Fluence Energy, Inc. — Form 10-Q Summary
Reporting period: Fiscal first quarter ended December 31, 2022; comparisons are to the three months ended December 31, 2021 unless noted. Fluence sells energy storage systems and solutions, services, and digital applications. The company reports one operating segment.
Financial and operating performance
| Metric | Quarter ended Dec. 31, 2022 | Prior-year quarter / comparison |
|---|---|---|
| Revenue | $310.5 million | $174.9 million; up 77.5% |
| Gross profit (loss) and margin | $12.0 million; 3.9% | $(53.1) million; (30.4)% |
| Net loss | $(37.2) million | $(111.5) million |
| Net loss attributable to Fluence Energy, Inc.; loss per Class A share | $(24.6) million; $(0.21) | $(28.8) million; $(0.53) |
| Adjusted EBITDA (non-GAAP) | $(25.5) million | $(42.8) million |
| Cash used in operating activities; free cash flow (non-GAAP) | $(88.9) million; $(91.4) million | $(191.6) million; $(192.4) million |
| Cash, cash equivalents and restricted cash at Dec. 31 | $352.0 million | $429.7 million at Sept. 30, 2022 |
Short-term investments were $109.9 million at quarter-end. Current assets were $2.010 billion and current liabilities $1.526 billion. Inventory increased to $1.084 billion from $652.7 million at September 30, 2022. The company reported $21.1 million of borrowings secured by a customer note receivable. It had no borrowings under its $200 million revolving facility; $156.4 million remained available after $43.6 million of letters of credit. The facility matures November 1, 2025.
Changes and business developments
- Revenue growth reflected higher energy-storage product and solution sales, particularly in the Americas and EMEA. EMEA revenue rose to $114.4 million from $16.2 million; Americas revenue was $176.5 million versus $141.8 million.
- Related-party revenue was $101.0 million, down from $147.8 million. Two customers together represented approximately 51% of current-quarter revenue; one customer represented 84% in the prior-year quarter.
- Gross results improved from the prior-year period, which was affected by shipping constraints and costs, project overruns and delays, and the 2021 cargo loss. Current-quarter results included a $19.5 million reduction in cost of goods and services from settling claims with the largest battery-module vendor, as well as customer change-order revenue, including $11.5 million recognized for work substantially completed in prior periods.
- Other income was $12.6 million, versus other expense of $0.8 million, mainly reflecting foreign-currency adjustments. This contributed to the reported net loss improvement.
- Energy storage deployed reached 1.9 GW, compared with 1.8 GW at September 30, 2022. Contracted energy-storage backlog was 4.3 GW. Total remaining performance obligations were $2.7 billion; Fluence expected to recognize about 80% as revenue in 9–33 months.
- The company began operations with its 50/50 India joint venture with ReNew Power and funded its initial $5 million investment. It also approved a restructuring plan involving relocation of some positions to its India Technology Centre; completion was expected by fiscal year-end 2023.
Outlook, risks and unusual items
- Liquidity outlook: Management said IPO proceeds, operating cash flows and short-term borrowing would be sufficient to meet expenses and capital requirements for at least the 12 months following the filing. This is not a revenue or earnings forecast. Fluence cautioned that interim results are not necessarily indicative of full-year results.
- Cash use and working capital: Operating cash outflow remained substantial, with inventory purchases a major use of cash. Fluence described first- and second-fiscal-quarter cash flows as historically negative, with stronger cash flows typically later in the fiscal year. Supplier financing supported $97.8 million of payables; AES and Siemens provided $50 million of guarantees each for that program.
- Supply commitments: Minimum purchase commitments, primarily for batteries, totaled $1.614 billion, with potential liquidated damages of $188.0 million if minimum volumes are not met. Management expected to meet the commitments.
- Product and legal contingencies: The company could not estimate the financial impact of a customer’s allegations following a 2021 overheating event at a 300 MW facility; Fluence denied liability. A separate 10 MW facility owned by AES experienced an overheating event in 2022 and was offline for investigation; the impact was also not estimable. The company noted that unfavorable litigation outcomes could require material expenditures, though it reported no claims or proceedings it believed would have a material adverse effect.
- Controls: Management concluded disclosure controls were not effective at December 31, 2022 because a material weakness in controls over revenue recognition and related inventory had not been fully remediated. Remediation work included policy, project-cost, liquidated-damages and reconciliation controls, and additional staffing.
- Other risks: Fluence cited customer and project delays, supply-chain and commodity-price exposure, competition, inflation, foreign-exchange movements, and possible changes in renewable-energy incentives. It said the potential benefits and implementation of the U.S. Inflation Reduction Act remained uncertain.
- Tax Receivable Agreement: Fluence estimated that a prior tax-basis adjustment could generate approximately $109.6 million of tax savings, with an estimated $93.1 million payable to Siemens under the agreement if specified assumptions are met. The company had not recorded a liability because it did not consider payment probable given expected taxable income.
Important facts for investors to verify
- Whether higher revenue and positive gross margin can be sustained without the $19.5 million supplier-claim settlement and other favorable project adjustments.
- Inventory growth, operating cash burn, working-capital requirements, and the company’s ability to convert backlog into timely revenue and cash.
- Customer concentration, supplier purchase commitments, and continued access to supplier-financing and affiliate credit support.
- Developments and potential financial exposure from the overheating incidents and other project or warranty claims.
- Progress in remediating the material weakness in revenue-recognition and inventory controls.
- Actual tax-benefit utilization and any resulting Tax Receivable Agreement payments.