Fluence Energy, Inc. — Q1 FY2024 10-Q
Reporting period: Three months ended December 31, 2023; comparisons are with the three months ended December 31, 2022 unless stated otherwise. Fluence supplies battery-based energy storage systems and solutions, services, and digital applications. It reports one operating segment.
Financial performance and liquidity
| Metric | Q1 FY2024 | Prior period | Change |
|---|---|---|---|
| Total revenue | $364.0 million | $310.5 million | +17% |
| Gross profit / margin | $36.4 million / 10.0% | $12.0 million / 3.9% | Margin improved 6.1 percentage points |
| Operating expenses* | $66.4 million | $61.6 million | Higher, primarily from G&A and sales and marketing |
| Net loss | $25.6 million | $37.2 million | Loss narrowed $11.6 million |
| Adjusted EBITDA (non-GAAP) | $(18.3) million | $(26.1) million | Improved $7.8 million |
| Operating cash flow | $19.4 million | $(88.9) million | Improved $108.3 million |
| Free cash flow (non-GAAP) | $17.9 million | $(91.4) million | Improved $109.3 million |
*Includes R&D, sales and marketing, G&A, and depreciation and amortization.
Revenue growth was led by energy storage products and solutions, up $51.1 million, with increased Gen6 project volumes in the Americas and APAC. Revenue from services was $5.7 million and digital applications and solutions was $1.3 million. Related-party revenue was $116.6 million, about 32% of total revenue.
Cash, cash equivalents, and restricted cash totaled $476.6 million at December 31, 2023, including $317.6 million of unrestricted cash. Current assets were $1.665 billion and current liabilities $1.252 billion. Inventory rose to $564.5 million from $224.9 million at September 30, 2023. Operating cash generation reflected higher accounts payable and deferred revenue, partly offset by inventory purchases.
The $400 million ABL facility had no borrowings or letters of credit outstanding at quarter-end; reported availability was $75.2 million, subject to the borrowing base. The facility matures November 22, 2027. Separate borrowings secured by customer notes were reflected in current liabilities at $51.6 million; the filing reports no non-current balance at quarter-end. The company said it complied with ABL covenants. Total liabilities were $1.276 billion.
Material changes and operating indicators
- Gross margin improved year over year, despite prior-period benefits that make the comparison less straightforward: Q1 FY2023 included a $19.5 million supplier-claims settlement and $10.1 million of price-increase change orders. Management attributed current-period margin improvement mainly to newer Gen6 projects.
- R&D expense declined 19% to $15.4 million, partly due to lower stock compensation and third-party services. G&A rose 21% to $37.7 million, including higher personnel and IT costs; sales and marketing rose 22% to $10.7 million.
- Net other income was $1.2 million, versus $11.1 million in the prior period, principally due to lower foreign-exchange gains.
- Remaining performance obligations were $3.7 billion; Fluence expected to recognize approximately 60% in the next 12 months. Energy storage product contracted backlog increased to 5.1 GW from 4.6 GW at September 30, 2023. These measures are not guarantees of revenue.
- Top four customers represented approximately 86% of quarterly revenue, compared with approximately 51% for the top two customers in the prior-year quarter.
Outlook, risks, contingencies, and unusual items
- The filing provides no specific full-year revenue or earnings guidance. Management expected higher order intake in the second half of FY2024 and said cash, operating cash flows, note-backed borrowings, and ABL availability should fund requirements for at least 12 months after filing. Management also cited expectations of higher revenue in the remaining three fiscal quarters.
- Management identified lithium-ion battery costs, limited suppliers for certain components, project execution and timing, competition, customer concentration, and policy and incentive changes as factors that could affect results. It said it believed access to key components was adequate at the filing date, while noting that anticipated benefits from the U.S. Inflation Reduction Act were not assured.
- Performance guarantees, letters of credit, and surety bonds totaled $2.127 billion of current undiscounted exposure; maximum potential exposure is not reduced for possible recoveries. Minimum future purchase commitments, primarily for battery modules, totaled $4.006 billion, with up to $90 million of stated liquidated damages if minimum purchase volumes are not met.
- In litigation concerning a project, Fluence seeks about $37 million; a defendant’s cross-complaint seeks at least $25 million and disgorgement of approximately $230 million. Fluence denies the allegations and said the financial impact cannot currently be estimated.
- Two customer-facility overheating events (2021 and 2022) remain matters of concern; Fluence said it cannot estimate their financial impact. The 2021 customer has alleged liability; Fluence denies it.
- Disclosure controls were deemed ineffective due to an unremediated material weakness in estimate-at-completion controls used in percentage-of-completion accounting. Management described remediation steps but said sustained testing is needed before concluding the weakness is remediated; it believed remediation could occur in FY2024 but gave no assurance.
- The December 2023 secondary offering was by existing stockholders; Fluence received no proceeds and paid $0.7 million of related expenses. The AES redemption increased Fluence’s beneficial ownership of Fluence Energy, LLC; this was accounted for as an equity transaction.
- The company estimated future tax savings of $138.6 million from tax-basis adjustments and potential Tax Receivable Agreement payments to AES and Siemens of $117.8 million, subject to assumptions. No liability was recorded because management did not consider payment probable.
Most important facts for investors to verify
- Whether improved Gen6 project margins persist, accounting for the prior-year supplier settlement and change-order benefits.
- Conversion and timing of the $3.7 billion remaining performance obligations and pipeline into completed projects, revenue, and cash receipts.
- Working-capital requirements, especially the sharp inventory increase, and the availability and borrowing-base terms of the ABL facility.
- Customer concentration and related-party revenue, including the top-four customers’ 86% share of quarterly revenue.
- Developments and potential exposure in the project litigation and overheating matters, plus performance guarantees and battery purchase commitments.
- Progress in remediating the estimate-at-completion control weakness and any effects on revenue or profit estimates.
- Future tax-benefit utilization and any resulting Tax Receivable Agreement liability or payments.