Business context and reporting period
Fluence Energy, Inc. filed this unaudited Form 10-Q for its fiscal third quarter and nine months ended June 30, 2023. The company provides battery-based energy storage products and solutions, related services, and digital applications. Its fiscal year ends September 30.
Key financial metrics
| Metric | Three months ended June 30, 2023 | Nine months ended June 30, 2023 |
|---|---|---|
| Revenue | $536.4 million, up 124% year over year | $1,545.0 million, up 104% |
| Gross profit (margin) | $21.8 million (4.1%); prior year was a $5.2 million loss (2.2% margin) | $64.7 million (4.2%); prior year was a $73.1 million loss (9.7% margin) |
| Net loss | $35.0 million, versus $60.8 million | $109.6 million, versus $233.0 million |
| Net loss attributable to Fluence Energy, Inc. | $23.4 million, versus $19.3 million | $72.9 million, versus $67.3 million |
| Adjusted EBITDA (non-GAAP) | Loss of $26.2 million, versus $52.7 million | Loss of $79.0 million, versus $192.7 million |
| Operating cash flow | Not separately presented for the quarter | Use of $160.5 million, versus $60.9 million used |
| Free cash flow (non-GAAP) | Not separately presented for the quarter | Use of $162.4 million, versus $63.6 million used |
At June 30, 2023, cash and cash equivalents were $297.7 million and restricted cash was $108.4 million; combined cash, cash equivalents, and restricted cash, including $10.0 million classified in other non-current assets, totaled $416.1 million. Current assets were $1,389.5 million and current liabilities were $954.2 million. Inventory was $513.6 million, down from $652.7 million at September 30, 2022.
There were no borrowings under the $200 million revolving credit facility; $165.3 million remained available after letters of credit. The company had $49.5 million of borrowings against pledged customer notes receivable. Total liabilities were $1,019.3 million. Management said available liquidity and expected cash flows should be sufficient for at least the next 12 months.
Material changes and operating indicators
- Revenue growth was primarily driven by higher volumes of Gen6 storage solutions, especially in the Americas and EMEA. Nine-month revenue also included $26.1 million from price-increase change orders and $10.9 million from consulting services provided to AES.
- Gross profit improved substantially, but remained modest relative to revenue. Nine-month results benefited from higher-margin Gen6 projects and a $19.5 million settlement with the largest battery-module vendor; higher warranty expense and foreign-exchange derivative losses partly offset these items.
- Warranty expense rose by $11.9 million year over year for the nine-month period, primarily due to a change in estimate. The warranty liability was $13.5 million at June 30, 2023, compared with $1.6 million at September 30, 2022.
- Operating cash use increased year over year despite lower net loss. Management attributed the deterioration mainly to working-capital movements, including supplier payments after inventory had been built up as a supply-chain risk measure.
- Backlog of remaining performance obligations was $2.9 billion; Fluence expected to recognize about 80% as revenue over the next 3 to 27 months. Energy-storage contracted backlog was 4.5 GW, while deployed capacity was 2.5 GW. Backlog and pipeline are not guarantees of revenue.
- Related-party revenue was $502.7 million for the nine months, about one-third of total revenue. The four largest customers together represented approximately 62% of nine-month revenue.
Outlook, risks, contingencies, and unusual items
- No specific full-year revenue, earnings, or margin guidance is provided in the filing. Management cited continued investment in growth, technology, and research and development, and expects R&D expenses to increase in future periods.
- The filing identifies supply-chain and deployment delays, raw-material and battery costs, competition, customer concentration, foreign-exchange exposure, changing government incentives, and access to cash held at banks above FDIC insurance limits as risks. Fluence said it had no exposure to the banks recently placed into receivership but held operating cash at financial institutions in balances that may exceed insured limits.
- The Inflation Reduction Act includes incentives for standalone storage and domestic battery supply chains. Fluence views the legislation as favorable but said its actual business impact remains uncertain.
- Outstanding guarantees, letters of credit, and surety bonds totaled $2.059 billion in stated exposure. Future battery purchase commitments totaled $2.133 billion, with stated potential liquidated damages of $172.2 million if minimum purchase volumes are not met.
- Two customer-facility overheating events remain disclosed: a 300 MW facility incident from 2021, for which a customer alleged liability but no amount was demanded, and a 10 MW AES facility incident from 2022. Fluence said it could not estimate the financial impact of either matter. No formal proceedings had commenced for the 2021 event.
- Management reported that a material weakness in controls over revenue recognition and related inventory had not been fully remediated at June 30, 2023; disclosure controls were therefore deemed ineffective. Remediation efforts included enhanced policies, project and accounting reviews, reconciliations, and additional staffing.
- The company incurred $5.4 million of restructuring costs during the nine months and expected the plan to be completed by fiscal year-end 2023. It also changed its recurring warranty-reserve estimation model during the period.
Important facts for investors to verify
- Whether gross margins improve sustainably without reliance on change orders, vendor settlements, or other favorable one-time items.
- Whether warranty claims and the revised reserve estimate remain adequate as the installed base grows.
- Conversion and timing of the $2.9 billion backlog into revenue, cash collections, and acceptable project margins.
- Cash burn, working-capital needs, restricted cash availability, and the company’s ability to maintain liquidity and credit-facility covenant compliance.
- Progress remediating the revenue-recognition and inventory control material weakness, and developments in the overheating-event contingencies.