Business Context and Reporting Period
Company: Fluence Energy, Inc. (FLNC)
Filing Type: Form 10-K (Annual Report)
Period Ended: September 30, 2021
Business Overview: Fluence is a global provider of energy storage products, services, and AI-enabled digital applications (Fluence IQ). The company operates as a holding company following its November 1, 2021, Initial Public Offering (IPO). Its principal asset is its ownership interest in Fluence Energy, LLC, which conducts all operations. The company was formed as a joint venture between Siemens and AES in 2017 and received a $125.0 million investment from the Qatar Investment Authority (QIA) in June 2021.
Key Financial Metrics
| Metric | Fiscal Year 2021 | Fiscal Year 2020 |
|---|---|---|
| Total Revenue | $680.8 million | $561.3 million |
| Gross Profit (Loss) | ($69.1 million) | $7.9 million |
| Gross Margin | (10.2)% | 1.4% |
| Adjusted Gross Profit | $15.0 million | $8.9 million |
| Net Loss | ($162.0 million) | ($46.7 million) |
| Adjusted EBITDA | ($64.7 million) | ($35.9 million) |
| Free Cash Flow | ($269.6 million) | ($15.8 million) |
| Cash and Cash Equivalents (Sept 30, 2021) | $36.8 million | $93.8 million |
| Debt Outstanding (Sept 30, 2021) | $100.0 million | $0 |
Note: Debt outstanding as of Sept 30, 2021, consisted of $50.0 million under a Line of Credit and $50.0 million in Promissory Notes from related parties. These were repaid on November 1, 2021, using IPO proceeds.
Material Changes vs. Prior Period
- Revenue Growth: Revenue increased 21.3% to $680.8 million, driven by expanded sales of energy storage products, particularly in the Americas (up 46.9%). International revenue decreased 12.4%.
- Profitability Decline: The company shifted from a gross profit of $7.9 million in 2020 to a gross loss of $69.1 million in 2021. This was primarily due to increased shipping costs, capacity constraints, project cost overruns, and a significant cargo loss incident.
- Net Loss Expansion: Net loss widened significantly to $162.0 million from $46.7 million, reflecting the gross loss and increased operating expenses (G&A up 112.7%, R&D up 103.1%).
- Operating Metrics: Deployed energy storage assets grew 111.1% to 971 MW. Contracted backlog increased 42.6% to 2,679 MW.
Guidance, Outlook, Risks, and Unusual Items
Unusual Items
- 2021 Cargo Loss Incident: A vessel emergency in April 2021 resulted in $13.0 million of inventory loss and approximately $9.4 million in incremental expenses. The company expects insurance proceeds of at least $10.0 million. Potential liquidated damages exposure is estimated at $15.0 million if the event is not deemed force majeure.
- Overheating Event: A 300 MW customer facility experienced an overheating event in September 2021. The financial impact is currently unestimable.
- Non-Recurring Expenses: Fiscal 2021 included $88.9 million in non-recurring expenses, including $23.6 million in excess shipping costs, $48.2 million in project charges, and $4.8 million in IPO-related expenses.
Outlook and Liquidity
The company completed its IPO on November 1, 2021, raising net proceeds of $948.0 million. These proceeds were used to repay all outstanding debt ($100 million) and fund working capital. Management believes current cash, IPO proceeds, and operating cash flows will meet requirements for the next 12 months. The company entered into a new $190.0 million Revolving Credit Facility in November 2021.
Key Risks
- Internal Controls: The company identified a material weakness in internal controls over financial reporting related to revenue recognition (ASC 606) and liquidated damages. Remediation is in progress.
- Supply Chain: Exposure to shipping delays, raw material cost fluctuations (steel, aluminum), and reliance on third-party manufacturers.
- Customer Concentration: The top five customers accounted for approximately 76% of revenue in fiscal 2021.
- Tax Receivable Agreement (TRA): The company is obligated to pay 85% of certain tax benefits realized from future redemptions of LLC interests to the Founders. Estimated payments could total approximately $681.3 million.
Investor Verification Checklist
- Remediation of Material Weakness: Verify the timeline and effectiveness of controls implemented to address the revenue recognition material weakness.
- Cargo Loss Resolution: Monitor the final determination of the force majeure status for the 2021 cargo loss and the collection of insurance proceeds.
- Overheating Incident Impact: Track the investigation results of the September 2021 overheating event for potential warranty claims or reputational damage.
- Tax Receivable Agreement Obligations: Assess the cash flow impact of the TRA payments as the company becomes profitable and Founders exchange LLC interests.
- Debt Covenants: Review compliance with the new $190 million Revolver covenants, specifically minimum liquidity and gross revenue requirements.