Hello, and welcome to Fluence Energy Second Quarter 2025 Earnings Conference Call. At this time all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. [Operator Instructions] [Technical Difficulty] Investor Relations. Sir, you may begin.

Thank you. Good morning, and welcome to Fluence Energy's second quarter 2025 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; and Ahmed Pasha, our Chief Financial 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'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 in today's call. This morning, I will briefly review our Q2 results, but I will concentrate primarily on the current environment, and why we remain confident in the long-term growth prospects for energy storage, the competitiveness of our Smartstack platform and the strength of our U.S. supply chain strategy. Starting with Slide 4 and our Q2 performance. We delivered approximately $432 million in revenue as our execution helped us to deliver on project milestones earlier than expected. We also earned double-digit adjusted gross profit margin, and our annual recurring revenue increased to $110 million. We ended the quarter with approximately $4.9 billion of backlog, including $200 million of contracts added during the quarter. Looking ahead in the coming quarters, we are expecting a meaningful improvement in order volume from this past quarter, especially internationally. In particular, and consistent with our prior expectations, we currently anticipate a strong ramp-up in order volume in Australia as we enter the second half of our fiscal year. And finally, we ended the quarter with more than $1 billion in liquidity, including $610 million in total cash. This demonstrates our solid low-lever financial condition and provides us with a strong basis to deliver long-term value to our stakeholders. Please turn to Slide 5. Since our last call, the market landscape has shifted meaningfully due to the enactment of significant new tariffs, which with respect to China have increased from roughly 10% to roughly 155% in a matter of a few months. The change in tariff and trade policy has led to considerable economic uncertainty in global markets. This uncertainty from the number and magnitude of changes has led the company and certain of our customers…

Thank you, Julian, and good morning, everyone. Today, I will review our second quarter financial results and then discuss our liquidity and updated outlook for fiscal 2025. Turning to Slide 12. In the second quarter, we generated $432 million of revenue, which was better than we expected as we were able to achieve project milestones faster than expected across Americas and APAC regions, as we benefited from efficiencies from our supply chain initiatives. This brings our year-to-date revenue to approximately $618 million versus roughly $500 million of first half revenue expectations discussed on our last call. In terms of gross margin, we generated $45 million of adjusted gross profit, representing an adjusted gross profit margin of approximately 10.4%. This quarter makes our seventh consecutive quarter of double-digit adjusted gross profit margins. Year-over-year, operating expenses increased by $10 million to $84 million due to higher R&D spend and sales and marketing costs. A good portion of this increased spending is focused on delivery of our new Smartstack product line to market. Turning to adjusted EBITDA. We reported negative $30 million for the quarter, mainly due to the more level fixed cost nature of our operating expenses compared to back-end nature of our revenue, as we discussed on our last quarter call. Turning to Slide 13. I will now discuss our strong liquidity, which allows us to invest in innovative technologies and support our plan. We ended second quarter with more than $610 million of cash consistent with the strong cash position we had at the end of last quarter. Additionally, we have $532 million available under our revolver and supply chain facilities, which puts our total liquidity at more than $1.1 billion. Looking ahead, we will be allocating a couple hundred million dollars of our available liquidity to fund working capital…

Thank you, Ahmed. Turning to Slide 17. In closing, I will highlight the key takeaways from this quarter's performance and our outlook moving forward. First, the recently imposed U.S. tariff has introduced substantial economic uncertainty, which is impacting near-term customer decision making and project execution. Although this presents some immediate challenges, we are optimistic that they are temporary and manageable. Second, we remain confident in our long-term positioning. We strongly believe that our product innovation strategy in our new platform, Smartstack, and our U.S. domestic content capabilities position us to benefit materially over time as the market overcomes the current economic uncertainty and regains its growth trajectory. Third, we are operating from a position of strength. Our backlog now is approximately $4.9 billion, providing a solid foundation for future growth. We believe our track record of capturing double-digit adjusted gross profit margins provides us with additional visibility on our future financial performance and profitability. And fourth, our liquidity remains robust with more than $1 billion in total cash and committed working capital facilities. We believe that our solid financial condition will give us the flexibility to continue investing through a period of volatility while executed on our long-term strategic priorities. Together, these factors reinforce our confidence in Fluence's ability to navigate the current environment and emerge even stronger. With that, I would like to open up the call for questions.

Thank you. [Operator Instructions] Our first question comes from the line of Brian Lee with Goldman Sachs & Company. Your line is open.

Hi, guys. Good morning. Thanks for taking the question.

Good morning, Brian.

Good morning, Julian. I guess the first question, just on the ASC ramp. I appreciate some of the additional disclosure here, but I just wanted to make sure I have the numbers right. I think in the past, you had talked about like 3 to 4 gigawatt hours on Line 1 and then Line 2 would double that. I think I just heard you say by the summer of next year, you'd be at an annualized run rate of 12 gigawatt hours of capacity out of ASC and the Tennessee facility. Is there another line being contemplated there? Or were there some efficiency gains that are getting new additional capacity, the 12 gigawatt hours seems a little bit more than we had been anticipating?

Yes. No, let me -- thanks good question. Each of the lines have capacity between 3 and 3.5 gigawatt hours. Our contracts are at a minimum of 3 gigawatt, but we can ramp them up to 3.5 gigawatt. What we do with domestic content is that we mix domestically produced manufactured batteries with imported batteries, and that's how we convert the 6 gigawatt hours that we have available with the 2 lines into 12 gigawatt by mixing the 2. So that's where the 12 gigawatt come from. And this assumes a combination of half and half, half domestic -- half locally manufactured, half internationally manufactured. Clearly, the decision on how much -- how that mix will go will depend on the final tariff levels that we get from China and how all this process goes. But that's generally a good assumption to go forward.

Brian, the only thing I would add, this is Ahmed, is that we mix because we get the benefit of 40% -- because what we need is to offer our customers at least 40% minimum domestic content. So I think that gives us ability to basically sell more volume at the same time, give our customers what they want, which is the domestic content incentive. So I think that allows us to meet our growing need at the 6 gigawatt hours, we can sell 12 gigawatt hours equivalent volume for domestic content.

Okay. No, that's helpful clarification. But presumably, if the 150-plus tariffs -- percent tariffs on China remains, the economics on blending and mixing at any ratio would it make sense? So really, it's 6 to 7 gigawatt hours of domestic capacity run rate next year. If I kind of do the math that current ASP levels, I guess it implies like a $2 billion or $3 billion revenue capacity that can be supported on pure U.S. domestic cells.

Yes.

One, is that the right range to think about?

No.

And two, would that cover all your needs for fiscal 2026 given the $700 million that's pushing out from this year's revenue to next year and then what you're projecting for next year on the backlog?

Yes. As we said in the call, even with the current tariff levels, even with the current tariff levels, mixing imported and local manufactured tariff we can go with a price that beats fully imported batteries, it beats it by 10%, even taking away -- even not considering the 10% bonus, which is on the use in the 45x. So we believe this -- let's say that if the situation were to stay in the current approach, we'll still believe -- with the current tariff level, we still believe a mixing of imported and non-imported tariff. It will be a -- it's a way to go. So we -- the likely scenario, most of the likely scenarios we see coming forward. We will offer a mix of -- when we offer a product, we will have a combination of imported and non-imported tariffs.

And then my last question just since you have run those economics and kind of have that analysis as you talk to customers, obviously, the tariff environment is fluid. But if you -- it sounds like no contracts are going to get canceled, they're just going to get renegotiated or potentially just done from a different sourcing strategy. But if you do mixing, is there -- have you had customer conversations as to kind of what pricing and then your margins would be? Because obviously, you've taken out the revenue impact from tariffs as that revenue comes back into the picture weather it's later this year or if it gets embedded in fiscal 2026 guidance at some point, like what do you think the margin implications would be of bringing that revenue, which is now going to still have some tariff impact if you're blending and you're having to set a different level of price, I suppose, with customers?

That's right. So let me tell you our approach to this, which I think -- I'm answering your question, it's a little bit -- first point. The issue we have today is the uncertainty. The fact that we have a tariff level that it is subject to a potential negotiation with the Chinese government and there is a likelihood -- likelihood that it will go down. So that's what we are. So it is unclear. It's very difficult for me to form a price to my customers. I can tell them this is a price that will work in any tariff conditions because the tariff could work in different ways. And it is very difficult for my customers to go out to their customers and tell them this is the way you should go because the cost structure. So that's the problem we have today. Assuming the problem gets resolved at the current level at a lower level, whatever it does, I mean let's not -- we have sufficient optionality to offer our customers a price that competes with alternative offerings very, very well, and that allows us to meet our margin objectives. In terms of the point you mentioned, okay, will this still work for the customers? When we go out and looked at it generally, and this is a general statement clearly, there are not many alternatives to battery storage to resolve the needs of the U.S. grid. There are not that many. They are limited. And we believe -- I'm not saying that there's no price electricity, no please, or that we -- at any price, it will happen. I'm just saying they're limited. So because they're limited, we believe that most of these countries, if not all of them, will move forward at a potentially higher cost than what we originally thought, if tariffs were to stay at this level. So that's the way we think of. And this is very, very important. We had designed our contracts in a way where the interest of our customers and ourselves are aligned. And we can -- we have -- we're aligned. We shared some of these risks together. So our interests are aligned to resolve this in a way that our customers meet their profitability objectives, and we meet our mark. So we're very confident when we looked at all these elements, all my optionality in supply chains. The opportunity that our customers and their customers have and where the value that battery storage can provide to the U.S. grid that we will be able to address -- once the uncertainty gets clear, whichever way it gets clear, we will be able to regain our growth.

All right, thanks guys. I appreciate it. I will pass it on.

Thank you, Brian.

Please standby for our next question. Our next question comes from the line of George Gianarikas with Canaccord. Your line is open.

Hi, good morning everyone. Thank you for taking our question.

Good morning, George.

Along the same lines around AESC, can you maybe discuss the ownership structure there and any solutions if that has to change due to any political concerns? Thank you.

Yes, thank you. So you are referring in a telegraphic mode to the potential FEOC restrictions under the current or if they were to put in place. So today, as we all know, there are no FEOC restrictions on the IRA benefit for battery storage. They are for -- as you also know, for the EV industry, not for our part. But what we have done as this is a potential risk, we have worked with AESC to ensure, and we have a plan that we will put in place to ensure that we will meet any restrictions on ownership that might come up. That's what I can say today. We cannot be more specific than that unfortunately. But this is something at lease that we have identified that we have worked with AESC to address and we have a plan that we will put together to ensure that if there are restrictions on ownership that we will adapt to ensure those lines and those investments will we still be able to meet potential restrictions that come up. And the interest of AESC and ours are very much aligned in ensuring this going forward. So that's what I can say. This is something we clearly have been working on for some time, and we feel confident that we will be -- it's not that we are working ahead of the problem coming. No. And as the time go along, we will inform more stuff, but that's what I can communicate at this stage.

Thanks. And maybe around competitive concerns, last quarter, you had mentioned that you have seen incremental competition from Chinese and the U.S. And I'm curious as to what's happened from a competitive landscape. I know that lot of deals are paused, but are you seeing incremental steps from Chinese vendors in the U.S.? Or is that sort of abated over the last several months?

I think the U.S. essentially due to the uncertainty, the fact that it's very difficult to price solutions with things potentially changing very, very quickly. It's very difficult to see where competition is today to be very, very clear because everybody is kind of in a wait mode. I believe that clearly, that as we see some of these restrictions happening, this will be very, very difficult for some competitors who have essentially built everything in China, bring in here to compete in this market. Not that I say that we were ready for this level of certainty because it's not, but we were ready for this scenario. We always expected that the U.S. market was going to become a domestically produced market, and that's what we have been working so hard in developing a strategy that allows to build a solution in the U.S. even with U.S. Steel that people say you cannot do it. Even with U.S. Steel, we're going to deliver, we're going to receive our first enclosures made with U.S. Steel that we can put the flag, grain on them and sell to our customers at very competitive price. So I'm sure that a lot of people now are trying to do this and put it together, we have a two-year lag up because we were envisioned in this world we're in. Globally, which is a little bit different, we see, I would say, the competitive landscape is the same as it was last quarter. They're very, very intense, but with Smartstack we had to accelerate our product launches to be competitive, but we are very confident that the Smartstack is going -- is the way to go. And now just to give you an example, you see people trying to copy, very bad copies, if people do, what we are doing. It tells you that, that's the best compliment that you have that we got it right that people are trying to figure out how to do something like we can do. So we're very confident that we can win in the international markets with Smartstack and win over the Chinese players and all the competitors we have.

Thank you.

Thank you. Please standby for our next question. Our next question comes from the line of Dylan Nassano with Wolfe Research. Your line is open.

Good morning, Dylan.

Hi, good morning.

How are you?

Doing well. Thanks for taking my question. Can you just talk a little bit about kind of the global alternative cell supply situation that's not China and that's not, I guess, U.S. and AESC?

I mean, limited, there is some production coming out of Korea, Southeast Asia and some in Japan, but really, I would say, the majority of cell production today comes out of China. So that we are working with to diversify looking at some of it, but the volumes we can capture out of China are limited. So that's what I will say. I think that we are working to develop our U.S. supply chains very -- as much as we can. And hopefully, some more players will work on these and we'll have a stronger local supply chain here in the U.S. in the coming years. But today, we are very much dependent on Chinese. This industry is dependent on Chinese equipment.

Great. Thank you. And then as my follow-up, so Ahmed, I think you mentioned Australia in your opening remarks. Can you just talk about -- was any of these projects that you signed this quarter related to the stuff that was delayed previously -- just like the status on those?

Yes. Those three core projects that we delayed last quarter, we expect to sign two in this quarter, the third quarter and one in the fourth. So they are going well. We're very happy and going well. So none of them were part of this $200 million order intake we took this quarter.

Great, thank you.

Please standby for our next question. Our next question comes from the line of Christine Cho with Barclays. Your line is open.

Good morning. Thank you for taking my question.

Good morning, Christine. How are you?

Good. How are you?

Yes, well, could be better I guess.

So I appreciate your comment that today your mix of domestic content and non-domestic content batteries is 10% cheaper versus 100% imported panels from China. And that could be a fair statement today. But if we are to assume that capacity is going to build outside China, let's call it, next year. And that's going to be much cheaper than what Chinese imports with the current tariffs are. So how should we think about that scenario and how it would impact your future bookings? And how should we think about you diversifying your supply outside China if only for risk mitigation purposes? And if you do decide to do that, how long would that take?

Yes. I mean, we clearly have a view of where prices in China could move, and we also can reduce our local costs in the U.S. I mean it is -- I wouldn't -- we know where we are. We know how -- what the cost structures of Chinese, and we have a view on pricing for them. So I'm confident that we will continue to be -- let's say, in this scenario, which is one scenario. Tariffs stay very high, but our domestic -- our mixing of domestic content will still be competitive. The other point to take into consideration that is important, we also bring, as I said, it's a mix of locally produced and internally. So we also will take advantage of the locally produced batteries, of the Chinese prices. So when we looked at a scenario, this strategy we have gives us a lot of optionality and works well in many of these scenarios, including a scenario where Chinese prices come down significantly. They don't have a lot of space to come down, by the way, just so to be clear. But yes, we're confident that we have the -- this is right.

Okay. And you talk about you guys providing the mixing that you're mixing it with your domestic supply and your imports. But can the -- is there an option for your customers to just get the batteries with domestic cells from you and get batteries with non-domestic content cells elsewhere and do the mixing themselves with different manufacturers?

No.

Or are there -- no reasons why they would do?

I mean, no, the real value is our -- the batteries are like gasoline. You don't care where -- the real value is our BMS, our ability to integrate our services. That's where we create value. I mean batteries are important, are an important cost element, but that's not where the value is created. Batteries are a commodity, a commodity essentially. The value is created in our ability through our logistics, our intelligence, our systems, our ability to deliver high availability. That's where the value is. Fixing stuff -- this is not -- it doesn't work.

Got it. Thank you.

Please standby for our next question. Our next question comes from the line of Ameet Thakkar with BMO Capital Markets. Your line is open.

Good morning guys. Thanks for taking our questions.

Good morning, Ameet.

Hi. Good morning. Just on the $700 million of contracts that you've kind of -- I guess are kind of in the state of pause right now. Can you give us kind of like the mix between contracts that were under advanced negotiations versus contracts that were already executed out of that $700 million? And then the contracts that were under advanced negotiations, is there anything kind of obligating them to kind of like, I guess, stay with you rather not cancel that project? And I've got one follow-up.

They were roughly half and half. Half of them were contract already in our backlog that we're pausing the execution and these were contracts that were very early in the execution, and we have not been able to allure to bring in the -- to bring into the country the equipment for that. And the other half were contracts that we have not signed. And as I said with the way -- our approach to the contracts that were signed is an approach of sharing the tariff risk. So that aligns our interest in resolving the problem together. Somehow, if I can maybe give you a two-second approach. This is completely different than the approach that how the COVID situation was managing. Remember, after COVID, we had a major supply crunch and how do we end? We ended up with a lot of contracts, but we were under water that we had to deliver on, and it took us 1.5 years to bring those contracts back to neutrality. Today, we have a completely different risk management. We share that risk with our customers in a way to ensure that we will align in the execution once the situation is clear to ensure that we can get the margins we care about and that they can do have the profitability they want to. So that's a completely different approach. We think we're in a much better position to get out of this situation as you know once there's clarity that we can get out of it very, very quickly and profitability compared to what we had when we have COVID when it took us almost a year or more than a year and we were able to do -- to bring the contracts to meet neutrality. So I think we're in a good place.

All right, thanks for all of that color. And just on -- turning to the cash flow statement, it looks like you guys have kind of burned around $260 million, $270 million of cash. I think Ahmed you kind of indicated to be another couple hundred million dollars of investment in working capital for the second half of the year. A big portion of that was like the $500 million of kind of inventory that you I guess, kind of pre-bought cells from AESC to help them stand up, I guess, the additional lines at their Tennessee plant. When would those -- like that kind of those pre-bought kind of domestic cells start coming back to you in terms of cash?

Hi, Ameet, Ahmed here. So yes, you're right. I think when you said $200 million, I think, that is year-to-date. I think in the quarter, our cash is roughly $40 million negative, I think, free cash flow. And that is primarily, I think, the key is we -- if you look at we are building inventory to execute on our revenue plan that we have for the remainder of the year. Keep in mind we have roughly $2 billion of revenue that we have to deliver. I think that is what inventory is, which is roughly $700 million of inventory on our balance sheet to deliver our Q3 revenue. And then the remaining, I think, is for -- we will be using cash, as you mentioned, a couple of hundred million dollars, half of that is roughly for our domestic content and the remaining half is for our Q4 revenue, but I think we will recoup the -- we will have receivables at the end of Q4, which we'll be collecting within the next 30 to 60 days after the year-end. So net-net, I think this is all working capital, a long way of answering your question.

Thank you.

Thank you. Please standby for our next question. Our next question comes from the line of Andrew Percoco with Morgan Stanley & Company. Your line is open.

Great, thanks so much. Good morning everyone. Thanks for taking the question. I guess most of my questions have been asked, but I just wanted to follow up on domestic content strategy here. I guess I'm just curious why just given the uncertainty around tariffs on China, 100% domestic cell battery from you guys wouldn't be something that customers would be willing to contract today. Totally get that there's uncertainty around what's going to happen to the China tariffs, but it seems like that's an easy workaround for a customer. Is it because they're waiting to see what happens to China and they'd rather mix? Is it because 100% domestic cells is cost prohibited? Just trying to get a sense for why that wouldn't be an easy solution for customers right now? Thank you.

Good question. I think, as I said, the main issue today is how to ensure -- where do you think things are going to be -- when is this uncertainty going to be resolved? If you believe that the current tariffs are the solution long-term and that there will be known -- there's will be no reduction in tariff going forward in the short-term, clearly the solution of a fully domestic offering will be very attractive. However, some are our customers. And I think, generally, there's a view that the government is engaging with trade negotiations with China and that there will be a change in the negotiations with China into -- that will convert into lower tariff in the near future. So it's very difficult to commit to a 20-year contract and resolving a problem if you believe that two weeks from now, there will be an announcement saying or a month from now -- whatever timeframe you think it is saying, hi, these retaliatory tariffs that we had mentioned are no longer in the -- because remember, what we had is that a lot of the tariff we have today are retaliation because they were not talking. Some people expect that once they start talking, the retaliation will come down and we'll have a much better view. So that's what it is. I think that if -- but you are right, if we have a view that this is a tariff level going forward, there's probably a full U.S. offering will be very, very competitive.

Okay. That's helpful context. I appreciate that. And just one follow-up. I guess a little surprised to see the weakness in bookings in the first quarter being that tariffs -- the high tariffs really didn't go into effect until April. So just curious if you could talk more to what you saw with a competition driven in the international markets? Which I know has been a headwind. Just curious to get more context around why first quarter was such a significant drawdown whereas maybe would have expected to see more of that in the second quarter with the China tariffs? Thank you.

Good question. I think that we're expecting a significant amount of U.S. contracts this quarter. And I'd say once it was clear that liberation they were coming, that the Trump administration was, I'll say, early March, late February around that timeframe. People start saying, hey, you to take the risk or we should take the -- started that pattern that made it very difficult to -- our approach is let's share the risk, but most of our customers wanted to wait until they have a better view and that happened a few weeks before Liberation Day. So internationally, we were not expecting that much. But clearly, I don't think it has been affected at all by the U.S. situation today. We were not expecting major contracts. We do expect major contracts this quarter. So -- that's what I'll tell you. So we -- and we don't see any real spillover of the U.S. situation into international markets at this stage.

Great, thank you.

Please standby for our next question. Our next question comes from the line of Julien Dumoulin-Smith with Jefferies. Your line is open.

Hi, good morning. This is Hannah Velasquez on for Julien. Thank you for taking the question and squeezing me in. So first--

Good morning.

Good morning. On the note about the couple of hundred million dollars of additional working capital need, can you just confirm that that's specific to 2025? Or do you see that extending into 2026? And then as a related point, when or could you speak directionally to when you expect to inflect back to positive free cash flow generation?

Sure. So, I think, in terms of your question, yes, I think this is mostly for 2025. We will be, as I mentioned, to Ameet's question, I mean I think we will have a couple of hundred million dollars of receivables at the end of Q4 because we keep in mind, as we discussed, we have back-end loaded revenue that we -- in our backlog that we will be recognizing in Q4. So I think that revenue we will be collecting those receivables in Q1 next year. So I think that will give us enough cash to -- so we feel pretty good about our cash position going forward. And your second question is on--

Free cash flow.

Free cash flow, yes, I think we continue to see. We don't have any significant capital commitments. This year, EBITDA is roughly $10 million. But next year, we will give you guidance on Q4 call. But as Julian mentioned, I mean, I think as we continue in the path of our that we expect in terms of signing new contracts, we feel pretty good that we will be free cash flow positive next year because we don't have any significant CapEx and it all boils down to the EBITDA. If we -- our goal is to generate free cash flow next year and maintain our profitability. That is, frankly, the key focus for everybody influence.

Okay, got it. Super clear. Thank you. And then as a follow-up question, the $700 million in pause revenues, is that reflective of the pause projects and delayed signings that you have visibility into as of today? Or have you built in any potential or any extra cushion, I suppose, in case, say, I don't know, the 90-day pause on reciprocal tariffs is not extended. I don't know your level of exposure there, but could that $700 million widen is the premise of the question?

No. I think the $700 million is what we see the reason we don't see any downside -- additional downside even if tariffs were to, let's say, that tariff on Vietnamese or Malaysia or somewhere else were to move. So we're confident where we are.

Yes, I think the only thing I would add is, given we have a confidence that we have -- as I mentioned in my comments, we have already brought all required equipment in the country. So we have derisked that the revenue guidance we have given, given there's nothing to be imported forecast.

Yes.

Thank you.

Thank you. Our next question comes from the line of Kashy Harrison with Piper Sandler. Your line is open.

Hi.

Hi, Kashy.

Good morning.

Good morning.

How are you doing? Thanks for sliding me in here. Julian, you said your domestic solution is 10% cheaper than the imported content before taking the bonus into consideration. How -- is there a simple way we should think about the breakeven tariff level that would make your cost exactly in line with imports that 100%, is it 50%? Just trying to think about what gets you to being in line with imports.

Let me give to Ahmed.

So yes, I think -- I mean, obviously, I think it's -- frankly, I mean, we are still -- we're in discussions with many customers. So I can't be more specific. But I think in any likely scenario where we think the tariff is going to land. We feel pretty good that our product will be competitive. Obviously, 150% is -- I mean, we already said, but I think we continue to see in any, we ran different scenarios in any likely scenario, we feel pretty good. I think that we can tell you.

Okay. And then maybe just a follow-up on the guidance. You indicated that you're 95% covered. But you've also -- you're not -- you've paused U.S. bookings. And so how do we get to the midpoint of guidance? If you've paused bookings is that just from international? Or is there something else?

Yes. I mean the 5% is essentially the revenue we would recognize are other contracts we expect to sign from now to year-end. As you know, we recognize a small portion of them early on once we deliver the engineering and stuff. So that's what it reflects too. And it's in line with what we are expecting to sign in the coming months.

Yes.

Okay. Thanks. Actually, if I could just sneak one more in.

Sorry guys. And it does not include any U.S.

Okay. It doesn't include U.S. Got it. If I could just sneak one more in, what proportion -- were any of those projects that you delayed co-located with solar? If so...

I don't…

It's a combination of both. It's not one single. So, I think, there are multiple projects that we have.

I don't know that.

Okay, thank you.

Thank you, Kashy.

Thank you.

Ladies and gentlemen, due to the interest of time, our final question will come from the line of Jordan Levy. Mr. Levy, your line is open, with Truist Securities.

Thanks. Thanks for squeezing me in. It's Noah on for Jordan. So a quick one here. I understand $700 million reduction is mostly due to U.S. projects. Are you seeing any delays in international projects? And can you maybe walk us through the supply chain for international shipments? And then I have a quick follow-up.

No, no real delays in international projects. Things are going well. And for -- we produce -- for international markets, generally, we produce our enclosures in Vietnam, buy batteries from China and we bring -- those batteries are integrated into our Vietnam facility and deliver to sites. And then in terms of inverters, we generally bring them from Europe to meet more customers, and we are developing a new supply chains. So, for Smartstack essentially that we'll bring a new supplies forward. So generally, we're doing very, very well.

Great. That's super helpful. I think last quarter you mentioned 15% of backlog was exposed to tariff risk. I'm just wondering what's that number in your current backlog? Thank you.

Correct. But you mean in the case of the U.S., where do we see that? The way would you think about our backlog today and our tariff risk is that because we share that risk, we are aligned with our customers to ensure that once the situation settles that we will find a path that will ensure that will meet our margins and they meet their objectives. That's a way. It's not -- tariff risk is a little bit of a -- because the way this is designed is to ensure that we resolve the problem. So clearly, tariff risk, and the tariff risk will be, I guess, that the contracts could be delayed or delayed, while, we negotiated, but we are not expecting -- the way we have designed this we will not move forward with contracts that have negative or have margins that we do not find attractive. So that's the way to think about it.

I appreciate the color.

Thank you, Jordan. Thank you.

Thank you. Ladies and gentlemen, at this time, I would now like to turn the call back over to Lexington for closing remarks.

Thank you for participating on today's call. If you have any questions, feel free to reach out to me. We look forward to speaking with you again when we report our third quarter results. Have a good day.

Ladies and gentlemen, that concludes today's conference call. Thank you for your participation. You may now disconnect,