Julian Nebreda: Sorry for the very long answer, Brain.
Brian Lee: No, crystal clear. I think I got the message crystal clear. Thanks a lot guys. I appreciate it.
Operator: Thank you. And one moment as we move on to our next question. Our next question is going to come from the line of Christine Cho with Barclays. Your line is open. Please go ahead.
Christine Cho: Good morning. Thank you for taking the question. I just wanted a clarification question on the backlog. As I understood it, if the customer had not issued notice proceed, but had booked, that was still subject to move and it sounded like you locked everything in as for the backlog that, as it stands today. But as you get incremental bookings, should we think that on a go forward basis, all of that will be locked in when it enters your backlog as well. Or same thing, you know, it’s subject to move until they issue notice to proceed?
Julian Nebreda: Yeah. Very good point. As I said, the RMI covers from the point we start negotiating with the customer to the point that the purchase order is issued, which is usually at the point of notice to proceed. So the new order intake that we will get, there will be a point between the moment we sign the contract to the point we issued a notice to proceed that where that where that, you know, where that potential risk is. However, what we have seen and what we cannot show you this time is that that time frame has collapsed significantly and that we are now issuing notice to proceed very close in most cases, very close to the point at which, we are, we’re signing the contract. So, you know, I will say that generally, the reefer item in our backlog will continue to be a small number as we move forward.
They might be one or two projects that come in where the customer wants to wait a little bit and maybe that that will happen but in general, I think most of the contracts we are signing the customer’s one secure batteries immediately, take advantage of the good price and move forward.
Christine Cho: Okay, got it. And then can you give us an idea of how much of your backlog has EPC services tied to it, maybe percentage of the contracted volumes and as demand goes up, should we think that this number, this percentage number moves up down consistent, with incremental bookings, and sorry, how different are the ASPs and margins today for new orders if you provide the EPC versus not?
Julian Nebreda: Yeah. The EPC are roughly around 30% and it’s very much market and project dependent, so we have this give you a sense. All our transmission projects, our UltraStack projects are EPC, very complex projects that require significant coordination between all the elements of that. Those are EPCs. So, you know, Australia is a market for EPC. The U.S. is less. So it depends a little bit where we’re working. As we see, we’re clearly working on improving continue moving forward in our UltraStack project, Australia as a market that we’re very excited with. You might see that as we bring more, Australia and UltraStack projects, those will be those will be EPC. But generally, if you want to model this going forward, I think with the 30% is a good proxy.
For it, as I said, it depends a little bit on the complexity of the projects and the markets we’re working on and in terms of returns, I mean, I think that within the 10% to 15%. They’ll not change clearly. The more complex projects where we take more risks are closer to the upper band, as we have always said, and the ones that simpler and less of a problem around the low lower side of that band, but and generally, you’ll see that most of the EPC projects are more complex, but, you know, I wouldn’t necessarily, it doesn’t take us out of the range of 10 to 15.
Operator: Our next question comes from the line of Justin Clare with Roth MKM. Your line is open. Please go ahead.
Justin Clare: Good morning. Thanks for taking our questions here. So first, I wanted to ask about the demand that you’re seeing for batteries that would meet the domestic content requirements and have you signed contracts at this point for those domestic batteries and then is it possible to give us a sense for what the uplift in pricing might be? And then do you see potential for a margin uplift given that you’re going to be one of the first to supply domestically produced batteries. Could you get out of that 10% to 15% range?
Julian Nebreda: A strong demand. I’ll say that not only will our current customers, we’re also attracting new customers that have are talking to John, our America’s CEO or President. We see a lot of people interested in understanding and getting in. So that’s the first thing. Very strong demand. In terms of, margins. So we have said that, kind of what you implied, we believe we have a first mover advantage here and that that first mover advantage that you allow us to capture some additional margin. However, you know, it’s this is early in the game. We’re still negotiating with our customers, we have to wait. If I tell you here a number, my customers will use it against me. So, we are we are we’re working with our customers to sure that they can meet the higher returns, and then we can capture some additional margin because they’re doing much better than anybody else on those projects and that’s what we’re working with them on.
As these things settles down, and we see those projects and those contracts coming in and our customers secure about the returns are getting. I think we will communicate to you what potential upside we might get, but for now, I prefer not to talk about it. And then to up to date, we have not signed any domestic content contracts, even though they are very, very late stage. Just to give you a point, which I think is important, the domestic content projects are 2025 revenue. They’re not going to be supporting 2024 revenue. Our supply, our model manufacturer starts in in in the summer and then it will pick up during the quarter, and we will start receiving domestic manufacturer batteries in the last quarter of this year but we’ll need to integrate them and then move them into a, it delivered to our customer.
So we won’t see any revenue in this year from domestic content.
Justin Clare: Got it. Okay. And then just following up on that, just wondering how much of your Utah manufacturing capacity could be supplied with domestically produced cells given your agreement with AESC. Could you fully utilize that facility to produce, you know, domestic content or domestic cells that meet the requirements. How are you thinking about that?
Julian Nebreda: That that’s the idea that we will have, we could freely utilize our current capacity and I think we have communicated to you that capacity can be easily doubled if we need to.
Operator: Our next question is going to come from the line of Andrew Crocco with Morgan Stanley. Your line is open. Please go ahead.
Andrew Crocco: Good morning. Thanks so much for taking the question. I did just want to go back to some of your commentary on the Red Sea, sounds like you haven’t seen an impact to margins from the freight rates yet, but I’m just curious, do all of your contracts, kind of exposed to the Red Sea have freight adjusters or could there be some potential margin risk if freight rates don’t come back down?
Julian Nebreda: All our contracts, irrespective of them going through the Red Sea or any other route, freight adjustments, logistic adjustments, all these costs are passed on. So, we should not see any effect on our margins coming out of the Red Sea issues.
Andrew Crocco: Okay. That’s super helpful. And then my second question is a little bit more sematic but there’s been a lot of attention paid to AI data center power needs and it’s a big theme right now. And I think the view is energy storage is a pretty critical component when thinking about powering that load with reliable clean electricity. So can you maybe just provide some insights into your conversations that you’re having with maybe some of these customers and what the timeline might look like for Fluence for this opportunity?
