Release Date: August 06, 2026
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Record order intake of $1.44 billion in Q3, nearly triple the prior year, with total orders up 80% year-to-date.
- Record backlog of $6.4 billion, up 14% sequentially and over 30% year-over-year, providing strong revenue visibility.
- Successful entry into the data center market with $850 million in orders/awards, including a $300 million deal with a developer and $550 million from a hyperscaler.
- Data center pipeline surged to 16 GWh, a 35% increase quarter-over-quarter, with faster sales cycles (3 months from lead to order).
- SmartStack product platform gaining traction, representing 75% of orders year-to-date, with new SmartStack 10 increasing density to 10 MWh per unit.
Negative Points
- Revenue guidance for fiscal 2026 lowered by $400 million to a midpoint of $3 billion due to production delays at new manufacturing facilities.
- Adjusted EBITDA guidance reduced to a midpoint of negative $10 million, down from $50 million, reflecting lost margins and one-time costs.
- Q3 revenue of $650 million was $90 million below expectations, impacted by ramp-up issues at two new contract manufacturing plants.
- Incurred $15 million in costs related to new product rollout and production delays, plus a $15 million loss on a planned battery supply agreement.
- Liquidity remains at $863 million, below the $900 million target, with potential need for $300-500 million additional working capital to support growth.
Q & A Highlights
Q: Can you provide additional granularity on the production delays and what is happening at the facilities?
A: Julian Nebreda (CEO) explained that the delays stem from scaling up production capacity with new contract manufacturers. For the international market, a new manufacturer's initial production of Smart Stack components did not meet quality standards, causing significant delays, though the issues are now fully resolved and the facility is ramped up. For the US market, a new fully automated facility in Houston experienced construction delays and issues with automation equipment, compounded by a delay in grid connection. The facility is now producing at limited capacity and is expected to reach full production in fiscal Q1 2027. The CEO noted these facilities will provide a competitive advantage, particularly for domestic content in the US.
Q: How should we think about the conversion cycle on record backlog levels and the impact of data center and hyperscaler bookings on the P&L?
A: Julian Nebreda (CEO) stated that data center customers have a much faster conversion cycle, citing a recent deal with a developer that went from lead to contract in less than three months. Traditional utility and IPP segments maintain a conversion cycle of roughly 12 to 18 months. Revenue recognition occurs based on project milestones, not all at the end, and the faster data center cycle should help accelerate overall revenue conversion.
Q: Can you elaborate on the commercial traction in data centers, the competitive dynamics, and key differentiating factors for wins?
A: Julian Nebreda (CEO) attributed wins to the combination of Smart Stack's density, safety, and reliability with their operating system, which enables efficient load management and fast response times for low voltage ride-through. The company is seeing better-than-planned traction and is now exploring opportunities with hyperscalers and developers in international markets, leveraging its global footprint. The pipeline has grown to 16 GWh, a 35% increase quarter-over-quarter.
Q: What is driving the wider range in the revised EBITDA guidance, and how confident are you in the execution path?
A: Ahmed Pasha (CFO) explained that the wider EBITDA guidance range reflects prudence regarding potential incremental costs as the company ramps up operations at new facilities. Julian Nebreda (CEO) added that the company has already produced and integrated roughly half of what is needed for Q4, providing confidence in meeting the revised guidance, though the ramp-up of the Houston facility carries inherent risks.
Q: Can you provide more detail on the battery cell cost uplift and whether it impacts fiscal 2028 procurement?
A: Julian Nebreda (CEO) clarified that the charge is related to a long-term supply agreement for the international market, not connected to AESC. The agreement includes technological alignment for future battery-module integration. A one-time charge of $15 million was taken on a single project as part of the deal adjustment, but the NPV of the long-term agreement is significantly higher than the charge, making it a strategic decision to secure supply and pricing for 2027 and 2028.
Q: What is the scope of the manufacturing delays, and are they impacting the hyperscaler MSAs and new orders?
A: Julian Nebreda (CEO) confirmed that the production delays are related to contracts signed 12-18 months ago and have no impact on the hyperscaler MSAs or new data center contracts. He also clarified that the company has two MSAs with two hyperscalers. The $300 million order was from a developer referred by one of these hyperscalers, while the $550 million award in July was from a hyperscaler tender, which is expected to convert to signed orders in the coming months.
Q: How do you feel about the 10% to 15% margin guidance given peer pressure in storage, and are there margin variances in the backlog?
A: Julian Nebreda (CEO) stated that Fluence remains comfortably within the 10% to 15% adjusted gross margin range, even after excluding one-time costs. The company does not see the same margin pressures as a larger peer, attributing this to differences in cost structure. The main challenge is scaling the company, and the new orders and backlog are in line with the 10% to 15% margin expectation.
Q: What is the mechanism for setting fiscal 2027 guidance, and what specific changes will the new leadership make to improve execution?
A: Julian Nebreda (CEO) indicated that 80% to 90% backlog coverage remains the right target for guidance. He noted that new facilities will be hedged more conservatively, but no major new capacity is expected to support 2027 revenue. Regarding leadership, Roman Lewsen will lead supply chain and manufacturing transformation to align processes with a larger scale, while Peter Williams will focus on product development, particularly integrating software and hardware for more demanding customers.
Q: What is the split of the $1.1 billion non-data center order intake between US and international, and do data center projects include EPC?
A: Julian Nebreda (CEO) stated that the non-data center orders were roughly 60% US and 40% international. For data center projects, the duration is two hours, and there is no real difference in technical requirements or margins between hyperscalers and developers. Developers are typically smaller, more agile companies that make decisions faster, leading to a significantly faster conversion rate.
Q: Can you discuss the potential impact of FCC restrictions on inverters and your sourcing strategy?
A: Julian Nebreda (CEO) confirmed that Fluence only works with non-Chinese inverters in the US, mostly US-made, so the company will not be affected by the restrictions. The company anticipates similar restrictions in Europe and is working towards a fully European solution for that market. This proactive approach is part of the company's strategy to prepare for increased technological restrictions as energy storage plays a more important role in the grid.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
This stock alert was generated using automated technology and GuruFocus financial data to provide readers with timely and accurate market reporting. This content was reviewed by GuruFocus editorial team prior to publication. Please send any questions or comments about this story to [email protected].
