Fluence Energy, Inc. (NASDAQ:FLNC) Q2 2024 Earnings Call Transcript

Fluence Energy, Inc. (NASDAQ:FLNC) Q2 2024 Earnings Call Transcript May 9, 2024

Fluence Energy, Inc. isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).

Operator: Good day, and thank you for standing by, and welcome to Fluence Energy, Inc.’s Q2 2024 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, Lex May, Vice President, Finance and Investor Relations. Please go ahead.

Lexington May: Thank you. Good morning, and welcome to Fluence Energy’s second-quarter 2024 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; Ahmed Pasha, 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.

Following our prepared comments, we will conduct a question-and-answer session with our team. During this time, to give more participants an opportunity to speak on this call please limit yourself to one initial question and one follow-up. Thank you very much. I will now turn the call over to Julian.

Julian Nebreda: Thank you, Lex. I would like to send a warm welcome to our investors, analysts, and employees who are participating on today’s call. I will provide a brief update on our business and then review progress on our strategic objectives. Ahmed will then give more details on our financial results and outlook. Beginning on slide 4 with the key highlights, I am pleased to report that in the second quarter we had a strong financial performance as we recognized $623 million of revenue and increases our gross margin and cash flow generation. We delivered our third consecutive quarter of double-digit gross margin. Our adjusted EBITDA for the second quarter was approximately negative $6 million, significantly improved from this same period last year.

We ended the quarter with $541 million of cash, an increase of $65 million from December 31. Additionally, we recognized more than $700 million of new orders. Our solution business contracted 2.2 gigawatt hours, our services business added 900 megawatt hours, and our digital business added 3.1 gigawatt of new orders. Our signed contract backlog as of March 31 was $3.7 billion, which was in line with our December 31st level. As revenue recognized its quarter and a couple of small adjustments offset the additional order intake. The increasing number of opportunities was reflected in the growth of our pipeline, which increased by $2.9 billion to $16.3 billion, thus giving us additional confidence in our revenue growth outlook for FY25 and beyond.

We had a strong quarter in our digital business, adding 3.1 contracted gigawatts to our backlog. Our digital assets under management increased by 200 megawatts to 17.2 gigawatts as of March 31. In summary, our combined services and digital annual recurring revenue or ARR, improved to approximately $68 million as of March 31. Turning to slide 5, I’d like to discuss our progress on the five strategic objectives that guide our decision and actions. There are also important markers that investors can monitor and measure our performance against. First, on delivering profitable growth. I’m pleased to report that we have generated a record amount of free cash flow of approximately $88 million for the first half of our fiscal year. This is a proof point of the success of our business model and working capital management capabilities that result in a significant amount of cash generation.

Second, we will continue to develop products and solutions that our customers need. As such, I am pleased to report that during the quarter, we expanded our Gridstack Pro line to include the 5000 series, which is our larger and more energy-dense 5-megawatt 20-foot enclosure, which I will discuss in more detail. Additionally, we signed our first domestic content — contract that will allow our customers to benefit from incremental incentives on the Inflation Reduction Act or IRA. We are seeing tremendous interest from customers for US domestic content products. We believe we are well positioned to capitalize on this momentum, as we are one of the first companies capable of providing customers with products that we expect to qualify for domestic content under the IRA.

Third, we are on track for our US battery module manufacturing to begin initial production at our facility later this year. This battery module is a key piece that will enable us to provide a product that meets the US domestic contract requirements for battery energy storage. Fourth, we will use Fluence Digital as a competitive differentiator and a margin driver. I am pleased to report that our digital contract backlog increased by about 75% on a dollar basis from this time last year. And our fifth objective is to work better. I am proud to state that in April, Fluence released its second annual sustainability report, which builds upon the sustainability disclosures from my inaugural report published in April ’23, and provides updates on Fluence’s sustainability strategy, which I will touch on more in a moment.

Turning to slide 6, we continue to see strong growth in demand for utility-scale energy storage systems. This is the 10th consecutive quarter of order intake outpacing revenue recognize, showcasing the robust growth in utility-scale energy storage. Our backlog of $3.7 billion provides strong visibility to future revenue. As Ahmed will discuss in more detail, we are reaffirming our guidance ranges for both revenue and adjusted EBITDA. To that end, we have approximately 90% of the midpoint of our revenue guidance covered by our backlog plus revenue-recognized year to date. Based on the conversations we are having with our customers and potential customers, we are expecting to see continuous strong revenue growth in fiscal ’25 of approximately 35% to 40% from fiscal ’24 guidance midpoint.

Our ’25 outlook is underpinned by our pipeline, which sits at approximately $16.3 billion and grew $2.9 billion from last quarter. Our expectation for pipeline conversion is at a 50% probability over the next 24 months. I am increasingly encouraged by the growing number of opportunities we see around the world. As you can see from the chart on this slide, BNEF has forecasted between now and 2030, global new capacity additions for utility-scale storage of nearly 670 gigawatt hours, including China. This is a major opportunity for us to continue our growth. We have a significant presence in some of the markets outside the United States where we expect to see the strongest growth. For example, Germany, our third largest market and biggest European market.

Battery energy storage is gaining increasing significance in Germany as a country accelerating its transition towards renewable energy sources and aims to phase out nuclear power and reduce reliance on fossil fuels. As a result, the BNEF sees this market adding nearly 23 gigawatt hours of new capacity between now and 2030. Additionally, Germany is a growing market for Ultrastack, our transmission solution, and we have been very, very successful capturing opportunities as they come to market. Australia has quickly become our second largest market. BNEF sees this market adding nearly 25 gigawatt hours of new capacity between now and 2030. As Australia continues to transition towards a more sustainable energy future, the battery storage market is experiencing significant growth.

We have been successful capturing a good portion of these opportunities, and we are committed to expand our presence in this market as we move forward. The United States is our largest market. Battery energy storage is playing an increasingly vital role in the US as the nation seeks to modernize its energy infrastructure, enhance grid resilience, and transition towards cleaner and more sustainable sources of power. Furthermore, the IRA has spurred a significant amount of demand. BNEF sees nearly 350 gigawatt hours of new capacity added between now and 2030. This is a tremendous amount and represents a huge opportunity for us to capitalize on with our expanded product offering, such as our Gridstack Pro line, which includes our US domestic content offer.

More importantly, the utility-scale battery storage sector in the United States has demonstrated remarkable resilience to political shifts and changes in administrations, largely due to its strong economic foundations and bipartisan support for grid modernization and clean energy infrastructure. The success of utility-scale battery storage projects in the United States is driven by economic factors, such as the declining cost of battery technology, its technological advantage against other capacity-firming solutions, and the increasing and urgent need for grid flexibility and resilience. The need continues to increase as renewable energy continues to improve its costs and becomes the most economical energy source, even for States that traditionally had relied on fossil fuels.

Overall, the US energy storage outlooks remain very robust, and the intertwining of economic opportunity and technological advancement has positioned the utility scale battery storage sector as a highly resilient and driving component of American energy landscape we support all around the political spectrum. Turning to slide 7, Fluence has significantly expanded its Gridstack Pro line to serve a wide range of project needs and enhance the versatility of any storage solution. The line comprises three enclosure sizes, namely the 1000, the 2000, and the 5000 Series, each sharing core components, certifications, and operating systems to ensure Fluence’s consistent domain expertise across the board. This modular approach enables different configurations, allowing for mixing and matching of enclosures to precisely meet the requirements of specific projects while maintaining competitive usable energy prices.

By offering a variety of social capacity, the Gridstack Pro line effectively addresses the issue of system overbuilding and contributes to reducing the cost per kilowatt-hour. The highlight of the Gridstack Pro line expansion is our ability to utilize one platform to seamlessly and faster integrate new cell technology without modifications to the platform. Additionally, the 5000 Series has remarkable energy density, offering an impressive 5 to 6 megawatt-hours in a single 20-foot enclosure. This high energy density not only optimizes land usage at project size, but also enhances overall efficiency, making it an attractive solution for space-constrained installations. Moreover, the Gridstack Pro line prioritizes safety, surpassing the industry standards by successfully passing Fluence’s internally developed test.

This commitment to safety ensures peace of mind for customers and stakeholders alike, reinforcing Fluence’s reputation as a reliable provider of any storage solutions. Furthermore, the Gridstack Pro line is built with Fluence’s modules, battery management systems, electronics, and software, all developed or fully controlled by Fluence, to mitigate any concerns related to cybersecurity or policy issues. To better serve its US customers, Fluence offers the Fluence battery pack with domestically manufactured cells and modules, making the Gridstack Pro line one of the first storage solutions eligible for the 10% investment tax credit bonus under the IRA. This initiative not only supports the domestic manufacturing sector, but also incentivizes the adoption of energy storage technologies in the United States, contributing to the nation’s energy security and sustainability goals.

STurning to slide 8, as I mentioned earlier, we recently signed our first contract for a product that qualifies for domestic content, allowing our customers to capture an incremental 10% investment tax credit. We’re seeing tremendous interest from customers for our domestic content offering, and we expect to sign additional contracts in the coming quarters as it is competitively priced against non-US alternatives that do not include the additional 10% ITC. Our proprietary battery model is at the heart of our domestic content offering, and it is key to meeting the criteria established by the US Treasury Department. By manufacturing our own battery modules, we will also qualify for IRS Section 45X benefits, which includes an incentive payment of $10 per kilowatt for battery modules produced in the US.

We’re currently on schedule to begin our initial production later this year, gradually ramping up over the subsequent quarters. Turning to slide 9. I’m proud to report that in April, Fluence released its second annual sustainability report, which builds upon the sustainability disclosures from my inaugural report published in April of ’23 and provides updates on Fluence’s sustainability strategy. Some of the highlights from the report include we expanded our green gas footprint analysis into Scope 3 and clarified reporting boundaries. We offset 60% of our global business’ travel emissions from flights. And we kick off Scope 2 emissions reduction efforts for Fluence facilities, including switching our facility in Germany to 100% renewal electricity.

In conclusion, I’m pleased with the achievements of the second quarter. Although we’re mindful there’s still work to be done, we will look to continue this momentum as we progress through ’24. I will now turn the call over to Ahmed.

Ahmed Pasha: Thank you, Julian. And good morning, everyone. Today, I will review our second-quarter financial results and then discuss our 2024 guidance. Beginning with our second-quarter 2024 results on slide 11. We generated $623 million in revenue, which puts us at $1 billion or 33% of the midpoint of our full-year guidance of $3 billion. I would like to note that year-to-date revenue is approximately $100 million ahead of prior expectations of 30% or $900 million of annual revenue in the first half as we were able to complete certain projects in Americas earlier than the third quarter. In terms of profitability, we generated approximately $66 million adjusted gross margin or 10.6% representing the third consecutive quarter of generating double-digit gross margin.

These results also include a modest expense from settling our pending litigation with Siemens Energy. Our continued execution further demonstrates that our legacy backlog issues are behind us, and we are benefiting from our higher margin backlog. Our operating expenses were $74 million, representing 11.9% of quarterly revenue, which is down from 17% in the first quarter. This continued momentum also reflects in our improving EBITDA. More specifically, this quarter, EBITDA materially improved to negative $6 million versus negative $28 million in Q2 ’23 and negative $18 million in Q1 ’24. Overall, we believe these results reflect our disciplined approach to grow our top line and improve our bottom line to deliver on our financial commitments.

Turning to slide 12, before I talk our liquidity, I would like to share that our continued focus on profitability and productive working capital management has yielded positive results. This reflects in our positive year-to-date free cash flow performance of $88 million. In terms of cash, I am pleased to report that we ended the second quarter with $541 million of total cash, an increase of approximately $65 million since last quarter, and the fourth consecutive quarter that we increased our total cash position. In summary, we have total liquidity of nearly $590 million, which we believe puts us in an excellent position to capitalize on the growing energy storage market. Moving to slide 13, as Julian noted, based on our year-to-date performance and outlook for the second half, we are reaffirming our guidance ranges for both revenue and adjusted EBITDA for 2024 at a midpoint of $3 billion and $65 million, respectively.

At this point in the year, we have approximately 90% of the midpoint of our revenue guidance covered by awarded projects plus actual revenue recognized in the second half. Furthermore, we are on track to achieve ARR of approximately $80 million by the end of fiscal 2024. I would also like to spend a moment on our year-to-go expectations. Specifically, we expect approximately 20% of our second half revenue to be realized in the third quarter and 80% in the fourth quarter. This split reflects two factors. First, the timing of projects in our backlog, which are largely scheduled to be delivered in Q4 this year. As a reminder, our revenue is recognized as we hit certain milestones. For example, the majority of our Q4 project milestones are for production and delivery of cubes, which is within our control.

To that end, we have secured the necessary batteries, manufacturing slots, and logistics. These factors provide us confidence in our ability to deliver on our revenue targets. And second, as I previously mentioned, we had approximately $100 million of revenue pulled into Q2 from Q3. Finally, looking ahead to fiscal year 2025, we continue to believe that we will achieve approximately 35% to 40% year-over-year revenue growth from the midpoint of our fiscal 2024 guidance range. With that, let me turn the call back to Julian for his closing remarks. And second, as I previously mentioned, we had approximately $100 million of revenue pulled into Q2 from Q3. Finally, looking ahead to FY25, we continue to believe that we will achieve approximately 35% to 40% year-over-year revenue growth from the midpoint of our fiscal 24 guidance range.

With that, let me turn the call back to Julian for his closing remarks.

Julian Nebreda: Thank you, Ahmed. Turning to slide 14 and in conclusion, I want to emphasize the key takeaways from this quarter’s results. First, we had a record-setting free cash flow generation of approximately $88 million for the first half of this year. This is a proof point for the success of our business model and the free cash flow we can generate. This cash generation also contributed to our strong liquidity position of nearly $590 million. Second, the outlook for utility-scale storage is very robust, and there is a great opportunity for our new products to deliver value to our customers. More importantly, our space is well insulated from the upcoming US elections, and we do not anticipate any significant impact to demand as a result.

So we are on track to begin our US module manufacturing later this year. Together with our customers, we believe we are in a prime position to capture demand from products that qualify for the US domestic content bonus. And finally, this is our third consecutive quarter of double-digit gross margins, which reflects our continuous commitment to deliver attractive returns to our shareholders. This concludes my prepared remarks. Operator, we are now ready to take questions.

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Q&A Session

Operator: [Operator Instructions]. Our first question comes from George Gianarikas from Canaccord Genuity.

George Gianarikas: I was wondering if you can maybe discuss the data center opportunity and how much traction you’ve seen there and how your conversations have changed, if at all, recently. Thank you.

Julian Nebreda: Great. Thank you very much, George. So what’s happening with data centers? As we’ve seen GenAI become more of a commonplace technology and all the technology providers coming up with a GenAI solution, the GenAI, or general artificial intelligence technology, requires these GPU, graphic processing units, which are the chips that allow for parallel computing. And what happens with the chips, they require a lot more energy, five times versus the old technology needed. So what we see is that data centers are scrambling for energy. And they have been looking at, as you know, most of the solutions they have seen today is that they’ve been looking for firm renewal energy, 24/7 renewal energy that they can source from the grid.

And we have been very, very successful through our customers, the IPVs of the world that serve these players. Clearway, AES, Orsted, helping them firm their offering. And that’s our normal business. And that has gone very, very well. And we see tremendous demand. And you’ll see some of the announcements that these companies put out. We are behind some of these announcements with our technology. But as data centers, and this is where I think it’s becoming more interesting for us and it’s opening it up, as data centers are looking for other solutions. Not because they are realizing that probably — especially the time they need to meet their needs, through the grid with renewal energy is becoming a little bit more difficult or a little bit strained or they have had some challenges, they are looking for solutions they can, outside of the grid, either connecting and you saw the big deal constellation and there are more things around that.

And they’re looking for solutions outside the grid. But they still need this firm capacity. So they are looking for, to see what can they do outside the grid with firm capacity. What we have done is that we started looking at, what can we do to support that effort? How can we do — we’ve been very, very successful supporting the on-grid solutions, what can we do supporting the off-grid solutions, either with renewables or thermal? And we have identified several needs that we believe our technology is very well positioned to resolve. Especially, I think, that will tell you what we see is what helps us here is that we are — our technology is the fastest way of firming capacity in the power sector. If you need a 24 — of any capacity either any capacity, the fastest way to firming that capacity and ensuring 24/7, 100% availability, if you are off the grid or on the grid, battery technology is the best way to do it.

There’s nothing that is anywhere near. And that’s what we’ve been now working on. We’ve been talking to the developers of data centers to some of the companies that help them resolve some of this problem, to identify those needs, and productize those solutions. And we have — we don’t have the products today to announce, but we have identified I think a very — a big territory where we can — where our capacity. And I said, the same speed is what I think at the end of the day resolves the speed. And our cost clearly the our speed and cost will allow us to help them on so much stuff anyhow I’ll say more to come. We are — if you think this is in the initial starting, we have not been able to productize it to announce it today at this stage, but we hope to continue working on this and coming up with a solution in this company.

So great. This is clearly a great opportunity in front of us. We’re excited with it. And we see, as I said, this is something that a year ago wasn’t even there rather. We were working with all these companies and doing this 24/7 renewals. Now it opens a new set of solutions that is bringing us into a new territory that’s exciting and industry changin This is clearly a great opportunity in front of us. We’re excited with it. And we see as I said, this is something that a year ago us and in our other, you know, we were working with all these companies and doing this 24 seven renewals. Now it opens a new set of solutions that is bringing us into a new territory that that’s exciting and industry changing and so thanks.

George Gianarikas: Thank you. Maybe as a follow-up to that. Are you seeing increased interest for long duration energy storage solutions? Is that something that’s on your radar?

Julian Nebreda: Yes, I think that when we looked at this off — of this off-grid solutions, clearly longer duration is part of it. So what — the way we think of it, our technology can do more than the 4 hours we do usually — we usually do. We tend to offer the customer. The reason why four-hour has been kind of the sweet spot is because the market, there’s an economic value for our four-hour system that kind of disappears once you go to 6, 8, 12, 8, 9. So longer duration will play a role, and we are — that’s one since we’re looking at how much can we spend, what we can do to ensure that we can support these solutions. With our technology, doing more than 12 is more difficult because of an economic and how this work. But we believe that there is a switch port that we can meet very, very easily — or not very easily, but we can meet to support these technologies. Longer duration than the four hours will be part of what we need to work on.

Operator: Our next question comes from Brian Lee from Goldman Sachs & Company.

Brian Lee: Good morning and thanks for taking the questions. Kudos on the solid execution continuing here. I guess the question I had — I had 2 of them, but one was just on the cadence of revenue. You’re talking about the revenue pull forward and then the quite significant weighting into 4Q versus 3Q. So it sounds like you have a high degree of confidence around the timing of these projects. But can you speak to sort of visibility — I know sometimes the market gets anti about really back-end weighted cadences and that’s happening here with the 3Q, 4Q that you’re outlining. So what’s kind of your confidence level of visibility into those projects turning over in that time frame and not having any potential risk to slipping out? Just any kind of color you can provide there would be helpful.

Julian Nebreda: So first, I think let’s talk revenue recognition because I think it’s important to get to know. So what are we — what do we have? We have — the way we work, the way our revenue recognition formula works, there’s some recognition at the beginning when we signed the contract to the engineer and ordered the equipment, then there is a significant — and this is a bulk of our revenue recognition is when we transfer title of the equipment to the customer and then additional revenue recognition at substantial completion and final completion. The great bulk of it is transferring title of the equipment once it’s manufactured to the customer. When you looked at the fourth quarter, which is your question, okay, now you have all this significant fourth quarter revenue what — can you deliver on this?

And when you looked at it, a big portion of it, not to give you exact number, but a significant or a big — more than the majority of it close to — it is transferring title of equipment. We need to be a manufacturer, and we need to transfer title to our customers. So we have the supply. We have the slots in the manufacturing. We’ve been manufacturing stuff very, very well. We see very, very little risk that we will not be able to do that on the time frame. We have our logistics working very well. That — there is very, very little risk that, that will happen. And that will cover a significant portion of the revenue that we have for the fourth quarter. Then the number say, well, okay, great, wonderful, it is, manufacturing and moving things around you can do that — you’ve shown that you are now doing that very, very well that should not be a problem.

The other issue is that there is a limited number of customers, even though it sounds like a huge amount of money, it is 20 to 25 projects that we need to do with. And with our prototype solutions, this is something that we can do very, very easily. So we feel very confident that this can — what drives this, which is the other point. To which, you’ll say, well, why are you why you saw back end? At the end of the day, the back end that is set by the fact that our customers want those projects deliver on those sites. We will try to work with our customers to accelerate it and ensure that where we do the EPC, where we do the site preparation for receiving this equipment that we are trying to accelerate as much as we can to try to move the closer and have had some success.

But at the end of the day, it is driven by that point. When do our customers want to have their products in their facilities and transfer title. And that’s what sets very much what this is. So some people are asking me, well, if seasonality is going to repeat itself? It’s difficult to way it because when you look — when we go back and look at our history, it moves around. So this year is a lot back ended. Last year was very, very divided equally around each quarter, the year before the — it was in the center where most of the center of our fiscal year or most of the revenue was. So it moves around, and it moves around because it is driven by our customer projects time, which, in a way, also is driven by what they signed with their own PPA.

So going back, this is mostly driven by delivery or transferring title of manufactured cubes to our customers, limited number of projects, 20 to 25, not — we are not talking here huge amounts. We’ve been very, very good at doing this. So we had very, very good KPIs in the close to 100% in terms of delivery capability. So we believe — so unless there is the global disruption that stops the world trade, we should be able to do this. So we have very, very high confidence in our Q4, and we are very — that’s why we reaffirmed guidance. We see very, very slow — we’re very, very confident on it. I will let Ahmed add a little over here more color.

Ahmed Pasha: A fair question. And I think the only thing I would add to what Julian has just mentioned is if you look at our last 12 months’ performance, we have been executing on every project on time and on budget. I think that gives us additional confidence in our ability to deliver particularly when we have all those cubes and equipment and logistics lined up for delivery in Q4.

Brian Lee: Okay. I appreciate all that additional color, guys. Maybe one more, if I could squeeze in a gross margin one. You also have the high end of the range, you’re talking about of the 10% to 12% gross margins in 4Q. I know you’re not big fans of speaking to all the gross margin targets, it’s more about EBITDA. But if you’ve got that sort of momentum exiting the year, you still have this 35% to 40% revenue growth outlook for fiscal ’25. Can you give us a sense of should we be starting off kind of in that range, call it, high end of the 10% to 12% as we look into fiscal ’25, just the longer-term margin targets are to the mid-teens? Just wondering if you start to approach those even into fiscal ’25 given the year-end momentum plus the revenue growth additional that you’re expecting for next year?

Julian Nebreda: So let me — first on this year, 10% to 12% is a growth — even though, as you said, I wanted all of you to come with me to adjusted EBITDA. I know you’ll still don’t like gross margin very much. So we are — we’ve been clear on this. For this year, 10% to 12%. So 11% should be the midpoint, we should — we will get — we will be there. But when you look this year at the end of the year and you look back, so very confident. On ’25, what we had said, even though we have not provided guidance on ’25, what I said is the following. For top line growth, 35% to 40% over our this year’s midpoint guidance. So out of the $3 billion that we have at the midpoint, 35% to 40%, that kind of puts at $4 billion. Or if you put the middle of that range is $4 billion for top line growth of ’24.

Then from gross margins that we believe to 10% to 15%. So in the middle of the range is 12.5% and that’s where we are today. I don’t think I can tell you today that we will get a tailwind that would put us anywhere else for next year. What I’m telling you today is this is said very much by the order intake. But we will clearly if we can offer you something better, we will. But today, our view for ’25 is a 10% to 15%, which will put it at 12.5%. And then for adjusted EBITDA, we said our OpEx — our operating leverage, we believe that we — our OpEx will not grow at more than 50% of our top line growth. So you — that will give you kind of what — of where should we be for ’25. And that’s kind of where we are today. Clearly, as the year progresses and we see — and we have more and more of the revenue for ’25 in our backlog, we will confirm these numbers and walk you through.

And if there’s an opportunity to be more — to do better, we’ll let you know. But today our view, it confirms our 10% to 15% gross margin in ’25.

Operator: Our next question comes from Dylan Nassano from Wolfe Research.

Dylan Nassano: Hey, good morning, everyone. Thank you for taking my question. So just wanted to check, there’s been a lot of talk recently about solar projects getting delayed, interconnection issues, equipment rages, et cetera. Is this something you guys are exposed to at all? Is there any read-through to your answer to Brian’s question about the back-end weighting of the year?

Julian Nebreda: Not really. I mean, what we — as I said, a lot of our back-ended is delivery of manufactured products to transferring title to be very clear what drives the transferring title. Usually, very much, it happens at the site in most cases and when the sites are ready. As you know, we have had a rule in our contracts where customers are required to take title in cases where they have some delays, in cases where in our backlog is usually more connected to EPC stuff things that are not built on time, usually weeks rather than months. So when we have seen delays, what we have in our contracts, the customers are required to take title at a specific point in time. So that’s generally how it works. What we see for ’25 — sorry, for ’24, what we see in the fourth quarter.

These are projects that are — we are still in the civil works. Can you imagine we have to get them ready. So we know exactly where they are. We know we have been working with the customers and we do not foresee any delays in related projects or related elements that could disrupt our delivery projects. And at the end of the day, we have the safeguard that if things get delayed on a certain point, customers are required to take title after that. I will let Ahmed to —

Ahmed Pasha: No. I think the only thing I, Dylan, would add is we signed these contracts 12, 18 months ago. And when we sign a contract or start construction, I think, generally, the customers have already all those permits in place, and that’s when they issue a notice to proceed. So we feel pretty good about our execution because they have — there’s nothing pending as such that could derail particularly with reference to your question, which is the interconnection issues.

Dylan Nassano: Got it. Thank you. And then just a quick follow-up. Any recent developments with any of the outstanding litigation expect kind of anytime soon? Anything you can say there would be helpful.

Julian Nebreda: Great. Thanks, Dylan. I think Ahmed mentioned during the call, we settled the Siemens Energy litigation. And just to remind everybody who may be listening, Siemens Energy is not Siemens AG or shareholders. Siemens Energy is a customer related to our shareholder, but not our shareholder. We settled that litigation, as we have told you in the past, that was an immaterial litigation, normal course of business litigation, immaterial. We settle it in terms that it’s even more immaterial than the litigation and it’s a fraction of the claims that the customer had. And as I have said in the past, Siemens Energy is not a customer — a significant customer. So what we have done very, very little with them. So when we start the litigation, you lose litigations normal course of business.

It’s part of how you resolve a problem. I think at the end of the day, we resolved in a way that it was satisfactory for both Siemens Energy and ourselves. The other two, nothing really material to inform you at this stage, to the other one, which is the outlook litigation, nothing really the — nothing has moved significantly there. And the most landing incident, which is something that was also referred to, we have talked in the past, there’s no litigation — there’s no pending litigation on that. And at this stage, there’s nothing really material to communicate on. Siemens Energy, as I mentioned, Siemens Energy and we repeat it again, it’s not a settle conditions that are that beneficial to both parties. And as I said, the litigation was immaterial, the settlement agreement is also immaterial as well.

Operator: Our next question comes from Mark Strouse from JPMorgan.