Fluence Energy, Inc. (NASDAQ:FLNC) Q4 2025 Earnings Call Transcript

Fluence Energy, Inc. (NASDAQ:FLNC) Q4 2025 Earnings Call Transcript November 25, 2025

Operator: 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.

John Shelton: 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 its 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.

Julian Jose Marquez: 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 all BBBA compliance. Ahmed will then cover our financial results and ’26 outlook. Turning to Slide 4 and our financial performance. First, I am pleased to report that during the fourth quarter, we signed more than $1.4 billion of orders, which represents a record level. This brings our current backlog to $5.3 billion, setting us up for renewed growth in ’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 fund our plans for growth. Please turn to Slide 5 for details on our order intake and pipeline. Our record $1.4 billion of order intake during the fourth quarter included contributions across all our core markets. Approximately half were for projects located in Australia. For fiscal ’26, we currently expect the U.S. market will be the largest contributor of order intake as reflected by our pipeline as of year-end. Looking ahead, demand for energy storage solution is accelerating worldwide, driven by both the rapid decline in capital cost of storage and surging demand for electricity for intermittent renewables, 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 Smartstack 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 ownership. 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 its 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. We designed Smartstack with the objective of reducing total cost of ownership for our customers. This means in addition to a lower sales price, Smartstack offers lower cost to install and maintain the system over 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 see over 500 megawatt hours of storage per acre. That means bigger projects, optimized sites and better economics, all else equal. Additionally, Smartstack maintains all elements of fire safety and cybersecurity that have been historically a salient element of our offering. Finally, Smartstack is developed with a flexible system architecture that can adapt to customers’ specifications. We expect this will be a key selling point for data centers as technology to reduce system latency evolves and Smartstack kits can be upgraded with new equipment quickly on site. We are engaged with many customers interested in Smartstack and expect it will represent a majority of our orders for this fiscal year.

Please turn to Slide 10 for an update on our domestic content strategy. Our domestic supply chain is a critical advantage for our business, particularly given that we see the majority of our growth coming from the 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 staffing the facility, especially for weekend shift. We have been working with our contract manufacturer to execute a plan to improve staffing levels and further optimize the workflow. As of today, the production rate has improved and staffing levels have in great measure been met, which give us confidence that the manufacturer will meet our desired target rate by the end of this calendar year. We expect to fulfill all of our customer delivery commitments over the course of ’26 and book the associated ’26 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 solution.

Please turn to Slide 11 for an update on our prohibited foreign entity or PFE compliance strategy. A quick refresh. The One Big Beautiful Bill or OBBBA included regulations designed to restrict tax credit availability for products manufactured in the U.S. but 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 all 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 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 being manageable within our available liquidity. Both parties are motivated, and we continue to expect a constructive resolution in advance of the effective dates specified by the law. I will now turn the call over to Ahmed to discuss our financial results and fiscal ’26 guidance.

Ahmed Pasha: 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 improvement 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 margin will improve over time as we continue to leverage our disciplined execution and our growing scale. We expect operating expenses to grow at less than half of the pace of revenue, consistent with our guidance in prior years. This includes increased spending on sales, marketing and R&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.

Julian Jose Marquez: Thanks, Ahmed. Before we take your questions, I would like to conclude with the following 5 takeaways. Market leadership. Demand for energy storage is accelerating globally. Fluence is capitalizing on this environment with notable wins such as the 4 gigawatt hour 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 OBBA compliance with our Tennessee manufacturer and expect resolution ahead of regulatory deadlines. Looking forward, these achievements position us to maximize stakeholder value by consistently meeting our commitments to customers and shareholders, reinforcing our reputation as a trusted industry leader.

Q&A Session

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

George Gianarikas: 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?

Julian Jose Marquez: Internationally, not 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. or non-PFE manufacturers, even if they’re not required to do it under the — because the projects are safeguarded under the law or of that provision. So I would say that, but it’s an evolving matter that we see coming. So that’s kind of today where I see the market.

George Gianarikas: 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, ’28?

Ahmed Pasha: 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 that 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 that trend line.

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

Brian Lee: 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 and leads, 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?

Julian Jose Marquez: Good question. Let’s start with the TAM. Last quarter, we talked about a TAM of around $8 billion. So I think that it’s clearly — the reality is proving that the number is significantly higher. The market has still very, very different numbers. I said we have seen numbers of the 10 times the $8 billion or more than 10 times the $8 billion. It’s still unclear. We have to, I think, a little bit more. But clearly, it’s a market that is expanding. Of the 30 gigas that we talked about, as of September 30, only 20% of it, one small portion were in our pipeline. The rest were contracts that we started to — with customers since then. And then today, if you ask me today this morning, roughly half of the 30 gig are in pipeline, the other half we’re working on it.

And what we’re looking is — will they happen in the next 2 years, where do we see our 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 requiring this very, very complex capabilities to today. I think there’s a big change in terms of what we can do for what our technology and Fluence in particular, can do for data centers. And I would say the way to think about it is that there are 3 needs. One is what we call interconnection flexibility, the ability to manage your — 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 the grid and want to ensure that the data center meets the availability of the grid and can give the assurances to the grid operator that they will not disrupt the grid. And we can do that today. That’s what work. This is — there’s no — we have no need to improvements in our technology stack to be able to do it. So great. The second one that is also in a rising need or rising need is backup power. Historically, we haven’t played that game. But with our costs coming down as they are and our ability to — our density improvements, we can now provide backup power and significantly reduce. I won’t say eliminate, but significantly reduce the need for diesel generators. So that’s the second need that we’re seeing.

We can accelerate interconnection to the grid, and we can reduce some of the cost of the diesel generators by providing backup power. The third one is the one we have talked about in our last call, this power quality, this idea that we can — we will have to manage the variability of energy demand by AI data centers. 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 around that $8 billion number. And it is something that data centers, when they look at what they’re doing, their speed to power is a much more important element than this one because the other one they can manage in some other way.

We are committed to delivering the 3 products. The interconnection flexibility to accelerate interconnection, the backup power capabilities. And these two that we can do today, and we’re very well positioned to do. Smartstack is the densest project in the world. It is a project that because of the [indiscernible], the way we are designed provides very good safety, better than, I would say, very, very good. And then third, our cybersecurity, our total control on software, our ability to ensure that no one else can get it. 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 work in progress. But we thought that was going to be a gating item the backup power is going to be a gating item for us to serve this market.

That’s no longer the case. I would say it’s a cherry on the top. If you can deliver the last 2 and this one is great, but it’s not a gating item. So great market, multiples of what we told you in terms of what we do, and we don’t need to do a major technology. And my last point, we can — we don’t have a clear view today. This is just starting on how much we can capture. What I will say, we are very well positioned to do safety, density. Some of our competitors are claiming density, which is 20% to 25% less than what we can do. So that tells you we can do very, very well, and we are — we have — we hired Jeff. Jeff comes with knowing how to serve this market. He’s been one of the structure, go and get this done. And this is not only happening in the U.S. This is a global phenomenon.

We have in our pipeline. It’s mostly U.S. today, but we’re starting to see pipeline coming both out of Australia and Europe. So sorry for the long answer, but that we’re excited about this opportunity.

Brian Lee: 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.

Julian Jose Marquez: I’ll say that of the 30 gigas, half are ’26 order intake, half of our ’27, give or take, and most likely projects that will be — will convert into order intake later in the year, not revenue for ’26. We have to see how much revenue for ’27 is unclear. 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 product quickly, give them the confidence on 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 where we’re concentrated.

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

Dylan Nassano: Just want 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 were operating on schedule again. So I just want to check what kind of changed between the last call and now? And like are these incremental kind of problems that popped up? And anything you can give us just to kind of boost confidence going into the quarter that these are kind of resolved at this point?

Julian Jose Marquez: So we have — thanks, Dylan, and clearly, we’re disappointed with what happened. I mean, first thing, but I don’t want to say sound apologetic in what I’m telling you. But — so what do we have? We have our suppliers in the U.S., many, but I say the 3 main suppliers. Out of the 3 main suppliers, 2 are doing great. I would 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, no problem. We have a less complex process, which is enclosure manufacturing. When we met last quarter, we had a plan that was going to be able — going to allow the delivery of our revenue for the year, but that it required a major staffing process that I think we underestimated the ability to staff that facility.

I think that today, that we have done 2 things. We have clearly gone out and continue staffing and preparing people, and we’re essentially done in terms of staffing. There’s still some people, but it is essentially done. And we have made some changes in the way we are with our contract manufacturer to ensure that we meet our — that we need to facilitate the manufacturing process. That’s the right word. And I think the two combinations, having staffed 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 shifts and all of that. We were fully — essentially fully staffed. And with the changes in operations, we are meeting our numbers. I think we are — we expect to do — we were doing at the end of last quarter, 1.5 closures per day.

We are already at 5, and we are ramping up, and I don’t know that we will be able to meet our numbers very well. So we are very confident today. Unfortunately, we did not meet what we could not deliver on the revenue, and we are disappointed, but we learned very quickly. Our operation and manufacturing team is very, very good and they have put in place their corrective measures to this.

Ahmed Pasha: 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 roughly 1.5 containers per day. Fast forward, we added 500 people. We are now running at 5 containers per day and 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.

Dylan Nassano: 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 sales like similar to what you did with AESC? And yes, so mostly just curious like does this get you net additional capacity to serve the U.S. market?

Ahmed Pasha: 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, no, no material deposit commitments. I think it’s just as we get the deliveries, we make those payments.

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

Ameet Thakkar: 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 bookings are actually up pretty significantly kind of quarter-over-quarter. I was just wondering if you could kind of walk us through why, I guess, the gross margin is lower year-over-year versus kind of the rolling 12 months.

Ahmed Pasha: So I think the ASPs, your question is, yes, I think is down, but no surprise. I think ASPs are down roughly, I think, give or take, 10% or so. In terms of the gross margin, I think we basically are pretty much in line. I think the EBITDA margin as you ask, is obviously, there’s an operating leverage because volume was less. Last year, our overall revenue was $2.7 billion. This 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 stay tuned. I think our goal is to continue to improve the top line and also the bottom line.

Ameet Thakkar: 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 the kind of the free cash flow expectations relative to that $50 million kind of EBITDA guidance at the midpoint. Any kind of, I guess, guidepost there, please?

Ahmed Pasha: 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 — as 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.

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

Julien Dumoulin-Smith: Nicely done this quarter. Just following up on 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, whether that’s with AESC or incremental supply. Does that — is that part of the commentary about margin improvement? And then related, can you just give a little bit more of a detailed update around AESC specifically? I know that you’ve 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 arrangement now at this point?

Julian Jose Marquez: In terms of margins, in terms of AESC, I mean, any deal we do, we might do with AESC will be accretive. So that’s the way you need to think about it. We — when and if it happens, we’ll communicate what it means in terms of margins. And I think that Ameet’s point was more general. When you looked at our performance — at least since I got here, we got a company with negative margins of 4%. We’re now on a running average of 12 month average, we’re now at 13.7%. So my point is we all here want to commit to continue showing a growing line. That’s kind of what we’re doing, and we’re finding ways to do it today and continue to work on it. That was more of that coming in that direction. In terms of AESC, what I would say is that we are — meeting the OB3, OBBA compliance is a complex process.

We have been able to make a lot of progress. And generally, you can look at it from 3 areas. You need to meet the IP. And I think we have a solution that’s done and we can — the IP in that — for that production facility meets the criteria of OBBBA3 — OBBA or meet the criteria. Then we have the material systems, the need that the suppliers of the facility cannot come from PFP suppliers. We have a plan that will deliver that. And then we have the ownership. And the ownership is the one where we are still debating. We are making good progress. We’re committed to resolve it, but we haven’t — 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. And 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’re generally diversified suppliers. That’s a rule of life. So we’re diversified suppliers. And the demand we see is very big. So we need to continue to meet the growing demand. So 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.

Julien Dumoulin-Smith: So just to clarify that real quickly, basically, your current plan and current margin expectations assume that you’re served with AESC. And would it be improved or detrimental to shift the supply, if I heard you right or understand.

Julian Jose Marquez: Yes. I mean I will say the following. The — as I said, a potential deal with AESC will be accretive to the current numbers. That answer I can provide.

Julien Dumoulin-Smith: All right. You’re already here cutting it. Okay. Understood.

Julian Jose Marquez: No, I’m not cutting that. Having done the deals yet.

Julien Dumoulin-Smith: Okay. All right. Got it. No, that’s why I asked. I appreciate it.

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

David Arcaro: 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?

Julian Jose Marquez: Yes. I’ll say that generally, we talked during the call with one of the big drivers of the elasticity of demand where you can see the elasticity of demand for our technology as prices 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, they are 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 we see what we will see this as a global market. So that’s kind of our view. In terms of duration, it depends on the use case, we see from 2 to long duration storage, both the whole — nothing below 2, but that’s where we are.

David Arcaro: 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 rebound?

Julian Jose Marquez: It was Australia the big driver of the strong quarter in ’20, the strong order intake. We have these deals in Australia, as you know, that we were delayed in ’25. We signed them all and they all — most of them occur late 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 late in the year, most likely.

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

Mark W. Strouse: 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?

Ahmed Pasha: 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.

Mark W. Strouse: 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?

Julian Jose Marquez: Smartstack will be our accelerator. What we’re going to do, and we believe that very competitive. So it will be Smartstack.

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

Christine Cho: 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?

Julian Jose Marquez: Yes. First point, that’s what — that I would like to highlight. So we have these 3 needs. What’s wonderful about our technology and now talking about battery storage, not necessarily ourselves, is that we can stack up these 3 needs with the same technology solution. While the other technology solutions can do one or the other, but they cannot do what we do, which is facilitate interconnection, do backup power and do quality. And that makes the difference. And I think that’s what makes our solution so attractive to our data centers. We can resolve 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’re right on the view that backup power and interconnection flexibility will tend to be longer duration, while power quality will tend to be shorter duration. Generally that’s true. But I think you need to think about this differently. 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.

Christine Cho: 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 a contract for a set amount of time? And then lastly, for your international projects, are you also diversifying your cell suppliers there?

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

Christine Cho: 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…

Julian Jose Marquez: I care about my customers. That’s what I lose. Yes we will figure out that part. But the important thing is the ability to [indiscernible] the route to success in meeting your customer needs. That’s what drives the company. But you’re right, we might be able to get a capture — if we were to be vertically integrated, there will be more margin on one or the other, but my real — the way to win is meet the customer needs. That’s the way to win. Not — if you try to optimize something else, you get — you lose the side. Your customer needs and that drives profitability, that drives margin, that drives everything.

Operator: Our next question coming from the line of Justin Clare with ROTH Capital.

Justin Clare: 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 FIAC restrictions by early calendar 2026 in terms of thinking through the outlook for the year?

Julian Jose Marquez: Very, very important. That’s what I will say. We have a plan, and we’ve been working on it, and it’s very, very important to do it. So that’s what I can tell you. I mean, we will get it done.

Justin Clare: 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?

Julian Jose Marquez: 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 would say yes. I don’t think you need a major regulatory change. It’s just ensure that you meet whatever the grid is offering.

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

John Shelton: Thanks, Olivia, 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 then. And please do — looking forward to meeting with everyone as your questions arise.

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