Fluence Energy’s Q4 2025 Earnings Call: Contradictions on Domestic Preferences, Data Center TAM, and Margin Goals Highlight Shifting Priorities

Date of Call: November 25, 2025

Financials Results

• Revenue: $2.3B for FY2025, ~ $300M below expectations due to Arizona enclosure manufacturing ramp delays; backlog $5.3B
• Gross Margin: 13.7% adjusted gross margin for FY2025 (record, above top end of expectations); rolling 12-month adjusted gross margin at/above 13%

Guidance:

• FY2026 revenue expected $3.2B–$3.6B; 85% of midpoint already in backlog
• Adjusted gross margin guidance 11%–13%; Gridstack Pro expected to be ~70% of FY26 revenue
• Adjusted EBITDA guidance $40M–$60M
• ARR target ~ $180M by FY26 end (~20% YoY increase)
• Plan to invest ~$200M (≈$100M domestic supply chain; remainder in working capital to support growth)
• Expect ~1/3 of FY26 revenue in H1 and the remainder in H2; operating expenses to grow at <50% of revenue growth

Business Commentary:

* Record Revenue and Order Intake: - Fluence reported $1.4 billion in orders for Q4 2025, setting a record level, with a current backlog of $5.3 billion. - Growth was driven by strong demand in Australia, contributing roughly half of the orders, along with significant pipeline expansion in the U.S. for 2026.

• Financial Performance and Margins:
• The company's full-year revenue was approximately $2.3 billion, which was $300 million below expectations primarily due to production delays at a contract manufacturing facility.
• Despite this, Fluence delivered a record adjusted gross margin of approximately 13.7% for the year, and adjusted EBITDA of $19.5 million at the top end of guidance.

• These results were supported by good project execution and cost efficiencies.

• Product Innovation and Market Demand:

• The introduction of the new Smartstack product has been well-received, contributing to the 4 gigawatt hour project with LEAG, the largest battery project in European history.

• There is a significant increase in larger deals in the pipeline, with 38 deals of at least 1 gigawatt hour, more than double the previous year.

• Domestic Supply Chain Strategy:

• Fluence has secured a second domestic battery cell supplier compliant with PFE regulations, enhancing future growth and compliance in the U.S. market.
• Despite production challenges, progress has been made in meeting Obba compliance, with ongoing negotiations to resolve ownership and IP transfer issues with AESC.
  

  Sentiment Analysis:

  Overall Tone: Positive

  • Management emphasized a record $1.4B Q4 order intake and $5.3B backlog, reported a record 13.7% adjusted gross margin, said production at Arizona has ramped (from ~1.5 to ~5 enclosures/day), and provided FY26 guidance of $3.2B–$3.6B revenue and $40M–$60M adjusted EBITDA while noting confidence in meeting delivery commitments.

Q&A:

• Question from George Gianarikas (Canaccord Genuity Corp., Research Division): Can you share thoughts on the competitive environment in the U.S. and internationally?
  Response: International competition unchanged (Chinese players active); in the U.S. customers increasingly prefer U.S./non‑PFE suppliers even when not required.

• Question from George Gianarikas (Canaccord Genuity Corp., Research Division): When you say margins should improve over time, do you mean beyond the FY26 11%–13% range in '27/'28?
  Response: Yes—management expects gross margins to improve over time and to continue the upward trajectory disclosed historically.

• Question from Brian Lee (Goldman Sachs Group, Inc., Research Division): Can you size the data center opportunity (30 GWh pipeline) and Fluence's potential market share / TAM?
  Response: TAM appears materially larger than our prior $8B estimate (management cited multiples of that); Smartstack is well positioned to capture a meaningful share by addressing interconnection and backup needs.

• Question from Brian Lee (Goldman Sachs Group, Inc., Research Division): Timeline to convert data center pipeline into revenue and margin profile versus core business?
  Response: About half the 30 GWh expected as order intake in 2026 (the rest in 2027); most will be order intake in 2026 not revenue, and margin contribution is still evolving though expected to be value‑accretive.

• Question from Dylan Nassano (Wolfe Research, LLC): What changed between last call and Q4 underperformance and are the manufacturing problems resolved?
  Response: The shortfall was due to underestimated staffing ramp at the Arizona enclosure facility; staffing is substantially complete and production has ramped to target levels, restoring confidence in delivery.

• Question from Dylan Nassano (Wolfe Research, LLC): Details on the new cell supplier—incremental capacity and any prepayments?
  Response: The new supplier provides sufficient capacity for projected needs for the next couple years and involves no material deposit/prepayment commitments.

• Question from Ameet Thakkar (BMO Capital Markets Equity Research): Why is implied EBITDA margin down and gross margin lower year‑over‑year despite higher ASPs in bookings?
  Response: Lower volumes (FY25 revenue $2.3B vs prior $2.7B) and ~10% lower ASPs drove EBITDA margin compression; management emphasizes restoring top‑line growth to regain operating leverage.

• Question from Ameet Thakkar (BMO Capital Markets Equity Research): Free cash flow expectations relative to ~$50M EBITDA midpoint?
  Response: Expect to require ~ $100M working capital plus ~$100M domestic investment this year; goal is to be free cash flow positive next year as revenue and EBITDA grow while liquidity remains strong.

• Question from Julien Dumoulin‑Smith (Jefferies LLC, Research Division): How are margins tied to domestic supply/AESC and update on AESC negotiations?
  Response: A potential AESC transaction would be accretive; substantial progress made on IP and material supply compliance, but ownership terms remain under negotiation.

• Question from Julien Dumoulin‑Smith (Jefferies LLC, Research Division): Clarify whether current margin expectations assume AESC and whether shifting supply would improve/deteriorate margins?
  Response: Management reiterated that an AESC deal would be accretive to current margins.

• Question from David Arcaro (Morgan Stanley, Research Division): Are data center projects larger than current backlog, U.S.-heavy, and what durations are customers seeking?
  Response: Project sizes are generally in line with existing projects, the pipeline is U.S.‑heavy, and durations vary from ~2 hours to long‑duration depending on use case.

• Question from David Arcaro (Morgan Stanley, Research Division): What drove the strong $1.4B order intake in the quarter?
  Response: Strong demand in Australia was the primary driver of the Q4 order intake rebound; management expects the U.S. to lead intake in FY26.

• Question from Mark W. Strouse (JPMorgan Chase & Co, Research Division): Is the second domestic cell supplier capacity available today or is there a ramp?
  Response: Capacity from the second supplier will be available in ~10–11 months; existing backlog needs are already secured.

• Question from Mark W. Strouse (JPMorgan Chase & Co, Research Division): Is Smartstack the only go‑to‑market for long‑duration or will you integrate/partner with others?
  Response: Smartstack will be the accelerator and primary go‑to‑market solution for long‑duration opportunities.

• Question from Christine Cho (Barclays Bank PLC, Research Division): Can you rank the data center opportunity set (interconnection, backup, power quality) and corresponding durations?
  Response: Fluence can address all three with the same system; backup and interconnection needs typically require longer durations, power quality shorter, and the ability to stack services is the competitive advantage.

• Question from Christine Cho (Barclays Bank PLC, Research Division): If vertically integrated with AESC how would mix vs second supplier look, contract duration, and international supplier diversification?
  Response: Mix undecided; international supply is already diversified; company focus is on delivering consistent product regardless of cell supplier and on securing compliant domestic supply.

• Question from Justin Clare (ROTH Capital Partners, LLC, Research Division): Will you depend on AESC until the second source is ready and how critical is resolving FIAC/OBBBA restrictions by early 2026?
  Response: Resolving FIAC/OBBBA compliance is very important and a top priority; management has an active plan to address it.

• Question from Justin Clare (ROTH Capital Partners, LLC, Research Division): Can storage today accelerate data center interconnection or do regulations need to change?
  Response: Interconnection acceleration is feasible today without major regulatory changes; contracts are still in progress but technical/regulatory gating is not viewed as a showstopper.

Contradiction Point 1

Competitive Environment and Domestic Preference

It highlights a shift in customer preference towards domestically manufactured solutions in the U.S., which may impact Fluence Energy's competitive positioning and market share.

What are your thoughts on the competitive environment, and are there any changes in the U.S. and international markets? - George Gianarikas(Canaccord Genuity Corp.)

2025Q4: Internationally, the competitive market remains unchanged with Chinese players driving the competition. In the U.S., customers prefer U.S. or non-PFE manufacturers even without regulations. This evolving trend indicates growing preference for domestically manufactured solutions. - Julian Jose Marquez(CEO)

How are you navigating FEOC restrictions and managing your relationship with AESC? - Brian K. Lee(Goldman Sachs)

2025Q3: Our view has been that the U.S. market would require domestic content. We've been working on compliance, including ownership structure. - Julian Jose Marquez(CEO)

Contradiction Point 2

Data Center Market Size and Opportunity

It involves differing perspectives on the total addressable market (TAM) for data centers and the potential market share, which are crucial for understanding company growth and positioning in a key market segment.

Could you clarify the market sizing and potential market share for the data center segment? - Brian Lee(Goldman Sachs)

2025Q4: The TAM is significantly higher than $8 billion, with numbers up to 10 times that amount. The 30 gigawatt hours of data center projects represent both pipeline and recent contracts. - Julian Jose Marquez(CEO)

Can you provide insights on the engagement with data centers for battery storage? - Dylan Thomas Nassano(Wolfe Research)

2025Q3: This is an emerging need with volatile energy consumption in data centers. We are developing solutions but have not yet signed a contract. - Julian Jose Marquez(CEO)

Contradiction Point 3

Gross Margin Improvement

It addressed the company's expectations for gross margin improvement, which is a critical financial metric for investors and stakeholders.

Are you referring to gross margins exceeding your guided range for next year in 2027 and 2028? - George Gianarikas(Canaccord Genuity Corp.)

2025Q4: Yes, our goal is to continue improving the gross margin trend. We haven't changed our past guidance but aim to show continued improvement. - Ahmed Pasha(CFO)

Could you clarify the gross margin guidance for Q4 and the 2026 backlog margin forecast? - Brian K. Lee(Goldman Sachs)

2025Q3: For '26, potential gross margins align with the current 10% to 12% range. - Julian Jose Nebreda Marquez(CEO)

Contradiction Point 4

Capacity and Production Plans for Domestic Content

It involves the company's capacity and production plans for domestic content, which are crucial for meeting demand and regulatory requirements.

Can you provide more details on the new cell supplier? How much incremental capacity does this add? - Dylan Nassano (Wolfe Research, LLC)

2025Q4: We now have 2 new suppliers fully secured for the needed capacity. We have secured capacity to more than cover our current needs through at least 2026. - Ahmed Pasha(CFO)

What is the revenue capacity of U.S. domestic cells, and is it sufficient to meet 2026 fiscal needs? - Brian Lee (Goldman Sachs & Company)

2025Q2: We have a real need for a second source. We expect to be able to announce something, either a domestic or international, in the next 2 to 3 months. - Julian Nebreda(CEO)

Contradiction Point 5

Impact of Chinese Competition

It highlights the impact of Chinese competition on the company's competitive positioning and pricing strategy.

What changes have you observed in the competitive environment in the U.S. and internationally? - George Gianarikas (Canaccord Genuity Corp., Research Division)

2025Q4: Internationally, the competitive market remains unchanged with Chinese players driving the competition. In the U.S., customers prefer U.S. or non-PFE manufacturers even without regulations. This evolving trend indicates growing preference for domestically manufactured solutions. - Julian Jose Marquez(CEO)

What is the competitive landscape in the U.S. and internationally? - George Gianarikas (Canaccord)

2025Q2: The U.S. market is in a wait mode due to uncertainty. Internationally, competition is intense, but the introduction of Smartstack has strengthened market positioning. - Julian Nebreda(CEO)