Fluence Energy, Inc. (FLNC) Q4 2021 Earnings Report, Transcript and Summary

00:05 Good day and thank you for standing by. Welcome to the Fluence Energy Fourth Quarter twenty twenty one Earnings Conference Call. At this time, all participants are in a listen-only mode. [Operator Instructions] 00:24 I would now like to hand the conference over to your speaker today, Sam Chong, Treasurer, Investor Relations. Please go ahead.

00:47 Welcome everyone to our earnings call for the fourth quarter of fiscal year twenty twenty one, which ended on September thirty. 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 nineteen ninety five. 01:12 These forward-looking statements are neither promises nor guarantees and are based upon our current estimates and various assumptions and are subject to material risk 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. 01:37 We encourage you to review these filings for a discussion of these factors, including our annual report on Form ten K for the fiscal year ended September thirty, twenty twenty one, 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. 02:14 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. 02:31 I will now turn the call over to our CEO, Manuel Perez Dubuc.

02:40 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. 03:01 Afterwards, 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 financial 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. 03:38 Our team has demonstrated tremendous strength and resilience during their ongoing pandemic. It is thanks to their contributions that we have successfully completed our IPO generating almost a billion dollars to help track our next phase of growth. 04:01 I will start on slide four on the quarterly earnings presentation with an overview of our business opportunity. Climate change is real and it causes an existential problem. We are finally seeing governments, companies, and citizens take serious steps to address this issue. The electric sector plays great responsibility in leading that effort as the world transitions away from fossil fuels towards renewable energy. 04:34 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 the transition to clean energy to help address climate change. The second is the electric revolution, which is an electrification of everything. 05:04 The third one is the digital revolution. Machine learning and artificial intelligence are disrupting traditional processes, redefining energy markets and enabling new opportunity. 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 originally designed to handle intermittent and variable power generation for renewables. 05:35 Fluence energy store 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 one hundred trillion dollars of investment over the next thirty years. Bloomberg New Energy Finance also projects one hundred and ninety four gigawatts of install energy storage, capacity by twenty thirty alone. 06:04 As conventional generation assets retire and now replaced by cheaper renewables they need for energy storage compounds even further as the grid will require energy storage for stability and reliability. This opportunity is in men's and Fluence is well positioned to maintain our leadership position in energy storage solutions and digital applications. 06:31 Turning to Slide number five, 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 experienced in the industry. Many members of our current team literally invented the use of lithium ion value batteries on the grid. Fluence is a digital disruptor and customers far and wide recognize the value of our Fluence IQ platform. 07:07 While still in the early stages, we are already optimizing over eighteen percent 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 chain that has enabled us to operate in thirty markets across the world. 07:43 We are also [battery] [ph] diagnostics. I do not manufacture batteries. This is an strategic move for us as battery chemistries are constantly changing and evolving. Enabling us to move quickly along the technology core has better solutions come to the market. And most importantly, we have secured over one point seven billion dollars in contracted backlog, which provide us with visibility to future cash flows that will be used to grow and accelerate our business. 08:19 Turning to slide six. I would like to highlight this tremendous total addressable market. Starting with energy storage products, BNEF is forecasting a twenty four percent compounding annual growth rate between twenty twenty and twenty thirty. This equates to over thirty four gigawatts of new installations in the year twenty thirty alone. For reference, at the end of the quarter, we had an aggregate of three point seven gigawatts of energy storage products deployed and contracted. 08:55 Also, based on BNEF forecast, energy storage services are expected to grow thirty one percent compounded annually between twenty twenty and twenty thirty. This equates to over one hundred and ninety three gigawatts of community installed services based. For reference, at the end of the quarter, we had approximately two point seven gigawatts under management and contracted for our energy services. 09:28 And most exciting is their enormous total addressable market for our Fluence IQ digital platform. Where the TAM is nearly eight thousand 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 a hydro that do not have any storage components. This means the growth potential of Fluence IQ is not limited by the install energy base. As of the end of the quarter, Fluence IQ is optimizing or has contracted four point seven gigawatts. So, it's easy to see why we are extremely excited about Fluence IQ’s future. 10:19 Turning to slide seven on our quarterly results. In both, the fiscal fourth quarter and full year will deliver 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 fifty five percent. This resulted in a record one thousand and three hundred megawatts. 10:53 Additionally, our services business grew nearly seven fifty percent year over year, which resulted in almost two thousand megawatts, a new all-time record for Fluence, and our Fluence IQ continued to build momentum as evidenced by our recent contract awards supporting our recurring revenue growth strategy. 11:22 Speaking on Fluence IQ, we are extremely encouraged by the performance of our platform. In fiscal year twenty twenty one, we booked two point seven gigawatts of new orders, compared to one point three 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 twenty twenty two and beyond. 11:57 As we experienced 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 are compounding effect on the COVID-nineteen pandemic. In the fiscal fourth quarter, some of our APAC based customer sites have experienced temporary work interruption due to COVID-nineteen. 12:23 As such, we were not able to progress our installation workforce storage equipment at these affected sites as planned. These temporary customers 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 the newly discovered COVID variant, Omicron could prolong these delays even further, but it is still too much too early to make that determination. 13:03 We 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 over time labor. 13:32 In response, we are working on multiple solutions to improve our global supply chain, including negotiating guaranteed capacity on ocean, freight liners with Tier one shipping companies to ensure our products get delivered from our contract manufacturing location in Vietnam to our end customers around the world. 13:56 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. 14:16 In the coming several months, we expect to finalize the terms with our contract manufacturer to serve our North American market and thus reduce our reliance on shipping our products to Southeast Asia to the Americas. 14:33 I would also like to make a few comments on the recent overheating event that occurred at one of our customers facilities. On September fourth, twenty twenty one, a three hundred megawatt energy storage facility owned by one of our customers experience an overheating event. 14:55 Fluence served as one of the contractor for this facility to provide an install energy storage technology, which was completed in fiscal year twenty twenty one. As our customer reported the facility experience on overheating the [indiscernible] resulted in the system shutting down as designed to further mitigate any possible damage. 15:20 No injuries were reported from the incident. The facility has been taken offline 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 in our financial results. As information becomes available, we will update our shareholders accordingly. 15:49 Turning to slide eight, 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 one hundred and five 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 ten-year service contract, providing us with visibility to future recurring revenue. 16:33 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 one hundred and fifteen megawatts of energy storage, plus a twenty 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. 17:15 Continuing with these exciting awards, I’m pleased to announce we have recently signed our first contract with our customer in Taiwan. This commences our strategic entrance into the Taiwanese market. An area we see tremendous growth over the next ten years and will play a large part in our overall strategy. 17:41 For our services business line, during the fourth quarter, we recognized a hundred percent attachment rate for our services for energy storage growth that we sold in the EMEA region. This is truly a spectacular and also built on our model to generate recurring revenue through our services and Fluence IQ platform. 18:08 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 power in one hundred and fifty thousand [indiscernible]. Additionally, just in the fourth quarter alone, we added over one gigawatt under management as customers are realizing the value that Fluence IQ can deliver. 18:39 In summary, and turning to slide nine, we have a tremendous opportunity in front of us as a result of the enormous total addressable market for energy, storage, and digital applications. We have positioned ourself as a market leader with our skill, experience, and first mover advantage. Not only that, we are seeing very little momentum from foreign and domestic governments relating to policies and regulations most recently seen at the twenty twenty one United Nations Climate Change Conference. 19:23 In addition, recent U.S. Legislation, including the enacted infrastructure bill and the pending bill 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 to accelerate deployments on the pace needed to decarbonize the electric sector by two thirty five, which is aligned with Biden’s administration as stated priorities. 20:13 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 change, domestically and abroad. Ultimately, the BBB bill will allow our customers to green line more projects, many of which were previously [shelled] [ph] 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. 21:02 I would like to thank our founders, Siemens and AES who created Fluence as a joint venture in twenty eighteen. We will continue to operate with the tag line, Fluence a Siemens and AES company, as they will continue to support our mission. 21:23 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. 21:49 And finally, we have a best-in-class balance sheet and a strong visibility to future cash flow. Thanks to our significant backlog of one point seven billion dollars. 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. 22:18 And with that, I will turn it over to Dennis.

22:26 Thank you, Manuel, and good morning to everyone on the call. During today's call, I will recap our fourth quarter and fiscal year twenty twenty one results, discuss our outlook for fiscal year twenty twenty two, and talk through our capital allocation plans. 22:43 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. 23:01 Turning to slide eleven, talking you through the numbers of its first table. In fiscal year, twenty twenty one, we contracted a record one thousand three hundred eleven megawatt of energy storage products and the record one thousand nine hundred fifty nine megawatt of energy storage services. 23:20 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 thirty twenty twenty one was approximately a seventy four percent. 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. 23:49 As already elaborated, we are seeing very strong demand for our Fluence IQ with a total two thousand seven hundred forty four megawatt contracted, which provides future cross selling opportunities for our products and services. 24:03 Now, moving to the second table. Despite delays and supply chain and temporary site restrictions due to COVID-nineteen, demand of megawatts that we deployed for our energy storage products more than doubled growing one hundred and eleven percent from the prior fiscal year. 24:22 Due to our strong contracting and in part due to the delays, contracted backlog megawatts grew forty three percent. Our product pipeline is being driven by strong tailwinds from the market and demand for proprietary generation fixed product and stood at fourteen thousand one hundred and sixty megawatts at the end of fiscal year twenty twenty one. 24:45 Turning to Energy Storage Services. Assets under management grew one hundred and eighty percent, while contracted backlog grew three hundred twenty two percent from the prior year, driven by the strong contracting activities and the attachment rates mentioned earlier. Like our storage products, our services pipeline remains robust, standing at ten thousand nine hundred and thirty megawatts at the end fiscal year twenty twenty one. 25:12 Moving to our Fluence IQ digital platform. During Q1 of fiscal year twenty twenty one, 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 was three thousand one hundred and eight megawatts, while contracted backlog was one thousand six hundred twenty nine megawatts. 25:39 Our digital pipeline was three thousand three hundred one megawatts at the end of fiscal year twenty twenty one. Let me point out that our digital pipeline typically converts about three 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. 26:15 Turning to slide twelve. Our fiscal year twenty twenty one revenue grew twenty one percent to a record six hundred and eighty one million versus five hundred and sixty one million for fiscal year twenty twenty. In the fourth quarter, revenue decreased twenty one percent as a result of dimensioned shipping and COVID-nineteen related delays, whereby revenue recognition was delayed from the fourth quarter fiscal twenty twenty one into fiscal year twenty two. 26:47 We view the delays of revenue recognition as temporary with expectations that it will be resolved by H2 of fiscal year twenty twenty two. Let me point out that this is strictly a shifting of revenue and does not represent any contract terminations. 27:04 Turning to slide thirteen. Gross profit for fiscal year twenty one was negative sixty nine million, compared to eight million in fiscal year twenty twenty one. In the fourth quarter, gross profit was negative fifty nine million. This decrease was driven by sixty eight million of non-recurring expenses in Q4, which included sixteen point seven million related to non-recurring excess shipping cost forty eight point two million related to project charges, which are compounding effects of the COVID-nineteen pandemic and two point six million related to the twenty twenty one Cargo Loss Incident. 27:41 Adjusting for these non-recurring items, we generated adjusted gross profit of fifteen million in fiscal year twenty one versus nine million in fiscal year twenty twenty two. In the fourth quarter, adjusted gross profit declined in-line with the decline in revenue. 27:58 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 one 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. 28:21 For the first half of fiscal year twenty twenty two, we are forecasting at least fifty million to fifty five million of non-recurring expenses related to shipping and other COVID-related items versus seventy two million in fiscal year twenty twenty one. We are currently seeing that these expenses are decreasing from quarter four twenty one to the first half of fiscal year twenty twenty two. 28:46 Continuing to slide fourteen, EBITDA in fiscal year twenty twenty one was impacted by the same non-recurring expenses as to gross profit. In addition, we have four point eight million of recurring IPO related expenses, which did not qualify for capitalized. Other than that, we increased our expenses to support the future growth of the company, which drove the adjusted EBITDA to negative six five million in fiscal year twenty twenty one. 29:16 Moving on to slide fifteen and our revenue outlook. Based on our current contracted backlog of one point seven billion, we are providing guidance for fiscal year twenty twenty two revenue in the range of one point one billion to one point three billion. Our guidance takes into consideration of potential delays in revenue recognition resulting from shipping and COVID-nineteen related delays and our ability to recognize revenue from our energy storage product on a timely basis in H2 fiscal year twenty twenty two. 29:50 Turning to slide sixteen. 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 product operational in time [indiscernible] in the Northern hemisphere. 30:06 Historically, we recognized approximately seventy percent of our revenue mostly in our fiscal second half. This is aligned with our patterns for order intake. As a result, fiscal first half results will usually be lower compared to our second half. 30:25 However, for this upcoming first half of fiscal year twenty twenty two there is a caveat to the seasonality and that we expect a good portion of the delayed revenue from the fourth quarter fiscal year twenty twenty one will be recognized during H1 fiscal year twenty two leading to a slightly stronger revenue during that time. 30:46 Moving on to Page seventeen. As we look ahead to our next phase of growth, we would like to highlight our capital allocation strategy, which was bolstered by the strong balance sheet that we have set in place following the IPO. With the post IPO debt free cash balance of approximately eight hundred fifty million we are well positioned to invest to further strengthen our ecosystem. 31:11 As we deploy capital, we will always stay true to our strategic framework, enhancing unit economics, expanding recurring revenues, and developing structured offerings with the primary focus on the former two initiatives. M and 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. 31:38 This concludes our prepared remarks. Operator, we are now ready to take questions.

31:46 Thank you. [Operator Instructions] Our first question comes from Mark Strouse with JP Morgan. Your line is open.

32:01 Yes, thank you very much for taking our questions, and welcome to the public markets. Can we just dig in to the comments around the project timing? Can 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're seeing or is that based on specific commentary from your customers?

32:34 Thank you, Mark. And good morning and thanks for welcoming coming us to the public market. Very excited times. Yes, as we mentioned, the shipping delays, we see in some level of stabilization on the shipping and reliability of those. So that, we get into equipment to the side, they have been styled and commissioned. We already mentioned about some of the delays and our cost, but we are confident that there will be progressing. We have the people on the ground and we have – we're understanding where the bottlenecks are. So, we're very confident that we will get those sites in operation fairly soon.

33:26 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 kind of a 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?

34:11 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 create and populate in across the three business line is working well with all those cross selling opportunities and the optimization that we get it from the Fluence IQ platform is very well received, but the market is getting more and more momentum. 34:39 I would like to give a chance to our Chief Digital Officer, Seyed, to give us a little more color on those big wins that we had and we demonstrated.

34:50 Sure. Thank you, Manuel. Seyed, here. Just to answer some of the specifics of your questions, yes, we're seeing a lot of momentum on the platform, KPIs. This is summarized for you and since inception we submitted over two hundred thousand economic bids in different wholesale markets, which is pretty impressive and exciting or [indiscernible] uptime and runtime time is being greater than ninety nine point nine nine percent, which is pretty impressive, and we're also continuing to provide upside to our customers based on their asset class and the geography they are located. 35:27 So, a lot of momentum in terms of the KPIs and the product performance. They just wanted to note that, but in terms of the 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 it being pretty impressive for us, and we can add more color there, but just to go back and tie that to the whole holistic vision that we're pursuing, which is to transform the way we power a world. 35:56 I should note the power of combining smart connected energy storage systems, digital applications, and services, and that's being 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.

36:15 Yes, it does. Thanks Seyed. That's it for us. Thank you very much.

36:20 Thank you, Mark.

36:23 Thank you. Our next question comes from Maheep Mandloi from Credit Suisse. Your line is open.

36:31 Hi, good morning and thanks for taking the questions and welcome to the public markets. One question on the free cash flow, I think just trying to understand, you’ve given a clarity around these delays and the 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?

37:00 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.

37:14 Right. Good morning also from my side. And thanks for the question. So overall, it does not change our view for entire fiscal year twenty twenty two, but certainly it impacts the timing within the fiscal year twenty twenty two. So, as we are seeing some of these topics being resources in the first half of fiscal year twenty twenty two, 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.

37:50 Got it. And then just on the battery supply, I know you previously talked about having in a supply for twenty two and twenty three, but as you, kind of like looking into procuring more batteries for beyond that, are you seeing any challenges in the market? We keep hearing about supply constraints, so just trying to understand your visibility on that?

38:14 Thank you, Maheep. And as we stated, yes, we [battery diagnostic] [ph], we have secured a significant capacity that will cover our immediate needs. We announced our strategic partnership with Northvolt in Europe. 38:33 We're do – we’re talking to top tier battery manufacturers also in the U.S. 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 and the three large areas where we're doing in business. So, on that regard, that goes exactly in the direction that we design our strategy and we are regionalizing our contract manufacturing and supply chain.

39:08 Appreciate that color as well, and just one last one from me, and then I’ll hop back, and just more housekeeping. The services contracted backlog seems flattish quarter over quarter, I know you added more contracts in the quarter for services as well, so just trying to understand that or sort of missing anything over there? Thanks.

39:30 Yes. Thank you, Maheep. I think that that is not exactly why seeing, but I’m giving Dennis a chance to give you more and more specific numbers on that regard. But actually they're going up.

39:45 Right. Hi, Maheep. So, in [indiscernible], we disclosed one thousand one hundred ninety eight megawatt contracted backlog as of June thirty as we increased it to one thousand nine hundred and eighteen as of September thirty. So, we are seeing basically a sixty percent increase within the quarter in line with the strong contracting which we have seen.

40:07 Perfect. I'll follow up the rest later on. Thank you.

40:12 Thank you. We have a question from James West with Evercore ISI. Your line is open.

40:21 Yes, Thanks guys and good morning. And congrats and welcome again to the public markets. Manuel, I was curious if you could describe the level of demand that you're seeing in the market today, it seems to have hit some type of tipping point in the last six months or so. And over the last time we connected, you were [indiscernible] big 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 want to hear your kind of commentary around what's maybe changed in the market? What the tipping point was and how customers are thinking about this now?

41:19 Yes. Thank you very much, James, and thanks for the opportunity to tell what we've seen. It is true. There's a significant demand building up everywhere in the world. The fact that we expand into – we just expanded into 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 or any subsidies that might come from the infrastructure B 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. 42:11 They are announcing a substantial amount of energy storage going to that market. They are expanding the regulation where every renewable project should have energy storage associated with it. So, we are looking at that market. The fact that we are expanding in our three regions. Yes, we see a significant worldwide adoption of the technology and understanding that is impossible to decarbonize the planet at just with renewables. That we need energy storage smart solutions with digital optimization on top of that.

42:57 And then maybe a follow-up here. More 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?

43:17 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 U.S. 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 significantly reduce our exposure to shipments or any logistic delays. 43:53 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're moving in exactly in that direction and is very, very much our strategy.

44:12 And do those come on early calendar twenty two?

44:17 Yes. We're saying that that might be up and running by the end of twenty twenty two, perhaps first half of twenty twenty three. Yes.

44:28 Okay, got it. Thanks Manuel.

44:31 Thank you.

44:34 Thank you. Our next question comes from Julien Dumoulin-Smith from Bank of America. Your line is open.

44:43 Hey, good morning team and congratulations indeed again. So, thank you for the time. Just to follow-up here, I'm just thinking through twenty two, how are you thinking about the incremental or the degree to which Hazelwood for instance is an incremental project there or what have you versus how you were thinking about things to the course of 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, etcetera, you know order of magnitude, how much could that help offset some of the impacts here? Again, trying to understand some of the puts and takes, maybe degree conservatism reflected in the numbers here?

45:23 Yes, thank you very much Julien, and good morning again. Thanks for your kind words. We’re so happy that you are here with us and following our story and our success. Yes, I mean, what we have seen in the Hazelwood contract and project is exactly what we want to do around the world. 45:51 It’s a very significant customer that is understanding our technology, is taking advantage of it, is entering through a market that they see as [promising] [ph] and financially attractive. And by having this Fluence IQ platform on top of that with revenue sharing type of potential, it really, really brings value to not just to the customer, but our offering and our ecosystem concept. 46:21 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're talking to the top tier free liners to secure capacity and to have a very, very good scalable that is usually a few months ahead of us. 46:48 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.

47:02 Yeah, let me come back to the Hazelwood item, where Manuel already highlighted and let me highlight again, the tremendous when where we're 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 from the 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 on the services side are basically in line with what we have contemplated in all business plans and we are also quite proud of that that we have achieved that.

47:41 Excellent, guys. Thank you. And just if I can follow-up your nuance here, you talked about some project delays getting pushed from twenty one to twenty two. You provided this calendar year approximate percentage of revenue, but presumably as we think about 1Q twenty two more specifically rather than 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, sort of the generic go forward basis, right? I just wanted to sort of clarify the bridge twenty one to twenty two versus this sort of ongoing guidance?

48:13 Right, Julien. So, our seasonality stands was the typical seventy percent 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 thirty percent, but not up to a level of fifty percent or more.

48:49 Got it. Alright, excellent. I will leave it there guys. Thank you so much, cheers.

48:53 Thank good, Julien.

48:56 We have a question from Brian Lee with Goldman Sachs. Your line is open.

49:02 Hey guys. Thanks for taking the questions. Good morning. Couple sort of modeling related ones, if I could. If I calculate right, I think the revenue push-out was about one hundred and twenty million dollars 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 twenty twenty two. What's kind of the cadence you're expecting between Q1 and Q2, fifty/fifty or are we going to see more of that revenue on the push outs in one particular quarter versus another?

49:40 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 to Dennis to give us more color on that on your question.

49:54 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 twenty two. And I think the number of 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 a range of thirty percent to forty percent of that in Q1 fiscal year twenty two.

50:29 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 one point three billion, now you're at one point seven billion contracted backlog, I know you give it on a volume basis, any sense rough ballpark, what the mix is of that one point seven billion on a dollar basis between energy storage products, services and digital? And then, I guess just in that context, seems like the revenue guide one point one to one point three given the backlog at one seven, it would be supportive of higher, so just wondering if you could remind us how you define backlog and kind of comment a bit on the mix to give us some context there as well? Thanks, guys.

51:19 Sure, Brian. So, out of the one point seven billion, we have approximately one point three 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 one point one billion to one point three 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 one point one billion to one point three billion based on what we are seeing in the backlog.

51:58 Okay. And just last one to clarify on the non-storage product portion of the backlog at four hundred million, what's the average duration? It's not twelve month backlog, it's backlog that represents going forward two to five year revenue, could you remind us what you characterize that as on the services and digital?

52:25 Right. So, and typical as of the mixture between the service and the digital sites on services we are seeing somewhere ten to twelve years on the digital side, somewhere in the range of three years to five years. So, in that regard overarching this revenue is up to orders backlog covers up to twelve years. Certainly, it was a bit more forward loaded a pattern here due to the digital side of the mix.

52:51 Yes. If you allow me to elaborate aa little bit on that, there are two elements here that are very significant. The first one is that we got a one hundred percent attachment rate on services in the EMEA region, which is fantastic. Overall, almost seventy five percent, seventy four percent attachment rate overall, which is also a very, very high number. 53:17 So, it brings and it ratifies the confidence that we're seeing from our customers that the whole package, the whole ecosystem that we are offering in the three business line it makes a lot of sense for them and brings value to them. The fact that the Hazelwood probably has a twenty year service contract is the testament of the value that we are creating and providing to them.

53:46 All right, that's great. I'll pass it on. I'll also echo everyone else’s congrats. Thanks guys.

53:52 Thank you very much, Brian.

53:54 We have a question from Stephen Burt with Morgan Stanley. Your line is open.

54:02 Hi. This is Dave Ricker on for Stephen Burt. 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 and initial customer conversations as to what the interest level and demand might be for the next round of software?

54:29 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.

54:46 Sure. Thank you. And thanks David. 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 the national electricity market in Australia where we own about both a twenty percent of renewable share. So, we expect to continue to grow in that market. 55:08 California is being pretty strong for us. We expect to continue to grow. But unfortunately, what we saw in the recent Texas climate environment, the reason I say unfortunate because there's a lot of public sacrifices that we 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. 55:34 We're seeing a lot of volatility in that market, for example in what we've seen in the Australian market in absence of the centralized capacity team. So, ERCOT market entry is top of the priority for us. We're investing heavily in the software development application to support our market optimization with Fluence IQ and ERCOT market. But to your point, as we kind of talked about during our Analyst Day as well, the goal here is to further, kind of develop applications they built beyond our markets that is addressing dispatch applications for vertically integrated utilities, but we don't see power markets being kind of – we don’t see our presence of [power markets] [ph]. 56:17 And we're also thinking about mid-term 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 twenty two with an aim towards commercialization in fiscal year twenty three. 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 shaping up good.

56:46 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 to twenty twenty two? Thanks.

57:04 Just to clarify, David, on the Fluence IQ platform or overall?

57:09 I was thinking more overall in terms of the energy storage product portfolio overall, beyond just Fluence IQ.

57:19 Yes. We see – to be honest, we see demand picking up in all markets. The fact that we enter into Taiwan, the fact that we have the 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, sort of a synchronized growth trajectory for all three regions, which is very encouraging.

58:07 That's great to hear. Thanks so much, and congrats again.

58:10 Thank you very much, David.

58:14 Thank you. Our last question comes from Tom Curran with Seaport Research. Your line is open. Tom, please check your mute button.

58:33 Sorry. Good morning and to quote Bruce Willis in Die Hard, ‘welcome to the party’. Curious about how much visibility uncertainty you have on your role within AES as renewable strategy? So, from twenty twenty one through twenty twenty five, we understand that AES is planning to add four 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?

59:13 Yes. First, thank you. Thank you very much, and good morning, Tom, and thanks for your kind words. We're 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 and they proved to be true and to be right on their decision. So, we are very happy and very excited and thankful for that. 60:05 On the specific pipeline, AES has been upgrading their pipeline and the annual commitments. We have a very, very strong and fluent communication with them. This is not new. It has been there for years. So, we're going hand to hand with them. What we expect is, no hundred percent of whatever they are including, a percentage their including their own projects and expansion. 60:39 So, we will be with them. We would be providing our smart solutions services and digital Fluence IQ, along with them and we are very excited. That is part of our project than our plans is part of our business plan and the fact that they are increasing their own numbers is a tailwind for us.

61:05 And Manuel, we can assume that whatever percentage of that new solar capacity they'll be building, if they're going to include storage for that you'll be winning one hundred percent in that, that will exclusively go to Fluence?

61:21 Yes. Yes, that's true.

61:24 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 divisions adjusted gross margin to exit fiscal twenty twenty two at?

61:44 Dennis, you would like to take that one?

61:46 Right. So, basically in line with what we have stated in our model during the IPO process, you can take that as a [proxy] [ph].

61:58 Great. So, still on track for that?

62:01 Yes.

62:04 Thank you for taking my questions.

62:07 Thank you very much, Tom.

62:13 There are no other questions in the queue. I'd like to turn the call back to Manuel Perez for closing remarks.

62:20 Thank you very much, operator. Thanks to everyone, and I would like to thank again and I did it at the beginning of my speech and my words, again, I will like to expand a sincere thank you to the entire Fluence team. They have been extremely passionate, strong committed, they have shown strengths and resilience because all the COVID pandemic. 62:47 So, thank you, everyone. Thanks to our customers, investors, analysts that – they made this possible. And we are so happy that given all the circumstances and the headwinds, we keep growing, we keep beating our own record, and expanding, and truly changing the way that we power our world for a more sustainable future. Thank you. Thanks everyone.

63:20 This concludes today's conference call. Thank you for participating. You may now disconnect.