Fluence Energy, Inc. — Form 10-Q Summary
Reporting period: Three months ended December 31, 2021 (fiscal Q1 2022); comparable period is the three months ended December 31, 2020. Amounts are U.S. dollars. Fluence operates in one reportable segment, selling battery energy storage products and providing related services and digital applications.
Financial and operating performance
| Metric | Q1 FY2022 | Prior-year quarter |
|---|---|---|
| Total revenue | $174.9 million | $116.2 million |
| Gross profit (loss) / margin | $(53.1) million / (30.4)% | $4.8 million / 4.1% |
| Operating expenses | $56.4 million | $16.7 million |
| Net loss | $(111.5) million | $(12.5) million |
| Adjusted EBITDA, non-GAAP | $(42.8) million | $(10.7) million |
| Cash used in operating activities | $(191.6) million | $(58.3) million |
| Free cash flow, non-GAAP | $(192.4) million | $(59.4) million |
Revenue increased 50.5%, while cost of goods and services rose 104.6%. The quarter’s gross loss reflected elevated shipping costs and capacity constraints, project cost overruns and delays, and the cargo-loss incident. Management reported $36.9 million of COVID-related costs in cost of goods and services. Adjusted gross loss was $8.4 million, or a (4.8)% margin, after specified adjustments.
Operating expenses increased substantially, including stock-based compensation expense of $24.9 million. Full-quarter consolidated net loss is not directly comparable with the prior-year period: the November 1, 2021 IPO changed the ownership and reporting structure, and post-IPO loss is allocated between Fluence Energy, Inc. and non-controlling owners. Fluence Energy, Inc.’s attributable loss was $28.8 million; loss per Class A share was $0.53. Prior-period Class A loss per share was not applicable.
Balance sheet, liquidity and financing
At December 31, 2021, cash and cash equivalents were $632.1 million; cash, cash equivalents and restricted cash totaled $679.4 million. Current assets were $1.381 billion and current liabilities $702.4 million. Inventory was $442.4 million. The company had no borrowings under its $190 million revolving credit facility. The facility matures November 1, 2025, is secured, and includes financial covenants and restrictions.
The November 2021 IPO generated $935.8 million in net proceeds. Proceeds were used to repay $50 million outstanding on the former line of credit and $50 million of related-party promissory notes, with the remainder intended for working capital and general corporate purposes. Operating cash outflow included a $60 million supplier capacity-guarantee advance and working-capital movements. Suppliers had $34.6 million of payables in a supply-chain financing program; AES and Siemens provided $100 million in aggregate guarantees supporting that program.
Business trends and outlook
- Revenue from related parties was $147.8 million, compared with $18.4 million a year earlier. One customer represented 84% of total revenue in the quarter.
- Energy storage products deployed reached 1,033 MW, up from 971 MW at September 30, 2021. New storage contracts signed in the quarter totaled approximately 600 MW, versus 96 MW a year earlier.
- Contracted energy storage backlog was 3,217 MW. Remaining performance obligations were $1.921 billion; the company expects to recognize 90% in revenue within five years, subject to contract terms and timing.
- Management said IPO proceeds and operating cash flows were expected to meet expense and capital requirements for the next 12 months. The filing provides no specific revenue or earnings guidance. Management expects operating expenses, excluding stock-based compensation, to rise as the business grows and it incurs public-company costs.
- The company described seasonal order intake and revenue: third and fourth fiscal quarters historically account for 80% or more of annual order intake, while first- and second-quarter cash flows have historically been negative.
Risks, contingencies and notable items
- Supply chain and margins: COVID-related shipping disruption and customer-site delays affected revenue and costs. The company also cited exposure to lithium, cobalt, steel, aluminum and logistics costs, without raw-material hedging, and a limited number of battery suppliers.
- Cargo loss: Following a 2021 shipping incident, $11.5 million of inventory was written off against a prior provision during the quarter. The company expected at least $10 million of insurance proceeds, including $7.5 million collected. If the event is not treated as force majeure, estimated liquidated-damages exposure is approximately $15 million.
- Customer facility overheating: A customer-owned 300 MW facility experienced an overheating event and remained offline during investigation. The company could not estimate potential financial, reputational or market impact.
- Other contingencies: The company estimated reasonably possible losses for material contingencies, where estimable, at $0–$5 million in aggregate. It also made a $60 million supplier capacity-guarantee advance during the quarter.
- Financial reporting controls: Management concluded disclosure controls were not effective at December 31, 2021 because a material weakness in revenue-recognition controls remained unremediated. The weakness concerned application of ASC 606 to in-transit, uninstalled or delivered equipment and liquidated damages. Remediation efforts were underway.
- Ownership, taxes and governance: After the IPO, the company owned 31.6% of Fluence Energy, LLC, while the founders held 68.4% of its economic interest and approximately 91.5% of combined voting power. The filing says future Tax Receivable Agreement payments could be significant over time.
Important facts for investors to verify
- Whether margin pressure, shipping disruptions, project overruns and COVID-related costs persist, and how quickly adjusted and GAAP gross margins recover.
- The sustainability and terms of related-party revenue, the identity and concentration of the 84% customer exposure, and the company’s ability to diversify customers and suppliers.
- Conversion of contracted backlog and pipeline into revenue, including potential project delays, cancellations, variable consideration and expected margins.
- Cash burn, the timing of working-capital needs, supplier advances, restricted cash, and compliance with revolving-facility covenants.
- Resolution of the cargo-loss and overheating investigations, insurance recoveries, potential damages, and any resulting customer or product-liability claims.
- Progress in remediating the revenue-recognition material weakness and whether subsequent filings report effective controls.