Fluence Energy, Inc. — Q2 FY2022 Form 10-Q
Reporting period: Fiscal second quarter and six months ended March 31, 2022. Fluence sells battery-based energy storage systems and provides related services and digital applications. The company completed its IPO and related reorganization on November 1, 2021; it consolidates Fluence Energy, LLC, while the founders’ 68.4% economic interest is reported as non-controlling interest. This change affects comparability with pre-IPO periods.
Financial performance and position
| Metric | Three months ended March 31, 2022 | Six months ended March 31, 2022 |
|---|---|---|
| Revenue | $342.7 million, up 249.2% year over year | $517.6 million, up 141.5% |
| Gross profit (loss) and margin | $(14.7) million; (4.3)% | $(67.9) million; (13.1)% |
| Net loss | $(60.7) million | $(172.2) million |
| Net loss attributable to Fluence Energy, Inc. | $(19.2) million; $(0.35) per Class A share | $(48.0) million; $(0.89) per Class A share |
| Adjusted EBITDA (non-GAAP) | $(53.2) million | $(96.0) million |
Six-month operating cash outflow was $141.0 million, compared with $83.1 million in the prior-year period; free cash flow, a non-GAAP measure, was $(142.3) million. Financing cash flow was $828.0 million, largely reflecting IPO proceeds and repayment of $100 million of prior borrowings.
At March 31, 2022, cash and cash equivalents were $651.9 million and restricted cash was $70.7 million. Current assets were $1.416 billion and current liabilities were $774.8 million. Total liabilities were $775.5 million. The $190 million revolving facility had no borrowings outstanding; the company reported compliance with its covenants. Restricted cash included $69.3 million collateral for bank guarantees.
Changes and operating indicators
- Quarterly revenue rose sharply, driven by increased energy-storage product sales and broader geographic reach, particularly in the Americas and EMEA. Six-month revenue from related parties was $374.8 million, about 72% of total revenue; one customer represented approximately 70% of six-month revenue.
- Gross margin deteriorated from 1.0% to (4.3)% for the quarter and from 2.7% to (13.1)% for the six months. Management cited shipping constraints and costs, project overruns and delays, and the 2021 cargo-loss incident.
- Operating expenses increased materially: six-month R&D was $24.1 million, sales and marketing $19.3 million, and G&A $56.4 million. Stock-based compensation was $27.6 million for the six months, including expense recognized after IPO-related performance conditions were met.
- Contracted energy-storage backlog reached 3,604 MW, up 34.5% from September 30, 2021; digital contracted backlog was 3,644 MW, up 123.7%. Remaining performance obligations were $2.15 billion, with 91% expected to be recognized over the next five years. Backlog and pipeline may be delayed, changed, or canceled and are not guarantees of future revenue.
Outlook, risks and unusual items
- Management said IPO proceeds and other expected liquidity sources should fund expenses and capital requirements for at least 12 months after the filing. It expects operating expenses, excluding stock compensation, to rise as the business grows. No specific financial guidance was provided.
- Management expected COVID-related shipping and project delays to continue through the remainder of FY2022. The company recorded $35.3 million of COVID-related costs in the six-month period. It also recorded $8.6 million of cargo-incident costs; management expected at least an additional $13 million of incident-related expenses in FY2022.
- A customer alleged Fluence could be liable for a 2021 overheating event at a 300 MW facility; Fluence denied liability while the investigation continued. The filing could not estimate potential financial or reputational impact. A separate 10 MW overheating event at an AES facility occurred on April 18, 2022; investigation was ongoing and impact was not estimable.
- In April 2022, Fluence acquired Nispera AG for approximately $30 million in cash, assumed approximately $2.6 million of debt, and issued 0.5 million restricted shares to management for retention.
- Disclosure controls were not effective as of March 31, 2022 because a material weakness in revenue-recognition controls remained unremediated, involving ASC 606 treatment of in-transit or uninstalled equipment and liquidated damages. Remediation efforts were ongoing.
- Key risks include supplier and battery availability, inflation and raw-material costs, shipping disruption, project execution, customer concentration, product performance, and the company’s history of operating losses. AES and Siemens guarantees support a $100 million supplier financing program; $52.1 million of payables were subject to the program.
Important facts for investors to verify
- Whether gross margins recover as shipping constraints and project overruns ease, and how much of the reported losses reflects recurring versus identified unusual costs.
- Revenue dependence on related parties and the largest customer, including the terms, collection, and timing of related-party contracts.
- Conversion of backlog and performance obligations into revenue and cash, considering customer termination or deferral rights and project delays.
- Potential costs, insurance recoveries, and liability exposure from the 2021 and 2022 overheating events and the cargo-loss incident.
- Progress and effectiveness of remediation of the revenue-recognition material weakness, and liquidity after operating cash outflows, restricted cash, and the Nispera acquisition.