Mark Strouse: Yes, good morning. Thank you very much for taking our questions. So following up on Dylan there. So I appreciate you’re not seeing delays in your backlog projects. But I guess my question would be just when you’re looking at your pipeline, is there anything that you’re seeing there as far as kind of the — maybe an elongation of the timing between when you’re issuing a quote, to when you’re getting a final order? Any kind of qualitative conversations you’re having with folks about the next several years, projects potentially getting delayed?
Julian Nebreda: What comes into our pipeline are usually — not usually — are projects that are very mature in the interconnection queue because these are projects that we see you can deliver that we can convert into backlog within the next 24 months. So generally, you don’t see that delay type of problem there because they are already — when they come to us, they’ve been already three years in the queue. So they know exactly how they connect, they know what they need to do. It’s very, very — that one and it becomes more an execution more than anything. We have something that we don’t disclose that much to all of you, which are leads, which is all the projects we looked at with our customers that are not necessarily ready for pipeline, but that are projects that we believe are — we will work as we look at the long-term planning of some of our customers.
Those are more less mature. And those probably — I’ll tell you that we have a conservative view of them. So already — so I don’t know whether it has been — has seen any deterioration in terms of timing from what we were seeing a year ago. It is the same. We see a lot more coming into that group and a lot more players. And if you look at the pipeline at the queue in the US is almost a terror of battery storage that is getting into the queue significantly huge. Not all of them will convert. So I will say the color I can give you on that is that, that — those leads, the things that are early in the queue and are going — what we have seen an explosion, a lot and a lot more projects of those. That’s not where we spend most of our time. But we — that makes us very, very confident that we — this business has a huge tailwind, very, very strong tailwinds going forward.
In terms of our pipeline, as I said, we — usually very much mature projects that have been there almost two, three years already in the queue. They know when they’re going to happen. And we have — I haven’t seen any deterioration of any sort in the last year. And these two issues, mostly a US issue, the other countries, even though they have transmission queues and delays, they manage it very, very differently. So systems in other markets are a lot more certain. What I mean a lot more certain, once you get into a line, you know that something is going to happen by a certain date. And so they work differently. So you don’t see the situation that you see in the US where you have the six years, five years queues on the line. But I think the great news this quarter, if you ask me to highlight, and I’m never going to repeat a point.
But is this 1 tera of — when you looked at the queue nationally in the US, it’s almost 1 tera of — 1,000 gigawatts of capacity, we’re looking to connect to the grid, which is mind blowing number and a great opportunity.
Mark Strouse: Yes, that’s great to hear. Thank you, Julian. And quick follow-up. Congrats on signing your first domestic content contract. Not necessarily looking for specifics on that contract, but I imagine you’re having quite a few conversations with other folks there. You’ve said in the past that the 45 times manufacturing tax credits would still kind of put you in your target gross margin range. Just curious now that we’re getting closer to more and more of these contracts hitting, if you can provide an update on that commentary about gross margin impact.
Julian Nebreda: As I said, the 45 times $10 per module manufacturing in the US, we have said that’s going to be within our 10% to 15%. It should not move us out. What we have said in the past is that we believe our domestic content because of the first-mover advantage because we have been able to sign the first one. And we are — the — we have the most secure way of any customer who wants to domestic content to capture of all the offerings around us. Not only we are a first-mover advantage for our ability to deliver the significantly the risk from what some other players are trying to offer. Because of that, we believe there is an opportunity to potentially expand our margins. We’re working on it. I think it’s too early still to communicate it.
I said I don’t want to negotiate against myself and announcing stuff that then comes and eats me. But we believe because of that point, because of it’s not only the first mover advantage, which is something that we have mentioned many times in the past, but it’s because when we have looked in detail at what the our competitors are offering, we are by far the most secure way, the less risky way to capture that. Our offering is the most robust, the one that will provide higher certainty that customers will be able to capture that. And I think that is also a competitive advantage. So I feel we are staying tuned. We have always said — just to go back this is an order intake for ’24, generally, domestic content, mostly revenue in ’25 and ’26 and going forward.
But it will not — we will not — none of our ’24 revenue is dependent on domestic content of anyway. This is ‘a 25 onward revenue more.
Operator: Our next question comes from Justin Clare from Roth MKM.
Justin Clare: Good morning. So just a follow-up on the domestic content here. It sounds like you’re seeing very strong demand for products that will qualify for the domestic content adder. So just wondering, as we head into 2025 and then even into 2026, how much of your total sales in the US do you think will include domestically produced battery cells and battery modules? Could this be a considerable portion of your sales in the US market?
Julian Nebreda: I’ll say that over time, this will be the main — we believe this is going to be table stakes in the US that you will — US players will demand domestic content as table stake overtime. It will not happen immediately. So ’25, there will be a combination and ’26 and it will move forward as we get along. It’s difficult to — now to tell you exactly what will be the distribution of revenue in ’25, how much will be domestic content? How much will be — because of the long lead time on some of these projects. But our view than the way we have designed our plan is that over time, this will be the only — the domestic content will represent the great majority of the US market.
Justin Clare: Got it. Okay. And then just given that, can you just update us on your plans to potentially expand your manufacturing footprint either in the US or internationally? What could the timing potentially be and then the magnitude of potential expansion?
Julian Nebreda: Yes. We continue to work at our facility in Utah in the US. We have looked at some plans of moving some — near the production of the battery cells. But today, we have — those dates have not been set. So for now, our current plan in the US is staying in Utah. We have seen most of our biggest markets are in the western side of the US still today and that facility has the capability to expand. We can double the expansion quickly. So not any real plans even though we have not any — we have not set any dates for the potential expansion on the Eastern side of closer to the eastern side of the US. In terms of Europe, we continue to look at it. So that continues to be an opportunity that we are evaluating. We haven’t set dates yet.
We are — it requires to build an ecosystem. So we are — that’s what we’re looking for. And as we build that ecosystem and reach bigger economies of scale, we will set base and commitment. And then for APAC, we build — we manufacture out of Vietnam, we’re looking at India, I would say, in more detail today, not only to serve that India market, but we believe that India will be — could be a great place to manufacture our products, and there’s great manufacturing companies that we can combine — we can create an ecosystem probably faster than what we can create an ecosystem in Europe. So that — if I were to where we are today, probably our first — the next announcements in terms of manufacturing capabilities will probably be in India rather than in the Eastern US or Western Europe.
Operator: Our next question comes from Kashy Harrison from Piper Sandler.
Kashy Harrison: Good morning. Thanks for taking the questions guys. Just a clarifying question for you, Julian. Were you saying that even if your customers have issues securing critical equipment that the contracts still require them to take title. And then just outside of force majeure events, is there any scenario in which there could be a delay in them taking title from you?
Julian Nebreda: What I said, if our contracts require our customers to take title if there are significant delays. So there is a safeguard at the end of the process. If by certain day I think the customer doesn’t have the site ready or ones who have , they take title of our equipment, usually in a warehouse close to the site. So — but as a safeguard, I’ll say seldom use, doesn’t happen all the time, but it’s a safeguard that makes me feel more confident that — which is — the message I was trying to communicate that our ’24 — fourth-quarter revenue is very much secure that even if our customers had a problem putting in the pad locks or doing anything, we will be able to take one customer. But where we are today — said for the last years, we’ve been very, very good.
Our customers have been very, very good. We have not seen any major delays, maybe a week here or there, a week there, but nothing that’s in any way significant. So that’s how the contracts do work. And I was — this is not something that we, as I said, a provisional contract that we do not exercise constantly. But it’s something that if the things were complicated, you can always use it. And generally, we do this in a very, very amicable way with our customers, not major issues. Yes, it was more to give — to provide confidence to all of you because I understand all this revenue in the fourth quarter, hey, I know you can do it. Ahmed mentioned, we’ve been doing this very, very well for the last year or 1.5 years, great. It is essentially manufacturing and logistics, wonderful, not that many customers, 20 to 25, wonderful.
And if things get bad for any reason, we still have the safeguard. So that’s the way I will put it out. I think you mentioned it, except for force majeure, something that — then that’s a very different world. But even today with the situation in the Red Sea, we don’t have a lot through the Red Sea, as we said, 15% of our volume passes through the Red Sea, very, very low. But even that, that added a couple of weeks more to the transit time of our equipment, we were able to manage it within our time. So even in a situation, let say, a war in the Middle East, we were able to do it. We can manage it very, very well. So it will have to be something really, really disruptive in order to disrupt our capabilities. It could happen unfortunately, but that’s where we…
Kashy Harrison: Yes. That’s all very, very helpful. As you pointed out, the 80% is a big number. And just maybe for my follow-up question, more so about comments in the slide deck. You highlight demand is growing, specifically in ERCOT, CAISO and MISO. Just wondering if you have a sense of what proportion of your customers have — are signing PPAs versus just selling merchant and whether in your discussions with your customers, there’s any difference in their ability to secure financing depending on which approach they take.
Julian Nebreda: Yes. On the financing, generally, we, in the US, have worked with — and Global say with Tier 1. So financing hasn’t been an issue. I don’t really have a view in the US how much is PPA versus merchant. But I will tell you, from my conversations, mostly PPAs. But I don’t have exactly the number. I cannot tell you 95%, but mostly PPAs. And I know that, how I know about it because of they — what they are for my — what they want from the KPIs, they want from me. Our PPA connected to the KPIs, they are committing to their counterparties. So that’s how I get a sense. I don’t really know the number. We’ll get a number. That’s a good question to make a point of how much of the — of what we have of our order intake. It is firm with PPAs versus was merchant. But I’ll say the great majority, I just don’t know the number from the top of my head.
Operator: Thank you. And I would now like to turn the call back over to Lex May for closing comments.
Lexington May: Thank you, Justin, and thank you, everyone, for participating on today’s call. If you have any questions, please feel free to reach out to me. We look forward to speaking with you again when we report our third quarter results. Have a good day.
Operator: This concludes today’s conference call and thank you for participating. You may now disconnect.
