split of that between U.S. and international? And then with the $850 million award with the hyperscaler or data centers collectively, do those include EPC? And is there any difference between the developer versus hyperscaler? And should we assume that both of these projects have a duration of 2 hours?

Yes. On the data centers, they have a duration of 2 hours that generally we do not offer, and they're really not really offers at less than 2 hours in the market. So all the markets are at 2 hours. No real difference on what the technical requirements and the margins of the generally very much aligned. I would say the developers, which are usually smaller companies, more agile and more -- and who can make decisions a lot faster, the conversion rate is significantly faster. So I would say that's our current view of this is, as you know, an emerging segment. So some of the things we're learning as we move forward, but going very happy with it.

In terms of the $1.1 billion of the non-data center, roughly the U.S. continues to be where we're making the most traction. And I would say number is around 60-40, 60% the U.S. and 40% the international markets. One doesn't mean that that's what this is going to be. It was a quarter where it was a lot of activity in the U.S. and limited activity in the international markets.

Okay. And then just a housekeeping item. The 10-Q indicates that there were some IEEPA refunds. Did any of that show up in COGS? Or was it applied to inventory?

Yes. I think that was the point I was saying the puts and takes. There is some IEEPA refund we have. I think it's a little over $10 million, yes, that we have recognized year-to-date.

And you'll expect to recognize some more in 4Q?

Yes, Some...

[indiscernible] because it goes into -- part of it is recognized, part of it goes into inventory. And I think the inventory converts into revenue, then you recognize it over time.

Your next question comes from the line of Chris Dendrinos from RBC Capital Markets.

I guess I hate to belabor the point here just a little bit more following up on Rob's question around the guidance here. But if I look at the outlook for the remainder of the year, pretty wide range just given the amount of time left in the year. And so what is driving that guidance range? And I guess I'm asking just trying to get a sense for how confident you are in the execution path here going forward?

Yes. No, that's a fair question. I don't think you need to read too much into it. Frankly, I think based on the execution, we have still some work to do on execution. So we thought it is prudent to give you a guidance in case there are any incremental costs we may have to incur as we ramp up our operations. So that is what is really driving that wider gap versus the revenue guidance we gave. So EBITDA guidance is wider than what you would expect. So the only thing that reflects is additional costs that we may incur. So that is what is really is underlying driver.

Your final question comes from the line of Ameet Thakkar from BMO Capital Markets.

Maybe just following up on Chris' question maybe in a little bit different way. If I think about the midpoint of your guidance now for fiscal year 2026, I think it implies like $1.4 billion of revenue for 4Q. If I look at kind of the revenue recognition and kind of implied ASPs are, it's kind of like, let's just say, kind of [ 235 ]. I think it implies like 6,000 megawatts of revenue recognition megawatts. Is that -- are you guys anticipating like a large portion of what you'll recognize in 4Q to have kind of EPC? I know some of the European contracts you have in the past that had pretty attractive kind of implied ASPs because you were doing EPC work. Is that the case for 4Q? And I've got one more quick follow-up.

No, I don't think -- most of that is in the U.S., and that's mostly the deliveries that we have under our domestic content.

And I would say, for the quarter, for this quarter, we already have produced and have fully integrated roughly half of what we need to do for the quarter. So we are confident that we will get to the numbers. Clearly, as I said, we're ramping up Houston and that we believe we have it under control. But like any ramp-up, there's always reason that we cannot envision today, and that's why the wider range. But nothing in line with what we can do. We already did have already. They already have in boats going to where they need to be or in trucks going to where they need to be. So we feel the guidance is still good.

Understood. And then just if you could kind of help us kind of -- it looks like your cumulative deployed megawatts were unchanged versus the prior quarter. And I think they're only up like, I think, 8% or 9% from the beginning of the year -- or for the end of the last year. I mean I think cumulative deployed megawatts and it's like 7.4 gigawatts, I think at the end of the year with 6.8. But like the revenue is obviously from a percentage basis, a little bit better. Can you just help us kind of understand when all of those megawatts get deployed?

Our definition of deployed megawatts in our metrics is projects that have reached substantial completion. Our revenue recognition happens significantly earlier when most of our revenue when we deliver the equipment to site and transfer title. So that's where you see the disconnect. So we use -- our definition of delivery is after substantial completion, while our revenue recognition is on transfer of title, which occurred a quarter off. So this will convert into actual what we call deliver products later on. I know it creates a confusion because our competitors delivered actual delivering to site rather than substantial completion, we probably need to amend our definition to align it more with the revenue recognition definition.

Which is percentage of completion.

Yes. That's a disconnect, Amit.

Well, thank you, everybody, for joining. And again, really, we want to -- we are sorry that we were -- we have to be late that we have technical issues. It's really an inconvenience for all of you, and we'll assure you that it won't happen again. And thank you so much for your time and your questions.

This concludes today's meeting. You may now disconnect.

Good day, and thank you for standing by. Welcome to the Fluence Energy, Inc. Q2 2026 Earnings Conference Call. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Chris Shelton, Vice President of Investor Relations. Please go ahead.

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.

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.

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.

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 Instructions] Our first question comes from George Gianarikas from CG.

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? .

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.

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?

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.

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

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?

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 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.

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?

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.

Awesome. And just to clarify from earlier, how many other supplied MSAs with you guys?

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.

Our next question comes from Brian Lee from Goldman Sachs.

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?

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.

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 the sequence of events and how long is that.

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 .

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?

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.

Our next question comes from Dylan Nassano from Wolfe Research.

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.

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,.

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

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.

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. .

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.

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.

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. .

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. .

Next question comes from Joseph Osha from Guggenheim Partners.

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.

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.

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.

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.

Our next question comes from Jon Windham from UBS.

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.

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.

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.

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.

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.

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

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?

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. .

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.

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.

Our next question comes from David Arcaro from Morgan Stanley.

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.

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.

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? .

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.

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.

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. .

Our next question comes from Ben Kallo from Baird.

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.

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. .

Our question comes from Maheep Mandloi from Mizuho.

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.

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 ].

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.

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. .

Our next question comes from Moses Sutton from BNP Paribas.

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?

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 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.

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...

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.

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

Good day, and thank you for standing by. Welcome to the Fluence Energy First Quarter 2026 Earnings Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Chris Shelton, VP of Investor Relations. Please go ahead.

Good morning, and welcome to Fluence Energy's First Quarter 2026 Earnings 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 related to our business, including 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, the impact of the 1 big beautiful bill at 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 company's Investor Relations website.

Following our prepared comments, 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, and welcome to our stakeholders joining our call today. Turning to Slide 4. This morning, I'll highlight first quarter results and the momentum we're seeing in the U.S. order intake as demand for energy storage continues to accelerate. I'll outline the rapid expansion of our pipeline, driven by new customers and emerging use cases. and share the tangible impact of our enhanced sales efforts. I will also update you on our domestic content strategy and the meaningful progress we made resolving early production challenges in the U.S. Ahmed will then cover our financial results and 25th outlook in more detail. .

To summarize our financial performance. First, our backlog has reached a record of $5.5 billion, reflecting a clear step-up in U.S. contracting activity, driven by the One Big Beautiful Bill Act and rising demand forecast. The midpoint of our revenue outlook is now fully covered by our backlog. Second, with Q1 now complete, we are reaffirming our fiscal '26 guidance supported by greater revenue with civility and line of sight on execution, which increases our confidence in delivering this outlook. And third, we ended the quarter with approximately $1.1 billion in total liquidity, which positions us well to support our growth.

Please turn to Slide 5 for details on our order intake. During the first quarter, we signed over $750 million of new orders growing more than $500 million of these orders were in the U.S., which represented strong growth from prior quarters. Activity in the U.S. market has been gaining momentum since the passage of legislation last July. We continue to expect growth in orders across all our core markets for this year. with the U.S. representing about half the total, consistent with our pattern from previous years.

Please turn to Slide 6 for an update on our pipeline. We are seeing growing demand from developers, IPPs utilities and rapidly expanding data center opportunities. During the quarter, we also ramp up our sales efforts in all our core markets, including expanding our sales channels and our reach to existing and potential new customers. We are already seeing initial benefits with an approximately $7 billion or 30% increase in our pipeline with a majority of growth coming from the U.S. The task now is to convert our pipeline into sign orders, and this is where we are concentrating our efforts.

Please turn to Slide 7 for an update on expanding sources of growth. We are seeing growing interest in our product from new customer segments as well as new use cases. In terms of new customer segments, our biggest opportunities is data centers. We are engaged in discussions covering 36 gigawatt hours of projects including customers with large portfolios, such as hyperscaler. We are working to a technical review with them and working closely to show how our technology fits their specific needs. I will note that many of the 36 gigawatt hours of data center projects and not yet included in our pipeline, which represents meaningful upside opportunity.

Another area of growth is long duration and storage where we are in early discussions with 34 gigawatt hours of projects, largely in Europe and the U.S. Smartstack leading any positions as well to compete for these applications. long-duration projects by the finish, require more volume, and therefore, provide an additional growth opportunity. In addition to new customer segments, we are seeing an evolution in the way customers use battery storage. Historically, our solutions have been used together with the renewable products to firm up their power generation.

Utilities have also used our product to store electricity that can be utilized during peak demand periods, also known as energy shifting or in specific locations, to support grid needs. Today, we're seeing new and developing uses for our battery solutions by large energy users such as data centers and C&I. These include, first, speed to power. Storage can speed interconnection to the grid by adapting power demand to the grid capability and avoid the delay on expenses of grid upgrades. Second, quality of power. storage can react power to resolve voltage disturbances, manage demand, including disconnection from the grid when needed and provides most brand rate control, among others. We believe that no other technology can offer these 3 capabilities combined at competitive terms.

Third, backup power. Energy storage, lower cost and longer duration enables replacement of higher cost and carbon intense thermal gensets that have traditionally serve this need. Fourth, support of on-site generation for bringing your own generation applications. Energy stores can match up behind the meter power with the customers' energy needs by adding flexibility and efficiency to dispatchable generation or filling up capacity for renewable sources.

Please turn to Slide 8 for an update on our domestic supply chain. Let me highlight 3 developments that are strengthening our competitive advantage and keeping us reliable on schedule. First, our domestic content supply chain is now performing at the level necessary to lead our delivery schedule. Cell and module production continue to run ahead of the plan and our Enclosure manufacturing facility in Arizona is now on track to meet our projected needs. Additionally, we continue to expand and diversify our domestic supplier base to enhance our flexibility and cost competitive. Second, on battery cells, we continue to make progress with AESC in resolving the prohibited foreign entity or PFP status of its Tennessee facility.

Our overall priority is to secure competitively priced PFP compliant domestic sales. AESC is looking at various paths to addressing the ownership aspect of PF compliance. We are confident that the outcome will be consistent with our stated objectives to secure competitively priced PFP compliance battery cells.

Third, we are encouraged by the growing momentum of domestic manufacturing of components for BESS. Several facilities are shifting the EV battery lines into BESS products. This will enable value of diversification to our supplier base. We believe that building multiple domestic cell partnerships will optimize pricing, resilience and the supply we need to support our growth.

Before turning the call to Ahmed to discuss our financial results, I am pleased to update you on the satisfactory resolution of 2 pending legal matters. The first is on most land where the matter was settled for an immaterial amount by the company in conjunction with our insurers and subcontract on confidential terms. The settlement includes a full release of claims with no admission of responsibility or liability for the 2021 overhead in it. The second is on the VialoCanion project, where Fluence has obtained accord this is of the all of 230 new disgorgement claim. With that, I will turn the call over to Ahmed.

Thank you, Julian, and good morning, everyone. As Julian mentioned, in the first quarter, we generated strong momentum towards achieving our goals for the year. Across our global portfolio, we executed reliably for customers and capitalized on strong growth trends by increasing our backlog to a record level. We also maintained our strong liquidity position that is integral to our strategy and growth objectives. More specifically, starting with Slide 10. We generated Q1 2026 revenue of $475 million 14% of our full year guidance and nearly double the 18% of full year 2025 revenue earned during Q1 2025. This performance was in line with our expectations and keeps us on track to meet our full year 2026 revenue guidance.

Our adjusted gross profit for the quarter was $27 million, representing an adjusted gross margin of 5.6%, well below our full year expectation of 11% to 13%. The result reflects cost impacts in 2 discrete areas, most of which we expect to recover over the remainder of this fiscal year. The various reflects 2 specific factors. First, we incurred approximately $20 million of additional costs, a majority of which were associated with 2 specific projects outside the U.S. We expect these costs will be largely recovered over the course of this year. consistent with our experience in resolving similar items in the past.

Second, our gross margin reflects our typical first quarter margin dynamics where revenue is more lightly weighted while fixed overhead costs are spread relatively evenly across the year. Historically, this creates 1% to 2% quarterly margin swing that normalizes over the course of the fiscal year. The lower gross margin also drove adjusted EBITDA to negative $52 million for the quarter. In short, our first quarter gross margin reflects the lower revenue rating and some discrete project specific items, not systemic or structural issues.

Turning to Slide 11. For a broader perspective on our adjusted gross margin and how disciplined project execution and revenue growth initiatives translate to the bottom line. As you can see, we have been steadily improving our gross margin. Even with the softer results this quarter, our rolling 12-month adjusted gross margin is 12.3%, a solid double-digit result. This resilience affects our disciplined execution and reinforces our confidence in our ability to deliver on our commitments to our stakeholders. Beyond this year, we expect continued margin improvement, driven by strong execution, supply chain enabled cost advantages, innovation and scale as energy storage demand continues to grow.

Turning to Slide 12 for an update on our liquidity. We ended the quarter with total liquidity of approximately $1.1 billion, reflecting the strength and flexibility of our balance sheet. This includes $477 million in ending cash and an additional $617 million available through our credit fusions. Our liquidity position underscores the discipline with which we are managing the business and provides us with the capacity to continue investing to drive future growth.

Turning to Slide 13 for our 2026 guidance. We are reaffirming the ranges we introduced last quarter, reflecting our strong visibility into the year and continued momentum we see across our business. This confidence is grounded in 3 factors. First, the midpoint of our full year 2026 revenue guidance is now fully covered by orders in our backlog. Second, we have ordered all equipment required to meet our commitments, minimizing supply chain and commodity price. And third, we have clear visibility into the operating cost structure needed to deliver margins in the 11% to 13% range.

On that basis, we are reaffirming our full year outlook. We expect revenue in the range of $3.2 billion to $3.6 billion with a midpoint of $3.4 billion. We expect annual recurring revenue to be approximately $180 million by the end of fiscal 2026. And we continue to expect adjusted EBITDA in the range of $40 million to $60 million for the full year.

In summary, with the right building blocks in place, our focus commains on 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.

Thanks, Ahmed. Let me summarize today's call with a few takeaways. First, strong financial funders. Our Q1 performance and record $5.5 billion backlog puts us on track to achieve our fiscal year '26 guidance. We ended the quarter with $1.1 billion of liquidity giving us strong visibility and flexibility to support growth. Second, U.S. momentum is accelerated. This quarter, our order intake exceeded $750 million globally, with over $500 million coming from the U.S. reflecting increasing demand driven by recent legislation and a strengthening of market fundamentals.

Third, pipeline and growth opportunities are spent. Our pipeline grew by approximately $7 billion or 30%, led by U.S. demand with additional upside from data centers and long-duration energy storage projects, not yet fully reflected in the past. Fourth, broader use cases and differentiated technologies. We are seeing expanding applications for storage, particularly from data centers and large C&I customers, where our solutions are uniquely positioned to serve emerging customer needs. And fifth, execution and risk reduction. We continue to strengthen our global supply chain by expanding and diversifying our supplier base.

In summary, we see accelerating demand, improving the severity and a strengthening of our execution, which together reinforce our confidence in meeting our commitment to customers and deliver long-term value for shareholders. With that, we will now open the floor for questions.

[Operator Instructions] And our first question comes from the line of George Gianarikas of CG.

So maybe just to focus for a second on AESC, and I know you're in the process of resolving the ownership stake, they could. But can you just help guide us as to what resolution will look like? I mean because there are certainly several potential outcomes to this. So just help us understand how you're framing this for us. .

Thank you George. Our main objective in our relationship with AESC is ensuring that they -- that we have access to PFE compliant cells competitive parent. That's our main objective, that's priority #1. As part of that, we've been working with them on insurance that they meet all the recent conditions of the OBBBA of OBBBA. In terms of ownership, which is a specific question, we made them a proposal our understanding today is that they will resolve that program in some other form.

So we've got assurances from them that they will be the conditions of the law that they will resolve the program and they will see without the need for us to get it involved in the ownership structure of that plan. So for us, as you know, we have been working with them for many years. We lost them very much. We intend and we're working with them and ready for them to go for live today, they have not communicated to the details how we expect to run, but we're very confident that will be the length of the low other conditions.

In terms of the other ones, we need a assist and IP and all of that, as part of our process work, we have all that information that's very well. It's the ownership that we need to wait. But I will make a point that I think is very, very important if you which is a factor here. The market for sales in the U.S. is standing by crazy. We have all these EV battery lines that are converted into now into BESS. We have seen for the first time, better our projects or people offering all types of things.

So we are, if you tell me, we will see here in the U.S. of similar or China or 3 years ago, when 3 years ago when all these EV lines converted into BESS. We're very excited about what the prospects for our company with our structure have now or strategy we'll do in the U.S. during the next couple of years. So I think this is a great time. This is a great opportunity. We are very confident on AESC and we are very, very optimistic about the future for the market provide storage in the U.S. due to how the market is changing the dynamics because we saw what happened in China in the last couple of years with the Chinese, when the AV demand came down and how that will allow for our markets to grow and probably more suppliers, better quality really change how the BESS market changed.

So we're excited about the time.

If I may ask a follow-up, segue into what the competitive environment looks like. And I would imagine some of these data center bake-offs, some of the big hyperscalers that want to use 1 of their competitors as a supplier. But are you seeing any increased competition from the likes of Ford who's doing the exact thing that you mentioned converting some of their cell supply into energy storage-related cells. So help us understand what the landscape currently looks like, particularly in data center.

I'd say the competitive landscape has changed today. People there on, but in the competitive landscape has changed at all. What we have seen is a significant diversification of that rise suppliers. It probably will change over time, and I don't because might change to double opioid thing what we have today is more real changes in the competitive environment, but a real change in the way the supply for battery cells in the market, especially for the second half of '26.

There will be new entrants. The market is subsiding, is growing great entering the market, and we compete in the world with a Chinese state. They go with our Chinese competitor or the support of their going. So we are competing against some of these players, I don't think it will be more difficult than what we will grow earlier. We like competition with a great driver of our innovation and give me wake up a lot with the work of our per it primarily with titles started the prospect for the U.S. market. It is going to be the golden years of battery storage are coming.

Our next question comes from the line of Brian Lee of Goldman Sachs.

I guess just starting on the data center-related pipeline, the 36 gigawatt hour, it's pretty impressive through again quarter on quarter. I guess, the focus and the execution question now is, first, how much have you actually converted to backlog and is there any of that in the $750 million of bookings you reported this quarter?

And then secondly, just what's -- it's a big number, 36 gigawatt hours. Can you just kind of give us a sense of the outlook in conversion ratio, timing that you're targeting? Maybe when do we really start to see this move into booking the P&L impact for you?

Right. I mean, to that, there's no -- these are the new type of use cases. We have served data centers with behind nominal solution with the renewal companies. Those were not included in this sort -- these are behind the dedicated lines to a lot of centers behind of dedicated line are slightly different than we have done or just the first. So answer your question completely, we have not converted into backlog any of the new data set that are that's today. This is a new market for us. These are markets that we have not served built directly before for September or before a couple of months ago, we were servicing this company in direct with the new market segment.

We are engaging with them, but it's very, very difficult for us at this stage to give you a clear view of how much of that were converted and how will they work over that. However, we do when we looked at the pipeline and we looked at what we are the maturity of the projects that we're working with, which so expect something happening in the second half of the year, as I said, fourth quarter turn of fourth quarter of the fiscal year -- of the calendar year. That's what we just spent to some conversion of this.

Clearly, we'll not do it earlier. And this is coming such as the important segment that we learn more about it, we'll probably communicate as of this stage, unfortunately. We are learning how to do is working with them at the price time that you can imagine. Some of these companies have been -- are very, very -- the supply chain things are very detailed on the really there's a lot of value about big projects. So there's a lot of where we're going to that. things are selling learning and working very well.

But today, we will not have an absolute number that I can share with you. What's exciting about I can give you a deposit how fast is 1 at today what we are communicating is going very fast. We think we have a competitive environment. We look at the knowledge, we believe we can do better than anybody else. And we're working very hard. It goes very much to our capability, interconnect, things that where we excel. So exciting a lot. But today, as if it is a new market segment, we cannot provide more clarity on it.

Absolutely. No, that's great color. Maybe just 2 quick follow-ups on the guidance. One, on the $20 million of incremental costs here related to the 2 projects. Can you be -- elaborate on kind of what those costs exactly were and then how you plan to recover those costs through the course of the year with $20 million.

And then secondly, Julian, obviously, you're pretty bullish on the outlook for energy storage for the data center. And you're saying that the guide is fully covered by backlog. So with pipeline and bookings continuing to grow, maybe it's a little bit too early. It's only fiscal Q1, but how would you characterize the upside potential to your kind of 2026 guidance outlook here starting off the year.

I'll go over the guidance for the year and then Ahmed can give you details on the gross margin of the 2 projects I have not the on the guidance, we -- our approach to our performance that we want -- we're working towards meeting our guidance. We're committed to meeting guidance that as well you just spent from us. And that we also -- where we want to like to provide you the better opportunities will be from'; 27. That's what we're going to do. So if you ask me today, our order intake first quarter will be the lowest 1 of the year. It will be the low point of the year, and we should be able to more deliver better that will provide stronger receivability for '27.

And that's how we expect to rather than giving you a quarter-to-quarter -- we want to keep this year what it is so in line with our guidance. Hopefully, the topside or whatever, but not -- we do not want -- we're working towards make in making '27 how we provide good news to the market. That's what we're working. Today we cannot provide guidance on '27, but we will -- that's what we're working on BESS, the way you should see. So on the...

So on the -- so the $20 million impact, so this is -- the impact is at 2 projects, non-U.S. projects. 2 different countries, different technologies, different stages of completion. And the change is essentially the change in scope of the project in both cases. One is the scope change in the booklet and the other 1 is in the schedule. So I think our plan is to basically, as we have done in the past years, whenever these changes happen, we always recover those under the contract from our customers, and that is what we plan on doing during the rest of the year. So feel pretty good that we can recover this impact.

[Operator Instructions] our next question comes from the line of Dylan Nassano of Wolfe Research. .

Just wanted to check. So Tesla mentioned on their earnings call the day foresaw some Megapack margin pressure this year. In the name some things like competition tariffs and the like. So I just wanted to check, have you seen any kind of intensification on any of these issues recently? Or do you feel like you've already accounted for this all in your current outlook?

Yes. I mean yes, we also saw that we don't see any major competitiveness, no real changes. So unless Tesla is referring to us the only thing I can see on understand that [indiscernible] to close I mean, but in terms of tariff and all of that, we are very much in line. So we are confirming our guidance with a view that there's no real change. So we are not clear what that you are referring to. No more the competitive environment, which has always been very, very intense, not an in the tariff have been very stable. So we don't expect any major changes in '26 numbers. There are some movement. No, we're confident what we are confirming to it. .

Appreciate that. And then for my follow-up, just kind of given some of the margin headwinds this quarter. Can you kind of confirm that if you do end up being the acquirer of the AESC facility that you feel good about kind of the liquidity situation and for any kind of external capital to.

Yes. No, from an AESC perspective, we already talked about in the last call, we have factored that in, in our forecast that we shared in last quarter. outlook for the year. So feel pretty good.

As I said, I don't say we don't expect that they will resolve decision on more ways. That's our understanding.

Our next question comes from the line of Julien Dumoulin-Smith of Jefferies.

Could you hear my okay?

Yes.

So maybe just a follow-up on the data center opportunity here. I wanted to press a little bit further. How are you thinking about your products fitting into what the data center community wants, especially when it comes to ramp their activity.

Again, I get that the product could work, but how do you think about it fitting into your product road map if you think about this, again, who is probably an iterative nature of what they're looking at versus what you're providing here. Can you speak to that a little bit? And then separately related, how do you think about setting expectations to include explicitly data centers into your pipeline and backlog specifically?

In terms of our product road map, as we have communicated different needs that we are leading. I would say a great majority of me, there's no real change. And we have a very strong competitive advantage, why then it's a problem. It's very heavy where are they planning. The risk of German is very limited. Reliability, we have our reliability last leader -- close to 99%. Very few people can do this. So we've done very well. Cybersecurity, nobody we've been working very, very soon.

So we are very, very happy on that part. Therefore 1 of the needs, which is the quality of power, the mean response time of 10 milliseconds. And we have a road map to deliver that part. But when I looked at the pipeline, that is 1 of the areas where we are competing with other technologies and where they were not necessarily the -- we -- that's not what's driving the contract of the people. There are some projects that are connected to us, but that's all to travel. We want to serve it. We want to do it. We're offering the high -- very, very quick response time but just to be clear, today, it is more connected to speed to power and to bring your own generation applications than necessarily to quality of power.

So we are very, very -- we're very confident. We are also -- we're not a competitor of the data center. We are -- we've been very historically a company that has been very customer centric. So we are a big buyer, so we are adapting the way we contract or what we see to them. So I think that we are in a very, very good position.

In terms of ARO, as I said, unfortunately, on your second question, on our live to give you a proper guidance on when will this go into the pipeline and when we converted into backlog. It's a new customer segment. So for us, we're learning. We are moving forward, and we think we're getting better and better every day on my sales team is really excited about this. And we are probably therefore doing a great job on this. But today, very difficult to commit to this.

Additionally, as you know, absolutely very careful with my competitive information. So we will try to provide you as much information as we can. We are necessarily playing our car what we're doing because there are a lot of people trying to use and we don't want to provide them with competitive. So that's where we are excited about the growth, excited about how we fit into it, excited about our -- the way we approach our customers that will work very well with these customers. And we -- and our probably will do a wonderful job. And hopefully, we will see more and more coming up and as this market segment develops for us, we should be able to provide you more clarity

Got it. All right. Just maybe not quite ready. And then on , just to clarify earlier, you would not expect an ownership outcome. This is more of a contracting relationship. And ERGO perhaps we could see other potential counterparties that you'd be negotiating with for your domestic self supply? .

I will say we have -- we respect it. But we were looking -- we have made -- we provided an opportunity for us to take ownership on it, which they now have resolved with that. So we have -- our content will not change at all. We will be an offtake. Our technologies are very much intertwined and we understand that the solution that AESC is working on, which are not -- I don't have the details, will not affect in any way any of the issues we have. We were trying to resolve this issue for them. So we are getting -- it's always a good offer, but clearly, they have something better, so more solution that is much more attract. So we'll be offtake BP as we move forward.

Right. And you could add a second offtake just to expand.

We already -- last quarter, we already added a second update. And as I told, so we're already awarded with some of the EV lines that are converted into BESS. And that market is getting very, very excited and -- this is no different than what we saw in China 2 years ago or 3 years ago when you had an at the EV capacity that solve you didn't know where to go. So I think this is -- it's a good opportunity.

Guys. I'll leave it there. p.

Our next question is from the line of Mark Strouse of JPMorgan.

Julian, to go back to something you said in the prepared remarks, when you're talking about some of the data center opportunities not being in the pipeline. Are you saying that, that would be in addition to the 36 gigawatt hours that you're specifically calling out for data centers?

Or are you saying some of the 36 gigs of data center pipeline is not included in your $30 billion kind of overall pipeline? And then maybe just some color on kind of what delineates what goes in and what stays out.

The 36 gigawatt hours there are projects we're working on, someone in the pipeline, and so on, some of them are leads. We're giving you a number because that compares to the 30 that we gave you last quarter. In order to get into our pipeline, we need to ensure that we there more than a 2% probability of the projects occurring during the next 2 years. So some of the projects, these are new things that we are trying to and we're very careful because we want to be sure that what comes into our pipeline. That drives another set of decisions internally and bad manager.

So we're very careful looking at this as these things coming in very, very quickly. We're looking at them and deciding which going to a partner and Soleil probably not become our harder all the time. But the ones that come in to a pilot because other ones are going to be investing money and providing offers and do the in network. So the 36 giga is if they will convert, if they were all to convert into the pipeline will be is an upside to the time we have today, certainly big pipeline we have for us.

Okay. All right. That's helpful. On the long duration side, don't think that as a complaint, 34 gigawatt hours is a very big number. but it is down from what you were talking about last quarter. So I just want to ask kind of what's going on there quarter-over-quarter. .

Good point. Last quarter, we talked about what we believe the TAM was or the resale market level, 60 giga which we had more portion. We product to route that. And these are now the sort that are projects that we are either in Para or people were working on preparing the engineer looking at identified. So the number at to a more of a bank. I'm sorry to that. I got that I saw that in a few notes that we created that confusion. The 60 gigawatts last time was a more total addressable market that we saw at the time. So that includes a project of where in markets we do not serve our customers, we know we seasonal. So now the solar projects that have the potential to become part of our pipeline because they're in markets we serve customers we want to work with and what has gone the work how much of it we believe has a 50% chance of really.

And the disciple for charging looks at the connection and right turn that, I think exactly the project that are not a big guy. Sorry for the profession at that point. I've read that in a couple of notes and we probably were not clear enough the last line, but the 60 was a time, not a project's lead that we're working.

Our next question comes from the line of Dimple Gosai of Bank of America.

Just given your commentary on strengthening the domestic supply chain and modules out at ahead of plan. Can you give us a sense of the mix of U.S. made versus imported cells as kind of embedded in your '26 delivery plan. And specifically, how much of that supply is kind of already on hand or contracted for the year? And then I have a follow-up.

Yes. Okay. I'll have Ahmed walk you through the number.

So -- mix is roughly half and half, I think, is the domestic versus imposed Yes. And your second question was -- sorry I missed that.

That's fine. And then I asked how much of that supplies already on hand or kind of contracted for the year.

So we have secured 70% of our domestic and international needs for this year.

Okay. And then secondly, just to draw on that, right, as we kind of think about this gross margin or structural gross margins, can you help us frame the gross margin delta between systems that are built with non-PF U.S. made cells versus today's imported mix under the current 48% tariff load?

We look at, frankly, from our perspective, is mantra. I mean the guidance we have given is 10% to 15%. It all depends on the project scope. Sometimes we have EPC, sometimes we don't. So I think net-net, that is what we are looking at between 10% to 15% margin.

Regardless of where the sales come from, regardless like when it's non-PF and what's the tariffs with extra tariffs.

I think -- I mean, it could be depending upon situation. So I think. But net-net, that's where we land in that range.

Our next question comes from the line of Ben Kallo of Baird.

My question is around leverage. But I want to get at it from volume. Could you talk to the route of volume because you have Basepipeline that you could execute on. Just how do you think about your contract manufacturers in your own supply chain people and capital constraints that you guys have, if you want to go up to, say, 10 gigawatts a year or something like that, what is the process for that? And how much flexibility do you guys have to ramp and execute that.

And then specifically outside of manufacturing your contract manufacturers on the liquidity side because we did see you do a capital raise for working capital. And as these numbers get bigger, I know you have $1 billion dollars of liquidity plus, but that might not be enough as we start talking bigger dumps. So if we could just address that.

So I will address the supply chain and I'll ask me to talk about working capital and capital plan. Our supply chain away we work is we have a lower plan of volume that have some base case that has an offset case and has headed out of our case. And we serve those needs with different sources of suppliers that work away. We have base suppliers that support our normal work, upside suppliers that have a crucial capability. And we also identify players of which we can play in. So we feel very comfortable we have the supply chain to go even beyond what we are offsite cases that were communicated significantly above that.

So -- and it's a work of working with our suppliers with building a little bit of spare capacity, provide suppliers that have person capacity they can deliver. So it's a little bit of a renegotiation pain. And they have been working well. And my ambition will interview said, you know what I mean, but to be able to use it today. And we believe that the world we enter into this might be probably an option that will happen.

In terms of capital, I will ask Ahmed to.

So I think you are right. We have $1 billion liquidity, which we believe is sufficient to support our current plan. And I mean in terms of the additional capital needs, I mean, Jan talked about today, significant opportunities we see. And those opportunities will require additional capital on stage materialize, I think, and then we will be frankly opportunistic to see what -- how we can raise the capital. But at the end of the day, we will be very mindful of creating value for our shareholders. I think that's our job as a management.

And then just a follow-up on the leverage side. Can you just talk about what type of scale translate in that like operating leverage under the current gross margin, but that's what we should expect, even as your volume grows, or does that gross margin get bigger? Or is there any leverage there? And then how that translates into operating margin? If you can give me any for work there helpful. .

I'll tell you, look, the way we've been communicated, I mean, the way we think about is actually that you should assume that our gross margins are the same and our ability to grow our EBITDA will come out of our operating leverage. And how we think about and so you see that our top line our overhead would only grow at half and no more than half of the growth of our top line growth. So if we grow at our top line goes to our overhead will grow at less than 50%. And that's where the operating leverage is and that's what you should think about. If you believe that we can go say, at [ 100 ] then that operating leverage gives you significant EBITDA growth.

Our next question comes from the line of Vikram Bagri of Citi.

A lot of discussion about competition and in you highlighted significant opportunities as well. I wanted to ask how important is it for you to be vertically integrated given the rising competition. How are the M&A opportunities that you see today. And then finally, could you share the threshold of return that you -- for you to make an acquisition, whether it's AESC or someone else, how do you look at the possibility of M&A in terms of accretion or the return on invested capital, what's that threshold?

So how do we think about verticalization. We are very much integrated with our suppliers because our suppliers sell back to us our design, our RPs, our -- the beholder. Very much they were using our own engineering is what's driving our supplier base. So generally, our contracted manufacturers are allowing us to have a competitive cost with access to the technology with it. So we don't really get strongly for vertical integration. See change, I will be that you could think about it. But today, we'll see a strong need. We are -- we can work with contract manufactures and integrate our technology into our that we can software or that we can then convert to the product at a very, very competitive. We're happy on that.

In terms of any acquisition generally have to be accreted for us. So how we look at it when we were doing evaluating the potential acquisition of AESC participated in that deal. We have so we are creating. So it has to make sense. So -- and the accretion needs to create -- needs to reflect the additional risk that you take when you integrate vertically because what the great capability we have is that we are very agile. We can have 3 or 4 different battery manufacturers integrated into our system that we have developed our smart store that we can integrate any water.

I'll tell you more. We can make any rate great. using political so.But it is true. Any app, we can make a great reported into our system. So that's what -- that's our approach to supply chain. So if we were to integrate vertically, we will lose that agility and that ability to exit. So we also take that into account what we were looking at hey, we need to take into account that we're going to lose some of the edit we have today. the we are talking with a plethora of potential suppliers that we can integrate all of them with different capabilities, and we can make the right.

And as a follow-up, could you provide a split of leads versus pipeline in data center and long duration sort of numbers that you've shared on the slide? And could you also remind us how do you define these versus pipeline into this category?

Yes roughly, it will leave a pipeline roughly 25%. And the difference is the leases that will lead to 25% of 34 36-hour are in pipeline. In order to order parentco be a project that we will be within the next 3 years and a 50% change of we are converted into backlog. So we will say a customer that we will do that we have a good credit that the project is rent there are a lot of people talking to a lot of stocks. You go sit down and get an idea. So those sales don't come into, but we are bringing it to a pilot because what costs or variants costs, engineering is landing rights, so we are very, very careful that main point on data center is how fast is moving.

And we'll have to see how this show is a big market opportunity converts into real execution within the next quarters.

Ounderlying next question comes from the line of Christine Cho of Barclays.

In I just have a clarification, I guess, on the last response. I think last quarter, when you talked about the 30 gigawatt hours at least at the time of the call, you had said half was in the pipeline and now you're saying 25%. So just curious as to what drove the change over the last .

Yes. Things come in and out. So power we did the engineer did work or something things coming out all the time, So -- we're very excited about where we are. I mean, that's -- and that we're giving you information that usually we don't communicate on how politics move in and out of the bank as we go in and they put in the morning in does work. The price is there's no way you want to do what you want to do so. we take it or tell the customers going per some formulation. .

Okay. And then if I look at your pipeline from the $23 billion to $30 billion, just nominally the U.S. went from $10 billion to $17 billion. So just based on all the comments that you just talked about with the data center, is it fair to say that increase was primarily driven by your typical fund of the meter customers.

Yes, that's right. We had we reorganized the company with its growth group now rather than having it the region. We brought in the month to help us run that growth. They gave in the first quarter on prepared the pipeline, we expanding our capability for business development and that you'll see some other results in this new buyback numbers we have.

Thank you. This concludes the question-and-answer session. I'd now like to turn it back to Chris for closing remarks.

Thanks, everyone, for joining our call today. Please reach out with any additional questions, and have a great day. .

Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.

Good day, and thank you for standing by. Welcome to Fluence Energy's Fourth Quarter 2025 Earnings Conference Call. [Operator Instructions] 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 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 our 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 related to our business and companies 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 our 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 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 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 send 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 road map, our domestic content strategy and progress towards OBBBA 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 '26 and beyond. Second, full year revenue came in at approximately $2.3 billion, about $300 million below our expectations, mostly due 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 ended 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 form 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 U.S. market will be the largest contributor of order intake as reflected by our pipeline as of year-end.

Looking ahead, demand for any [ storage ] solution is accelerating worldwide, driven by both the rapid decline in capital cost of storage and surge in 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 30, includes 38 deals of at least 1 gigawatt hour, more than double the number from last year, and nearly 5x what we saw 2 years ago.

Please turn to Slide 6. Earlier this month, we announced a landmark 4 gigawatt hour project with LEAG, 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 LEAG 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 gigawatt hours. 80% of these engagements have originated since the end of the quarter. Fluence is ready to lead in this emerging market segment with Smartstack industry-leading density, reliability and safety, in addition to its lower cost of owners.

Another set of emerging opportunities is long-duration storage, which is driven by the need for 6- to 8-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 a flexible architecture and a scalable 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 Monday 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 Fluence's brand to new customers and industries, such as the tech sector.

In addition, we have also expanded John Zahurancik'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 discuss our new Smartstack product. We are pleased with the market reception of Smartstack. In addition to its role in winning our LEAG deal. This month, we are deploying the first Smartstack units in a project site in Taiwan.

With 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 optimize sites and better economics, all else equal. Additionally, the Smartstack maintains all elements of fire safety and cybersecurity that have been historically a selling element of our offering.

Finally, Smartstack is available with a flexible system architecture that can adapt to customer specifications. We expect this will be a key selling point for data centers as technology to reduce system [ latencybles ] and Smartstack's [ keys ] 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 U.S. market. We have contracted with 3 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 staff in 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 desire 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 to any fixed mix revenue. We will continue to work with our U.S. manufacturers to scale production and maintain our leadership position. We are committed to serving our U.S. customers with a competitive, domestically manufactured solutions.

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 OBBBA included regulations designed to restrict tax credit availability for products manufactured in the U.S., 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 cells. This manufacturer is compliant with OBBBA regulations and further derisk our future growth.

Turning to our Tennessee facility. We continue to work actively with AESC to find a comprehensive solution to comply with PFE regulations. The 3 key pieces to achieve non-PFE status include transfer of ownership, IP and material assistance. Significant progress has been made in addressing all these 3 items. The option of Fluence's purchasing the facility from AESC remains under consideration as a possible solution. We continue to view the incremental financing need of a potential transaction as we manage 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 loan.

I will now turn the call over to Ahmed to discuss our financial results and fiscal '26 guidance.

Thank you, Julian, and good morning, everyone. Today, I will review full year 2025 financial results and 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 U.S.-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 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 targeted 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% 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 began this year with 85% of our guidance midpoint already in our backlog. This strong coverage materially derisks our FY '26 revenue compared to the historical level of around [ 60% ]. We anticipate realizing 1/3 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 Gridstack Pro product, which will make up 70% of our 2026 revenue. We anticipate margins 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&D to support future revenue growth.

For adjusted EBITDA, our guidance of $40 million to $60 million reflects expected revenue, adjusted gross margin and higher operating costs 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 5 takeaways.

Market leadership. Demand for any storage is accelerating globally. Fluence is capitalizing on this environment with notable wins such as the 4 gigawatt hour LEAG 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 OBBBA compliance with our Tennessee manufacturer and expect resolution ahead of regulatory deadlines.

Looking forward, the achievements position us to maximize stakeholder value by consistently meeting our commitments to customers and shareholders, reinforcing our reputation as a trusted industry leader.

[Operator Instructions] Our first question coming from the line of George Gianarikas with Canaccord.

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

International, no real change. It's a very competitive market. And the Chinese players continue to drive the competition in a way. The U.S., the competitive market is changing, with -- we see more and more customers that prefer to use U.S., our non-PFE manufacturers, even if they are not required to do under the -- because the projects are safeguarded under the law of that provision. So I will say that what is an evolving matter that we see coming. So that's kind of today where I see the market.

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 guided for next year, say, in '27 or '28?

Yes, George. Yes, I think our goal is to continue to improve the chart that we have disclosed. I think our goal is to continue to show their chart going forward to show the trajectory and the difference we are making. Our guidance, as you recall, was 10% to 15% in the past. I mean, I think our -- we haven't changed that going forward. So our goal is to continue to improve their trend line.

Our next question coming from the line of Brian Lee with Goldman Sachs.

Kudos on the quarter here. Just -- I appreciate all the color, Julian, on the data center sizing. It sounds like that opportunity is coming to fruition here pretty quickly given the time line 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 gigawatt hours of data center projects in the pipeline in [indiscernible], that's maybe -- if we estimate maybe $6 billion of the total $23 billion pipeline or in that neighborhood. Is that kind of the way to think about it? And what do you think the overall TAM is and what Fluence's market share could ultimately end up looking like?

Good question. Let's start with the TAM. Last quarter, we talked about a TAM of around $8 billion. So I think that is clearly -- the reality has proven that the number is significantly higher. The market has still very, very different numbers. I'd say we have seen numbers of 10x the $8 billion or more than 10x $8 billion. It's still clear. We have to [indiscernible] a little bit more. But clearly, it's a market that is expanding.

On the 30 giga that we talked about, as of September 30, only 20% of it, one small portion of it were in our pipeline. The rest were contracts that we started to -- with customers since then. And then today, if you ask me today this morning, roughly half of the 30 gigawatts are in pipeline, the other half, we're working on it. And what we're looking if I can -- will they happen in the next 2 years, where do we see that the product is suitable to do what they want. And generally, I think we are fine.

So what's a big change from telling you a quarter ago, this is an $8 billion market required is very, very complex capabilities to today. I think there's a big change in terms of what we can do for -- with our technology at Fluence, in particular, can do for data centers. And I would say the way to think about it is that there are 3. 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 would say, today the biggest driver. People who want to connect quickly to a 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 it. And we can do that today with that [indiscernible] work. This is -- there's no -- we have no need to improvements in our technology stack to be able to do that. So very great.

The second one that is also on a rising need or a rising need is back of power. Historically, we haven't played that game. But with our costs coming down as they are and our ability to -- our then [indiscernible] improve, we can now provide backup power and significantly reduce -- I won't say eliminate, but significantly reduce the need for [ diesel generate ]. 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 business generators for providing backup.

The third one is the one we have talked out in the -- in our last call, this power quality is idea that we can -- will have to manage the variability of energy demand by AI data centers. That -- 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 at 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 deliver the 3 products, the interconnection flexibility to accelerate interconnection, the back of power capabilities, and these 2 that we can do today, and we're very well positioned to -- Smartstack is a [indiscernible] project in the world. It is a project that, because of the [indiscernible] the way were designed, provides very good safety, better than, I would say, very, very good. And then third, our cybersecurity, our total control and software, our ability to ensure that no one else can get in.

So the power quality is something we're working on with our inverter manufacturers. We'll get it resolved quickly, but it's still a working product. But we thought that was going to be a [indiscernible], the back of power is going to be a gating item for us to serve this market. That's no longer the case. It is, I would say, it's a cherry on the top. If you can deliver the last 2 and this one is right, but it's not a [indiscernible]. So great market, multiples of what we told you in terms of what we do, and we all need to do a major technology.

And my last point, we -- I -- we don't have a clear view today. This is just [indiscernible] how much we can capture. What I will say, we are very well positioned to 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 -- we have -- we hire Jeff. Jeff comes with knowing how to serve the market. He's been one of the structure go and get [indiscernible]. And this is not only happening in the U.S. It's a global phenomenon. We have our pipeline. It's mostly U.S. today, but we're starting to see pipeline coming both in Australia and Europe. So sorry for the long answer, but we're excited about this.

Yes. No, I can definitely sense that. I appreciate all the color. Maybe just one more question on that topic. From a P&L timing and impact perspective, can you give us a sense of the conversion time line 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.

I will say that of the 30 giga, half are '26 order intake, half of that are '27, give or take. And most likely, projects that will be -- will convert to order take later in the year. Not revenue for '26, we'll have to see how much revenue for '27, it's not clear.

In terms of margin, 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 products quickly, give them the confidence in our security, the best density, and we are -- and so we are very confident that we can create a lot of value to our customers. That's why we're concentrating.

Our next question is coming from the line of Dylan Nassano with Wolfe Research.

Just wanted to go back to the Q4 kind of underperformance 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're operating on schedule again. So I just wanted to check what kind of changed between the last call and now, 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 these are kind of resolved at this point?

So we have -- [indiscernible] and I, clearly, we're disappointed with what happened. I mean first thing -- but I don't want to say -- sound apologetic what I'm telling you about. So what do we have? We have our suppliers in the U.S., many, I said the 3 main suppliers. Out of the 3 main suppliers, 2 are doing great. I'll say even more. The 2 that have the more complex process are doing very well. So we're very happy, ahead of schedule, doing wonderful product. We have less complex process, which is enclosure manufacturing.

When we met last quarter, we had a plan that was going to be able to -- going to allow the delivery of our revenue for the year, but that is required a major staffing process that I think we underestimated the ability to start that facility. I think that today that we have done 2 things. We have clearly gone out and got the staffing and preparing people. And we're essentially done in terms of staff and there's still some people, but it is essentially done. And we have made some changes in the way we are -- with our cultural manufacturer to ensure that we meet our -- that we need to facilitate the manufacturing process at the right [indiscernible].

And I think the 2 combinations, having started the place -- and we're talking about a significant number of people. This is roughly 500, 600 people that we needed for that facility to work with 3 chief and all of that. We were fully -- essentially fully staffed. And with the changes in operations, we are meeting our numbers. So I think we are -- we expect to do -- we were doing, at the end of last quarter, 1.5 [ enclosure ] per day. We are already at 5 and we are ramping up. And I don't know if we will be able to meet our numbers very well. So we are very confident today.

Unfortunately, we did not meet what we do. We could not deliver on the revenue, and we are disappointed. But we learned very quickly. Our operational and manufacturing team is very, very good, and they have fully placed their corrective measure to this.

Yes. Dylan, the only thing I would add is I think that from our perspective, as Julian said, yes, because of the labor shortage, we were -- we've got roughly 1.5 container per day. Fast forward, we added 500 people. We are now running at 5 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 the EBITDA we are in line with our top end of our range. So...

Got it. 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? Any -- are you prepaying for any cells like similar to what you did with AESC? And yes, so mostly just curious, like, does this get you net additional capacity to serve U.S. market?

Yes, I can take that question. Dylan, yes. I think this gives us enough capacity to serve our projected loads for the next couple of years. So we feel pretty good what we have signed. And in terms of the deposits, now no material deposit commitments, I think it's -- as we have to deliver as we make those commitments.

Our next question coming from the line of Ameet Thakkar with BMO Capital Markets.

I just wanted to kind of go back to kind of 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 looks like the implied ASPs in your book [indiscernible] 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 a rolling 12 months.

So I think the ASPs -- your question is, yes, I think it's 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 is, obviously, there's an operating leverage because volume was less. Last year, our overall revenue was [ $2.7 billion ] This year is $2.3 billion.

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, 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 straight [indiscernible]. 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 liquidity for next year. But just in terms of kind of like kind of the free cash flow expectations relative to that $50 million kind of EBITDA guidance at the midpoint, any kind of kind of, I guess, guideposts there, please?

So yes, I think the $50 million EBITDA, I talked about the working capital, roughly $100 million as our revenue is growing by -- from $2.3 billion to $3.4 billion. So $1 billion or so of additional. 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 we feel pretty good where we're going to land at the end of the year.

Our next question coming from the line of Julien Dumoulin-Smith with Jefferies.

Nicely done this quarter. Just following up a little bit about some of the margin commentary and just filtering that back in with AESC. Can you comment a little bit on how you think about margins being tethered to whatever happens with respect to your domestic supply and whether that's with AESC or in [indiscernible]. Does that -- is that part of the commentary about margin driven? And then related, can you just give a little bit more of a detailed update around AESC specifically? I know that you sort of "procured a backup" here, if you will. But how is that relationship evolving here? How would you frame out volumes from one side or the other side of that supply range from now at this point?

In terms of margins -- in terms of AESC, I mean, any deal we do, we might do an AESC will be accretive. So that's the way you like to think about it. We -- when and if it happens, we'll communicate what it means in terms of margins and -- and I think that Ahmed's point was more general. If you looked at our performance since I got here. The company was negative margins of 4%. We're now on a rolling average of 12 [indiscernible]. We're now at 13.7%. So [indiscernible] we're all here. Want to commit to continue showing a growing [indiscernible] that's kind of what we're doing, and we're finding ways to continue to work. I mean that was more of a comment in that direction.

In terms of AESC, what I would say is that we are -- mainly the OB3 OBBBA compliance is a complex cost. We have been able to make a lot of progress. And generally, you can look at it from [ 3 ] area that you need to meet. The [ IP ] and I think we have a solution that's done, and we can -- the [ IP ] in that -- in that for that production facility meets the criteria of OBBBA3 -- OBBBA or [indiscernible]. Then we have the material systems, the need that the suppliers of the facility cannot come from PFE suppliers. We have a plan that will deliver that. And then we have the owners. And the ownership is the one where we are -- field the base. We're making good problems. We're committed to resolve it, but we have not -- we have not reached a final deal. What we have always said, we're not the only option in town. So there are other ways that they can resolve this issue. I don't want to -- we clearly believe that we are the best option, from my point of view, but they can do something different.

So -- and then on the new supplier, I mean, what it is, is we generally diversify supplier. That's a rule of [indiscernible]. We're diversified supplier. And the demand we see is very big. So we need to continue to meet the growing demand of our philosophy of diversified suppliers 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. Yes.

And so just to clarify that real quickly, it's 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.

Yes. And I will say the following. The -- as I said, a potential deal with AESC will be accretive to the core numbers. That I can provide.

Right. You're already here cutting it. Okay. Understood.

No, I'm not cutting probably [indiscernible].

Okay. All right. Got it. No, that's why I asked. I appreciate it.

Our next question coming from the line of David Arcaro with Morgan Stanley.

In terms of the data center pipeline, I was curious just to get your -- what you're currently seeing, is this bringing larger project sizes versus your current backlog? Is it more U.S. 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?

Yes. I will say that generally, we talk to in the call. One of the big drivers of the elasticity of demand -- where you can see the elasticity of demand with -- for our technology that price has come down has been how projects are getting bigger. And we have today 38 projects that are 1 gigawatt hour or more. I don't think that the data centers are bigger, naturally bigger than 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, I will say the majority come from the U.S. and we have seen some -- the pipeline development in APAC and Europe is a little bit behind. But so that will see what we will see this as a global market. So last kind of our view.

In terms of duration, depends on the use case, we see from 2 to long-duration storage, both the whole nothing below 2, 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 are you seeing in terms of what drove the strong [indiscernible]?

It was a strategy, a big driver of the strong quarter in 20 -- in 20 -- the strong order intake. We have these deals in Australia, as you know, that we were delayed in 2025. We signed them all, and they all -- most of them occur later in the year. So that's a big driver of it. But we see for '26, the U.S. 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 '26. So later in the year.

Our next question coming from the line of Mark Strouse with JPMorgan.

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, 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 Smartstack the only go-to-market solution that you have there? Are you potentially looking to partner up maybe being a systems integrator for some of the more emerging technologies that are out there?

Smartstack will be our -- is our -- what we're going to do. And we believe that very competitive. So we do all this, Mark.

Our next question coming from the line of Christine Cho with Barclays.

With respect to the data centers, you mentioned the 3 different ways that you can serve data centers, the interconnection backup and power quality. Would you be able to sort of like 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 2 hours is the low end. I'm assuming that's for power quality. Is it similar for those who are interested in getting storage for interconnection purposes?

Yes. First point, that's that I would like to highlight on. So we have these 3 needs. What's the wonderful of our technology. And now we're talking about battery storage, not necessarily ourselves. Is that we can stack up these 3 needs with the same technology. While the other technology solutions can do one or the other, but they cannot do what we do, which is facilitate interconnection, do [indiscernible] power and do what, and that makes a difference. And I think that's what makes our solutions so attractive to our -- to data center today. We have resolved 3 problems with one technology. So that's very, very good.

In terms of the 2 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 [indiscernible]. But generally that's true. But I think you need to think about is this, is the ability to serve the 3 needs with the same infrastructure. That's what we are 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 sales suppliers there?

We have -- 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. [indiscernible] a supplier is not a [indiscernible]. Shouldn't be a [indiscernible]. My customer shouldn't care and my financial 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 [indiscernible].

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...

Yes. I care about my customers. That's what I do. We will figure out that far. But the importance in service is the ability to -- or the route to success in meeting our customer needs. That's what drives the company. Well, you're right. We might be able to capture if we were to be vertically integrated, there will be more margin on one or the other, but my -- the way to win is meet the customer. That's our tool. Not -- if you try to optimize something else, you lose this side. Your customer needs, and that drives profitability, that drives margin, that drives everything.

And our next question coming from the line of Justin Clare with ROTH Capital.

So I just wanted to follow up on the second source of the cell supply here. So I think you mentioned it will 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 U.S. projects until that second source is available? And then -- so I'm just trying to get at how important is it for you to resolve the challenges with the FEOC restrictions by early calendar 2026 in terms of thinking through the outlook for the year.

Very, very important. That's what I would 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. I 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 can -- we have the ability to ensure that the data centers meet the interconnection restrictions that they have. So I'll say, yes. How did you need a major regulatory change [indiscernible] that you meet whatever the grid is offering.

Ladies and gentlemen, that's all the time we have our Q&A session. I will now turn it back to Chris for any closing comments.

Thanks, Lydia, and thanks to everyone for participating on today's call. We look forward to speaking with you again by first quarter results, if not before that. And I'm pleased to -- looking forward to meeting with everyone as your questions arise.

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