Fluence Energy Inc

NASDAQ:FLNC

Earnings Call Analysis

Strong Revenue Performance and Guidance Adjustment

The company reported $483 million in revenue for Q3 2024, surpassing expectations by 20%. Adjusted gross margin was 17.5%, contributing to a year-to-date margin of 12.8%, and adjusted EBITDA reached $16 million. The company now projects fiscal 2024 revenue between $2.7 billion and $2.8 billion, slightly down due to project delays. Despite this, they foresee a substantial Q4, aiming for 35%-40% revenue growth in fiscal 2025, reaffirming their profitability with margins ranging from 10% to 15%. They also highlighted a robust backlog of $4.5 billion and liquidity of over $1 billion, emphasizing their competitive position and market confidence.

Strong Revenue Growth and Profitability

Fluence reported impressive financial results for the third quarter, with revenue reaching $483 million, which is 20% higher than previously anticipated. This growth was primarily driven by the early completion of project milestones. The adjusted gross profit was $85 million, resulting in a commendable adjusted gross margin of 17.5%, marking the fourth consecutive quarter of double-digit margins. Year-to-date, the adjusted gross margin stands at 12.8%, while they project Q4 margins to fall within the 10% to 12% range, aiming for the higher end for the full year.

Backlog and New Contracts: A Record-Breaking Quarter

Fluence's operational momentum is reflected in their backlog, which has reached an all-time high of $4.5 billion following the signing of $1.3 billion in new contracts this quarter alone. This maintains a pattern of surpassing order intake compared to revenue recognition for the past 11 quarters, demonstrating the company's solid competitive position in the rapidly growing utility-scale energy storage market. The company also noted significant growth in annual recurring revenue (ARR) for services and digital business, achieving $80 million earlier than targeted.

Challenges and Strategic Adjustments Ahead

Despite the positive quarter, Fluence had to lower its full-year revenue guidance to a range of $2.7 billion to $2.8 billion, which is a $250 million decrease from previous expectations. This adjustment is attributed to delays in specific projects, which represent approximately $100 million, and other contractual delays linked to customer readiness and site preparedness. Nevertheless, the company anticipates much of this deferred revenue to be realized in fiscal '25. A shift to a higher reliability forecast has also led them to focus on operational efficiencies and management of project timelines.

Robust Liquidity Position

Fluence ended the third quarter with nearly $600 million of total liquidity. A recent enhancement includes the replacement of their asset-based lending facility with a traditional revolving credit line, raising overall liquidity to over $1 billion. This strong liquidity position supports their industry-leading growth objectives and positions the company well for future expansions.

Market Dynamics and Future Growth Outlook

Looking forward, Fluence maintains a fiscal 2025 revenue growth outlook of 35% to 40%, utilizing a base midpoint revenue target of $3 billion. They are witnessing a robust expansion in their $20 billion pipeline, which has grown by 65% year-over-year. The company anticipates that nearly 40% of its U.S. pipeline is now linked to data center projects, reflecting demand in the energy storage sector driven by technological advancements, such as those associated with Generative AI. Furthermore, anticipated regulatory developments related to domestic content through initiatives like the Inflation Reduction Act are expected to bolster competitive advantages in the U.S. market.

Profitability Expectations Amid Pricing Pressure

Despite the regulatory and competitive landscape, Fluence remains confident in delivering sustainable gross margins of 10% to 15% moving forward. In light of recent market trends, they are preparing for a potential decrease in pricing pressures due to overall softness in demand, particularly in international markets. The company's strategic focus on domestic manufacturing is poised to mitigate some of these risks while they continue to expand their capabilities and offerings.

Earnings Call Transcript 2024-Q3

[Operator]

Good day, and thank you for standing by. Welcome to the Fluence Second Quarter Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. I'd like to hand the conference over to your first speaker today, Lexington May, VP Finance and Investor Relations.

[Lexington May, executive]

Thank you. Good morning, and welcome to Fluence Energy's Third Quarter 2024 Earnings Conference Call. 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.

Joining me on this morning's call are Julian Nebreda our President and Chief Executive Officer; Ahmed Pasha, our Chief Financial Officer; and Rebecca Boll, our Chief Products Officer. During the course of this call, Fluence management may make certain forward-looking statements regarding various matters related to our business and company that are not historical facts.

Such statements are based upon the 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 our future results.

You are cautioned to not 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.

A reconciliation of these non-GAAP measures to the most comparable GAAP measure 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. [Operator Instructions] Thank you very much.

I'll now turn the call over to Julian.

[Julian Jose Marquez, executive]

I would like to extend a warm welcome to our investors, analysts and employees who are participating on today's call. I will cover our Q3 results briefly and then provide an update on our business and the strong growth prospects, we continue to see. Ahmed will then give more details on our financial results and outlook.

Beginning on Slide 4, we deliver strong financial performance, more specifically, we recognized $483 million of revenue and earned 17.5% adjusted gross margin, which brings our year-to-date gross margin slightly ahead of the 10% to 12% target.

Second, we recorded adjusted EBITDA of $15.6 million, which puts us on track to deliver profitable growth for our shareholders. Third, we added $1.3 billion of new contracts, setting a new quarterly record for us and bringing our backlog to an all-time high level of $4.5 billion. Fourth, we finished the quarter with $80 million of annual recurring revenue for our services and digital business, reaching the level a quarter earlier than our target.

And finally, to our proactive approach to cost and working capital management, we generated $64 million free cash flow for the first 9 months and ended the current quarter with $513 million in cash.

Turning to Slide 5. We continue to see improvements in our gross margin, driven by our excellent performance on cost management and execution. We have had 4 consecutive quarters of double-digit growth margin. We're looking at our gross margins on a trailing 12-month rolling base. We advanced from a gross margin of about negative 5% to a positive 12% margin in the 12 months ended June 30. This has been an outstanding transformation in less than 2 years. We expect this trend to continue to improve, putting us on a path to achieve sustainable gross margins in the 10% to 15% range.

Turning to Slide 6 for an update on our pipeline. As a reminder, our pipeline is a rolling 24-month view, thus giving us confidence in our ability to continue our growth trajectory. Our $20 million pipeline has increased 65% from this time last year, which reflects rapid growth prospect for any storage globally.

As I will discuss a bit more in a moment. All in all, we continue to see a very robust international market, which should further diversify our geographic mix in the coming years. Almost half of our $20 billion pipeline is in the Americas region, and the rest is in the international market. The strength of our pipeline is a key reason for our high confidence in our expected revenue growth. We are reaffirming our fiscal year '25 revenue outlook of 35% to 40% growth of our original fiscal '24 revenue guidance at midpoint of $3 billion.

Turning to Slide 7. Similar to our pipeline, we're also seeing a remarkable growth in our backlog. The third quarter was our 11th consecutive quarter of order intake outpacing revenue recognized, showcasing the robust growth in utility-scale energy storage. Our backlog [indiscernible] demonstrating our leading competitive position and a significant role for utility-scale energy storage.

Now I would like to provide an update on the most relevant markets we serve. Beginning with the United States, which continues to be the largest market we operate in globally. Recent regulatory developments in the U.S. as well as the progress we have made in extensively our competitive position to an early to market domestic manufacturing strategy puts us in a unique position to capitalize on the substantial growth opportunity.

Turning to Slide 8. Since our last conference call, there have been a couple of favorable policy available. First, the U.S. Treasury released guidance on the 40% domestic content requirement under the Inflation Reduction Act or IRA. The treasury provided an elective safe harbor table that sets a percentage of value each battery storage component, when manufacturer in the U.S. can contribute towards the 40% threshold. As you can see, the highest category battery cells of 38% which favors our domestic strategy of securing battery cells manufactured in the U.S.

As you may recall, we started the process of procuring U.S. cell capacity before the IRA came out and signed an agreement more than a year ago with ASC to purchase U.S. cell from the Tennessee facility. The U.S. manufacturer cells will go into our battery modules, which I will touch on more in a moment. By combining U.S. cells and U.S. modules, we believe that we will easily meet the 40% domestic content threshold. Thus enabling our customers to capture the incremental 10% investment tax credit on their projects.

Our proactive approach to secure the U.S. sales from ASC has resulted in a first-mover advantage in delivering domestic content. Second, the Biden administration issued a proclamation to increase Section 301 tariff on batteries imported from China, which also applies to battery storage systems. Today, these higher tariff is set up 7.5%, and it will increase to 25% beginning in 2026.

We believe this tariff regime could significantly affect the competitive landscape of the U.S. market to the benefit of domestic suppliers. I would like to touch briefly on the political environment and implications for [indiscernible]. The demand for battery storage system in the U.S. is supported by the growing need for new capacity, grid stability and resiliency. It is well known that renewals for storage is a fastest and most economic way to serve these growing needs.

None of this [indiscernible] due to a potential change in administration. Our business model in the U.S. should also be resilient to changes in the political landscape. Current industrial policy favors using tax credit to promote domestic products. However, we believe that our U.S. business model will also work effectively if a new administration were to change the industrial policy away from tax incentives in favor of tariff.

Turning to Slide 9. I'm pleased to report that we are on track for initial production of the Fluence battery module in late September of this year. The module production line was successfully tested in the manufacturer's facility. The production line is now in the final stages of installation and initial commission in our Utah facility. We anticipate started production with a number of battery modules and gradually ramping up to serve our needs.

Turning to additional discussions on the U.S. market on Slide 10. Estimate for the size of U.S. utility-scale market continues to show growing adoption of energy storage by adding roughly 40 gigawatts in 2025. The significant demand has been fueled by corporate customers seeking clean, low-cost and reliable renewal. Part of this growth in the U.S. have been driven by the rise of GenAI, which requires a tremendous numbers of new data centers, which resulted increases in electricity capacity.

We're seeing more and more opportunities pumping to our pipeline associated with data centers. Moving the form of storage for the renewal PPAs that large tech companies are procuring to meet the growing demand and carbon-free goals. Currently, about 40% of our U.S. pipeline is indirectly associated with data centers. We will also note that the great majority of the clean energy investments associated with the IRA and the result in job creation are occurring in Republican led districts.

Furthermore, energy storage is becoming a critical part of an increasing numbers of grids across the country regardless of political needs. For example, in the [ air con ] market in Texas, a traditional red state, the expanding role that energy storage plays in the grid is added when you consider the interconnection fee.

We chose nearly 132 gigawatts of battery storage projects of nearly 35% from this time last year. In sum, the U.S. market increase in demand for electricity and capacity. The GenAI industry's growing need for renewable power and the resilience of our U.S. business model to policy change, makes us confident in our outlook for the U.S. market and its contribution to our growth plan.

Turning to Slide 11. Alongside the attractiveness of the U.S. market in the Europe, Middle East and Africa region, I'm happy to say we are seeing a growing number of opportunities in general and our resurgence in the U.K., Ireland. Ireland to operate its electrical grid with 95% renewable.

This level of renewable generation will require significant battery stores to provide a higher level of grid stability and reliability. For this reason, 2024 annual utility scale capacity additions are expected to be north of 11 gigawatt hour, which is more than 100% increase from the 2024 forecasted. We see a similar story of robust growth in other regions.

In the Asia Pacific and Australia region, we have seen tremendous growth over the past few years. With annual utility scale capacity additions approaching nearly 8 gigawatts this year, driven large by Australia, where the national battery strategy continues to provide opportunities for our products.

Turning to Slide 12. I'm pleased to report that we recently launched our new digital service center in India, which will serve as a central hub for applying operational data intelligence to the global fleet of assets managed by Fluence, providing insight for the company's research and development and service launch.

We expect that these efforts will provide more value to our customers by optimizing the performance of the storage. The co-location in Bangalore, India, of the service sector with this new remote monitoring and diagnostic capability. And our technology centers product development capabilities, provides a platform that is intended to allow for efficiency and speedy response in [ both ].

I will now turn the call to Ahmed to discuss our financial results and outlook.

[Ahmed Pasha, executive]

Thank you, Julian, and good morning, everyone. Today, I will review our third quarter financial results, our strong cash position and our near-term outlook. Beginning with third quarter 2021 results on Slide 14. We generated $483 million in revenue, which was 20% higher than our expectations discussed on our last earnings call. This was primarily attributable to completing certain project milestones ahead of schedule. Furthermore, we generated $85 million of adjusted gross profit representing a 17.5% adjusted gross margin, which was the fourth consecutive quarter of double-digit gross profit margins.

Including the third quarter results, we delivered year-to-date adjusted gross margin of 12.8%. We expect to achieve Q4 adjusted gross margin within our previously communicated range of 10% to 12% and for the full year to be at the high end of that range. This performance reflects our focus on achieving operational efficiencies that has been translated to improved profitability on projects.

During Q3, after operating expenses, we generated $16 million of adjusted EBITDA which puts our trailing 12-month EBITDA in positive territory for the first time. Overall, these results illustrate our commitment to delivering profitable growth to our shareholders.

Before turning to a discussion of our liquidity and guidance, I will briefly review a disclosure included in our 10-Q that was filed yesterday. As you may know, a short seller report was published on us back in February of this year. In response to the allegations made in the short report, our Board's Audit Committee conducted an investigation with the assistance of an outside counsel and forensic accountants.

I am pleased to share that this investigation concluded that the allegations contained in the short report are without merit. Recently, however, the SEC notified us that they are investigating certain matters pertaining to the company. Based on the information the SEC has requested, we believe we are examining some of the topics raised in the short seller's report, such as revenue recognition policies and our previously disclosed material weakness. We are fully cooperating with the SEC.

Although we cannot predict the timing or the outcome based on the nature of these matters and information requested by the SEC we do not expect it to have a material impact on our financial condition.

Turning to Slide 15, we then update on our liquidity. We continue to bolster our liquidity to support our industry-leading growth objectives. To that end, I am pleased to report that we ended the third quarter with nearly $600 million of total liquidity.

I'm also happy to share that this week, we replaced our ABL credit facility with a traditional revolver to further enhance our liquidity. As you may recall, our $400 million of ABL facility was securitized by the level of our U.S. inventory, which has had a lower balance, thus limiting the availability under this facility to not more than $100 million since its inception.

The new covenant line revolving credit facility contributes $500 million of commitments from an expanded bank growth. With this facility on a pro forma basis, our total liquidity is now more than $1 billion, which puts us in an excellent position to capitalize on the growing energy storage market.

Moving to Slide 16. We have narrowed our full year '24 revenue guidance range to $2.7 billion to $2.8 billion, with a midpoint of $2.75 billion, this is $250 million lower than our prior revenue guidance.

This reduction is mostly due to 2 factors. First, there were 2 specific projects accounting for approximately $100 million of expected revenue that have been postponed by the customer for multiple years. Second, the signing of certain projects into our backlog was delayed for a variety of reasons that include site readiness, civil works, permitting and customer decision process.

None of these delays were related to interconnection issues. These projects were signed and moved into our backlog admittedly later than anticipated. Although disappointing, we expect to recognize the majority of this delayed revenue in fiscal '25. As Julian noted, our fiscal '24 guidance implies a Q4 result that would be the highest in our company's history. We have strong confidence in our ability to deliver on this goal as the majority of our Q4 project milestones are for production and delivery of cubes which is within our control.

To that end, we have secured the necessary batteries, manufacturing slots and logistics. In fact, with respect to our expected Q4 revenue in the first 5 weeks of the quarter, we have delivered or put in transit 46% of required cubes, thus securing our revenue for almost half of our expected Q4 revenue. In summary, our quarter-to-date performance and our outlook for the remaining 2 months of the year gives us confidence in our ability to deliver on our Q4 customer commitments and our revised full year '24 revenue guidance.

Turning to Slide 17. I will briefly review our other guidance metrics. Lowering the midpoint of our full year '24 revenue guidance by $250 million would be expected to have a gross profit impact of at least $25 million. However, we have taken proactive actions to mitigate the impact on our profitability targets. To that end, we are expecting to achieve a gross profit margin at the upper end of 10% to 12% expected range for this year and delivered adjusted EBITDA of $55 million to $65 million. This revised guidance midpoint of $60 million is only $5 million below our prior guidance.

In terms of our long-term outlook, we continue to expect our gross profit margins to be in the 10% to 15% range. Furthermore, we are raising our ARR guidance and now expects to achieve ARR of approximately $100 million by the end of fiscal '24, up from our previous guidance of approximately $80 million. This increase is the result of the continued growth we are seeing from our services business.

Finally, looking ahead to fiscal '25, we continue to expect strong growth, as Julian discussed, using our original fiscal '24 revenue guidance midpoint of $3 billion as a base we reaffirm our expected fiscal '25 revenue growth of 35% to 40%.

With that, let me turn the call back to Julian for his closing remarks.

[Julian Jose Marquez, executive]

Thank you, Ahmed. Turning to Slide 18 and in conclusion, I want to emphasize the key takeaway from this quarter's results. First, our year-to-date performance demonstrates our ability to deliver profitable growth. Importantly, we are on track to deliver 12% gross margins and positive full year adjusted EBITDA in fiscal year '24.

Second, we have started to see the benefits of our U.S. domestic content strategy that were put in motion well before the IRA was enacted. We're seeing a strong customer interest, which is converted to initial orders. Third, we have ample liquidity to support our growth plan. We successfully amended and upsized our credit facility, which now puts our liquidity at more than $1 billion.

And fourth, the outlook for utility-scale storage is very robust, and we are well-positioned to capitalize on this growing market globally, as evidenced by the strong growth of our pipeline and our backlog.

With that, I would like to open up the call for questions.

[Operator]

[Operator Instructions] Our first question comes from Christine Cho at Barclays.

[Christine Cho, analyst]

Over 60% of your revenues this quarter was from Rest of World, which also coincided with the very high ASPs and high margins. Is this just a function of more of your projects outside the U.S. requiring EPC? Just any color on the geographic breakdown this quarter, how that correlates with top line margins and how we should think about -- how this should trend next year maybe also an update on the geographic breakdown of your current backlog? I know it was historically 70-30, but it sounds like you're diversifying more.

[Julian Jose Marquez, executive]

Christine. Yes, our international markets have -- tend to have more EPCs. They tend to be -- so our solutions, our offerings are a lot broader than what we do in the U.S. And second, as you know, we have been selling our Ultrastack offering in Europe, our transmission assets. So you generally will see higher SAP, ASPs on the international markets.

In terms of the composition of our backlog, in the 1/3, 2/3 is kind of where it's going right now. So it will tend -- we have seen a lot of profit in the international markets. So when you look at the pipeline, more like 50-50. What I will say today when we look at our backlog, it's essentially 2/3, we have been saying roughly 2/3 in the U.S., 1/3 international. So that's the way just to look at it.

And the third and the last point is that, this is one of the drivers of the lumpiness in terms of our margins and our ASPs as we move forward, what type of projects come into revenue -- which type of projects will recognize revenue on a quarterly basis. And that lumpiness will stay because not all projects are the same.

[Christine Cho, analyst]

And then for my follow-up, is there a way to give us a sense of how much of your current backlog for U.S. projects require U.S. cells, I know you've mentioned that you could eventually supply all of U.S. demand with the AESC contract. But curious to know if the majority of your U.S. customers were mandating that in the contract before the domestic content and Section 301 update came out a couple of months ago, how those conversations have evolved since that update.

And is there some sort of rule of thumb that we can use around how much higher the ASPs are maybe percentage-wise for your batteries that use domestic cells versus imported cells for your U.S. customers for bookings going forward?

[Julian Jose Marquez, executive]

I will say that you have seen a lot of interest come up as people have realized with the new IRA guidelines and the new tariffs. And I think that generally now everybody realizes this is the right move, and we're ahead of everybody. So you'll see a lot more than what we have seen before. I prefer not to go into how that plays out because then we'll get into a rabbit hole of -- that I think will not help anybody.

In terms of cost, what I can tell you, and this is very competitive information for us. So what I can tell you is that the costs are very competitive and very attractive. Even though they include some additional costs by producing in the U.S. So they are very, very competitive and our customers do very, very well when the contract with us, the U.S. or Mexico. That's the best way I can tell you. But at this stage, we'll prefer not to disclose information on the actual pricing -- the content offering.

[Operator]

Our next question comes from Dylan Nassano at Wolfe Research.

[Dylan Nassano, analyst]

So just on the math on the updated guidance here, it looks like you're taking $250 million out of the midpoint this year. You're holding 2025, $100 million of what came out of this year is [ delayed ] multiple years. So that seems to suggest up to $150 million shifted from this year to next year. So I guess if that math is correct, did anything shift out of your prior 2025 outlook? Because if you're adding $150 million this year, like wouldn't that put you at the top end or above the 35% to 40% growth?

[Julian Jose Marquez, executive]

Well, I would say, Nassano, we're working on a '25 budget for next year, and we'll give you more details on how '25 looks. But today, what we can confirm is that -- we can confirm 35% to 40% growth out of our original target of midpoint of $3 billion. So that's what I will say will give you more details when we -- in our next earnings call in late November.

[Dylan Nassano, analyst]

Okay. And then as a follow-up on the Board investigation that you spoke about, can you just speak to kind of what was the scope of that investigation, which specific claims from the short report were you guys looking into?

[Julian Jose Marquez, executive]

Our committee hired an independent law firm and brought in a forensic auditor or forensic accounting firm. And they look at every [ comment ]. Everything that was there, the relevance of that has no -- all the elements there and found that all of them had 0 merit, there's no merit in it. So we feel we are clean bill of health that was -- and that's what we can say. It was really, really a very detailed investigation looking at all the -- everything that they're -- even things that were implied that were not necessarily reading. And both the independent law firm with the support of the accountants came out with that all of that stuff has 0 merit.

[Operator]

Our next question us from Andrew Percoco and Morgan Stanley.

[Andrew Percoco, analyst]

I want to come back to the domestic content piece for a second. Just curious, obviously, strong demand for those products. How do you feel in terms of the capacity that you're getting from AESC, do you see a need to expand that agreement anytime soon, just given the level of demand you're seeing. I'm just kind of curious on maybe how pricing conversations with AESC have shifted just given obviously the higher demand for domestic sales over the last 3 months or so?

[Julian Jose Marquez, executive]

Very good question. So we contracted 2 lines with a AESC, one that is coming -- start producing in late 2024, so deliveries in early '25 and another one that will come into operation in '25. And we have a right of first refusal for any additional lines or an additional line if they bring it up. So we have ample capacity to meet the demand that we see today and our clearly to meet our commitments to the street. So we are very happy.

In terms of the deal with ASC, we remember, we had to pay for this. We have to make the prepayment that we disclosed to all of you. So it's a firm deal with prices, and we haven't seen any discussion on pricing or ASC is not requesting any additional price from the fact that this is becoming much more popular. What I will say is that we were convinced that this was the way to go, and I think the reality and the reaction of our customers has proven us right. And we are very happy with that. And now our view is to accelerate this as possible and solidified our first-mover advantage in domestic content.

[Andrew Percoco, analyst]

Okay. Perfect. And then maybe as a follow-up question, you mentioned AI and tech is a driver of demand. I'm just curious if there's any difference in attributes in terms of duration, sizing that you're seeing from maybe some those conversations and maybe how that's impacting your offering or the pricing that you're achieving in the market.

[Julian Jose Marquez, executive]

No. No real difference from a technical point of view. What I will say is a level of urgency. That's what I'll say, the need for speed, which is also something that we have invested on. It is coming -- we're also seeing that, that's becoming a need of the market. We need to do this faster. So that's where I think that's a little bit of a difference from the past where when we were not -- where projects which are not necessarily data center related.

[Operator]

Our next question comes from Justin Clare at ROTH Capital Partners.

[Justin Clare, analyst]

So I wanted to start off just asking about how do you expect the gross margins for your domestic supply chain using U.S. cells to compare to margins when you're using international cells. And then just curious, as you ramp the domestic supply chain, do you anticipate the margins to initially be lower and then increase as you scale up? Or will you be kind of at full potential right away?

[Julian Jose Marquez, executive]

In terms of margin of our U.S. domestic offering, I prefer not to go into that detail, as I said, this is very competitive, especially today. But I will say that our -- what I can say is that our U.S. domestic content makes us even more confident of our 10% to 12% -- 10% to 15%, sorry, margin guideline that we provided. And if I can add up a little bit of publicity, we came from minus 5% to 12% today.

And I think that a lot of -- some people -- we're not convinced that we could deliver the 10% to 15% we're telling you today. Well, I think that today, not only our territory, but where we see coming on, it makes us feel very, very confident on that part. And then in terms of our ability to realize margins on the initial offering, we have put in significant investments.

First, we're bringing the line -- the module line earlier to ensure that it runs very well, and we have put in investments in our labs to test our new products ahead of going publicly in a way that -- to ensure that we do not -- we can realize our margins from day 1. So we feel very confident that both our U.S. domestic content with a new module line being fully tested for a period of time. And our new labs are -- give us the confidence that we're going to be able to monetize on the margins on U.S. domestic content or new products from day one.

[Justin Clare, analyst]

Okay. Got it. That's really helpful. And then just on your backlog, curious how much of the backlog do you anticipate recognizing in fiscal '25 at this point? And if you could just comment on project timelines, how they're evolving and then just the anticipated average timeline from when you book a project to when you're able to complete a project. And then maybe if you could comment on just the bottlenecks that you're seeing and whether you can pull timelines forward?

[Julian Jose Marquez, executive]

Great. In terms of our '25 revenue, what we have in our backlog for '25 revenue, it's roughly 1/3. So in line with what we had last year, and we feel very well about it, looks great. In terms of our project's timeline, we have invested a lot in accelerating our capability of delivering projects. And that, I think, has given us a competitive position when customers are in a hurry or as I mentioned, data centers, they want things very, very quickly. That gives us a competitive position.

However, what has become, I mean, a little bit clearer now is that some of the timing is not necessarily set by us, what's set by -- other external factors. However, our shorten project timelines allows much more -- from an economic point of view, a much more efficient project.

In terms of project timelines, I think we should continue to use the 18 months that we told you. We brought it -- we have been bringing it down, but I think that's a good guideline for -- it's a good guideline for our financial projections and a good guideline for you to look at our backlog. We will let you know if things improve, change materially.

[Operator]

Our next question comes from Leanne Hayden at Canaccord Genuity.

[Leanne Hayden, analyst]

To start, I know you reiterated 2025 revenue growth expectations. I was just wondering if you still expect to see the same profitability as previously guided. I believe it was a 10% to 15% gross margin.

[Julian Jose Marquez, executive]

Yes. We do expect the same profitability of 10% to 15%. And I would tell you that performance this year give us even more confidence that we would be able to deliver in the 10% to 15% range. So we are very happy. This was our transformation when we took over the company to today from minus 5% to now being able to feel very confident in the 10% to 15%. We are all very proud of the work that we have done here.

[Leanne Hayden, analyst]

And then just one more for me on increasing data center demand, are your data center discussions focused mostly on hyperscalers or small providers as well? Or any color you could provide on that would be great.

[Julian Jose Marquez, executive]

As you know, we were with top-tier developers in the U.S. So it's mostly hyperscalers. There might be 1 or 2 that are midsized but generally hyperscalers. That's what I'll say.

[Operator]

Our next question comes from Jordan Levy at Truist Securities.

[Jordan Levy, analyst]

I just wanted to get a sense of what you're seeing, specifically in the international market from a competition perspective with a large entrant kind of into that market earlier this year. I think particularly in Europe?

[Julian Jose Marquez, executive]

Yes. Each market is different. I've been very clear. There are markets are -- but some of the players we see in the U.S. do not -- are not active. However, I will say about the European market, it tends to be -- especially the U.K., more than Europe, let's say, let's talk about the U.K. The U.K. is probably the most competitive market. And it's a market, we are very, very happy that we can win and we continue progressing a lot because it is a very competitive -- it is a very competitive market because it is very open to a lot of entrants. And it also is a market that requires very good capabilities in terms of delivery. So that combination makes it an interesting market to work.

The rest of Europe, I will say the intensity of competition in Europe is also a little bit higher, however, because it's a new market, it has 1 hour and not all players offer 1 hour. It tends to be not that it's a little bit less than the U.K.

[Jordan Levy, analyst]

And then maybe just kind of a follow-up on your prior question on the data center market. I know you all have had probably a lot of conversations in the space with key players. And I'm just curious if those conversations from your commentary last quarter, if those conversations have evolved at all in terms of what customers might be looking for, for a more direct storage solution as it relates to duration or anything like that?

[Julian Jose Marquez, executive]

Yes. Most of our data center demand is indirect, it comes indirectly, we support PPAs that -- the big top-tier developers offer data centers for big and large tech companies for us. So I would say the great majority it is indirectly, there's very little that we do directly. And that doesn't seem to be a market that is opening up. We'll continue -- we believe that most of ourselves to -- that connected to data centers will go through large -- through PPAs with the large tech companies.

[Operator]

Our next question comes from Ameet Thakkar BMO Capital Markets.

[Ameet Thakkar, analyst]

Just real quick, it looked like the implied ASPs this quarter were, I think, like around $430 of KWH. I was just wondering if you could kind of speak to -- were there any kind of one-off factors that kind of drove that? Or are we looking at it maybe not -- perhaps not the right way?

[Ahmed Pasha, executive]

Amit, this is Ahmed. So yes, I think the -- if you're looking just for the quarter, you're right. And I think there is more to do with the mix of the contracts because we have more international during the quarter, where we have EPC elements embedded in those contracts. But I think if you look at for the year, year-to-date versus year-to-date, ASPs are roughly 25% less. And that reflects the pricing, what we have seen in the commodity prices. So that is the right way to think about on a year-to-date basis is pretty -- is declining, but that reflects the lithium-ion prices.

[Operator]

Our next question comes from Kashy Harrison at Piper Sandler.

[Kashy Harrison, analyst]

Congrats on the impressive bookings backlog and also the execution. So I wanted to focus on the backlog and bookings. I noticed that the total backlog increased significantly in 3Q, but the implied 12 months from the Q was flat quarter-over-quarter around $2.3 billion. It is a 12-month look. So it's only good through June 30 of next year.

And I was just wondering if you were to extend that to September, can you give us a sense of what would happen to that implied $2.3 billion estimate? I'm just wondering if there's another big jump in 4Q of next year just because of the -- just the general weighting -- 4Q weighting of the business?

[Ahmed Pasha, executive]

So yes, you're right. I think this is the nature of our business, where the revenues are lumpy. And frankly, that is partly driven by the nature of the contracts that we have and the customers who want their deliveries during the summer peak months. So yes, I think we -- I mean, I think probably 60% to 70% of our revenue is second half back-end loaded this year, and we think probably that would be the case next year as well.

[Kashy Harrison, analyst]

So the $2.3 billion would -- is probably significantly higher if you were to include 4Q of next year?

[Ahmed Pasha, executive]

So yes. But I think the key here is the percentage of completion. I think as we sign more contracts, as we execute on those contracts, we will continue to realize. But net-net, you will see more back-end loaded that's the lumpiness that we have in our business.

[Kashy Harrison, analyst]

Got it. I appreciate that. And then for my follow-up question, I know it's tough to guide to forward bookings but I wanted to try to ask this question anyway. Do you think you can hold that $4 billion, $5 billion flat exiting the year I only asked since next quarter is a very big revenue quarter. And so I was just trying to get a sense of if you can hold $4 billion, $5 billion through year-end.

[Ahmed Pasha, executive]

Yes. I think that is the expectations like we did last year. I mean, I think we are pretty much in the same position where we were last year at this stage Q3 call, we were about 1/3 of our revenue for '24 locked in our backlog, and we are at the same place and expectation is as we sign more and more contracts. I think we will be in a similar situation. I mean, this last quarter, we signed 5 gigawatt hours, as you saw. And frankly, that is equivalent to the full year '23 deliveries. So we are seeing significant growth in volume. And hopefully, that trend will continue.

[Operator]

Our next question comes from Ben Kallo at Baird.

[Ben Kallo, analyst]

My first question was just on the pricing environment. You guys talked about the ASPs and where they trended this year. As you look out to next year, could you just maybe talk to us about how we square the 12% to 15% gross margin with pricing if you expect it to continue to go down, maybe what your levers for decreasing costs, I know as you transition to U.S. manufacturing.

So if I put all that together, maybe just the levers on bringing down costs so you can keep up with price declines. And then my second question is just what you're seeing in competition in the U.S. in terms of international players and specifically Chinese or Korean players coming to the U.S. to produce in the U.S. and how competitive they are in pricing right now and if that's impacting any of your business as you look out into next year?

[Julian Jose Marquez, executive]

Great. Thank you, Ben. On the pricing, why do we see today? Maybe go back one step. Lithium carbonate has been stable up to May, it came down around 10% to 15% -- around 20%, let's say, since May. So it is getting softer. That gives you a sign that somehow the battery storage market is getting softer. Lithium -- or the price of lithium has become a lot less relevant in terms of how this is price. So that's an important point to have. Having said that, we do believe that we will continue seeing some price reductions going forward, and we plan for it and we work for it. And our guidance takes into consideration the fact that our pricing is going to -- will continue coming down.

We see strong elasticity of demand in this market, strong. You see it in our pipeline. 65% growth in less than a year. So in our backlog, just looked at our orders this year, we were able to contract the same volume we recognized last year, just in a quarter. So that tells you the tremendous elasticity of demand. As I said, the prices are not -- we're not going to see a repetition of '24. We will see prices continue to soften. And we're ready for it. We have a view of what -- how it will work and we can commit to our 35% to 40% growth out of our $3 billion midpoint -- our prior midpoint with that information.

In terms of competition, I mean, this has been always in a very competitive market. It is not getting more competitive. It is essentially -- maybe the names change because people realize that they cannot deliver what they say they can deliver and they cannot go away, but the competition has not been down.

I haven't seen -- a lot of players are talking about stuff. But when we talk to our customers, these are mirages. There's nothing behind. We're going do this in Dallas, in Arizona. And when you -- we -- I -- clearly, I don't -- a lot of these competitors, I do not get the information. When I talk to my customers, we went there, there's nothing. You cannot touch it. So all sounds very, very good does not exist.

So we do expect more competition in the U.S. market, and we are ready for it, and we love competition. So we're ready for that. But I do not think that it will take a while for a lot of these dreams to become reality from their part of it.

[Operator]

Our next question comes from Joseph Osha Guggenheim Partners.

[Joseph Osha, analyst]

My first question relates to domestic cell supply. It was in an industry event a while ago, saw some numbers suggesting that by 2026, when this 301 tariff comes into effect. The industry is only going to be able to meet maybe 1/4 to 1/3 of demand with domestically sourced cells. I'm wondering if you have a reaction to that and if you're seeing kind of the same numbers?

[Julian Jose Marquez, executive]

We've heard, there are people who said they were going to be in a surplus and there are people who say if you looked at all the projects that are run and people that have the view you have that it is going to be -- this market is going to have a huge deficit. Probably somewhere in the middle. It's going to be a tight market, I believe, but I think that there will be enough to cover, I don't know about '26, that's a little bit. But over time, we'll have enough to cover the demand in the U.S. This is very important and it will happen.

We will work to meet that demand. So from our part. So I think that there will be more players. So we don't expect a market where -- will be so tight, as you probably have read some of the reports around.

[Joseph Osha, analyst]

And then my follow-up, I'm just wondering, a lot of chatter out there about project timing. I'm wondering if you look at -- if your storage-only business relative to your storage plus solar business, if you're seeing perhaps any greater level of volatility or movement and uncertainty in the solar plus storage business because it certainly seems like we're picking up those signals from some of the -- Some of the other folks in solar world.

[Julian Jose Marquez, executive]

I mean the reality is we haven't seen anything getting any worse or deteriorated in any way. Normal project when we get involved, no normal project delays at a [indiscernible] but it's all counted in weeks we or not in years or in months. It is the normal delays you get in a project that a permit to move things to a street or things of that sort.

So I will not -- we haven't seen, and it's not any different between the projects that we do batteries stand-alone, which are -- is mostly in our international markets than the ones we do in batteries and solar, it's the same type of delay. But as we have said and we get into these projects a lot later in the -- when we're there, customers have signed PPAs, they have financing, they have all the permits in place that are -- so the stuff that gets these things delayed are things that delays by weeks, never my month.

[Operator]

Our next question comes from Brian Lee at Goldman Sachs.

[Tyler Bisset, analyst]

This is Tyler Bisset on for Brian. Congrats on the solid results here. Your pipeline appears to have grown the strongest in APAC and EMEA but I guess I would have expected to see continued strength in the Americas given growth from data centers as well as domestic content. I see the CAGR growth is higher in both regions, but from a lower base. You called out growth in Germany and Australia. So are you seeing certain products getting better-than-expected traction there? Or are there any other markets where you're seeing outsized growth?

[Julian Jose Marquez, executive]

I think the ones we talked about Germany is a new nascent market that is very, very attractive. Australia has been growing, and we see a big prospects for continued growth. So as you said, we have seen the growth rate out of a much lower base, but the growth rates in our international market, growing more strongly.

And the thing is that because our international markets are a mix, things move here or there differently and they're not affected. So very, very happy with our global strategy. I think that's kind of what I would like to maybe highlight. This -- concentrating globally and working with -- globally, gives us an ability to manage headwinds that you might get here or there, much more effectively than if we were only a company working in a few markets or in a couple of markets.

[Tyler Bisset, analyst]

And then you guys called out 40% of your U.S. pipeline data centers. How do you expect that number to trend going forward?

[Julian Jose Marquez, executive]

I think it will continue to grow. I think it will continue to grow. And difficult to know. As you know, we get this demand indirectly. So we do not involve with the data centers we involve with the developers who talk to the data centers. But talking [indiscernible] we listen to calls of all our customers, and we know what they're doing. They are talking about a game in the -- all of them about a game in the data center market, that I think it will be a multiple of what we have seen up to date. So I expect that number to grow.

[Operator]

Our last come for Biju Perincheril at Susquehanna Financial Group.

[Biju Perincheril, analyst]

I want to ask about sort of the opportunities to use batteries for transmission applications in the U.S., sort of especially coupling that with DLR technologies? And also I want to see if there is sort of any regulatory changes that need to take place for that to be deployed here?

[Julian Jose Marquez, executive]

Good point. We continue -- this is a great technology that has been very successful in Europe. We are promoting that technology in the U.S. I will say that the main -- and as you know or as you probably know, the FERC allows batteries to be a transmission assets. So that's good. A lot of the system operators are allowing it in their systems.

MISO came up with the rules, the Northeastern system allowed -- so there some rules. However, what we see is that there are restrictions on the ownership of the batteries by the owners of the transmission assets. You can put them, but they cannot be owned by the same person -- by the same entity. And that, I think, is a restriction that needs to be -- and that comes out of the view that transmission operator or a owner cannot dispatch the generation or call-in demand.

And that's what -- a battery essentially does that. So that creates a regulatory hurdle that we've been trying to explain to regulators you need to allow the same owners, the same owner of the transmission asset to own the batteries in order for this to work and we're working on it. And I think that these become more and more of a success in Europe, but we'll see it happening in the U.S. So we're confident that it will happen.

[Operator]

This concludes the question-and-answer session. I would now like to turn it back to Lexington for closing remarks.

[Lexington May, executive]

Thank you for participating on today's call. If you have any additional questions, feel free to reach out to me. We look forward to speaking with you again when we report our fourth quarter results. Have a good day.

[Operator]

This does conclude the program. You may now disconnect.