FLNC Q2 Deep Dive: Data Center Momentum and Backlog Growth Offset Revenue Miss

Electricity storage and software provider Fluence (NASDAQ:FLNC) fell short of the market’s revenue expectations in Q1 CY2026, but sales rose 7.7% year on year to $464.9 million. On the other hand, the company’s full-year revenue guidance of $3.4 billion at the midpoint came in 1.1% above analysts’ estimates. Its non-GAAP loss of $0.12 per share was 32.5% above analysts’ consensus estimates.

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StockStory’s Take

Fluence’s second quarter results were met with a strongly positive market reaction, despite revenue falling short of Wall Street expectations. CFO Ahmed Pasha attributed the miss to timing issues, including delayed shipments in Vietnam and Spain, which have since been resolved. CEO Julian Nabrita emphasized that order intake accelerated, doubling compared to the same period last year, with a record $5.6 billion backlog at quarter end. Nabrita highlighted, "Order activity is accelerating versus last year, and we expect backlog to grow further based on execution so far this year." The company credited disciplined execution and operational improvements for a meaningful rebound in adjusted gross margin, returning to its targeted range.

Looking ahead, management’s full-year guidance is underpinned by expanding demand for energy storage—especially from U.S. utilities and new customer segments such as data centers. Nabrita outlined Fluence’s data center strategy, noting master supply agreements with two major hyperscalers and a proprietary solution for handling the extreme power usage fluctuations experienced in data centers. He stated, “We are in an excellent position to capture a portion of the rapidly expanding data center demand.” CFO Ahmed Pasha reiterated that the company’s liquidity and production capacity are expected to support delivery of its revenue and profitability targets for the year, while ongoing investment in inventory aims to ensure timely execution of its growing backlog.

Key Insights from Management’s Remarks

Management cited new customer wins, product innovation, and U.S. supply chain enhancements as major contributors to both the backlog increase and margin stabilization last quarter.

• Data center segment expansion: Fluence signed master supply agreements with two major hyperscale data center operators, following a competitive selection process that required meeting stringent technical and operational criteria. These agreements position Fluence as a qualified supplier for large U.S. data center projects expected to drive significant order volume in coming quarters.
• Order intake acceleration: Order activity doubled compared to last year, with over $2 billion in new contracts so far this year, and about half of recent orders coming from new customers—reflecting an expanded commercial reach beyond traditional utilities and developers.
• Smartstack product adoption: The Smartstack energy storage system, which offers industry-leading energy density and modular design, reached commercial operations and is gaining traction for both utility and long-duration storage applications. Its flexible architecture supports various battery types and high reliability, which appeals to data center and utility clients.
• U.S. supply chain resilience: Fluence further strengthened its domestic supply position by securing additional battery cell production from a new U.S. supplier starting in 2027, supplementing an existing Tennessee facility. These moves are intended to ensure reliable delivery to U.S. customers and capture tax incentives.
• Margin recovery through execution: Adjusted gross margin rebounded to 11.1%, credited to operational discipline and cost optimization. Management expects margins to remain in the 11%–13% range, supported by consistent execution, even as average selling prices continue to decline.

Drivers of Future Performance

Management’s outlook for the year is driven by robust demand from utilities and hyperscale data centers, ongoing product innovation, and disciplined cost management.

• Data center demand ramp: The company expects data center projects, especially those tied to recent master supply agreements, to become a larger share of order intake and revenue. Management believes rapid timelines and unique technical requirements for power quality will differentiate Fluence from competitors, but noted that order conversion rates and project timing remain variable.
• U.S. energy storage growth: Utility and developer demand in the U.S.—particularly in states like California and Arizona—are expected to outpace other regions. Management cited ongoing expansion of the domestic supply chain and Smartstack deployments as key to capturing this growth, while noting that competition and pricing pressure could affect margins in certain markets.
• Cost discipline and operating leverage: Management plans to maintain stable operating costs relative to revenue growth, aiming for operating leverage as top-line growth accelerates. However, they cautioned that margins remain sensitive to product mix and the pace of scaling new offerings, especially in international markets where competition is more intense.

Catalysts in Upcoming Quarters

In upcoming quarters, our team will monitor (1) the pace at which data center-related orders convert into revenue, (2) continued execution on expanding U.S. supply chain capacity and Smartstack deployments, and (3) margin progression as product mix shifts toward new customer segments. The ability to secure additional master supply agreements and manage operating costs will also be key indicators of successful execution.

Fluence Energy currently trades at $19.26, up from $13.60 just before the earnings. At this price, is it a buy or sell? See for yourself in our full research report (it’s free).

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