Fluence Energy Inc (FLNC) 2021 Q4 法說會逐字稿

Good day, and thank you for standing by. Welcome to the Fluence Energy fourth-quarter 2021 earnings conference call. (Operator Instructions).

I would now like to hand the conference over to your speaker today, Sam Chong, Treasurer, Investor Relations. Please go ahead.

Welcome, everyone, to our earnings call for the fourth quarter of fiscal year 2021, which ended on September 30. Before we begin, I would like to remind you that management will make statements during this call that include forward-looking statements within the meaning of federal securities laws, which are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are neither promises nor guarantees and are based upon our current estimates and various assumptions and are subject to material risks and uncertainties that could cause actual results or events to materially differ from those anticipated or implied by these forward-looking statements.

These and other risks are described in our filings made with the Securities and Exchange Commission. We encourage you to review these filings for a discussion of these factors, including our Annual Report on Form 10-K for the fiscal year ended September 30, 2021, which will be filed next week. You are cautioned not to place undue reliance on these forward-looking statements, which speak only as of today, and the company disclaims any obligation to update such 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 measures is available in our earnings materials on the company's Investor Relations page at ir.fluenceenergy.com.

I will now turn the call over to our CEO, Manuel Perez Dubuc.

Thank you, Sam. I would like to extend a personal welcome to our investors, research analysts, employees, and customers who are listening to our first analyst call as a publicly traded company. This morning, I'm going to share our market outlook and provide an overview of our business for our new investor base. Afterward, I will give an update on some recent developments. And then I will hand the call over to our Fluence CFO, Dennis Fehr, who will discuss the financials performance, and -- as well as provide some high-level revenue guidance.

Before I jump into the market outlook, I would like to extend a sincere thank you to the entire Fluence team for their passion and commitment to delivering best-in-class products, services, and digital solutions to our customers. Our team has demonstrated tremendous strength and resilience during the ongoing pandemic. It is thanks to their contributions that we have successfully completed our IPO, generating almost $1 billion to help drive our next phase of growth.

I will start on slide 4 on the quarterly earnings presentation with an overview of our business opportunity. Climate change is real and it poses an existential problem. We are finally seeing governments, companies, and citizens take serious steps to address this issue. The electric sector bears great responsibility in leading that effort as the world transitions away from fossil fuels towards renewable energy. In fact, renewables are now one of the cheapest sources of electricity, further accelerating this monumental shift.

This huge transformation is driving three revolutions that are happening at the same time. The first is a decarbonization of our planet and a transition to clean energy to help address climate change. The second is the electric revolution, which is an electrification of everything. The third one is the digital revolution. Machine learning and artificial intelligence are disrupting traditional processes, redefining energy markets, and enabling new opportunities.

Fluence uniquely sits at the core of these three revolutions. As clean energy assets proliferate, they also create issues for grid because it was not original designed to handle intermittent and variable power generation for renewables. Fluence Energy storage systems and digital applications enable the clean energy transformation of the grid.

Third-party research shows that the clean energy transition will likely require over $100 trillion of investment over the next 30 years. Bloomberg New Energy Finance also projects 194 gigawatts of installed energy storage capacity by 2030 alone. As conventional generation assets retire and are replaced by cheaper renewables, the need for energy storage compounds even further as the grid will require energy storage for stability and reliability. This opportunity is immense, and Fluence is well-positioned to maintain our leadership position in energy storage solutions and digital applications.

Turning to slide number 5. Fluence is uniquely situated to drive the global transition to clean energy, led by pioneers of the energy storage, and team members and leaders with the most experience in the industry. Many members of our current team literally invented the use of lithium-ion batteries on the grid. Fluence is a digital disruptor, and customers far and wide recognize the value of our Fluence IQ platform. While still in the early stages, we are already optimizing over 18% of all renewables in Australia with our Fluence IQ platform.

One of the biggest factors that sets us apart from our competitors is our scale. We have one of the largest installed bases that helps to expand our ecosystem, product adoption, and cross-selling opportunities. Our scale is evident by our global offices and supply chains that has enabled us to operate in 30 markets across the world.

We are also battery agnostics, and do not manufacture batteries. This is a strategic move for us as battery chemistries are constantly changing and evolving, enabling us to move quickly along the technology [core] as better solutions come to the market.

And most importantly, we have secured over $1.7 billion in contracted backlog, which provide us with visibility to future cash flows that will be used to grow and accelerate our business.

Turning to slide 6. I would like to highlight this tremendous total addressable market, starting with energy storage products. BNEF is forecasting a 24% compounded annual growth rate between 2020 and 2030. This equates to over 34 gigawatts of new installations in the year 2030 alone. For reference, at the end of the quarter, we had an aggregate of 3.7 gigawatts of energy storage products deployed and contracted. Also, based on BNEF forecast, energy storage services are expected to grow 31% compounded annually between 2020 and 2030. This equates to over 193 gigawatts of cumulative installed services base. For reference, at the end of the quarter, we had approximately 2.7 gigawatts under management and contracted for our energy services.

And most exciting is the enormous total addressable market for our Fluence IQ digital platform, where the TAM is nearly 8,000 gigawatts. The TAM is so vast because we can optimize not only third-party energy storage products, but also pure renewable assets such as wind, solar, and hydro that do not have any storage components. This means the growth potential of Fluence IQ is not limited by the installed energy base. As of the end of the quarter, Fluence IQ is optimizing or has contracted 4.7 gigawatts, so it's easy to see why we are extremely excited about Fluence IQ future.

Turning to slide 7 and our quarterly results. In both the fiscal fourth quarter and full year, we delivered record operational performance in our Fluence ecosystem, comprised of our three business lines.

Looking first at new orders, our contracted megawatts of energy storage products increased year-over-year by 55%. This resulted in a record 1,300 megawatts. Additionally, our services business grew nearly 750% year-over-year, which resulted in almost 2,000 megawatts, a new all-time record for Fluence. And our Fluence IQ continued to build momentum, as evident by our recent contract awards supporting our recurring revenue growth strategy.

Speaking on Fluence IQ, we are extremely encouraged by the performance of our platform. In fiscal year 2021, we booked 2.7 gigawatts of new orders compared to 1.3 gigawatts of new orders for energy storage products, demonstrating the importance of Fluence IQ and its ability to optimize renewables beyond storage. We see substantial growth in all business lines, including our IQ platform, setting the stage for a robust 2022 and beyond.

As we experience this strong growth in order trends, like so many other companies, we have also challenged by excess of shipping charges as well as other project charges were a compounding effect on the COVID-19 pandemic. In the fiscal fourth quarter, some of our APAC-based customer sites have experienced temporary work interruption due to COVID-19. As such, we were not able to progress our installation work for storage equipment at these affected sites as planned.

These temporary customer site closures resulted in delayed revenue recognition, as well as unanticipated costs related to these delays. We view these delays as temporary. However, we are realistic that that newly discovered COVID variant, omicron, could prolong these delays even further. But it is still too early to make that determination.

We are managing ongoing disruptions in our global supply chain, including shipping of our products. We have experienced delays in delivery times, increases in shipping rates, and decreases in freight availability. These issues have resulted in delays for a number of product deliveries, driving increases in short-term expenses, including expedited shipping costs and payments for overtime labor.

In response, we are working on multiple solutions to improve our global supply chain, including negotiating guaranteed capacity on ocean freight liners with Tier 1 shipping companies to ensure our products get delivered from our contract manufacturing location in Vietnam to our end customers around the world.

We will continue to monitor freight markets closely and take additional measures to protect our customers and our revenue from future supply chain disruptions. This includes establishing a regional contract manufacturing and distribution model. In the coming several months, we expect to finalize the terms with a contract manufacturer to serve our North American market, and thus reduce our reliance on shipping our products to Southeast Asia to the Americas.

I would also like to make a few comments on the recent overheating event that occurred at one of our customers' facilities. On September 4, 2021, a 300-megawatt energy storage facility owned by one of our customers experienced an overheating event. Fluence served as one of the contractors for this facility to provide and install energy storage technology, which was completed in fiscal year 2021.

As our customer reported, the facility experienced an overheating event that resulted in the system shutting down, as designed, to further mitigate any possible damage. No injuries were reported from the incident. The facility has been taken off-line as teams from Fluence, our customer, and the battery manufacturer investigate the incident. We are currently not able to estimate the impact, if any, that this incident may have on our financial results. As information becomes available, we will update our shareholders accordingly.

Turning to slide 8 and some of our recent developments, I am pleased to announce Fluence signing a contract during the quarter to provide our energy storage products to the largest energy storage portfolio in Europe, featuring a total of 105 megawatts of energy storage system across two different locations. This order was placed by a repeat customer, which we believe reflects the value that we have already brought to that customer. This order was also accompanied by a 10-year service contract, providing us with visibility to future recurring revenue.

Also, we recently announced a significant contract in Australia for the Hazelwood project with our partners ENGIE and Macquarie. This is a significant achievement for us. The award includes 150 megawatts of energy storage plus a 20-year service contract, and the assets will be optimized by our Fluence IQ platform. This is the perfect example of our cross-selling opportunities that enable us to expand our ecosystem for all three business lines.

Continuing with these exciting awards, I am pleased to announce we have recently signed our first contract with a customer in Taiwan. This commences our strategic entrance into the Taiwanese market, an area we see tremendous growth over the next 10 years and will play a large part in our overall strategy.

For our services business line, during the fourth quarter we recognized 100% attachment rate for our services for energy storage products that we sold in the EMEA region -- this is truly spectacular -- and also built on our model to generate recurring revenue through our services and Fluence IQ platform. For Fluence IQ, during the fourth quarter, we deployed our platform to optimize the trading of the largest solar farm in the Southern Hemisphere, with equivalent output of powering 150,000 homes. Additionally, just in the fourth quarter alone, we added over 1 gigawatt under management as customers are realizing the value that Fluence IQ can deliver.

In summary, and turning to slide 9, we have a tremendous opportunity in front of us as a result of the enormous total addressable market for energy storage in digital applications. We have positioned ourselves as a market leader with our scale, experience, and first-mover advantage. Not only that, we are seeing very favorable momentum from foreign and domestic governments relating to policies and regulations, most recently seen at the 2021 United Nations Climate Change Conference. In addition, recent US legislation, including the enacted infrastructure bill and the pending Build Back Better bill, are extremely supportive of our strategy and business.

The infrastructure bill was a good first step to paving the way for increased grid stability and reliability, but we are even more encouraged by what we are seeing in relation to the BBB bill. This potential legislation may enable our industry as to accelerate deployments on the pace needed to decarbonize the electric sector by 2035, which is aligned with the Biden's administration stated priorities. Additionally, enactment of this legislation will create a stable, long-term demand signal needed to accelerate the clean energy transition and to incentivize a robust energy storage supply chain, domestically and abroad.

Ultimately, the BBB bill will allow our customers to greenlight more projects, many of which were previously shelved due to not meeting internal rate of return requirements. While we are hopeful the bill moves forward, we do not include any potential upside of government subsidies or policy changes in our business model. And that would be an incremental benefit.

I would like to thank our founders, Siemens and AES, who created Fluence as a joint venture in 2018. We will continue to operate with the tagline, Fluence, a Siemens and AES company, as they will continue to support our mission. As a global player, we are managing through supply chain challenges stemming from the global pandemic. And we are taking short-term and long-term actions to mitigate the ongoing and future shipping delays. We view these delays as temporary, with the impact being strictly at shift in revenue recognition, which we expect to realize in the coming quarters.

And finally, we have a best-in-class balance sheet and a strong visibility to future cash flows, thanks to our significant backlog of $1.7 billion. This growing backlog will enable us to continue to invest in our people and our business so that we can transform the way that we power our world for a more sustainable future.

And with that, I will turn it over to Dennis.

Thank you, Manuel, and good morning to everyone on the call. During today's call, I will recap our fourth-quarter and fiscal-year 2021 results, discuss our outlook for fiscal year 2022, and talk through our capital allocation plans. As Manuel stated, we delivered a record year of new orders and have been successfully populating our ecosystems from both sides. We achieved record order intake of energy storage products and came out very strong on Fluence IQ orders.

Turning to slide 11, talking you through the numbers of the first table. In fiscal year 2021, we contracted a record 1,311 megawatt of energy storage products and a record 1,959 megawatt of energy storage services. Services megawatt exceeded product megawatt because we successfully sold service contracts on products sold in previous years.

Overall, our aggregate attachment rate on services as of September 30, 2021, was approximately 74%. This attachment rate is very encouraging as it is a continuous proof of our ecosystem strategy and provides us with recurring revenues and visibility to future cash flows. As already elaborated, we are seeing very strong demand for our Fluence IQ, with a total 2,744 megawatt contracted, which provides future cross-selling opportunities for our products and services.

Now moving to the second table. Despite delays in supply chain and temporary site restrictions due to COVID-19, the amount of megawatts that we deployed for our energy storage products more than doubled, growing 111% from the prior fiscal year. Due to our strong contracting, and in part due to the delays, contracted backlog megawatts grew 43%, while product pipeline is being driven by strong tailwinds from the market and demand for our proprietary generation fixed product, and stood at 4,160 megawatts at the end of fiscal year 2021.

Turning to energy storage services. Assets under management grew 180% while contracted backlog grew 322% from the prior year, driven by the strong contracting activities and attachment rates mentioned earlier. Like our storage products, our services pipeline remains robust, standing at 10,930 megawatts at the end of fiscal year 2021.

Moving to our Fluence IQ digital platform. During Q1 of fiscal year 2021, we acquired AMS. Since that time, our digital product has demonstrated tremendous growth and strong prospects for future growth. At fiscal year-end, digital assets under management were 3,108 megawatts while contracted backlog was 1,629 megawatts. Our digital pipeline was 3,301 megawatts at the end of fiscal year 2021. Let me point out that our digital pipeline typically converts about 3 times faster than our product and service pipeline. Our combined assets under management and contracted backlog for the digital business exceeds our products deployed and contracted backlog, reflecting the importance of Fluence IQ for our ecosystem, and demonstrating that the growth of Fluence IQ is going beyond energy storage.

Turning to slide 12. Our fiscal year 2021 revenue grew 21% to a record $681 million versus $561 million for fiscal year 2020. In the fourth quarter, revenue decreased 21% as a result of the mentioned shipping and COVID-19-related delays, whereby revenue recognition was delayed from the fourth-quarter fiscal 2021 into fiscal year 2022. We view the delays of revenue recognition as temporary, with expectations that they will be resolved by H2 of fiscal year 2022. Let me point out that this is strictly a shifting of revenue and does not represent any contract terminations.

Turning to slide 13. Gross profit for fiscal year 2021 was negative $69 million compared to $8 million in fiscal year 2021. In the fourth quarter, gross profit was negative $59 million. This decrease is driven by $68 million of nonrecurring expenses in Q4 which included $16.7 million related to nonrecurring excess shipping cost, $48.2 million related to project charges which are compounding effects of the COVID-19 pandemic, and $2.6 million related to the 2021 cargo loss incident. Adjusting for these nonrecurring items, we generated adjusted gross profit of $15 million in fiscal year 2021 versus $9 million in fiscal year 2022 (sic - see slide 13, "2020"). In the fourth quarter, adjusted gross profit declined, in line with the decline in revenue.

As Manuel already discussed, we are taking steps to help mitigate the impact of continued ocean freight challenges, such as securing guaranteed availability with Tier 1 shipping companies. The shipping delays have compounding effects on additional expenses that we are required to incur, such as additional expenses for contractors waiting on equipment and other project charges.

For the first half of fiscal year 2022, we are forecasting at least $50 million to $55 million of nonrecurring expenses related to shipping and other COVID-related items versus $72 million in fiscal year 2021. We are currently seeing that these expenses are decreasing from quarter-four 2021 through the first half of fiscal year 2022.

Continuing to slide 14. EBITDA in fiscal year 2021 was impacted by the same nonrecurring expenses as the gross profit. In addition, there are $4.8 million of nonrecurring, IPO-related expenses which did not qualify for capitalization. Other than that, we increased our expenses to support the future growth of the company, which drove the adjusted EBITDA to negative $65 million in fiscal year 2021.

Moving on to slide 15 and our revenue outlook. Based on our current contracted backlog of $1.7 billion, we are providing guidance for fiscal year 2022 revenue in the range of $1.1 billion to $1.3 billion. Our guidance takes into consideration of potential delays in revenue recognition resulting from shipping and COVID-19-related delays and our ability to recognize revenue from our energy storage products on a timely basis in H2 fiscal year 2022.

Turning to slide 16. We would like to highlight the seasonality that we have in our revenues and order intake. This seasonality is due to customers' desires to have products operational in time for summer in the Northern Hemisphere. Historically, we recognized approximately 70% of our revenue mostly in our fiscal second half. This is aligned with our patterns for order intake stop. As a result, fiscal first-half results will usually be lower compared to our second half.

However, for this upcoming first half of fiscal 2022, there is a caveat to the seasonality in that we expect a good portion of the delayed revenue from the fourth quarter of fiscal year 2021 will be recognized during H1 fiscal year 2022, leading to a slightly stronger revenue during that time.

Moving on to page 17. As we look ahead to our next phase of growth, we would like to highlight our capital allocation strategy, which is bolstered by the strong balance sheet that we have set in place following the IPO. With a post-IPO debt-free cash balance of approximately $850 million, we are well positioned to invest to further strengthen our ecosystem.

As we deploy capital, we will always stay true to our strategic framework of enhancing unit economics, expanding recurring revenues, and developing structured offerings, with a primary focus on the former two initiatives. M&A is an additional avenue to help us executing our strategy. And we have a strong track record of making and integrating strategic acquisitions, such as AMS.

This concludes our prepared remarks. Operator, we are now ready to take questions.

(Operator Instructions). Mark Strouse, JPMorgan.

Welcome to the public markets. Can we just dig into the comments around the project timing? Could you just talk about the -- what gives you the confidence in claiming that you think that there will be a rebound in the second half of this fiscal year? Is that just the macro that you are seeing? Or is that based on specific commentary from your customers?

Thank you, Mark, and good morning, and thanks for welcoming us to the public markets. We're [very excited times]. Yes, as we mentioned, the shipping delays, we've seen some level of stabilization on the shipping and reliability of those so that we're getting the equipment to the sites, they are being installed and commissioned. We already mentioned about some of the delays and our costs, but we are confident that they will be progressing. We have the people on the ground, and we have -- we are understanding where the bottlenecks are. So we're very confident that we will get those sites in operation fairly soon.

Okay. Thanks, Manuel. And then just a quick follow-up. On the digital IQ business, there were some pretty impressive metrics that you were providing during your IPO as far as the customer savings that your customers were experiencing. Is there any update to that in the few months that we've had since the IPO? Any other encouraging metrics that you're able to go out to new prospective customers with? And then quick follow-up to that is, how should we be thinking about the potential revenue-sharing upside from those contracts when we think about your guidance for the coming year?

Thank you, Mark, for the question. Yes, indeed, we are very, very excited about our latest wins. They all demonstrate that our ecosystem that we are creating and populating across the three business line is working well with all those cross-selling opportunities. And the optimization that we are getting from the Fluence IQ platform is very well received by the market. It's getting more and more momentum.

I would like to give chance to our Chief Digital Officer, Seyed, do give us a little bit more color on those big wins that we had and we are demonstrating.

Sure. Thank you, Manuel. Seyed here. Just to answer some of the specifics of your questions: yes, we are seeing a lot of momentum on the platform KPIs. Just to summarize it for you, since inception, we submitted over 200,000 economic bids in different wholesale markets, which is pretty impressive and exciting. Our SLAs uptime and runtime has been greater than 99.99%, which is pretty impressive. And we are also continuing to provide upside to our customers based on their asset class and the geography they are located. So a lot of momentum in terms of the KPIs and the product performance, so just wanted to note that. But in terms of their continuous growth, you're absolutely right: we had a pretty strong quarter. You can see some of the diversity of the product applications that we're deploying. The Hazelwood project has been pretty impressive for us. Could add more color there.

But just to go back and tie that to the holistic vision that we are pursuing, which is to transform the way we power our world, I should note the power of combining smart connected energy storage systems, digital applications, and services. And that's been showcasing itself for the Hazelwood project and many projects to come.

So let me pause there to see if that answers your question. Happy to elaborate further.

Yes, it does. Thanks, Seyed. That's it for us. Thank you very much.

Maheep Mandloi, Credit Suisse.

Welcome to the public markets.

Thank you, Maheep.

One question on the free cash flow, I think, just trying to understand. You gave enough clarity around these delays, and it's more transitory, and expect to realize them in the second half. But does that impact any of your prior free cash flow assumptions for the next year?

Yes. Thank you very much, Maheep, for your best wishes.

And let me pass to our CFO, Dennis, to give you more color on your specific question.

Right. Hi. Good morning also from my side, and thanks for the question. So overall, it does not change our view for the entire fiscal year 2022, but certainly it impacts the timing within the fiscal year 2022. So as we are seeing some of these topics being resolved within the first half of fiscal year 2022, we do expect that, certainly, cash flow will be impacted by that throughout the first half, versus in the second half we will see a stronger recovery there, and then to close out the year as we expected.

Got it. And then just in battery supply, I know you previously talked about having in a supply for 2022 and 2023. But as you're looking into procuring more batteries for beyond that, are you seeing any challenges in the market? We keep hearing about supply constraints. Just trying to understand your visibility on that.

Thank you, Maheep. And as we stated, yes, we're battery agnostic. We have secured a significant capacity that will cover our immediate needs. We announced our strategic partnership with Northvolt in Europe. We're doing -- we're talking to top-tier battery manufacturers, also, in the US that eventually will come online. So we are truly diversifying our supply chain. And we're going regional on sourcing for the three large regions, the three large areas where we are doing business. So on that regard, that goes exactly in the direction that we design our strategy. And we are re-analyzing our contract manufacturing and supply chain.

I appreciate that color as well. And just one last one for me and then I'll hop back, and just more housekeeping. The services contracted backlog seemed flattish quarter over quarter. I mean, you had more contracts in the quarter for services also, so just trying to understand that -- or if I'm missing anything over there. Thanks.

Yes. Thank you, Maheep. I think that that is not exactly what we are seeing. But I'm giving Dennis a chance to give you more and more specific numbers on that regard. But, actually, they are going up.

Right. Hi, Maheep. Yes, so in [OS1], we disclosed 1,198 megawatt contracted backlog as of June 30, and we increased that to 1,980 as of September 30. So we are seeing basically a 60% increase within the quarter, in line with the strong contracting which we have seen.

Perfect. I'll follow up the rest later on. Thank you.

James West, Evercore ISI.

Congrats, and welcome again to the public markets. Manuel, I was curious if you could describe the level of demand that you are seeing in the market today. It seems to have hit some type of tipping point in the last six months or so. I know the last time we connected, you were nice enough to give me time. But you were on a plane that was taking off, and so you had to jump off at the end there, and it was certainly -- you were going to see customers. And there seems to be this acknowledgment worldwide of, we need to get going fast on energy storage. And so I'd love to hear your commentary around what has maybe changed in the market, what the tipping point was, and how customers are thinking about this now.

Yes. Thank you very much, James, and thanks for the opportunity to tell what we're seeing. It's true; there's a significant demand building up everywhere in the world. The fact that we are expanding to a -- we just expanded to a new market in Taiwan. We got record year orders on every single of our three business lines. And we are not even counting on additional regulation our any subsidies that might come from the infrastructure bill, or BBB, or any other new regulation in other part of the world.

We have seen, out of the United Nations Climate Change Conference, the very strong commitment, for example, from India. They are announcing a substantial amount of energy storage going to that market. They are expanding their regulation work. Every renewable project should have energy storage associated with it. So we're looking at that market. It's -- the fact that we are expanding in our three regions.

Yes, we've seen a significant, worldwide adoption of the technology and understanding that it's impossible to decarbonize the planet just with renewables, that we need energy storage, smart solutions, with digital optimization on top of that.

And then maybe I'll follow up here, more of a housekeeping item. But the contract manufacturing rollout of additional facilities, when should we expect to see some of those come online, ex- what you've been doing in Vietnam, to somewhat distribute your supply chain?

Yes, yes. Thanks for that question, James. Yes, this goes exactly on our strategy direction. We already have selected contract manufacturing in Europe and in the US. We are negotiating those terms. That -- it will expand and give us flexibility to our capacity to deliver products to those regions or between regions. And it significantly reduce our exposure to shipments or any logistic delays. Also it will allow us -- eventually, if there's some elements of local content that is being required -- it will give us the flexibility and the optionality to do that. So we are moving in exactly that direction. And it's very, very much our strategy.

And will those come on, early calendar 2022?

Yes. We think that that might be up and running by the end of 2022, perhaps the first half of 2023, yes.

Okay, got it. Thanks, Manuel.

Julien Dumoulin-Smith, Bank of America.

Congratulations indeed, again. So thanks for the time. Just to follow-up here on just thinking through 2022, how are you thinking about the incremental -- or to the degree to which, Hazelwood, for instance, is an incremental project or what have you, versus how you were thinking about things through the course of the year?

And really, if you can try to quantify some of the mitigating factors when you alluded to logistics and trying to contract this ahead of time, et cetera. Order of magnitude, how much could that help offset some of the impacts here? Again, just trying to understand some of the puts and takes, and maybe degree of conservatism reflected in the numbers here.

Yes, thank you very much, Julien, and good morning. Again, thanks for your kind words. We are so happy that you're here with us, and following our story and our success. Yes, what we have seen in the Hazelwood contract and project is exactly what we want to do around the world. It's a very significant customer that is understanding our technology, is taking advantage of it, is entering into a market that they see as promising and financially attractive. And by having this Fluence IQ platform on top of that with a revenue-sharing type of potential, it really, really brings value to -- not just to the customer, but our offering and our ecosystem concept.

On the shipping delays -- and yes, we have taken short-term measures and long-term measures that I discussed about the long-term ones, which is the full regionalization of our supply chain, contract manufacturing, and logistics. On the short-term, yes, we are talking to the top tier freightliners to secure capacity and to have a very, very good scale up. That is usually a few months ahead of us.

On the specific numbers, I will allow Dennis to give us more color. But what we can say is that we've seen a stabilization, both in prices and reliability.

Yes. Let me come back to the Hazelwood item where Manuel already highlighted, and let me highlight again the tremendous -- when we were really able to sell all three items of our ecosystem. And therefore -- as you may remember, Julien, from our discussion -- that we have been very conservative in regards how we look at the performance contracting side, and we see a tremendous upside on the digital side of the business. And that is contract. The products and the services side are basically in line with what we have contemplated in our business plans. And we are also quite proud of that -- that we have achieved that.

Excellent, guys. Thank you. And just if I can follow up here, in nuance here, you talked about some project delays getting pushed from 2021 to 2022. You provided this calendar year approximate percentage of revenue. But presumably, as we think about 1Q 2022 more specifically, rather that the generic number that you guys provided here, in theory the first half should be stronger than the percent revenues that you guys talked about here on the generic go-forward basis, right? I just want to clarify the bridge, 2021 to 2022, versus this ongoing guidance.

Right, Julien. So our seasonality stands with the typical 70% in the second half, as I also covered in the statement before. We certainly, with this delay, see a slightly stronger revenue than the normal seasonality in H1. But it's not to the level that we would see that H1 is becoming stronger than H2. So, certainly, there is some higher number there than the typical 30%, but not up to a level of 50% or more.

Guided. All right, excellent. I will leave it there, guys. Thank you so much. Cheers.

Brian Lee, Goldman Sachs.

A couple modeling-related ones, if I could. If I calculate it right, I think the revenue push-out was about $120 million, or in that ballpark. Is that fair? And how many projects were impacted? And you mentioned seeing this all getting recognized in the first half of fiscal 2022. What is the cadence you are expecting between Q1 and Q2? 50-50, or are we going to see more of that revenue rec on the push-outs in one particular quarter versus another?

Thank you. Thank you, Brian, and again, thanks for -- good morning, and thanks for your good words about us.

And on the specifics, I will pass Dennis to give us more color in that -- on your question.

Right. Hi, Brian. Good morning. So in regards to the push-out, basically you're right that there has been that push-out from Q4 into Q1, or the first half of fiscal year 2022. And I think the number which you mentioned is somewhere in the ballpark range. We would expect a larger portion of that to be recovered in Q2, and probably somewhere in the range of 30% to 40% of that in Q1 fiscal year 2022.

Great. That's super helpful color. And then just a second one, and I'll pass it on. Nice backlog growth here. I think the last quarter, you guys, in June, had mentioned $1.3 billion. Now you are at $1.7 billion contracted backlog. I know you give it on a volume basis. Any sense, rough ballpark, what the mix is of that $1.7 billion on a dollar basis between energy storage products, services, and digital?

And then just in that context, seems like the revenue guide, $1.1 billion to $1.3 billion, given the backlog at $1.7 billion, it would be supportive of higher. So just wondering if you could remind us how you define backlog, and comment on bit on the mix to give us some context there as well. Thanks, guys.

Sure, Brian. So out of the $1.7 billion, we have approximately $1.3 billion on the product side. And then the remainder is basically on the recurring side of the business. That means on the services, as well as of the digital side. So in that regard, when you think about the guidance of $1.1 billion to $1.3 billion, and as we also stated in our prepared remarks, that we are certainly still looking also about H2 potential delays there. And, therefore, we have put out the guidance of $1.1 billion to $1.3 billion, based on what we are seeing in the backlog.

Okay. And the -- just last one to clarify on the non-storage product portion of the backlog at $400 million, what's the average duration? It's not 12-month backlog; it's backlog that represents forward two- to five-year revenue? Could you remind us what you characterize that as on the services and digital?

Right. So on -- and typical assets, a mixture between the services and the digital sides, on services we are seeing somewhere 10 to 12 years. And on the digital side, somewhere in the range of 3 to 5 years. So in that regard, our overarching -- this revenue is up to -- or this backlog covers up to 12 years. Certainly, it was a bit more forward-loaded pattern here due to the digital side of the mix.

Yes. If you allow me to elaborate a little bit on that, there are two elements here that are very significant. The first one is that we got 100% attachment rate on services in the EMEA region, which is fantastic. Overall, almost 75%, 74% attachment rate overall, which is also very, very high number. So it brings a -- and it ratifies the confidence that we see from our customers that the whole package, the whole ecosystem that we're offering and the three business lines, it makes a lot of sense for them and brings value to them. The fact that the Hazelwood project has a 20-year service contract is a testament of the value that we are creating and providing to them.

All right, that's great. I'll pass it on. I'll also echo everyone else's congrats. Thanks, guys.

Stephen Byrd, Morgan Stanley.

Hi, this is Dave Arcaro on for Stephen Byrd. Thanks so much for taking my question, and congrats on the IPO. I was wondering if I could just touch on Fluence IQ. Could you give an update on where things stand in the development pipeline for the next set of software apps? And any indications, initial customer conversations as to what the interest level and demand might be for the next round of software?

Thank you very much, and good morning, David.

I will pass to Seyed to give us more color on what is happening with the Fluence IQ platform. But overall, very exciting, very positive, very good feedback from our customers.

Sure. Thank you, and thanks, Steve. So just a little bit more color in terms of Fluence IQ. So we are continuing to see strong demand in the markets that we have a presence. That's the national electricity market in Australia, where we own about -- close to 20% of renewable share. So we expect to continue to grow in that market. California is being pretty strong for us, so we expect to continue to grow.

But, unfortunately, what we saw in the recent Texas climate environment -- the reason I say unfortunate is because there's a lot of public sacrifices that are being made. So our software is going to be centerpiece in that market, so we are ramping up development of our [ERCOT] application to be released this year. We are seeing a lot of volatility in that market, resembling what we've seen in the Australian market, an absence of centralized capacity [team]. So ERCOT market entry is top of the priority for us. We are investing heavily into software development application to support our market optimization with Fluence IQ in the ERCOT market.

But to your point, as we talked about during our Analyst Day as well, the goal here is to further develop applications that go beyond power markets. That is addressing dispatch applications for vertically integrated utilities where we don't see power markets being -- we don't see a presence of power markets. And we're also thinking about midterm portfolio management applications, long-term investment applications.

So all of that would be part of the business plan and the product development in fiscal year 2022 with an aim towards commercialization in fiscal year 2023. So we're on track there, making a lot of progress, obviously investing in the team and talent to support us with that vision. But things are shaking out good.

That's really great color. I appreciate that. And maybe just one follow-up on the demand side of things. I was just wondering if you could give some color on geographically how is the backlog split. Where are you seeing the strongest demand in the different countries that you're operating in, maybe heading into 2022? Thanks.

Just to clarify, David, on the Fluence IQ platform or overall?

I was thinking more overall in terms of the energy storage product portfolio overall, beyond just Fluence IQ.

Yes. We've seen -- to be honest, we've seen a demand peaking up in all markets. The fact that we entering into Taiwan, the fact that we have record -- the largest project in Europe, the fact that we keep rolling very fast in the California market with the Fluence IQ. So we have examples that -- contracts being awarded in all three regions, with record levels in all of them. So it is a totally synchronized growth trajectory for all three regions, which is very encouraging.

That's great to hear. Thanks so much, and congrats again.

Tom Curran, Seaport Research.

To quote Bruce Willis in Die Hard: welcome to the party. Curious about how much visibility and certainty you have on your role within AES's renewable strategy. So from 2021 through 2025, we understand that AES is planning to add 4 gigawatts per annum of solar capacity. What percentage of that do you expect to include storage? And given that represents assured, locked-in demand for Fluence, how are you modeling those orders internally? Is there an annual floor for AES orders that we can assume?

Yes. First, thank you. Thank you very much, and good morning, Tom, and thanks for your kind words. We are very excited about this new chapter in our history, now being a public company. Yes, indeed, you all know AES is a shareholder, is one of the founders. And I thank them, along with Siemens, to establish this JV and have the vision that where the market will be going. Then they proved to be true and to be right on their decision. And so we are all very happy and very excited and thankful for that.

Yes, on the specific pipeline, AES has been upgrading their pipeline and their annual commitments. We have a very, very strong and [fluent] conversation -- communication with them: this isn't on you; it has been there for years. So we're going hand to hand with them.

What we expect is 100% of whatever they are including -- a percent that they are including their own projects and expansion. So we will be with them. We will be providing our smart solutions, services, and digital Fluence IQ along with them, and we are very excited. That is part of our projects and our plans. It's part of our business plan. And the fact that they are increasing their own numbers is a tailwind for us.

And Manuel, we can assume that whatever percentage of that new solar capacity they will be building that they're going to storage for, that you'll be winning 100% of that? That will exclusively go to Fluence?

Yes, yes. That's true.

And then if I could just squeeze in one more follow-up before we run out of time here. Where are you expecting the energy storage products division's adjusted gross margin to exit fiscal 2022 at?

Dennis, you would like to take that one?

Right. So basically in line with what we have stated in our model during the IPO process, you can take that as a proxy.

Great. So still on track for that?

Yes.

Thank you for taking my questions.

There are no other questions in the queue. I'd like to turn the call back to Manuel Perez for closing remarks.

Thank you very much, operator. Thanks to everyone, and all our -- I would like to thank again -- and I did it at the beginning of my speech and my words. Again, I would like to send a sincere thank you to the entire Fluence team. They have been extremely passionate, strong committed. They have shown strength and resilience because all the COVID pandemic. So thank you, everyone. Thanks to our customers, investors, analysts that had -- they made this possible.

And we are so happy that, given all the circumstances and the headwinds, we keep rolling, we keep beating our own records, and expanding and truly changing the way that we power our world for a more sustainable future. Thank you. Thanks, everyone.

This concludes today's conference call. Thank you for participating. You may now disconnect.