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Fluence Energy(FLNC) - 2023 Q4 - Annual Report
FLNCFluence Energy(FLNC)2023-11-28 16:00
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Revenue Growth and Market Trends - Revenue growth is directly tied to the adoption of energy storage products and solutions, with lithium-ion energy storage hardware costs declining significantly over the last decade, creating a large addressable market[41] - Revenue is primarily generated from energy storage products and solutions, with contracts covering price, specifications, delivery dates, and warranties. Revenue recognition occurs over time as control of the product is transferred to the customer[51][52] - Historically, combined third and fourth fiscal quarter order intake accounted for 80% or more of total annual intake, but dropped to 48% in FY2022 and 43% in FY2023. For FY2024, the company expects seasonality to return, with higher order intake in the second half of the year[46] - Energy storage products deployed increased by 66.7% to 3.0 GW in FY2023, while deployed GWh increased by 44.0% to 7.2 GWh. Contracted backlog for energy storage products grew by 24.3% to 4.6 GW, and pipeline increased by 31.2% to 12.2 GW[68] - Service contracts under management grew by 40.0% to 2.8 GW in FY2023, with contracted backlog increasing by 45.0% to 2.9 GW. The pipeline for service contracts expanded by 55.7% to 13.7 GW[68] - Total revenue grew by 1.02billionto1.02 billion to 2.22 billion, an 85% increase compared to the previous fiscal year[87][88] - Gross profit improved significantly to 140.96millionfromalossof140.96 million from a loss of 62.35 million, a 326% increase[87][90] - Adjusted EBITDA improved by 173.95milliontoalossof173.95 million to a loss of 61.39 million, a 74% improvement[84] - Free cash flow improved by 175.4milliontoanegative175.4 million to a negative 114.92 million, a 60% improvement[84] - Net loss decreased by 184.4million,or63.8184.4 million, or 63.8%, primarily due to increases in gross profit and other (income) expense, net, partially offset by increases in operating expenses[99] Costs and Expenses - The company incurred approximately 6.7 million in costs related to a restructuring plan, including severance costs, as of September 30, 2023[35] - A 19.5millionsettlementforclaimswasrecognizedasareductionincostsofgoodsandservicesforthefiscalyearendedSeptember30,2023[29]−Thecompanyrecordeda19.5 million settlement for claims was recognized as a reduction in costs of goods and services for the fiscal year ended September 30, 2023[29] - The company recorded a 13.0 million provision for inventory loss due to the 2021 Cargo Loss Incident, with 10.0millionininsuranceproceedscollected[30]−Researchanddevelopmentexpensesareexpectedtoincreaseinfutureperiodstosupportgrowthandachievetechnologyandproductroadmapgoals.ThecompanyisestablishinganewHardwareintheLoop(HIL)testingfacilityinBangalore,India[56][58]−Thecompanyexpectsoperatingexpensestoincreaseinthenearfutureasitinvestsinadditionalresourcestosupportgrowth,includingpersonnel−relatedexpensessuchassalaries,stock−basedcompensation,andemployeebenefits[55]−Researchanddevelopmentexpensesincreasedby10.0 million in insurance proceeds collected[30] - Research and development expenses are expected to increase in future periods to support growth and achieve technology and product roadmap goals. The company is establishing a new Hardware in the Loop (HIL) testing facility in Bangalore, India[56][58] - The company expects operating expenses to increase in the near future as it invests in additional resources to support growth, including personnel-related expenses such as salaries, stock-based compensation, and employee benefits[55] - Research and development expenses increased by 6.2 million to 66.31million,drivenbyhigherpersonnelandmaterialcosts[91]−Salesandmarketingexpensesroseby66.31 million, driven by higher personnel and material costs[91] - Sales and marketing expenses rose by 3.9 million to 41.11million,primarilyduetoincreasedemployeebonuses[93]−Generalandadministrativeexpensesincreasedby41.11 million, primarily due to increased employee bonuses[93] - General and administrative expenses increased by 19.6 million to 136.31million,mainlyduetohigherheadcountandemployeebonuses[94]LegalandFinancialRisks−Thecompanyfacespotentiallitigationandfinancialimpactsfromoverheatingeventsatcustomerfacilitiesin2021and2022,withnoestimatedfinancialimpactasofSeptember30,2023[31][32]−Thecompanyfiledacomplaintseeking136.31 million, mainly due to higher headcount and employee bonuses[94] Legal and Financial Risks - The company faces potential litigation and financial impacts from overheating events at customer facilities in 2021 and 2022, with no estimated financial impact as of September 30, 2023[31][32] - The company filed a complaint seeking 37.0 million in damages related to an energy storage facility project, with a cross-complaint seeking 25.0millioninallegeddamages[33]−Thecompanyisexposedtocreditriskfromcounterparties,withpoliciesinplacetomitigatepotentiallosses,includingmilestonepaymentsandcreditevaluations[133]−Foreigncurrencyriskismanagedthroughderivatives,withnomaterialexposuretofluctuationsintheU.S.dollaragainstcurrenciesliketheEuroandBritishpound[134]−Commoditypriceriskaffectsrawmaterialslikesteelandlithium,withpotentialimpactsonoperatingmarginsifsuppliersincreasecomponentprices[135]−InterestrateriskismanagedthroughvariablerateborrowingsundertheABLCreditAgreement,withnoborrowingsundertheRevolverasofSeptember30,2023[137]InvestmentsandJointVentures−Thecompany′sbeneficialownershipinterestinFluenceEnergy,LLCincreasedto66.0825.0 million in alleged damages[33] - The company is exposed to credit risk from counterparties, with policies in place to mitigate potential losses, including milestone payments and credit evaluations[133] - Foreign currency risk is managed through derivatives, with no material exposure to fluctuations in the U.S. dollar against currencies like the Euro and British pound[134] - Commodity price risk affects raw materials like steel and lithium, with potential impacts on operating margins if suppliers increase component prices[135] - Interest rate risk is managed through variable rate borrowings under the ABL Credit Agreement, with no borrowings under the Revolver as of September 30, 2023[137] Investments and Joint Ventures - The company's beneficial ownership interest in Fluence Energy, LLC increased to 66.08% following the Siemens Redemption on June 30, 2022[26] - The company formed a joint venture in India with an initial investment of 5.0 million and a 15.0millionlineofcredit,recordinganinsignificantequitymethodlossforfiscalyear2023[39]−Thecompanyreceivednetproceedsof15.0 million line of credit, recording an insignificant equity method loss for fiscal year 2023[39] - The company received net proceeds of 935.8 million from its IPO, which were used to repay outstanding borrowings and for working capital and other general corporate purposes[103] - The company entered into a Revolving Credit Agreement with an aggregate commitment of 200.0million,whichwasterminatedeffectiveNovember22,2023[104]−TheABLCreditAgreementlimitsthecompany′sabilitytomakecertainpayments,includingdividendsanddistributions,andrequiresmaintainingaminimumTotalLiquidityof200.0 million, which was terminated effective November 22, 2023[104] - The ABL Credit Agreement limits the company's ability to make certain payments, including dividends and distributions, and requires maintaining a minimum Total Liquidity of 64.0 million[108] - The company transferred 24.3millionand24.3 million and 30.9 million in customer receivables to Standard Chartered Bank in the Philippines, resulting in net interest income of 1.0million[109]−ThecompanyisrequiredtomakecashpaymentstotheFoundersequalto851.0 million[109] - The company is required to make cash payments to the Founders equal to 85% of the tax benefits realized from increases in tax basis of assets of Fluence Energy, LLC and its subsidiaries[110] - The Revolver bore interest at either the Adjusted SOFR Rate plus 3.0% or the Alternate Base Rate plus 2.0%, with a commitment fee of 0.55% per annum on the average daily unused portion of the revolving commitments[112] - The Revolver provided for up to 200.0 million in letter of credit issuances, with a letter of credit participation fee of 2.75% per annum payable to the lenders[112] - As of September 30, 2023, the company had no borrowings under the Revolver and 35.9millionoflettersofcreditoutstanding,withavailabilityunderthefacilityof35.9 million of letters of credit outstanding, with availability under the facility of 164.1 million net of letters of credit issued[112] - The ABL Facility has revolving commitments in an aggregate principal amount of 400.0million,securedbyafirstprioritypledgeofFluenceEnergy,Inc.′sequityinterestsinFluenceEnergy,LLC[113]−LoansundertheABLFacilitybearinterestattheAlternateBaseRateplusanadditionalmarginrangingfrom2.00400.0 million, secured by a first priority pledge of Fluence Energy, Inc.'s equity interests in Fluence Energy, LLC[113] - Loans under the ABL Facility bear interest at the Alternate Base Rate plus an additional margin ranging from 2.00% to 2.50%, depending on the Average Excess Availability[115] - The ABL Facility provides for an initial letter of credit sublimit in the amount of 167.5 million, which may be increased to 200.0millionifcertainconditionsaremet[115]−TheSiemensRedemptionwillresultinfuturetaxsavingsof200.0 million if certain conditions are met[115] - The Siemens Redemption will result in future tax savings of 96.5 million, with Siemens AG entitled to receive payments under the Tax Receivable Agreement equaling 85% of such amount, or 82.0million[120]−ThecompanydetermineditisnotprobablepaymentsundertheTaxReceivableAgreementwouldbemade,givennoexpectationoffuturesufficienttaxableincomeoverthetermoftheagreement[123]TaxandRegulatoryEnvironment−AftertheIPO,thecompanyisnowsubjecttoU.S.federalandstateincometaxes,inadditiontoforeignincometaxes.Valuationallowancesareexpectedtobeneededincertaintaxjurisdictions,andsignificantexpensesrelatedtotheTaxReceivableAgreementareanticipatedovertime[64]−TheU.S.InflationReductionAct(IRA)introducedaninvestmenttaxcredit(ITC)forstandaloneenergystorageandincentivesforgridmodernizationequipment,includingdomesticbatterycellandmodulemanufacturing.Thecompanybelievesitiswell−positionedtocapturetheseincentives,butthefullimpactonbusinessoperationsandfinancialperformanceisstillbeingevaluated[47][48]−Incometaxexpenseincreasedby82.0 million[120] - The company determined it is not probable payments under the Tax Receivable Agreement would be made, given no expectation of future sufficient taxable income over the term of the agreement[123] Tax and Regulatory Environment - After the IPO, the company is now subject to U.S. federal and state income taxes, in addition to foreign income taxes. Valuation allowances are expected to be needed in certain tax jurisdictions, and significant expenses related to the Tax Receivable Agreement are anticipated over time[64] - The U.S. Inflation Reduction Act (IRA) introduced an investment tax credit (ITC) for standalone energy storage and incentives for grid modernization equipment, including domestic battery cell and module manufacturing. The company believes it is well-positioned to capture these incentives, but the full impact on business operations and financial performance is still being evaluated[47][48] - Income tax expense increased by 3.2 million, or 235.2%, primarily due to decreases in global pre-tax losses and changes in valuation allowances[98] Operational and Financial Performance - Lithium-ion battery pack prices increased in 2022 due to higher raw material costs, marking the first annual price increase since at least 2010, with prices declining in 2023 but no guarantee of continued decline in fiscal year 2024[36] - The company operates in a competitive energy storage market, with key differentiators including safety, reliability, supply chain stability, and comprehensive solutions[44][45] - The company does not hedge against raw material price changes, as it relies on suppliers to manage raw material costs. Economies of scale are expected to reduce the ratio of cost of goods and services to revenue, though personnel-related costs are not directly affected by sales volume[53] - Adjusted EBITDA and Free Cash Flow are key non-GAAP financial measures used by the company. Free Cash Flow is expected to fluctuate as the company invests in growth, and it should not be considered in isolation or as a substitute for GAAP financial measures[72] - Assets under management increased by 1.8 GW to 15.5 GW, a 13.1% growth compared to the previous year[73] - Contracted backlog surged by 3.2 GW to 6.8 GW, marking an 88.9% increase year-over-year[73] - Pipeline expanded by 4.8 GW to 24.4 GW, reflecting a 24.5% growth[73] - Net interest income increased by 5.1million,or1552.85.1 million, or 1552.8%, primarily due to higher interest rates on cash deposits and investments, and a 3.5 million increase in interest income from note receivable balances with the largest customer in the Philippines[96] - Other (income) expense, net increased by 11.6million,or250.311.6 million, or 250.3%, primarily due to favorable foreign currency exchange gains[97] - Net cash used in operating activities decreased by 170.5 million (60.4%) to 111.9millioninfiscalyear2023comparedto111.9 million in fiscal year 2023 compared to 282.4 million in fiscal year 2022[127] - Net cash provided by investing activities increased by 242.9million(163.6242.9 million (163.6%) to 94.4 million in fiscal year 2023 compared to net cash used in investing activities of 148.4millioninfiscalyear2022[127]−Netcashprovidedbyfinancingactivitiesdecreasedby148.4 million in fiscal year 2022[127] - Net cash provided by financing activities decreased by 764.5 million (93.6%) to 52.6millioninfiscalyear2023comparedto52.6 million in fiscal year 2023 compared to 817.1 million in fiscal year 2022[127] - Revenue recognition for energy storage products is based on the percentage of completion method, with significant judgment required for cost inclusion and variable consideration like liquidated damages[130] - Customer concentration includes emerging markets like the Philippines and India, contributing 3% and 6% of revenue in fiscal years 2023 and 2022, respectively[136] Warranty and Performance Security - The company had outstanding bank guarantees, parent guarantees, and surety bonds issued as performance security arrangements for several customer projects as of September 30, 2023[125] - The company is party to both assurance and service-type warranties for various lengths of time[125] Supply Chain and Raw Material Costs - As of September 30, 2023, the company had 30.0millionofpayablesoutstandingunderthesupplychainfinancingprogram,with30.0 million of payables outstanding under the supply chain financing program, with 100.0 million in guarantees issued by AES and Siemens[103]