Mark Strouse: Well, maybe it’s not a risk now, but, the second question was if your customer canceled on you, would you have the ability to cancel with your suppliers?
Julian Nebreda: Yeah. I mean, we put purchase orders. We’ll have penalties if we cancel with our suppliers. But as I said, our customers will more compensate for that. So that’s the way we should be.
Ahmed Pasha: So the only thing I would add to that is Mark. I think our con when we sign the contract, our counterparties sign the contract at the price that makes sense for them at that time. So they look into – take into account the economics of the project. So I think that is what really drives their decision to continue. And then they make advanced payments, because we generally get anywhere from 10% to 30% advanced payments. And I think those are the things and, that, you have to take into account I think, but overall, as, Julian mentioned, you know, we have never seen any contract getting canceled for the same reasons.
Mark Strouse: Yeah. That makes sense. Okay. Thank you both. One quick follow-up, Ahmed. On the last call, Manu gave some color about the timing of down payments to AESC. Was there any update there? I’m sorry if I just?
Ahmed Pasha: No, nothing changed. I think we basically are on track. No, nothing to report beyond what we discussed.
Operator: Our next question comes from the line of Thomas Curran with Seaport Research Partners. Your line is open. Please go ahead.
Thomas Curran: Good morning. So under the EU climate law, the European Commission is working on an updated version of its National Energy and Climate Plan that will establish decarbonization targets for 2040. Between an early draft that leaked into the media and then a subsequent official communication, the commission has proposed a target for the power gen mix of 90% renewables complemented by nuclear and referred to grid scale energy storage as a key element in their words for achieving that. You know, this news following last year’s adoption of accelerated permitting for standalone storage suggests the EU really is placing increasing emphasis on storage support when it comes to policy. What are you guys most excited about? That either is gestating and it seems to have good odds of becoming part of law or a new rule or incentive. What are you most excited about that you have visibility on over either this year or let’s say by the end of fiscal 2025?
Julian Nebreda: I’ll tell you what, the things we have seen in the last quarters clearly demand is very strong. Also, I don’t know if you saw the announcements, supply chain moving into Germany or into Europe, let’s put it, Northwell announcing a big factory in Germany other players announcing factors all around Europe. So our localization of supply chain coming out with a better environment for it. So good – that’s a good sign. And then our pipeline moving very strongly. Especially Germany becoming a cost to a market that’s very active. The UK has always been market, but then markets that have not been that active now becoming more, Italy came out with a 6-hour capacity. They’re few things happening around that makes us very, very excited.
I would tell you if you ask me what I’m excited about, all of the above, everything. I’m excited about the fact that we have the supply chain starting in see good, the fact so that we believe that the realization supply chain, so that’s great. And now there’s a lot more players and regulators supporting the regulator – supporting it, so great. We see these changes in Italy and in some of the Nordic Countries as well and then a lot of customers in German, in the UK that we have been working on contacting us to move forward. So All of the above, I will say, Europe is a fertile ground for battery storage.
Thomas Curran: That’s helpful. It makes sense. And then Ahmed, on the balance sheet, you saw a big sequential increase inventory, which more than doubled to $564 million. Given the steep ramp in shipment and installation activity that you’re preparing for as part of recognizing roughly 70% of fiscal 2024 revenue over the second half, I suppose that is at least partly self-explanatory, but could you just expound on that inventory surge and then give us an idea of how working capital as a source or use of CFFO should evolve quarter by quarter over fiscal 2024?
Ahmed Pasha: So, sure. I think in terms of yes, you’re right. I think our inventory balance has increased by a couple of $100 million. I mean, this year – I think this quarter and that is primarily, I think, as we are ramping up our growth in revenue, because as I discussed, I mean, our revenue next quarter – second quarter will be about $550 million. So that inventory balance is largely, I think, is will be deployed to serve our – or recognize our revenue in Q2. In terms of where capital needs, I think we discussed on our Q4 call, I think, in 2024, there will be, I think, about $100 million or so of additional capital needs. But that is part of the plan. I think, that we will be funding through our, existing liquidity. So nothing changed from that perspective, what we discussed, Q4 call feel pretty good, given our liquidity is north of $600 million, so we can manage any short term working capital needs if we have to.
Operator: Our last question is going to come from the line of Ben Kallo with Robert W. Baird. Your line is open. Please go ahead.
Ben Kallo: Hey, thanks for fitting me in guys. Just two quick ones. First, maybe this relates to those to proceed, but could you talk about any risk in project or sales timing based on interconnection delays or shortage of electricians or labor shortages? And then my second question is just your appetite for offering your software to other battery providers, whether lithium ion or other types of storage providers?
Julian Nebreda: In terms of the rates of the of the of the delays is interconnection. Essentially, it is acute problem in the U.S. less of a problem generally, you know, in in the other market. It’s important to make that point. The second one is that what we have in our backlog already has, the queue has been resolved our customer has a clear line of sight of when they’re going to connect what they need to do and by when. So, you know, there could be delays, but the delays are usually weeks because you know, something didn’t get to a sign on time or, you know, things like that. So not the delays we talked about. So generally, I would say that our backlog is the risk on transmission delays in general, except for more of a civil war step type of delays.
Then you do see clearly our pipeline – the our ability to convert our pipeline into backlog, it is subject to our customers. In the U.S. insurance that they can get on the queue and get those problems resolved. Just see what happened this quarter, you know, we are not seeing a significantly – when we look – when we build a pipeline, we set days when we see the projects are going to be, I see, our projects that we believe they’re going to be able to sign them. And we haven’t seen a significant delays of that in any way affect our results or ability to meet our financial metrics, our projects, Here are the ones that surprise you by how fast they move and ones that surprise you because they’re a little late, but I’ll say in when you put them in balance they’re generally not the same.
In terms of digital solutions, I think I I will have to make to – we have – our operating – our BMS, our operating systems, which are integral to our, you know, our hardware solutions. And those are not that we’re not going to sell that to anybody. We’re not we don’t offer to third parties. This is ours. We use it for ourselves, and it makes us different. And it’s one of our competitive barriers and our competitive capacity. However, we do have our Fluence Digital offering, our Mosaic offering, which is a billing app, an hourly spare offer, which is a performance management tool. Those we do sell to third party- to 3rd party technology. So there are competitors of us who, their owners of their technology prefers to use our billing app and prefer to use our performance management tools.
Rather than whatever the other competitor is offering. But I’ll say that only on those two points. On the OS, and on the operating system. And the BMS, it is integral to what we do, and we don’t offer that to anyone else.
Operator: Thank you. And I would now like to hand the conference back over to Julian for any further remarks.
Julian Nebreda: Great. Well, Thank you so much, everybody, for your interest and questions. And we had a great quarter, great order intake, revenue we knew from, you know, that in line with what we expected. Well, this is what kind of in line with what we were going. I think an important point and something that you all brought to me last year that, as a main point is, you know, the double digit, gross margins, this was the main discussion during 2023, whether we were going to be able to do it. Now we have two quarters of bringing double digit gross margins think this is a this is the basis of which as we ramp up on revenue, the basis of which we will be able to become, you know, to reach profitability for this quarter again. So we’re very confident on our 2024 guidance and our ability to meet our, $3 billion middle of the range, earnings, revenue, guideline, and a are 50 to 80 in terms of, adjusted So very happy for what’s going on. Thank you so much and talk to you.
Operator: Thank you. [Operator Closing Remarks].
