Fluence Energy Inc (FLNC) 2023 Q1 法說會逐字稿

Good day, and thank you for standing by. Welcome to the Fluence Energy, Inc. First Quarter 2023 Earnings Conference Call. (Operator Instructions) Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Lexington May, Vice President, Investor Relations. Please go ahead.

Thank you. Good morning, and welcome to Fluence Energy's First Quarter 2023 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 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; Manu Sial, our Chief Financial Officer; and Rebecca Boll, our Chief Product Officer.

During the course of this call, Fluence management may make certain forward-looking statements regarding various matters relating 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. (Operator Instructions).

Thank you very much. I'll now turn the call over to Julian.

Thank you, Lex. I would like to send a warm welcome to our investors, analysts and employees who are participating on today's call. This morning, I will provide a brief update on our business and then review our progress on our strategic objectives. Following my remarks, Manu will discuss our financial performance as well as our outlook for the rest of the fiscal year.

Starting on Slide 4 with the key highlights. I'm pleased to report that we recognized $310 million of revenue during the quarter. More importantly, we improved gross margin for the quarter, both on an adjusted and GAAP basis. Our demand was strong across all 3 of our business lines, and new orders were approximately $856 million, highlighted by the 1,200 megawatt hour contract with Orsted that we announced on our December call.

Furthermore, our same contract value as of December 31 was $2.7 billion, a quarter-over-quarter increase of more than 20%. Importantly, over 70% of our backlog is with nonrelated parts. Lastly, our recurring revenue businesses, which consists of our services and digital business, continued to grow during the quarter. Our service attachment rate was 11% for the fourth quarter.

However, our deployed service attachment rate is rated at 90%, which is based on our community service contracts relative to our deployed storage. Most of our customers wait to sign service agreements closer to the point with the storage solutions coming online. Thus, there is usually a lag between storage concepts and service costs.

We believe the deployed attachment rate is more reflective of our true service attachment rate due to a contracted plan that I just mentioned. Moving forward, we will be providing you with both our contracted and our deployed attachment.

Additionally, our digital business signed more than 800 megawatts of contracts since the fourth quarter, providing us visibility to future revenue.

Turning to Slide 5. I would like to discuss the 5 strategic objectives that we headlined in our last earnings call and provide you with an update on our progress.

First, on delivering profitable growth. I'm pleased to report that we are raising our fiscal year '23 guidance for both revenue and adjusted gross profit. As Manu will discuss in more detail, we are able to raise our guidance due to incremental demand and better supply chain.

Second, we will continue to develop products and solutions that our customers need. As such, we are now ready to begin offering Northvolt MNC batteries in our Gen 6 Cubes. This provides our customers with more optionality when looking at solar solutions and helps to diversify our battery supply via a European market.

Third, we will convert our supply chain into a competitive advantage. I'm pleased to say we have all our fiscal year '23 battery requirements either in country or in transit does provide us high confidence for execution and achievement guidance.

As you may recall from last year, one of the challenges we faced was getting our batteries on time from our battery vendors. They were often delayed and as a result, we liquidated those batteries. Our team has done a tremendous job in mitigating this risk for '23 by ensuring that all our battery needs are within our control.

Where we stand today, we don't foresee supply chain issues that could derail our fiscal year '23 expectations. We continue to implement our risk management processes and proceed and thus provide us with high confidence. Additionally, if we identify any issues that could cause us to deviate from our plans, we will act swiftly to mitigate the risk (inaudible).

Fourth, we will use Fluence digital as a competitive differentiator and a margin driver. I'm pleased to announce 2 significant milestones in our digital business.

First, we entered the ERCOT market with our Mosaic bidding application and having awarded an initial contract with a nonrelated global (inaudible). ERCOT is a rapidly expanding market and provides a significant number of opportunities for our Mosaic application. Mosaic now is in 3 markets: Australia NEM, CAISO and ERCOT. As we discussed last time, we are looking to expand to 4 additional markets in the next 3 years.

Additionally, we have now successfully launched Nispera (inaudible) capability on to battery and storages. This offering now provides those customers with renewable asset portfolio the opportunity to utilize one asset performance management platform for all their assets rather than multiple platforms.

And finally, our fifth objective is to work better. We are continuing to see successful execution on our transformation, including enhancing our risk management capabilities, improving our project execution and optimizing our cost structure, which I will touch on a little later.

Turning to Slide 6, demand for any (inaudible) continues to accelerate. In fact, our pipeline now sits at more than $10.3 billion, nearly 4x our current backlog of $2.7 billion. As you can see from the chart, our pipeline reflects some early projects that are attributable to the Inflation Reduction Act.

We expect we will see some of these projects turn into signed contracts beginning in the second half of this year. Additionally, our project leads are at an all-time high, which is a good lead-in indicator of potential opportunities.

As such, we expect the IRA to drive our U.S. revenue growth in 2024 to 40% to 50%, thus implying consolidated revenue growth of 35 to 40 predicated on a timely issuance of the IRA's guidance. While the exact timing of the IRA guidance is unclear, we are hopeful that some initial commentary will be released this spring.

Continuing with demand, we're becoming increasingly encouraged by the actions that are coming out of Europe. Earlier this month, the European Commission introduced Green Deal Industrial Plan, which aims to increase spending and reduce regulations and red tape in order to accelerate the expansion of renewal and the sustainable technology. While still early days, the details of the plan has not been shared, we applaud the efforts of the European Commission as they take steps towards securing their energy independence by increasing their share of renewal energy, including battery energy storage.

On Slide 7, we have highlighted some of the reasons why our customers choose us to provide their energy storage solution. They are looking for someone who can provide them with a safe product. We are proud to be one of the market leaders in safety and have surpassed the industry standards. Time after time, our customers tell us that safety is their top priority when selecting an energy source. We will continue to make safety our highest priority when developing additional solutions.

Second, performance. Our customers demand not only a safe product but one that performs at high level. To that point, we are pleased to have deployed the world's fastest responding battery and storage facility. Our team has achieved the demand response times below 150 milliseconds (inaudible).

Third, bankability. This is critical to our customers as they look for project finance, especially for the larger projects, which are becoming more and more common. Banks and financial institutions have told our customers they feel confident in underwriting projects with Fluence as the energy and storage solution.

In fact, in December year-on-year, (inaudible) energy storage system (inaudible). These are report in which BNDES will rate 185 industry participants. One of the survey questions asked participants to rank the bankability of integrators and providers. We are proud to be ranked at the top for bankability reflecting our successful turnaround.

And fourth, supply chain assurance. Our customers want someone who will be able to deliver their projects on time. This comes only with efficient supply chain. We're proud to say that we have all our battery needs for the remainder of the fiscal year either in country or in transit. This significantly reduces the risk of projects.

Our track record of safety and performance, our standing with bank and other lenders and the steps we have taken to significantly reduce supply chain risk allows us to continue attracting some of the world's largest infrastructure players as our customers. These customers are seeking a long-term relationship that begins with storage solutions and often the opportunity for long-term services and digital contracts that provide recurring revenue. This is happening greater than 90% of our storage deployed has a long-term service contract.

Turning to Slide 8. We continue to expand our digital offering in order to help our customers maximize their profit. First, we have officially entered the ERCOT market with our Mosaic bidding application. This is now the third market for Mosaic with the orders being Australia NEM and CAISO.

More importantly, we have been awarded our first contract in ERCOT. We signed a framework agreement with an unrelated global IBP and utility to optimize any ERCOT product line in the next 3 years. The first allotment totaled 289 megawatts. This is a significant award as it establishes our product in a new market with a blue-chip customer.

Second, as I briefly mentioned, we have officially launched third-party energy battery storage our Nispera asset performance management platform. This is a major milestone. As a Nispera platform, it's one of the first APMs in the world to be into all four major renewal asset classes: wind, solar, hydro and now battery energy storage.

Nispera additional battery capabilities include providing real-time monitoring of the battery component, data performance analysis of the system and ticketed for asset data. The advantage of Nispera brings is that many of our customers bought more than one renewable asset class. Nispera can now provide with one APM for all renewable assets in the portfolio. So instead of having different APM for each asset class, they can now have just one for the entire portfolio.

Similar to our Mosaic offering, the overall objective of Nispera is to maximize our customer process by having an asset performance management platform where it also helped lower the total cost of ownership of our customer and increase our customer footprint.

Turning to Slide 9 (inaudible) from our financial results, we're making a tremendous progress on our transformation. As we briefly discussed on our last call, our transformation is focused on 3 main areas.

The first is enhancing our risk management. We have put in place a set of managerial and commercial initiatives to ensure we identify (inaudible) that one we have managed more efficiently and effectively and ensure all rates are quantified and mitigated (inaudible). The more robust risk management allows us to be more confident on our prospective financial results.

As all these processes as measured continue to mature, we will continue to provide further clarity on the prospects of our report. There is still some way to go in our endeavors. But I am confident in our ability to continue moving this platform.

Second, improving our execution. A major driver of our execution is our product development capability. We recently revised our product road map initiative. We're breaking down our product development projects into smaller units, moving away from the concept of generation output and concentrated on improvements rather than (inaudible).

The smaller projects are easier to manage, more efficient and faster to market. In addition, our recently established best-in-class facility allows us to test each new improvement at a system level. And we are able to (inaudible) and identify a problem before going to the customers.

Third, optimizing our cost structure. As we mentioned on our last call, we have been increasing our resources on our India technology set. We have been often taking a competitive workforce strategy that reduce resources in higher-cost countries and increase resources in lower-cost countries.

As part of this, we're utilizing our India Technology Center to provide necessary support function and to retool our digital class. I'm pleased to report that we made significant progress in this level and plan to double the number of employees in India by the end of our fiscal year.

As a result, we expect India to represent 10% to 15% of our talent, which provides us with the necessary resources for our significant growth. By focusing on our resources in lower-cost countries like India, we're able to reduce our operating leverage (inaudible) that Manu will later touch on.

Overall, I'm pleased with the achievement of the first quarter. Although we're mindful, there's still a lot of work to be done. We will look to continue this momentum as we progress for the remainder of the year.

This concludes my prepared remarks. I will now turn the call over to Manu.

Thank you, Julian, and good morning, everyone. I will begin by reviewing our financial performance for the first quarter and then discuss our outlook and guidance for fiscal year 2023.

Please turn to Page 11. In the first quarter, in addition to having the highest order quarter in our history, we delivered $310 million in revenue, representing an increase of 78% year-over-year. We continue to effectively manage our global supply chain and execute on our backlog, including working through our legacy backlog. Greater than 95% of our first quarter sales was made up of legacy backlog, and we expect to be materially complete by the end of fiscal year 2023.

Moving to gross profit. I'm pleased to report that we generated positive gross profit in the first quarter. We continue to strengthen our contract compliance controls and risk management practices. And our gross margin number in the first quarter includes the recovery of net gains worth $18 million we had made against one of our battery suppliers that we previously disclosed and was accounted for as a reduction to cost of goods sold. The important takeaway is that we are instilling stronger contract compliance procedures to enable us to recover damages per our contractual terms if necessary.

With regard to operating expense and adjusted EBITDA, first quarter operating expense, excluding stock compensation, was approximately $54 million, which is in line with the fourth quarter of 2022. As Julian mentioned, we are executing on our plan to optimize our global workforce, including through leveraging our India Technology Center.

Our previously communicated model are holding operating expense growth to less than 50% of revenue growth is intact, and we expect full year 2022 operating expense spend as a percentage of sales to represent the high watermark. This model helps create operating leverage and will drive the improvement in adjusted EBITDA that we expect in 2023 and beyond.

Turning to our cash balance. We ended the quarter with approximately $460 million of total cash, including short-term investments and restricted cash. This figure is in line with our comments on our Q4 earnings call.

Rounding out the balance sheet discussion, inventory increased by approximately $400 million versus the prior quarter as a risk mitigation strategy to provide us with supply chain assurance for our 2023 revenue guidance. As Julian mentioned, all of our battery needs for 2023 are now either in country or in transit from China.

The inventory build in the first quarter significantly derisk our 2023 revenue guidance. And a significant portion were funded by customer advances and milestone payments. Given our planned first quarter inventory build, we expect our cash usage in the second quarter to be slightly higher than in the first quarter.

Furthermore, we do expect inventory turns to improve as we exit 2023 and end 2023 with liquidity greater than $500 million between cash balance and undrawn revolver, in line with previously communicated cash framework. We do not believe we need to raise any additional capital to meet our needs.

Please turn to Slide 12. As we briefly mentioned, we are increasing our fiscal year 2023 guidance for both revenue and adjusted gross profit. We now expect our total revenue to be between $1.6 billion and $1.8 billion, which is up from our previous revenue guidance of $1.4 billion to $1.7 billion.

Additionally, we now expect our adjusted gross profit to be between $85 million and $115 million. This is up from our previous adjusted gross profit guidance of $60 million to $100 million. The guidance increase is due to the incremental demand and better supply chain visibility. We provided more detail in our appendix similar to last quarter.

We're coming into the second quarter with 99% of our 2023 expected revenue in our backlog, providing us high visibility to achieving our guidance. In terms of revenue seasonality, we still expect to see a split of approximately 40% in the first half and 60% in the second half of our fiscal year.

As Julian briefly touched on, we expect the IRA tailwinds to benefit order growth in the second half of 2023 with a benefit to top line revenue and gross profit mostly occurring in 2024 and beyond. Thus, we have not included any IRA impact in our 2023 revenue and gross profit guidance.

Before I turn this call back to Julian for final remarks, I would like to reiterate that we are committed to and on track to be adjusted EBITDA positive in 2024.

With that, I'll turn the call back over to Julian.

Thank you, Manu. In closing, I want to reiterate what I consider the main takeaway from this quarter results. First, we had a strong quarter in terms of our financial performance with our highest order intake in history, providing us with a solid base from which we can launch the strong growth we foresee for our company.

We continue to make significant progress on our risk management, most notably for this quarter, reducing our supply chain risk through several actions as reflected in having our order 2023 battery needs in country or in transit. We continue to expand our offerings, concentrate our efforts in developing new products and solutions that create value for our customers, especially relevant this quarter, the new Nispera battery management software.

All the efforts covered in today's call provide us with high confidence to increase our total revenue and adjusted gross profit guidance for fiscal year '22 and achieve the positive EBITDA in 2024. This will conclude my prepared remarks.

We will now open it up for questions. Operator?

(Operator Instructions) And our first question comes from the line of James West with Evercore ISI.

Obviously, really strong order intake this quarter, and it raised guidance of very positive moves there. I'm curious what you're seeing in terms of pricing because demand is running well ahead of supply in the market. And thinking about your drive here, you and Manu's drive to profitable growth, but significant growth of profitable growth, are you at the point where you can exact some pricing power onto the market?

We see pricing -- as you said, demand is strong, and we see prices supporting our 10% to 15% margin of what we have said to the market. So same within that range, some segments are higher, some segments are in development part of the phase. Some segments are in the lower side. But generally, we are kind of in that range (inaudible).

Okay. Okay.

You can start to see that in the new deals we are signing. Those are double-digit margins as well.

Okay. Okay. Makes sense. And then maybe a follow-up for me, a little bit related but on the software side of the business. There was a good uptake on Mosaic and Nispera is seeing some progress here as well. What's the go-to-market strategy with those software packages? Do you sell them as a package? Do they go individually? What's the -- I guess how is that process run and yes.

As we communicated in the last earnings call, remember, one of the things that we're integrating our sales channels better.

Right.

The reality is that the Nispera is a global product. So we can sell it all around the world in all our (inaudible), wherever they are located. Mosaic is a market product that works in Australia, in California and now in ERCOT. So they are not -- you cannot integrate the 2 together because they are different, and it depends on the business case to each of our customers. But we are integrating with our offering to make it to be a lot more efficient in the way we sell it.

So that's the way we think on it. You will see, I think, a closer integration of our APM or Nispera offering into our product sales as we continue moving forward, it is a global product, the same as our products.

(Operator Instructions) Our next question comes from the line of George Gianarikas with Canaccord Genuity.

I'd like to ask about gross margins, and I don't want to put the cart before the horse, but you've done a really good job getting them back into the mid-single digits. And previously, you had guided for your hardware business to be somewhere in the mid-teens, I believe. Is that -- given that there have been multiple structural changes to the way you contract, is there a potential upside to that mid-teens gross margin target long term?

No. I think as I said, we're still seeing this 10% and 15%, lower teens, some markets look better, some markets doing a lot tighter. But our view hasn't changed, not today. (inaudible) we're on top of. And I'm clearly always talking to our sales team to ensure we look at the segments where we can capture better margins.

But today, what we told. Just to kind of explain why we are not seeing that in our results today, as you know, we are getting out of our legacy customers. And we probably will be out completely our legacy contracts by the time we close this fiscal year. And you should see a lot of improvement on margin during the year, and we will see the new contract coming full in 2024 going forward.

And maybe as a follow-up, we continue to read about auto companies not only obviously building cells, battery cells, but investing in lithium mines. And I'm curious as to when you think strategically over the next couple of few years, I know you have enough supply currently, but is that -- is getting deeper into the supply chain something that's of interest? And -- or do you have to maybe partner with -- more deeply partner with a cell manufacturer long term?

Last quarter, we announced that we were going into module production, which is a little bit of a further vertical integration (inaudible) or with the objective of commoditizing the cells essentially, the opening of the people we can buy from, accelerating the time at which we can integrate sales and for getting a stronger position in the cell supply chain is strong.

We don't have plans to go further down, but -- so that's essentially what we think. Our current view is that we're (inaudible), but going further down, it's not -- it will not be efficient or effective as well.

Our next question will come from the line of Maheep Mandloi with Credit Suisse.

Yes, absolutely. And maybe just to start with, could you just talk more about the supply chain improvements you're seeing here? Is this something you're seeing throughout the year here? Is it from a timing perspective? And how should we think about that like kind of going into next year? And could you expect -- just going back to the gross margin question, but like do you expect an earlier faster ramp to your gross margin target here?

Yes. One of the reasons why we're able to raise our guidance for the year is that we feel more confident on our supply chain. When we -- last year, at the end of last year, when the zero COVID policy in China there was this view that we might enter into a similar situation of what we had when COVID started, remember. That didn't materialize.

But that made us make the decision to kind of accelerate that. Because it was not costly, it wasn't required a lot of working capital, we could do it, accelerate our battery and get as much of them out (inaudible).

But the reality is that we have seen no disruption, that's the reality. Great action, we feel makes us feel confident, this gives further assurance to meet our guidance. But we have seen no -- not the -- our supply chain seems to be normalized. And in fact logistics, that was a main issue a year ago, no longer an issue.

The prices of transferring of -- moving things around are not back to pre-pandemic prices but are in line with what are considered normal. So we're happy. I will tell you this is my view on this, where we are today.

Our view of the world connects with our financial guidance to the market. After the world improves, and it improves to a point that we believe that we will do better, we'll communicate it to you like we are doing today. And that's obviously -- but we're very, very confident that the world as it is today and where with our risk management tools will lead us to the range in terms of gross profit and revenue we set for ourselves for this year.

But I've said that and maybe a little optimistic, these words may come back to haunt me, I think the market demand is growing. There's a lot more supplies, getting things and moving things are cheaper. So growth headwinds that improve our world -- our view later on, but I think that where we are today in the world as we see it today leads us to the guidance we provide. Manu, please.

I think the only thing you'd appreciate, we have both narrowed the range and upped the range in terms of our revenue guidance. That's on the last, both from a backlog confidence perspective and supply chain. And then we provide more firmness on our 2024 of how to think about from a revenue percentage. That is also driven by the fact that we feel confident about our supply chain assurance going into 2024 model.

Got it. No, that's really helpful. And then maybe just on manufacturing. I mean, I know you guys talked about all the benefits from (inaudible), but could you like remind on the module manufacturing you guys were talking about on the last call? And timing on -- yes, sorry go ahead.

So thank you for the question. As we said last time, we are in the process of developing the technology and putting in place the manufacturer. Our (inaudible) will be ready summer of '24. So -- and it's going well.

Milestones are being met. We -- I met the team just now and so the update looks very good. So very, very happy with the process. So we should be able to start manufacturing out of our manufacturing facility here in the U.S. in the summer of '24. Very happy.

Our next question comes from the line of Brian Lee with Goldman Sachs.

Kudos on the execution here. A couple of questions for me. I guess I really appreciate all the additional disclosure and color around the guidance here and even kind of the first look at 2024.

I know most of it is focused around kind of volume demand, revenue upside as you factor in the impact of IRA. I think you alluded to also embedding some impact on profit margins.

Can you maybe elaborate a little bit on what you're assuming in 2024 in terms of impact of IRA, whether it's pricing, it's something on the COGS side? It sounds like there's some margin uplift you're assuming, and just trying to get a sense of what you're embedding in there and also where the puts and takes are if you could see even more versus what you're base case is right now?

Thank you, Brian. Our core view on the IRA is that is it safe today. What we are -- embedded in our view of the market we're communicating to you, it's volume. So we are -- feel more confident so we can give you the guidance of 35% to 40% increase in revenue for next year. And that will be profit or EBITDA profit -- adjusted EBITDA profit for (inaudible) in line with what we kind of communicated and improvement.

But it's volumes. Today, I don't think we are at a stage where we are today that we can give you -- that we can commit or embed our guidance increases in margin. So we continue, as I said, 10 to 15, some segments higher, some segments on the lower side but in line with what we've been telling the market what we're going to do. So we're not at a point that we have defined our margin objective.

Okay. Fair enough. We'll look out for more color. I guess second question for me, and I'll pass it on, is on the contracted backlog, a healthy number here, $2.7 billion. You clearly have the revenue guidance in your crosshairs for 2023.

Can you remind us sort of how you define backlog? What -- the $2.7 billion -- why wouldn't it relate to potentially a higher revenue opportunity in '23 versus the 1.6 to 1.8 you're guiding to today? And then also the mix of the backlog, if you could kind of articulate what the $2.7 billion is comprised of?

I will turn over to Manu.

Yes, sure. So just from a layering in, if you take the remaining 3 quarters of the year and take our midpoint to our first quarter actuals, that's roughly $1.4 billion, sort of the $2.7 billion, $1.4 billion translates into the year.

Typically from a cycle time perspective, our backlogs translate into revenue between, call it, 12 to 18 months. And some may be a little longer, some may be towards the lower end. So I think that's been a normal kind of translation of backlog from a revenue perspective going into '23 and '24.

Look, as we tighten up from an execution perspective and a supply chain assurance perspective, is it possible that some of that backlog that we have articulated for '24 takes back into '23 and gets us closer to the top end of our guidance? Yes, that's certainly something that we internally strive for.

But from a guidance perspective and from a color perspective, we are comfortable with what we told you, which is we narrowed the range, increased the midpoint of $1.7 billion. And we've kind of provided a (inaudible) to our 2024 number of revenue guidance between 35% to 40% investment, what we are seeing in the backlog and more importantly, what we expect to see come down the pipe in the second half of the year from the IRA.

Our next question comes from the line of David Peters with Wolfe Research.

So on Slide 6, just you're pointing to the IRA driving revenue growth of 40% to 50% in the U.S. And just on the consolidated top line growth that you're pointing to, I think that implies international growth just above 20. So just on the international piece, curious if you could speak to the visibility there at this point. And is most of that coming from Europe or Asia?

I think it's a combination. Both markets are similar size from our point of view. Some of the markets are -- move at some point faster or smaller as we move forward. So that's kind of the way I think.

So there are -- where are the markets where we see the most growth? The U.K., Australia, probably the ones where growth seems to be. Taiwan and the Philippines have been attractive markets for us. We'll work for them. Germany with a transmission project has proven to be a good market too. I think that long term these 2 markets should represent roughly the same size. Today, APAC in our numbers are a little bit smaller, but we see significant growth coming forward.

Okay. Great. And then just specifically with what unique clarification on -- from the IRS by April or the spring can, I guess, just to ensure that 2024 growth expectation in the U.S. materializes. Just what specifically do you need clarification on?

This is more -- I don't think that it won't affect in any way '23 revenue. It could affect some time in '24, but we are fairly confident that -- I think the clarifications for what we're waiting for is some of this to ensure that we can have U.S. manufacturing content and that they are developing as we continue to look at -- capture some of our -- some of the value that (inaudible) that we can capture more than anything. I will say that it's very unlikely that the guidance will affect what we are telling you for '24.

Our next question comes from Ryan Levine with Citi.

Regarding the Mosaic entrance into the ERCOT market, can you speak to how the product is differentiated for ERCOT versus CAISO? And should we be looking for additional markets that you'd be entering in the near term on that product?

These, our Mosaic product has -- its main call to fame, it's very good foresight. The ability to predict to what's going to happen in the market in the high 90s. So -- and that happens that for every market you need to really -- to really work to get to high numbers. You need to ensure your database and your artificial intelligence tools are working effectively.

So that's what essentially happens. The tools provide the same (inaudible) on where the market is going to play in terms of volumes and price going forward.

So in terms of growth, what we had -- as we discussed in our last call, we are replatforming the Mosaic tool. Why? We have proven that it was taken -- it was too costly and too cumbersome the process of -- the architecture needed some improvements to ensure we can move standard into new markets at more reasonable cost.

Clearly, that is really matter in California and ERCOT because these are very, very attractive markets, very liquid, a lot of players. But as we go into market that are not as liquid, we really needed to ensure that we manage the cost of the adaptation to new markets going forward.

We're in that process as we announced in the last call of replatforming the tool. And our plan is to -- while the platform is done, which we are this year or early next year, we will -- our objective we will in the next 3 years to enter into a (inaudible). So that's how we're seeing on it. We have not set the specific date of when each market will come, but you should expect that coming in '24.

And as the product continues to evolve, are you seeing serving type of customers being more appropriate for this type of software package in terms of type of resource generation versus some of the initial asset classes that you identified through the IPO?

I think we are working with the same global IPPs who are training their staff. So it hasn't changed who we're working with. And it might change as we move into new markets for ERCOT and CAISO and NEM. We work with the same type of customers.

And our next question comes from the line of Ben Kallo with Baird.

Good quarter. Just on the supply chain, could you talk to us and remind us about your cell supply and how you are with your current relationships and your intent on if there is one on expanding those relationships and how you think about geographic risk on the supply chain from that front and mitigating that? And I have a follow-up.

Thank you. As you know, we're currently buying modules. We're not going sell them yet. We'll start buying cells once we have our own module for the summer of '24. So we're buying modules.

We are a -- so in terms of -- today we're actively looking to diversify the players we work with. We have (inaudible) players where there's a significant or a great majority of supply chain comes from China.

We are working hard to diversify it to Europe with the Northvolt process we're doing, and we're working with some other markets where we are -- in Korean production. But generally, when you look at it today, it is mostly China.

As we move forward, I think we will continue, and I guess that's your question, we will continue to work with some of the people that we're working today. But as we start buying cells, we will spend significantly where we can buy cells from. And we can -- I think they will expand not only from the companies but also geographic. So that's kind of where we are. We are actively looking. Diversification is a rule of the game, and we have set as to our view of our companies that scales fundamental for this company because scale is the only way to diversify at an optimal level. So that's kind of that's where we are.

Okay. Just on Slide 7, you talk about bankability. I'm just wondering if that -- if the leadership you show here, if that makes a bigger difference now with IRA, the ITC from a tax equity perspective?

Yes. That's a great question. Thank you. Bankability is very, very important, especially for the bigger -- in the U.S. market, when the projects are bigger. And they require some cases more complex tax function or structure to make it work.

So we see sometimes that we are one of the few (inaudible). There are not that many players with whom you can build (inaudible) . And that I think is reflected in the fact that we're already seeing the IRA reflected in our pipeline. And as we said, we should see that higher volumes in '24 coming out of that.

So it's clearly a competitive advantage, something that we take care of, ensure that we're always -- the way we structure our deals and the way we think our product to show that we keep that leadership position (inaudible).

Our final question comes from the line of Julien Dumoulin-Smith with Bank of America.

It's Alex actually on for Julien. Appreciate it. So apologies, this one's probably for Manu. It's a little bit in the weeds, but just trying to make sure we understand.

When we look at the deployed, I guess, gigawatts looks up pretty modestly versus the rev recognition coming up quite a bit. And I saw, I guess, unbilled receivables kind of shot up as well.

So just trying to understand maybe the nuances there between rev rec and kind of the deployed number as well as what's reflected in the contracted backlog versus rev rec if that makes sense? Just try to square all those pieces.

Sure. So let me give you a couple of comments, and then we have more detailed definitions on Slide 15 of our deck, and then there's a little bit more on our metric sheets. But just the way to think about it, right?

So deployed as we talk about that is projects or solutions that have achieved substantial completion, that's one. From a rev rec basis, as you know, we do a percentage of completion from a revenue recognition perspective. And therefore, there is some portion of megawatt hours that we recognize as we go.

The reason we gave you megawatt hours tied to revenue recognition because it's a good volume metric tied to our revenue dollars. I think that's one way to think about it. That way, you can think about how we are doing in terms of our volume, pricing, just makes modeling easy.

It's also a key metric that shows operational progress on a particular project. So for a variety of reasons, that's a great metric for us to have a conversation on. But we do give you the deployed megawatts or megawatt hours to show what projects have achieved substantial completion, right? So that's one.

Our contracted backlog is a dollar number that is tied to the value of the project. And the layering in of that contracted backlog revenue dollars between the fiscal years '23, '24 is influenced in part by the percentage of completion methodology on how we book our revenue.

So said differently, we may recognize revenue on a project in 2023 that may achieve substantial completion in 2024. So hopefully, that was helpful. We can clear up any of the follow-ups in our comments.

Yes. No, I appreciate it. I know it's kind of an in-the-weeds question. Maybe one that's less in the weeds and let's just talk about you guys obviously sourcing more and more from Northvolt. I think it's really impressive actually, that you say everything in country or in transit, a lot of line of sight there on that backlog.

I mean, when you think about more, let's say, non-China sourcing and sort of this higher rate demand wedge on the other end, I mean, when we think about backlog, do you have, I guess, a broad heuristic as far as line of sight that you anticipate, whether it's 1 year, 2 year or a lot longer in this business?

Clearly, it's evolving. But I think the tea leaves would point towards you guys could have a lot more line of sight than you have had historically on that piece of the business. So just curious how you think about that.

I'm not sure I had followed completely the question. I mean, I do -- I'll tell you kind of how I think about it -- how we're looking forward. Supply chain is diversifying, reducing the (inaudible) we can create.

Clearly, our strategic plan is to capture the IRA, so modules and then buy U.S. manufactured cells and manufacturing products there.

In terms of what we're seeing today is, I would say, what we've seen -- what we can see line of sight to today with our backlog is essentially products that are in line what we were doing. These are not -- were not reflected in a U.S. manufacturer product -- were not reflected.

So those will come up as we move forward. We can secure the balances. We can secure the supply chain, and we can get this forward. So that one, that was clearly another point of sight and another -- maybe another part of volumes that we have potentially a better view or a different view on markets.

But I don't know if I'm answering your question completely. Maybe Manu -- that is how I would think about it. So today, we're very confident in '23, very confident on the top line in '24, on the EBITDA line on '24. So that's what we can convene and what we are seeing now.

Let me just bring this to a close as to how I thought about the question, similar to what Julian said. We've got '23 supply chain on locked up like we said. We've got backlog locked up as well.

For '24, we have great line of sight, both from a top line perspective. We provided a fair bit of comments in this call. And then from a supply chain perspective, we have a great line of sight going forward, which gives us the confidence to get to the range we provided of 35% to 40% largely on the back of the growth in (inaudible) .

And then from a diversification perspective, the way to think about diversification is we are going up the chain and making our own (inaudible) or our modules. And then the Northvolt also provides us a source of diversification. It's certainly on top of our mind, and there are multiple angles to it likely articulated both in terms of making our own systems as well as identifying sources that are not channels.

I would now like to turn the conference back over to Mr. Julian Nebreda for closing remarks.

Thank you. Thank you very much. Thank you, everybody, for participating. We're very, very happy with the quarter. I mean, I think that we have seen the initial effects of our turnaround.

There's a long way to go. There's a lot of work we need to do. We need to continue maturing, capturing our -- what we said our objective, continue growing this company so we can capture the value through the scale, supply chains, derisking, diversifying, capture the IRA and continue developing products and going with the market and offering our customers the products that makes their lives different, that makes the world different.

So there's a lot of work, but we're happy. We probably will celebrate today, but acceleration will be more of an impulse to continue working as we're working. So great. Thank you all for participating, and hope to talk to you all during the next few weeks. Bye-bye.

This concludes today's conference call. Thank you for your participation. You may now disconnect. Everyone, have a wonderful day.