Good day, and thank you for standing by. Welcome to the Fluence Energy Fourth Quarter 2022 Earnings Conference Call. At this time, all participants are in a listen only mode. After the speaker's presentation, there'll be a question- and- answer session. To ask a question during this session, you'll need to press star one one on your telephone. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Lexington May, Vice President of Investor Relations. Please go ahead. Thank you. Good morning, and welcome to Fluence Energy's fourth quarter 2022 earnings conference call. A copy of our earnings presentation, press release, and supplementary metric sheet covering financial results, along with supporting statements and schedules, including reconciliations and disclosures regarding non-GAAP financial measures, are posted on the investor relations section of our website at fluenceenergy.com. Joining me on this morning's call are Julian Nebreda, our President and Chief Executive Officer, Manu Sial, our Chief Financial Officer, and Rebecca Boll, our Chief Product Officer. During the course of this call, Fluence management may make certain forward-looking statements regarding various matters relating to our business and company that are not historical facts. Such statements are based upon 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'll now turn the call over to Julian. Thank you, Lex. I would like to extend a warm welcome to our investors, analysts, and employees who are participating on today's call. Additionally, I would like to welcome Manu Sial, our new CFO. Manu joined us in September and has already made a significant impact on the organization in a short period of time. Welcome. Today, I will provide a brief update on our business and then review our strategic objectives, as well as some examples of the actions we're already taking towards this goal. Following my remarks, Manu will discuss our financial performance as well as our outlook for fiscal year 2023. Starting on Slide 4 with the key highlights of the fourth quarter, I'm pleased to report that our team recognized $442 million of revenue for the quarter, delivering our highest quarterly revenue to date and deploying more than 1 GWh of energy storage solutions. More importantly, we achieved positive growth margins for the quarter, both on an adjusted and GAAP basis. Our demand was strong across all three of our business lines, and new orders were approximately $560 million. Furthermore, our signed contracts backlog as of September 30 was $2.2 billion, a year-to-year increase of around 30%. Lastly, our recurring revenue base, which consists of our services and digital business, experienced strong growth within the quarter. Notably, our service attachment rate of 190% for the fourth quarter was in line with our expectations, illustrating the catch-up in service contract we anticipated during our previous earnings call. Our digital business added nearly 1 GW of assets under management since the third quarter, providing us visibility to future revenue. Turning to Slide 5. Over the past 90 days, the senior management team and I have conducted a deep dive over business. During this deep dive, we reaffirmed those aspects of the business that are working well and identified several areas that have significant upside potential, but need support. We confirmed that Fluence Energy storage solution business has tremendous tailwinds across the globe, including from the Inflation Reduction Act in the United States, also known as IRA, and Europe's growing desire for increased energy security and independence. Although our digital business has strong potential, we have determined that the platform and business model will benefit from simplification and tighter integration with our storage solution business. For example, our current Mosaic product is not able to expand into new markets quickly due to its current tech architecture. This is something that will be addressed. Going forward, we will concentrate on accelerating the integration of our offerings, including digital services with our storage systems in order to serve customers with an end-to-end bundled solution. Concentrating on on executing and strengthening our risk management capabilities to ensure we monetize our contracted margins is a priority. Additionally, we're simplifying our digital platform and retooling our go-to-market strategy in order to increase the scale of both Mosaic and Nispera, and to roll out these products more quickly at a lower cost. We will convert our supply chain into a competitive advantage by leveraging our size and scale to drive margins for easier implementation of solutions. I'll provide more color on each of these initiatives in a few minutes. After meeting with hundreds of our Fluence people in the past 90 days, I am confident in our ability to maintain our leadership position in the market, deliver multi-year profitable revenue growth rates of more than 30%, and be Adjusted EBITDA breakeven in fiscal year 2024. I believe our team's sense of passion and resilience will set Fluence up for long-term success to unlock significant value for our customers and our shareholders. Turning to Slide 6. Coming out of this process, I'm even more convinced that our strategy of using our ecosystem to provide the energy storage solution to our customers is the right one. Our ecosystem gives us access to the largest energy infrastructure providers in the world, and importantly, it provides opportunities for further integrating with our customers at any point of the value chain. Our revised go-to-market approach is simple. We will utilize one sales channel for our entire ecosystem. This is different from our past, where we will use multiple sales channels across our organization. This turned out to be an ineffective strategy when it comes to attaching our service and digital solution to an energy storage cell. An integrated sales channel will give us a better ability to integrate our customers into our ecosystem. As we have seen, our digital software is valuable beyond its own P&L contribution, as it supports hardware and services, creating a flywheel effect of value. Additionally, we will work to integrate our technology more closely, so our digital offerings interface with our storage solution suites, thus increasing the attractiveness to our customers of choosing Fluence solution. Our ability to offer an integrated energy storage solution is one of the key reasons our customers select us. We're increasingly recognized as one of the premier energy solution providers in the world by large multinational developers or IPPs, many of which are planning on deploying significant amounts of gigawatts. The integration of this offering is a key to retaining customers beyond day one sale. We can access them anywhere along the value chain. We have visibility to multi-year high revenue growth rates. We operate with an asset-light business model with high returns on invested capital. We have significant technical depth, which helps us to monetize data and help our customers drive returns. We also have a rapidly improving cost structure and high revenue per employee. Ultimately, we believe we have a business model and strategy set up for success. Turning to Slide 7. I would like to discuss the five strategic objectives that will provide the framework for the action we'll be taking over the next few years. First, we will deliver profit over. Both profitability and growth are essential to maximize shareholder value. We will focus on those market segments that provide continuous growth where our complex solutions allow us to maximize profitability. Second, we will develop the products and solutions that our customers need. Understanding our customer challenges is a driving force behind our continuous technological advancement. We expect to provide customers with the most proactive solution rooted in our industry-leading experience. Third, we will convert our supply chain into a competitive advantage. We're establishing a best-in-class supply chain that is centered around diversifying our suppliers, capturing incentives from the Inflation Reduction Act, and improving the delivery time for our solutions, all of which will ultimately increase margins and drive values for our customers. Fourth, we will use Fluence Digital as a competitive differentiator and a margin driver. Harnessing the power of artificial intelligence and machine learning in our integrated solution, we can uniquely provide our customers with the ability to both maximize their revenue and lower their overall cost of ownership. This will increase visibility to our growing and profitable recurring revenues stream. Finally, our fifth objective is to work better. We start with being disciplined with our capital spending and control of the right, optimizing and using our resources, resource efficiency and strong corporate risk management capability. Controlling our costs and maximize our financial performance for our shareholders. We have already taken action towards this objective, some of which I would like to highlight today. Turning to Slide 8. I'm pleased to announce we're launching a new storage solution geared towards the transmission sector. We're calling it the Fluence Ultrastack. The transmission segment is a global market that currently sits at 450 MW, which we expect will grow to 70 GW by the year 2000s. We expect demand for this product will be driven by a customer's need to reduce transmission congestion resulting from growth in distributed energy sources. Furthermore, the transmission segment is highly complex and requires the best performance and high safety premium, thus increasing a barrier to entry to the market, some of which are promising. More important, higher complexity commands a higher premium for our products and services, and often results in higher quality. We will continue to lead into a transmission segment as we deliver profitable growth and develop new products and solutions for our customers. Turning to Slide 9. I'm pleased to report we've recently signed a contract for more than $500 million with Ørsted, under which we will deliver a 1.2 GWh energy storage facility in the United States, complete with a Gen 6 Gridstack. By further increasing our scale, we'll be able to better capture value from our supply chains. We know that Ørsted selected us as they were looking for a trusted partner with strong experience delivering complex solutions. As a comprehensive solution provider, we continue to outpace our competition due to our scale, industry-leading experience, and our ability to solve highly complex problems, but quickly establishing ourselves as a leader among the mega projects. Turning to Slide 10. Including the Ørsted contract, which was signed subsequent to our fiscal year end. Our backlog now sits at more than $2.5 billion. Besides that, the strong demand we're seeing at the top of our funnel is now providing us greater certainty with respect to our multi-year revenue outlook. Looking at the chart, you can see that even before any impact from the IRA, we have a pipeline that is nearly three times our current backlog. It is also important to know that we're expanding ourselves to non-related parties. As a result, the majority of our backlog today is with these customers. Turning now to Slide 11. As we mentioned earlier, we're experiencing tremendous tailwind from the Inflation Reduction Act. BNEF has estimated that the time for energy storage increased by more than 100 gigawatt hours or around $35 billion as a result of the IRA. That is a significant increase. The expected ITC improves overall project returns for customers. This benefit is expected to accrue to us through improved pricing or increased volumes. Furthermore, the production tax spread provides margin of this for Fluence from capturing benefits associated with manufacturing our own battery modules in the United States. It's also important to note that the IRA benefits are not necessary for achieving an Adjusted EBITDA breakeven target in fiscal year 2024, and thus represent upside potential. We see the IRA impacted through it in three areas. The first is the ITC for standard storage. This benefit accrues to our customers. We expect we will incentivize more projects to move forward and to green light all the projects that were previously not economic for our customers. As a result, we anticipate the U.S. market growth to increase from 30% per year to around 40%-50% per year. Based on our conversations with customers, we expect to enter into the first of these contracts attributable to the IRA about mid-calendar year 2023. We will expect to see the impact on our financial results in the second half of 2024. Secondly, the production tax credit or the Section 45X of the IRA provides significant opportunities for growth. We're launching our own battery module manufacturing, which I'll discuss further shortly. As a result, with respect to qualifying for the $10 per kW, our incentive from the IRA, it's important to note that this is an all cap incentive and carries a direct payoff. As a reminder, we opened our Utah production facility in September, which will have an expected Cube output of nearly 6 GWh per year by 2022. We expect we'll be able to begin battery module production starting in the summer of 2024, thus capturing the $10 per kW h incentive I just mentioned. The PTC further supports our meeting growth margin target. Third, Section 48C provide for the one-time reimbursement for onshore or established qualifying manufacturing facilities in the U.S. As a result, we're currently looking at the possibility of expanding our operations in the U.S. with an additional facility. Turning to Slide 12. I'm pleased to announce that we're launching our own battery module and battery pack manufacturing, our new Utah facility. This gives us greater control over the global supply chain and allows us to capitalize on the incentives under the IRA. One of the key benefits to improve battery pack that is easier to incorporate new cells and diversify our cell supplier base, creating competition. Makes it easier to swap packs in and out of new product variants. It also allows us to incorporate our own battery management system technology with more granular data access and system controls. Expands Fluence battery intelligence capability. We expect to see the initial battery module production coming out of our Utah facility during the summer of 2022. Looking at Slide 13. We further illustrate our supply chain and how our battery modules and battery packs fit together. Starting on the left-hand side, we will continue to purchase battery cells from multiple battery manufacturers. Battery cells are in themselves useless, and to a great extent, a commodity. We take those battery cells and integrate them into our battery modules, complete with our own battery management system or BMS. Thus, we're taking those commoditized battery cells and turning them into smart batteries capable of performing the tasks our solutions demand. These battery modules will qualify for the $10 per kW incentive under the IRA, as I mentioned earlier. We put several battery modules together to make a battery pack that is combined with our DCPM, which is a brain of the pack. The DCPM collects battery data for communication with the Fluence operating system, and is a point of contact for our cloud-based digital solution, providing value-added integration for our customers. As I briefly mentioned earlier, we have assessed our digital business and have refocused the model and go-to-market strategy. I'd like to discuss what this means for Fluence Digital and where we're going. First, we ensure we're offering an integrated holistic end-to-end bundled solution to our customers through one sales channel. As I mentioned, this is a major change from our prior sales effort. Second, we will simplify our suite of digital offerings by focusing on our existing two applications, Fluence Mosaic and Nispera. We plan to roll out Mosaic to four additional U.S. markets over the next three years and improve the ability of Nispera to integrate with battery-based energy storage systems. By taking a more focused approach, we expect to reduce the cost, complexity, and time to market for these applications. We do not plan to build out any additional applications at this time. Third, we're accelerating the Nispera platform's ability to be deployed onto battery energy storage systems by the end of this year, thus enabling our new bundled solutions to be more integrated with our batteries. What do we expect to achieve as a result of this action? Improved attachment rates for services that lead you to a bundled approach. Increased annual recurring revenue, ARR, from our digital services. A lower rate of customer churn. Though I will note that our churn rate is already very, very low. Going forward, starting later in fiscal year 2020, we will report our progress on this initiative by disclosing the relevant KPI. We expect that this retooling will have a relatively small investment of $5 million-$10 million. As it relates to the financial outlook for our digital business, we do not expect any more contribution from our digital business in 2023 or 2024. We expect to have positive gross margin in fiscal year 2023 onwards, and expect Adjusted EBITDA to be at or near breakeven in fiscal year 2025. Moving to Slide 15, we're enhancing our digital India technology centers, increasing utilization to a workforce optimization that will augment roles in India in 2020 to the benefit of our onshore operating. This contributes to our operating leverage, with our operating expenses expected to grow at less than half the rate of revenue growth, which Manu will explain further. Turning to Slide 16 for a summary of recent actions. As a management team, we're committed to delivering increased shareholder value and to execute on these five strategic objectives that I discussed as the foundation of our plan. We will provide you with quarterly updates on our progress toward strategic objectives as we transform the way we operate and drive sustainable growth. Overall, we continue to see strong demand that is expected to be amplified by the current IRA that will start adding to our backlog in mid-2020. We are committed to break even on an Adjusted EBITDA basis in fiscal year 2024 as we enter into higher-margin contracts. We're committed to improving our project execution and our overall risk management. I'm pleased with the early results of our efforts, there is still a lot of work. As we move forward, we will continue to focus on executing a high-growth, capital-light solution business model that we expect to make of Fluence the optimal investment vehicle in our sector. That being said, I will now turn the call over to Manu. Thank you, Julian. Before I begin, I would like to express my gratitude to Julian and the Fluence board for their confidence and trust in me. The last couple of months have been a period of rapid learning. I continue to believe that Fluence is positioned well By the Inflation Reduction Act by more than $35 billion. Our focus is to strengthen the organizational foundation to enable profitable growth. This includes enhancing our deal underwriting, risk management, and execution capabilities. Let me now review the financial performance for the fourth quarter of 2022. Please turn to Slide 18. In the fourth quarter, we delivered our highest ever quarter with $442 million in revenue, representing an increase of 85% from the third quarter. This record revenue generation was primarily driven by strong project execution as several projects achieved significant milestones. We also achieved positive gross margins in the fourth quarter, 3% on an adjusted basis and 2% on a GAAP basis, driven by strong revenue performance and improvement in our ability to pass through to the customer increases in certain input and supply chain costs. This is a significant turning point for us, and while 2022 was a challenging year, we ended the fourth quarter with positive gross profit and believe that the issues we confronted are well understood and now largely behind us. Compared to 2022, we expect new contract margins in 2023 will be positively impacted by improvements in our deal underwriting process, such as implementation of index-based pricing. We've also improved execution on product rollout, including leveraging our lab to test and debug solutions before we launch them in the field. Moving from gross profit to operating expense. We improved our operating leverage in the fourth quarter of 2022 by lowering our operating expense as a percentage of revenue compared to prior quarter and prior year. Our operating expense can be divided into two categories. The first is SG&A spend, which is required amount of overhead spend to operate our business both at a corporate and at the regional level. We do not expect that corporate OpEx will scale with the growth of the business. The second area of spend is what we refer to as platform investment, which represents primarily R&D spend, which we view as a type of growth CapEx. Full year 2022 operating expense spend was 15.5% of revenue, which we expect will be a high annual watermark. Looking at 2023 and beyond, although we expect to continue to grow our operating expense in absolute dollar terms, we expect it to grow at a rate less than half of the rate of our revenue growth. We expect this operating leverage to be one of the drivers of the improvement in Adjusted EBITDA we see over the next few years. In the interest of greater transparency, this quarter we have begun providing a supplemental quarterly metric sheet on our investor relations website that is designed to provide analysts and investors with a deeper understanding of our financial and operating performance. Please turn to Slide 19. I'm pleased to report that we ended 2022 with total cash of $540 million, which includes our short-term investments and restricted cash and is in line with what we have guided to. As shown on this cash bridge, majority of our cash usage in 2022 was driven by negative Adjusted EBITDA. That trend is expected to continue in fiscal year 2023. Let me also provide some color on the other drivers of our 2023 cash-out. We expect to incur modest CapEx spend, including for our digital business retooling. As we did in 2022, we will use some operating cash in 2023 at a rate roughly 10% of our year-over-year revenue growth. We believe that we have ample liquidity to meet our 2023 cash needs. Please turn to slide 20. We're initiating guidance for fiscal year 2023 of total revenue of between $1.4 billion and $1.7 billion. We expect our Adjusted gross profit to be between $60 million and $100 million. We're coming into 2023 with approximately 90% of expected revenue at the midpoint of our fiscal year 2023 guidance already in our backlog. We have also secured additional supply chain commitments for 2023. This gives us confidence in our revenue guidance. On the next slide, I will provide additional color on why we are confident of achieving our 2023 adjusted gross profit guidance. Please note that our guidance does not assume any financial benefit from the Inflation Reduction Act as we expect to see order growth in 2023 with the benefit to sales occurring mostly in 2024 and beyond. In terms of revenue seasonality, we expect to see a split of approximately 40% in the first half and 60% in the second half. We expect operating expense to grow at less than 50% of our revenue growth, providing us significant operating leverage. As Julian mentioned, we'll be utilizing our India technology center more, enabling us to scale at a much lower cost. Please turn to Slide 21 where I'll walk you through key drivers of our 2023 adjusted gross profit guidance when compared to 2022 actuals. We're confident in our 2023 adjusted gross profit $60 million- $100 million driven by improved contract underwriting and execution. This reflects a combination of signing new contracts at margins that are at or close to double-digit, an improvement compared to the past. Our ability to recoup some of the increase in our supply chain costs and improve execution. I would note that we expect our exit 2023 gross margin run rates to be higher than the full year 2022 margin rates as our legacy contracts near completion and new deals start to have a larger impact on them. Before we open the floor for questions, I want to reiterate that we have visibility to achieve 2024 break-even Adjusted EBITDA as well as multi-year 30%+ revenue growth and are positioned to take advantage of the upside from the Inflation Reduction Act. With that, we will open the floor for questions. Hey, good morning. This is Julian. I wanted to apologize for the way the sound worked. It looked like my voice accent did not mix very well with the mic and the speakers, at least in my room. In order to correct this, Lex will be posting our script on the website to ensure that we already have access to it. Lex will be sending it by email to his contacts all over, and it will be open. If you have any questions on the script later on after this, you will, you know, you will have to contact Lex direct. Let me tell you this before we start, which I think is important. The quality of the recording was an inverse proportion to the quality of the message. Unfortunately, it did not come through, but it was in direct proportion, you know, just quite the opposite. Let's go into the Q&A, and I really, you know, apologize for that. It won't happen again. We're testing a new mic that does not mix well with my voice and accent. Shall we start? Operator, if you want to open it for questions, please, Q&A. Thank you. As a reminder, to ask a question, you'll need to press star one one on your telephone. Please stand by while we compile the Q&A roster. Our first question comes from James West with Evercore ISI. Your line is open. Hey, good morning, Julian and Manu. Morning, James. Morning, James. Julian, the, as you've stepped into your leadership role here at Fluence, you know, you're focused much more on profitable growth and profit being, of course, the key word there. Has your bidding strategy changed? Obviously, there's a huge amount of growth in the business itself, but have you adjusted kind of the way the company bids on projects? What we have done, just to let you know, this is a question we get all the time, James, is that we segmented the market into more detail to identify where which market segments and geographies we could actually aim for our 10, you know, our double-digit margins, you know. Every time we engage with a new customer or engaging on a new project, we know that, you know, that customer's, you know, business case will allow and the value we're creating will allow for our profit objectives to be reached. That's how our work we have been working. We also, you know, additional the Manu leadership, we have put in place a new contract review process internally to ensure not only that, you know, that, we reach our double-digit margins, but also that the risk profile of the projects we entered into are risks that we will allow us to monetize the full margin, no? Right. That's how we have worked. You know, we're generally, we have dropped some segments, but or at least we're not very active in those segments or, you know. At the end of the day, has allowed us to keep our volumes and reach our profit objective as we move forward. Okay. Okay. Makes sense. Another key differentiator with your strategy is more focus on the digital aspects of the business. Could you maybe highlight, is that a lot of internal kind of R&D and, you know, maximizing what you have? Or are you looking at, you know, external kind of M&A opportunities as well? What we wanna do now. We're kind of integrating. I think the word that we used to look at is integration. You know, what we're doing, integrating the sales channel. Okay. That requires training and some investments. That, you know, some capability, if you know, put. We are integrating our OS and our operating systems with our digital offerings. That's not that they will be one, but that they will communicate more effectively, our customers will have a seamless, you know, experience where when they buy our power, our hardware solutions, and they, then they hire our digitals as a second. Okay. We're working, and that's where the R&D comes in, is on improving the platform of Mosaic. You know, I guess it's normal in the fast business, but we really need to invest to ensure that we can actually continue expanding that project at a lower cost point and a lower complexity point. We can do this much cheaper and much faster. In terms of, you know, M&A, we are not planning to do M&A. We're not planning. I'll tell you until when. For now, what we will do, we will concentrate on our current offerings. We believe these are the two territories that are the most attractive today, where the business cases are very, very clear, and that coincides with our market sectors, you know. As we move forward, as we are able to reach our break-even point for our Digital Business in 2025, we will then look at whether we should develop other apps. I think that at the end of the day, we will look at apps that are based on our commercial capabilities, that are apps that our current, our customers can use and can monetize. Part of the problem with some of the apps we had before is that they were connected with customer segments where we were not that active. it would have mean put in place a new sales channel and additional fixed cost that we think that's not a good idea at this time. Okay. Got it. Thanks, Julian. Great. Thank you, James. Thank you. One moment. We have a question from Brian Lee with Goldman Sachs. Your line is open. Hey, guys. good morning. Thanks for taking the questions. Good morning. I had a couple just-. Good morning, Brian. Good morning. I had a couple around the margins. I guess first off, maybe more of a clarifying question. At points in time during the script, I think Julian, you said Adjusted EBITDA breakeven target in fiscal 2024, but then being at or near breakeven for full year fiscal 2025. I think what you're saying is you'll be adjusted breakeven for the full year in fiscal 2024 consolidated, but then at or near breakeven for the full year fiscal 2025 just in the digital business. Is that the right characterization? Exactly. Exactly, Brian. Okay. Fluence as a whole will be breakeven in 2024. We will aim to be breakeven in 2024. Digital itself will be breakeven in 2025. Okay. I guess, you know, that kind of prompts the follow-up question, which is, you know, a lot of investors we speak to, you know, assume that kind of the digital software applications piece of your business model, you know, would be more profitable than the hardware-centric side. Why, I guess, is digital taking so long to get to profitability? It seems like some of your peers, you know, in the energy storage vertical, they're well ahead in moving toward profitability and already positive gross margin on kind of the software digital platform segments of the business. Just trying to kinda understand where you guys are coming from and why that's a little bit of a different dynamic for you. Very good question. I think that, you know, let's look at Mosaic, you know, our bidding strategy. The ability to gain economies of scale requires expanding into a new market, no? Moving from Australia to California, now, you know, ERCOT and so on and so forth. We realized that it was very, very complicated and expensive to do that expansion. That has made it a little bit more difficult to meet our growth objectives. What we're doing now in theory is concentrating on re-platforming that solution to ensure that we can get into that higher speed growth. That's, that's the rationale, that's the reason for the Mosaic being further down the road than what we expected to be at this stage. No, the bidding app. This pair, our APM, our asset management tool is going in just, you know, in line with our, with our port, with our portal, you know. That way, that's just essentially you know, we bought them but late last year, you know, late last fiscal year. We are, you know, integrated into our systems, integrated into our sales channel, and it's going along the, you know, just in line with our portal. We're, you know, we're very confident. I think those are the two, you know. I'll say that today, the main driver for our delay has been the need to replatform Mosaic. Brian, just one clarification on your first comment is we are positive, or we expect to be positive gross margin in digital- That's right. In 2023 as well. The only other thing I'd say is, you know, we've talked about margin rates of between 80%-90% in the digital business. That still hold true over the next several years. Julian's comment was much more around the EBITDA. That's all. Okay. Fair enough. No. Yeah. No, that's super helpful. I appreciate the color. I guess last question from me, and I'll pass it on, is the EBITDA breakeven target for fiscal 2024. I think in the past, you had said, I think two quarters ago, there's a path to gross margin, sort of in the 10% range in fiscal 2024. Is that what's embedded in the view to get to EBITDA breakeven in fiscal 2024? Just maybe any thoughts around the 2024 gross margin trajectory? Brian, you said it right. That is the thought. In fact, if you look at us playing 21, we are signing deals that are at double-digit margins. We feel very confident about getting to Adjusted EBITDA breakeven for 2024 on the backs of double-digit gross margins. From an operating leverage perspective, you know, we believe that 2022 annual was a high water mark as a percentage of revenue, and we expect to, you know, reduce that as a percentage of revenue given our OpEx will grow at less than half of the revenue growth. Okay, great. Thanks, guys. I'll pass it on. All right. Thank you. Our next question comes from George Gianarikas with Canaccord Genuity. Your line is open. Hey, good morning, everyone. Thanks for taking my questions. Maybe I could start around your decision to manufacture packs in the U.S. Can you just talk about the incremental CapEx required to do that? The incremental hires you need to make, whether or not this will be a global move and whether or not this moves you away from an asset light strategy? Thank you. It's the same strategic position we have today. We will use contracted manufacturing, we will not be owning the manufacturing facility. We had invested in the design and the IP and the software, but, you know, we will still be a capital light business. This will be manufactured by our contractor manufacturer provider. This is directed at the U.S. market. We are this model, this, you know, our current approach, the decision is that we will build the Fluence make for the U.S. market. You know, at this stage, we're not selling from the U.S. to third parties. We might, as we grow in other regions, we might also build it for Asia and Europe. As of today, it's only for the U.S. We believe that our capital light, you know, business model is, you know, will continue. We're committed to it. We believe it's the right way to do it. One of the things that has always surprised me is that the quality of the contracted manufacturers that is available in the U.S. What these people can do for you, how they do it, how much, you know, the value they can create out of it. You know, we are very, very happy with our contractor manufacturers. Thank you. Maybe as a follow-up, could you discuss the cell supply situation and whether or not it's improved incrementally over the last few months? What, if any, other equipment may be causing bottlenecks still for deployments? Thank you. Yeah, thanks. You know, the battery situation is improving. We haven't had any issue, any delays. I know the market's tight, you know, generally, but, you know, our relationship with our suppliers, our ability to engage with them, and our scale allows us to ensure we have ensured that we have no issue, you know, on the delivery of batteries on time and with the, you know, on the terms that we agree. You know, I will say that, you know, that's generally clearly, you know, a major part of our supply chain. I don't see any other market where, you know, is tied that we're concerned about. Clearly, we are constant. This is one of the reasons why we believe scale is so important in order to manage our supply chains effectively. Our scale and our, you know, close relationship with suppliers have been huge. Thanks. Thank you. Our next question comes from Maheep Mandloi with Credit Suisse. Your line is open. Hey, good morning, and thanks for taking the questions. Just maybe on the previous question, Eman, could you help me understand, like, the difference between the FluenceStack and the Fluence Cube? Just trying to understand the core difference here. And part of that is just to get the domestic content added in under the IRA, would the new systems qualify with just the battery pack manufacturing in the U.S., or would you have to procure the batteries from the U.S. market as well? Thanks. Good. I will, you know, maybe let Rebecca. Before we start, I think it's important. The regulations of what will be considered a U.S.-made battery module system have not been issued. It is still unclear how down, how upstream they will go, whether they will go only for the assembly, which I think that will be more on that, whether they will require steel to be from the U.S., whether the cells need to be from the U.S., or further down, whether the mining needs to happen. What we're doing is we're building a strategy of no regrets. Things that we believe that in any event will be included, and try to go upstream as much as we can. To ensure that we can meet the qualification. The reality is that today we are in a, in a way flying. You know, it's not clear. The regulations have not come. There's some, you know, they say buy U.S., buy American type of rules in the U.S. I need some guidance what you should use. There is no, you know, we today do not have certain. Just to let you know. We're working on it, and we're working on moving as much value out as we can into the U.S. to ensure that we are as close, you know, that we do qualify. And making decisions at the Fluence that are no regret decisions. We believe that no matter what happens, we will have to build our modules in the U.S. in order to make that, to make that point. We're also looking to talk to battery cell manufacturers to buy cells in the U.S., apparently. Looking to buy steel in the U.S. and try to create as much value. That's where we are. I will let Rebecca answer the first part of the question. Sure. Thank you. Hi, Maheep. To clarify your question back to you, it's just that you're looking to understand the difference between the Fluence Cube and what we might call Ultrastack or Gridstack. You can think about the way we design products as we build a platform. The platform, we have this thing called the Fluence Cube, which is the enclosure with the batteries inside of it. Our platform also includes inverters, control systems, fire safety systems, and we put all of those pieces together in well-defined units that create our stacks. Gridstack, for example, is a product on top of that platform that is inclusive of inverters, control systems, Fluence Cubes, etc, and we send out Gridstack units. That's what we sell. We announced today Ultrastack, which is another version of that product that sits on that same platform. We didn't recreate the platform. The platform has been out in the world and well-tested, etc. The product that we announced today, the Ultrastack, where its differentiation really lies is in the control system. It's a highly redundant system, because of the work that it needs to do with the transmission operators. It responds to the grid very quickly in 150 milliseconds now, that will be down to 100 milliseconds in the future. It does all kinds of cool things, like it has a really high, reliability feature. It has a very high, effort on power oscillation damping, which helps the just the grid become more stable. It's a different product, and the real differentiation in that product for that Ultrastack compared to Gridstack is in the control system. I would mention, just to connect back to something earlier, that's where we can also start to look at higher margin deals. When we create such a set of differentiation with our technology, it makes it easier for us to look for that, you know, double-digit or more margin. If you can say it in layman's term, if you go to the site, they all look the same. They do very, very different things. That's the way you should think of it. They're all cubes. You see that they're the same, they look the same. They're doing to the grid and to our customers, offering them services which are very, very different with different levels of, you know, response time, quality, security, depending on what our customers are reporting. Hello? Maybe you're still there. Maybe still there. We have our next question. It looks like comes from Mark Strouse with J.P. Morgan. Your line is open. Yes. Excuse me. Good morning. Thanks for taking our questions. Wanted to go back to the IRA. The $10 per kilowatt-hour that you're calling out for the modules, is there a good rule of thumb that we should be assuming as far as how much of that you keep versus what you share with your contract manufacturer or kinda pass on to your customers? Yeah. We will, you know, we will keep it. From a point of view, I think that's important. This is part of our whole product design strategy. You should not look at this as something that will add 2% of additional margin. It will be part of our 10%-15% margin as we go forward. You know, we will. It will be part of our pricing position or our cost position. Mark, that's how our terms with our contract manufacturers work. We believe we can keep most of the $10. Okay. Thank you. Then just a real quick follow-up, Manu. Looks like the pipeline metrics that you're providing, you're taking a bit more conservative view of what was reported previously. Just can you give some more color on what's going on there? Is that just kind of the likelihood of that pipeline, you know, kind of the timing of that pipeline? You know, anything else to call out? I think the two things I'd say. One, we have raised the bar on both the likelihood and the lens of profitability, which kind of goes in line with our general theme around focusing on profitable growth. That's kind of a little bit of color on how we thought about pipeline for, you know, year-end reporting. I would point out to the fact that we have close to $8.5 billion of pipeline, which I would imagine with the higher bar and the lens of profitability, I think it also lends itself to a tad bit higher conversion than what we have previously said. Feel good about, not just the backlog position we are in, but also the pipeline that sits behind, our backlog, and frankly, the top of the funnel that sits behind the pipeline. Okay. Very helpful. Thank you. Thank you, Mark. Our next question comes from Julian Dumoulin-Smith with Bank of America. Your line is open. Hey, good morning. It's a pleasure to chat here, my namesake. Manu, pleasure. Congrats again. If I can just to come back to the cash conversation quickly here. How are you thinking about 2023 here and a little bit of 2024? Obviously, Adjusted EBITDA pressures are what drove the cash burn here past tense. How are you thinking of that prospectively here, if you will, a little bit, it on 2023 and the totality until you get to a cash positive, EBITDA positive world? Sure. Sure, Julian. Great to chat with you as well. Just from a cash perspective, let me start with how we think about it. First of all, our model is asset light, and operating cash efficient model, which means as you bridge from EBITDA down to cash, we have very low CapEx and, you know, operating cash usage that we have dimensioned for 2022 and 2023 at 10% of our revenue growth, right? With most of the cash usage in 2023 being driven by our EBITDA performance with a little bit of cash being used for CapEx and then 10% of our revenue growth kind of- 2024, where we believe we'll be close to breakeven for cash, not all the way there. We'll be breakeven EBITDA. As we get to 2025, we expect to start generating cash. What I'll close with in terms of my comments is, one, there's a little bit of cash timing between first half to second half. The second thing is we feel very comfortable with the cash on the books plus our unused revolver in terms of our ability to meet our cash needs through the time we get to cash positive. Yeah. Just a little quick working capital stuff. I know the statistics, the numbers are really easy to investigate that a little bit. Okay. Julian, do you mind repeat that again because? Oh, sorry. Working capital, clearly. You know, if you look at the balance sheet here, there was some consumption, some pieces. Can you talk about that? Yeah. If you're referring to 2022 fourth quarter working capital usage. If you start with you put the total year in context, and then I'll bring to close what happened in the fourth quarter. If you put the total year in context, you put a bridge out there as well. The operating cash, which is principally working capital, as well as some money that we collect from our customers as prepayment, which is also part of the expanded definition of working capital. It was about a 10% usage in terms of our revenue increase year and year. That was our total conduction for the total year. As you parse the quarters, most of the cash, usage in the fourth quarter was effectively us making good in terms of buying inventory and paying off our suppliers. That was in execution of our projects that were already, funded in the most part at the beginning of the year, from a customer, prepayment perspective, which is why you see that phenomenon in the fourth quarter. As you zoom out and look at the total year, you don't see that as much. That model will continue, which we really like because it is a very working capital efficient model. Got it. Thank you, guys. Thank you, Julian. One moment. Our next question comes from Ben Kallo with Baird. Your line is open. Hey, good day, guys. Just first, just maybe backing up to the competitive environment. I know you guys have only been there 90 days, but how are you seeing, you know, bids change just in terms of the number of competitors and, you know, why, you know, someone like an Ørsted would pick you? You know, how crowded is it in competition terms? Then my second question, just in terms of, you know, tight labor supply, how do you guys think about that, you know, as, you know, the IRA rolls out into next year and, you know, there's gonna be a boom in projects, we think. How do you think about, you know, labor in that environment? Thank you. Thank you, Ben. No, kind of maybe the rule of thumb is the following. As you go up in the complexity scale, you know, competition gets less, you know, gets, you know, softer. If you go to a simpler solution where you see a lot of these start-ups and, you know, there's a lot of competition. As you go up the scale, either because the product, the projects are very big or they need specific characteristics or features that we can only deliver, then the competition, you know, kind of, you know, dwindles a little bit and it becomes easy. No, I would say definitely you always need to fight. I think that, you know, why do people pick us? Which is a little bit, why do they select us? I guess it's, you know, the reasons, we talk to our customers always, our ability to manage complexity, both in terms of project or product. Our safety features. You know, we have a product which is very, you know, it has proven to be very, very safe. We have gone through burn tests. We have done all the testing on the safety, and people, you know, are really impressed. Then, you know, our end-to-end solution, the fact that when people hire us, they know they will have a partner for the next 20 years that will deliver. We have seen it today, you know, with new regulations coming in place in Europe, in the U.K. this year. We were out there e-releasing the apps and helping all our customers, ensuring that they will meet these new regulations and take advantage of this opportunity. I would say those are the three things, you know. Complexity, both on product and project. You know, the safety, you know, and they see us as a partner that will, you know, offer them, you know, will compete with them as they move on. That, that's the driver. Thank you. One moment for our next question. Our next question comes from Sean McLoughlin with HSBC. Your line is open. Good morning, gentlemen. Thank you for taking my questions. Firstly, just on the IRA, you've talked about your expectation for the first orders in June 23. I mean, will there be a lag into that? Are customers waiting until they understand the full complexities and details of the IRA from the IRS over the next quarter or so? I mean, how should we think about the actual volume of orders? Are we going to see a real explosion in June, or is it a kind of a gradual ramp up over the 12 months from June? Any color there would be helpful. The second question, just on Ultrastack. Your first success has been in Europe. I mean, is this a product targeted at the European market? Are the margins in Europe actually better than in the U.S. market? Thank you. Good. In terms of the IRA, what we have, you know, in our conversation with our customers, they are working on the standalone storage projects. They are, you know, working on the you know, looking for the sites, identifying the connection points. I think this will be a gradual increase. I don't think they will come as a, you know, all of them starting in June will get to the full amount. Then going forward, I think they will start coming in. The way I've seen these projects develop, the ones we'll see first are the ones that are easier, that are connect closer to transmission lines where they can connect easier. The substation is, you know, it's got some spare capacity. As we move along, they will continue to move forward. That's the way we see it. It takes a little while for these projects to be, you know, for our customers to be ready to have these projects at a point where they can sign. You know, they need to develop the project, find the off-taker, and then, you know, work with us. In terms of our transmission grid, we see this as a global problem. You know, we started in Europe, we started in between. You know, that's where we had a 200 MWh project with Grid. Now we're in Germany. Clearly in Europe, there's a lot of need for this because they're looking to integrate and strengthen. You know, the U.S. has a major challenge in order to do this. In order to make this work, we are also working in Chile, where we have talked our work with the regulators there to ensure they understand the value of this. We have been success there, and we hope to see a vendors coming out for these type of solutions in Chile in the, you know, very soon. We're working in the U.S. with our sales team, talking to regulators, to customers, and so, you know, we can create a regulatory base for this to join. We are confident that it will happen. This is a global product at the 17 GW by the year 2030 that we talked about. It is a global demand. Thank you. Thanks, Sean. Our next question comes from Pavel Molchanov with Raymond James. Your line is open. Thanks for taking the question. We talked a lot about the U.S. and Europe. Historically, you've had a strong presence in the Australian market, where there is more and more talk about storage as part of the new Labor Party climate policy. Can we get an update on what's happening in Australian demand? Yeah, we have a, you know, a very, very strong pipeline in Australia. We're working with, you know, good clients and customers who have a few projects that are coming along. I think that you will see some projects, some significant projects signing, you know, coming into our backlog within the year. We don't disclose numbers by market. But we're confident this is one of clearly a market that appears to be very, very promising for 2023 for our fiscal year. Okay. Sounds good. Given that you're vertically integrating, but you'll still be insourcing battery cells, is there any appetite to look at chemistries beyond lithium ion, so nickel, zinc, vanadium, iron flow, any of these new battery models that are just starting to scale up? Yeah. I'll let Rebecca answer that one. Sure. You know, in the short term, we of course look beyond a single type of battery and currently use both LFP and NMC batteries in our solution. We work very closely with our battery OEMs to look beyond that as well. Our platform is designed such that it's agnostic, so we can absorb whatever kind of battery solution is out there that meets the sort of customer ROI requirements. The next thing I would say that we would look at would be solid-state batteries and sodium, with sodium being the one that we see the nearest term right outside of what we're doing currently with LFP and NMC. Understood. Thank you very much. Thanks. Thanks, Pavel. Our next question comes from Ryan Levine with Citi. Your line is open. Good morning. Good morning. Hi. With the focus on profitability, has the company slowed its hiring, or can you provide color on your views on the tools to manage the cost structure? What we're doing in terms of people, you know, we're looking at our in-depth technology center. It has been a very successful addition. You know, we already have like around, you know... 100 people. 100 people there. We attracted great talent. We're very happy with the, you know, contributions they have done. You know, the tools in our product development and so on. We are looking at expanding that facility to support some of our other areas, you know, our back office, our digital development, continue helping us on product development and supply chain. That's what I think will be the main driver of our improvements in efficiency. You know, we will, as Manu mentioned, we believe our SG&A will grow at a rate that will be half our revenue growth. We will continue to become much more, you know, more efficient in terms of revenue production with our current cost structure as we move forward. Thanks. On that vein, can you provide color on the pace of adjusted gross margin recovery you're seeing for 2023 from the 3.4% in the recent quarter towards the double-digit target that you highlighted by the end of next year? Yeah, for sure. I'll also point your attention to Slide 21, where we dimension it. There are two principal drivers of our confidence level in getting to a much higher gross margin compared to 2022 when you look at our guidance for 2023. One is, I think, you know, a lot of our execution issues from 2012 are well understood and largely planned, right? You saw, you know, early signs of that in our fourth quarter performance. We think that's a big driver, and we've dimensioned that on Slide 21 in the range of 23-33. We are signing new deals that add a close to double-digit margins. That is already in our backlog, and that starts to bear fruit in 2023 when you think in terms of gross margin delivery. I will point out that we do have, let's call it our legacy contracts, that we'll have to work through the fiscal year 2023. By the time we exit 2023, which for us is September 30th, you will start to see the, you know, the double-digit run rate start to show up in our results, and definitely a pretty pure play going into 2024. That does drive our confidence level in getting to Adjusted EBITDA breaking even in 2024, given the operating leverage comment that we just made. Just wanna make sure we're hearing that right. Are you saying that the step-up is really gonna come towards the last quarter of the year, and then we won't see a more ratable recovery of the gross margin? I think you'll see, improving gross margins quarter-on-quarter as the new deals kick in into revenue and we work through the old deals. Fourth quarter of our fiscal year 2023 will be a close approximation of how you will expect to see 2024 fiscal year as we would have pretty much worked through most of our legacy backlog. Appreciate the color. Thank you. Thank you. Our next question comes from Tom Curran with Seaport Research Partners. Your line is open. Hi. thanks for squeezin me in. I appreciate it. just one topic left for me. I know we've run over, so I'll try to keep it short. About two weeks ago, the California Public Utilities Commission approved PG&E's request to amend four of its midterm reliability contracts for storage. Apparently, all four storage contracts have had their pricing raised, three have had their schedules delayed, and 1 has had its size cut in half. Could you speak to the implications of these changes, especially the approved increase in pricing for your current backlog and expected future awards for California? You know, be very, very sincere with you. I'm not aware of these issues that you're just raising with me. You know, I'll have to get back, talk to my sales team. Like I said, there hasn't been an issue material enough that it has come up to my attention. We'll take a look at it and, you know, talk to you. Yeah. I think in general, we are seeing improved pricing across the board. That's right. Probably not attributed to just one single phenomenon that Lex can follow up on. Yeah. With the other way of question or mention later. Great. I appreciate that. Could you just give us an idea of what California represents as a percentage of your current backlog? We're not providing numbers per market because then we'll get into this. I'll tell you this, California is clearly one of our most attractive markets, and in the U.S., it's a market where we're seeing a lot of demand and where we see a lot of opportunity for creation. You know, that's what I will say. Maybe one way to think about it is, you know, our revenue is set 2/3. If you look at our historical revenue and I think our backlog is representative of that, I think 2/3 of our revenue comes from the Americas. Within the 2/3 that comes from the Americas, California is a meaningful proportion. We do not break it down by state for the Americas. That's right. That's helpful. Clearly, it's a, you know, very attractive market. Right. I figured it was worth a try to dig a bit deeper, but appreciate the help. Thank you. Thank you. One moment for our next question. Our last question comes from Craig Shere with Tuohy Brothers. Your line is open. Good morning. Thank you for squeezing me in. I've got a quick near term and then a longer term focus question. Near term, you know, people seem positive about China opening up and the end of zero COVID, perhaps for some quarters, people might actually be getting COVID and we might have disruptions that won't last, you know, forever. I wanted to inquire about your contingencies and thoughts about those risks into next year on the supply chain. Longer term, I was truly amazed at the AES Air Products announcement for their, you know, Texas hydrogen JV. I wonder if you can comment on the degree to which, obviously you work heavily with AES, but the degree to which, BESS has, you know, huge opportunity in the nexus of clean, supporting dedicated intermittent renewables that then produce, you know, steady state green hydrogen production. I mean, on the hydrogen, clearly battery storage will play a role in hydrogen production in order to ensure that your electrolysis work more efficiently with renewable sources. That's okay. It will depends a little bit on their if battery storage plays a much more important role when you are producing ammonia, when you're producing hydrogen, because electrolyzers are easier to adapt to changes, while the ammonia production systems require more stable. depends on what how you are organizing your hydrogen production, whether you're going all the way down to ammonia or you're saying with hydrogen, you need more or less battery. That's where we are. We're working with some of our customers that are looking at these options to try to, you know, offer them solutions that will help them improve the, their, you know, the great value to hydrogen. You know, we're using our technology, producing, both operating the electrolyzers. That's what I was telling you we'll continue to work on. And, and on the, the 2023 risk- Supply chain? Yes. Well, you know, as we continue to be exposed to China. You know, we are a significant portion of our batteries come from China. Not all of it, but a significant portion of it. We clearly this is an issue of concern for us. Of concern, I would say. Something that we care about and that we're looking to work towards diversifying out of, out of China as much as possible. The Fluence space will allow us to do that, will allow us to manage, to move more and to make it easier to move production. We continue working with producers in Europe and India and in other Southeast Asia countries. We're looking to continue to diversify. I would say that today, China is still a major supplier. We haven't seen any issues. There are no problems in productions in any of our suppliers. There have been no problems in shipping some and logistics. We have no signs of any disruption at this stage that we can, you know. Clearly something that when we look at our risk management capability, something that we spend time on to ensure that we can manage any potential issue. Thank you. Well, I wanna, you know, thanks everybody for participating. As I said it at the beginning, I could not understand what I was saying when I was reading the script. Clearly my voice, the mic and the speakers in my room and my accent did not work very well. We have the script in the IR website. Please take a look at it. If you have any questions, contact Lex, and we will gladly answer them. You know, we'll assure you that next quarter this won't happen again. Thank you very much for the time and, you know, be awesome. This concludes today's conference call. Thank you for participating. You may now disconnect.