Fluence Energy, Inc. (FLNC) - Energy Storage Solutions

kettunen · May 13, 2024, 12:23pm

Background

Fluence Energy produces energy storage systems as well as applications and services for their maintenance.
https://fluenceenergy.com/

Fluence was and still is partly a joint venture between Siemens and AES and listed on Nasdaq on October 28, 2021. In this context, the company received just under a billion USD in capital.

Of particular interest was the expected transition from a capital-intensive growth company to a profitable one. If not every quarter yet, it is clearly in sight. The valuation, at least at the time of writing, is still reasonable considering the growth.

Furthermore, the industry is interesting, rapidly developing, and growing. Competition in hardware deliveries is tough, so gross margins are tight, meaning profitability must come from the service side.

Figures

At the IPO, Fluence received significant capital, which has been used to operate the business, and 2024 now appears to be a pivotal year for transitioning from burning capital to profitability and positive cash flow. Approximately half of the billion was burned.

Q2/2024 figures published on 8.5.2024 (Fiscal year differs from calendar year)

https://ir.fluenceenergy.com/news-releases/news-release-details/fluence-energy-inc-reports-strong-financial-performance

Free cash flow1 was approximately $87.8 million in the first half of fiscal year 2024, compared to approximately negative $164.5 million in the same period last year.

There are many variable factors depending on project deliveries and their billing times.
Gross margin approx. 10%, meaning a large portion is project and hardware sales
Recurring revenue of $80M / year

Other points to note

Blueorca published a short report for investors’ delight. This has played a part in the current valuation level.
The main topics are the lawsuits mentioned in Fluence’s materials with Siemens, as well as a couple of projects with ambiguities and their potential legal proceedings.
https://static1.squarespace.com/static/5a81b554be42d6b09e19fc09/t/65d74d2f4fd1427f95e9940b/1708608817303/Blue+Orca+Short+Fluence+Energy+Inc+(NASDAQ+FLNC).pdf
Also saved here as a PDF, in case it disappears from that link:
Blue+Orca+Short+Fluence+Energy+Inc+(NASDAQ+FLNC).pdf (3.2 MB)

Appropriate responses have naturally been given to these: https://ir.fluenceenergy.com/news-releases/news-release-details/fluence-responds-misleading-short-seller-report

The Q10 material elaborates on those legal cases and potential costs. More details below the arrow

Q10 Legal Contingencies

From time to time, the Company may be involved in litigation relating to claims that arise out of our operations and businesses and that cover a wide range of matters, including, but not limited to, intellectual property matters, commercial and contract disputes, insurance and property damage claims, labor and employment claims, torts and personal injury claims, product liability claims, environmental claims, and warranty claims. The Company accrues for litigation and claims when it is probable that a liability has been incurred and the amount of loss can be reasonably estimated. It is reasonably possible that some matters could have an unfavorable result to the Company and could require the Company to pay damages or make expenditures in amounts that could be material.

2021 Overheating Event at Customer Facility

On September 4, 2021, a 300 MW energy storage facility owned by one of our customers experienced an overheating event. Fluence served as the energy storage technology provider designed and installed portions of the facility, which was completed in fiscal year 2021. No injuries were reported from the incident. The facility was taken offline as teams from Fluence, our customer, and the battery designer/manufacturer investigated the incident. Our customer released initial findings in the second fiscal quarter of 2022 on what it contends is the root cause of the incident. At this time, Fluence cannot comment on or accept the customer’s stated findings. The customer’s stated findings, if ultimately confirmed and proven, could relate to certain scopes of work for which Fluence or its subcontractors could be responsible. The customer’s stated findings, however, could also relate to certain scopes of work for which other parties were responsible and/or relate to other causes, including the design and installation of portions of the facility over which Fluence did not have responsibility or control. The customer has alleged that Fluence is liable for the incident. Fluence has denied liability. No formal legal proceedings have been commenced, but it is reasonably possible that litigation may result from this matter if a resolution cannot be achieved. Any such dispute would also likely include claims by Fluence and counterclaims by the customer relating to disputed costs arising from the original design and construction of the facility. The customer announced in July of 2022 that a large portion of the facility was back online. We are currently not able to estimate the impact that this incident may have on our financial results. To date, we do not believe that this incident has impacted the market’s adoption of our products.

2022 Overheating Event at Customer Facility

On April 18, 2022, a 10 MW energy storage facility in Chandler, Arizona owned by AES experienced an overheating event. Fluence served as the energy storage technology provider for the facility, which was completed in 2019, and Fluence previously provided maintenance services for the facility. There were no injuries. The facility has been taken offline as teams from Fluence, AES, and the battery manufacturer continue to investigate the incident. We are currently not able to estimate the impact, if any, that this incident may have on our reputation or financial results, or on market adoption of our products.

2023 Project-Related Litigation

In October 2023, Fluence filed a complaint in the Superior Court of California, Contra Costa County, against Diablo Energy Storage, LLC, Empire Business Park, LLC, the Bank of New York Mellon and others, seeking approximately $37.0 million in damages arising from the supply and construction of an energy storage facility for the defendants, including for the defendants’ nonpayment of contractual amounts owed. On or about November 10, 2023, Defendant Diablo Energy Storage, LLC filed a cross-complaint against Fluence, seeking a minimum of $25.0 million of alleged damages and disgorgement of all compensation received by Fluence for the project, in the amount of approximately $230.0 million. The disgorgement claim was based upon an alleged deficiency in Fluence’s contractor license. Fluence denies the allegations in the cross-complaint and intends to vigorously defend them and to enforce our claims against the defendants. We are currently not able to estimate the impact, if any, that this litigation may have on our reputation or financial results, or on market adoption of our products.

Product Portfolio

Hardware

Fluence produces energy storage systems for power generation facilities and as backup power for operating environments.

And Applications

Fluence Mosaic™

maximizes renewables and storage revenue with intelligent, automated bidding software, so you can deploy and use more clean energy with higher ROI.

Nispera™ APM Software

Nispera maximizes the value of solar, wind, hydro, and storage assets from any provider by going beyond traditional Asset Performance Management (APM) to offer the most comprehensive set of AI-based asset performance optimization. Focus on the highest priority issues and get results that drive down costs and increase revenue.

And, of course, Services

—

Customers

Article in Seeking Alpha, from which part of the above is quoted

Fluence Energy: A Strong Buy After The Drop

kettunen · May 13, 2024, 12:41pm

I wasn’t previously familiar with Fluence, so I’ve noted some points for this opening post following a quick review.

I am considering an initial position, so I haven’t joined the shareholder list just yet.

Technically, the share price is under pressure at the moment, so I’m still waiting for a better buying opportunity.

kettunen · May 14, 2024, 6:55am

The world is likely full of material on these, but here’s one
https://reneweconomy.com.au/battery-storage-is-about-to-overtake-global-capacity-of-pumped-hydro/

Edit: Continuing with more material here

BESS market
https://tamarindo.global/articles/what-next-for-the-5-biggest-bess-integrators/

Top-5 in July last year: Sungrow, Fluence, Tesla, Wärtsilä , Hyperstrong

Fluence is in the lead when the pipeline is considered

Globally, Sungrow and Fluence are in the lead; in North America, it’s Tesla. Wärtsilä is missing from these

source: https://solarquarter.com/2023/10/31/sungrow-dominates-global-bess-market-with-16-market-share-wood-mackenzie-report-reveals/

Fluence is now investing more in North America, where, alongside Asia, the strongest market growth is expected

source: https://www.marketsandmarkets.com/Market-Reports/battery-energy-storage-system-market-112809494.html

kettunen · May 21, 2024, 12:15pm

https://seekingalpha.com/article/4694124-fluence-energy-in-a-binary-world

Key Numbers Include:

i) $623 million revenue in the quarter.
ii) Third consecutive quarter of double-digit gross margin.
iii) Q2 2024 ended with $541 million cash, up $65 million from Dec. 31, 2023.
iv) $700 million of new orders, solutions business contracted 2.2 GWh, services business added 900 MWh, and digital business added 3.1 GW new orders.
v) Backlog of $3.7 billion gives strong visibility for future revenue.
vi) Based on customer feedback, continued strong revenue growth in fiscal '25 of ~35-40% from fiscal '24.
vii) Current pipeline is $16.3 billion (up $2.9 billion from last quarter) with expected conversion 50% probable over the next 24 months. An added comment about queues in the US is that there is ~1000 GW of renewable capacity waiting for a grid connection!

The fact that just one Seeking Alpha author has covered the company in the past 90 days (“strong buy”) is remarkable. The treatment by Wall Street is different, with coverage by 25 analysts (14 “strong buy,” 7 “buy,” 3 “hold” and 1 “sell”). Wall Street is very positive about the company and this contrasts with Seeking Alpha’s Quant rating of “Hold.” I find Seeking Alpha’s “D” for “growth” a mystery. Seeking Alpha has Fluence consensus estimates for PE falling from 81.9 in 2024, to 19.9 in 2025 and 12.5 in 2026. Consensus Earnings/share growth is 312% in 2025 and 59.0% in 2026. How do these numbers result in a “D” for “growth” and "C-"for profitability?

So, retail investors don’t seem to have much interest in the company
Even on Nordnet, only 208 owners registered

source: marketwatch

Ripetirip · May 27, 2024, 1:11pm

Thanks for opening the thread @kettunen!

I bought this myself in September 2022, and it looks like we are comfortably in the green at the moment With these companies, I’ve learned to focus on the big picture; short reports and such will come out, but you shouldn’t get too spooked.

I ended up buying this because it doesn’t give off those startup vibes, but rather the company started as a spin-off from a collaboration between established industry players. Time will tell how this story unfolds

kettunen · June 27, 2024, 5:25pm

Finland mentioned

A 20MWh battery project is under construction in the Mäntsälä area in cooperation with MW Storage.

And a slightly larger 90MWh setup in the Netherlands with the same configuration.

kettunen · July 9, 2024, 5:46am

That was a comprehensive package, with a good balance of both positives and negatives

https://seekingalpha.com/article/4703019-fluence-energy-caught-in-the-crossfire-why-i-am-not-investing

price competition expected, new competitors coming in, and margins under pressure
Fluence is still well-positioned, but they need to deliver results and maintain the improved gross margin.
Strong balance sheet, and cash flow as well as earnings have turned / are turning positive.
Q3 and Q4 are significant for the results. Of these, revenue is expected to be particularly weighted toward Q4.
Similarly, the FY2024 weighting is already significantly geared toward H2.

Eicca · July 16, 2024, 8:11am

“Battery cell manufacturers are vertically integrating downstream”

This is likely the biggest threat to BESS “integrators”. In storage systems, the batteries themselves are the largest cost item.

kettunen · July 31, 2024, 4:48am

Project for the US market

Excelsior and Fluence to Deploy 2.2 GWh of Energy Storage Projects Using Domestically Manufactured Battery Systems Starting in 2025

Jul. 30, 2024 9:00 AM ETFluence Energy, Inc. (FLNC)

GlobeNewswire

ARLINGTON, Va., July 30, 2024 (GLOBE NEWSWIRE) – Fluence Energy, Inc. (FLNC), a leading global provider of energy storage solutions, services, and optimization software for renewables and storage, and Excelsior Energy Capital, a leading renewable energy infrastructure investor, announced an agreement to install 2.2 GWh of battery storage projects in the United States beginning in 2025. These U.S. projects will utilize domestically manufactured batteries, modules, and supporting systems.

Under the agreement, Excelsior will deploy Fluence’s Gridstack Pro product line to deliver firm capacity and flexible power to support a more resilient U.S. electricity grid. These projects are anticipated to help foster a domestic supply chain for critical clean tech manufacturing in the U.S. and directly support American jobs and battery storage production capacity. Battery cells for the 2+ GWh of projects will primarily be manufactured in Tennessee and battery modules will be manufactured by Fluence in Utah.

What makes this interesting is the local battery and assembly production.

”We are excited to support Excelsior on the deployment of 2.2 GWh of Gridstack Pro. This deal is a testament to the competitiveness of U.S.-manufactured battery storage systems,” said John Zahurancik, Fluence President, Americas. “Excelsior and other customers see U.S. manufactured products as a valuable way to mitigate uncertainties in their projects while supporting American jobs and local economic activity.”

Announced in October, Gridstack Pro is one of the first energy storage solutions expected to qualify as domestic content under the Inflation Reduction Act (IRA). Recent guidance updates from the U.S. Department of Treasury have helped accelerate commercial activity in support of these U.S.-manufactured products.

kettunen · August 8, 2024, 6:14am

FYQ3 released, beat analyst expectations with a record number of orders and backlog.

EPS slightly positive, as expected. And cash flow is nicely in the green.

However, the full-year revenue guidance was narrowed, specifically by shaving off the top end. Similarly, EBITDA was narrowed, mostly from the top end.
ARR, however, was raised from $80M → $100M

Fluence Energy press release (NASDAQ:FLNC): Q3 GAAP EPS of $0.01 beats by $0.13.

Revenue of $483.3M (-9.9% Y/Y) beats by $20.52M.

Updated Fiscal Year 2024 GuidanceThe Company is narrowing its fiscal year 2024 total revenue guidance range to $2.7 billion to $2.8 billion (midpoint $2.75 billion) from the prior range of $2.7 billion to $3.3 billion (midpoint $3 billion). This change reflects signed contracts for which the majority of the associated revenue is now expected to be realized in fiscal 2025.

https://seekingalpha.com/pr/19811362-fluence-energy-inc-reports-record-1_3-billion-quarterly-order-intake-and-record-4_5-billion

kettunen · August 10, 2024, 2:40pm

Q3 transcript
https://seekingalpha.com/article/4713263-fluence-energy-inc-flnc-q3-2024-earnings-call-transcript

And investor presentation
https://ir.fluenceenergy.com/static-files/6d63652f-b61b-423c-87c6-cf95750453af

Highlights right from the start of the transcript:

Beginning on Slide 4, we deliver strong financial performance, more specifically, we recognized $483 million of revenue and earned 17.5% adjusted gross margin, which brings our year-to-date gross margin slightly ahead of the 10% to 12% target.

Second, we recorded adjusted EBITDA of $15.6 million, which puts us on track to deliver profitable growth for our shareholders. Third, we added $1.3 billion of new contracts, setting a new quarterly record for us and bringing our backlog to an all-time high level of $4.5 billion. Fourth, we finished the quarter with $80 million of annual recurring revenue for our services and digital business, reaching the level a quarter earlier than our target.

And finally, to our proactive approach to cost and working capital management, we generated $64 million free cash flow for the first 9 months and ended the current quarter with $513 million in cash.

Gross profit is starting to reach the 10-15% target, which seems to have been raised from the previous 10-12%

A fairly significant domestic manufacturing advantage for the US market

As you may recall, we started the process of procuring U.S. cell capacity before the IRA came out and signed an agreement more than a year ago with ASC to purchase U.S. cell from the Tennessee facility. The U.S. manufacturer cells will go into our battery modules, which I will touch on more in a moment. By combining U.S. cells and U.S. modules, we believe that we will easily meet the 40% domestic content threshold. Thus enabling our customers to capture the incremental 10% investment tax credit on their projects.

And strong growth is set to continue in FY25 as well

Finally, looking ahead to fiscal '25, we continue to expect strong growth, as Julian discussed, using our original fiscal '24 revenue guidance midpoint of $3 billion as a base we reaffirm our expected fiscal '25 revenue growth of 35% to 40%.

kettunen · September 10, 2024, 2:43pm

Local US production has started in Utah, battery cells are manufactured in Tennessee

https://www.globenewswire.com/en/news-release/2024/09/10/2943723/0/en/Fluence-Initiates-U-S-Manufacturing-of-Battery-Modules-for-Energy-Storage-Products.html

“Our proactive approach to securing U.S.-manufactured battery cells and rapid initiation of module production has provided us with an advantage in delivering a storage solution that allows our customers to capture the Inflation Reduction Act’s domestic content bonus tax credit,” said John Zahurancik, Fluence President, Americas. “We are moving quickly to deliver domestically manufactured energy storage solutions that meet our customers’ needs, reduce supply chain risks for projects, and support the nation’s energy independence.”

Recently announced increases in Section 301 tariffs on batteries imported from China underscore the need for a robust domestic supply chain. With these tariffs set to rise to 25 percent in 2026, Fluence’s U.S.-based manufacturing strategy is critical for meeting customer needs in a shifting global trade landscape. In addition to U.S. manufacturing, Fluence is committed to cybersecure products. Fluence system software is developed by Fluence in the United States, Germany, and India.

And fittingly for today’s agenda, Trump is pulling the rug out from under the IRA

https://think.ing.com/articles/energy-transition-scenario-two-trump-clean-sweep/

While several clean energy incentives under the IRA may find a lifeline, the US’s green agenda could be set back for years. We would expect a much stronger focus on enhancing oil and gas production with substantial environmental regulation swipe-outs and weakened roles on green technology innovation

kettunen · October 8, 2024, 7:10am

It looks like Fluence’s press releases are appearing in Kauppalehti as well

ERLANGEN, Germany, Oct. 08, 2024 (GLOBE NEWSWIRE) – Fluence Energy GmbH, a subsidiary of Fluence Energy, Inc. (NASDAQ: FLNC) (“Fluence”), a global market leader delivering intelligent energy storage, operational services, and asset optimisation software, will supply and service a 58 MWh battery-based energy storage system to Statkraft for Germany’s largest hybrid solar and storage project.

The project in Zerbst, Saxony-Anhalt, will include a 47-megawatt solar park combined with a 16-megawatt battery-based energy storage system. The plant will be the largest hybrid project in Germany, with enough capacity to save around 32,000 tonnes of CO2 emissions annually, according to Statkraft’s calculations.

…

kettunen · November 18, 2024, 5:22pm

Let’s quote an excerpt from the Wärtsilä thread regarding Fluence

Ripetirip · November 26, 2024, 2:35pm

Record revenue for fiscal year 2024 of approximately $2.7 billion and revenue for the fourth quarter of approximately $1.2 billion, representing an increase of approximately 22% from fiscal year 2023 and an increase of approximately 82% from the same quarter last year, respectively.

The Company is initiating fiscal year 2025 guidance as follows:

Revenue of approximately $3.6 billion to $4.4 billion with a midpoint of $4.0 billion. Presently, approximately 65% of the midpoint of the Company’s revenue guidance is covered by the Company’s current backlog, in line with our fiscal 2024 revenue coverage at the same time period last year.

Uimonen · November 26, 2024, 6:20pm

Still, we got quite a significant share price reaction😅

Does anyone else have insight into why this happened? Of course, growth was slightly less than desired, but is there anything else behind it that I missed?

kettunen · November 26, 2024, 6:44pm

I didn’t have time to browse Fluence’s report very carefully; premarket already looked good and like an up day based on the main figures.

However, the forecasted figures for next year probably weren’t sufficient

$1.2B for Q4, from which, extrapolating off the top of my head, should be in the order of $5B for FY2025, when some growth is included. The outlook is estimated at $3.6-4.4B.

The negatives are quite well highlighted behind that link; in Q4, there were also some delays and revenue fell short of expectations. SEC investigation and margins under pressure.

In addition, Fluence is very volatile, and its direction depends entirely on the energy market; it still seems to be trading at least at a 2-3x multiple.

The outlook and valuation are starting to be tempting enough to take a new position at the bottom of the portfolio

Uimonen · November 26, 2024, 6:57pm

Thanks for the comprehensive answer :)!

It’s certainly an interesting company in every way.

Juupeli · November 26, 2024, 7:27pm

It seems that Trump’s speeches are having the biggest impact on Fluence’s negative stock reaction: China tariffs would affect Fluence’s component purchases from China. And this is not my own invention; it was mentioned in an Investing.com article about Fluence.

kettunen · December 10, 2024, 7:52am

Following Fluence has been quite a rollercoaster

https://ir.fluenceenergy.com/news-releases/news-release-details/fluence-energy-inc-announces-convertible-notes-offering-and

today announced its intention to offer, subject to market and other conditions, $300.0 million aggregate principal amount of convertible senior notes due 2030 (the “Notes”) in a private offering that is exempt from the registration requirements of the Securities Act of 1933, as amended (the “Securities Act”), to persons reasonably believed to be qualified institutional buyers pursuant to Rule 144A under the Securities Act. Fluence also expects to grant the initial purchasers of the Notes an option to purchase, for settlement within a period of 13 days from, and including, the date the Notes are first issued, up to an additional $45.0 million aggregate principal amount of the Notes.

The Notes will be senior, unsecured obligations of Fluence, will accrue interest payable semi-annually in arrears and will mature on June 15, 2030, unless earlier repurchased, redeemed or converted. Before March 15, 2030, noteholders will have the right to convert their Notes in certain circumstances and during specified periods. From and after March 15, 2030, noteholders may convert their Notes at any time at their election until the close of business on the second scheduled trading day immediately before the maturity date. Fluence will settle conversions by paying or delivering, as applicable, cash, shares of its Class A common stock (“Class A common stock”) or a combination of cash and shares of its Class A common stock, at Fluence’s election.

So, a $300M unsecured convertible bond to cover general expenses. Includes “Capped Call” arrangements to reduce dilution. Sounds very complex to me, so let’s ask someone more knowledgeable

ChatGPT’s summary below

“Capped call” arrangements are financial instruments that companies use to protect against the effects of stock price changes related to convertible bond conversions. They provide protection against potential stock price dilution and help manage cash flows at the time of bond conversion.

How a capped call works

How a capped call works:

Protection against price increases: A company buys “capped call” options, which set a cap on the stock price increase in connection with the conversion of bonds. This means that the company benefits from a moderate increase in the stock price but protects itself from the effects of larger price fluctuations.

Reduces dilution: Holders of convertible bonds can convert their debt into shares, which can increase the total number of shares and dilute the ownership stake of existing shareholders. Capped call arrangements compensate for this effect.

Practical implementation: The company enters into an agreement with financial institutions to purchase options that cover the shares potentially convertible from the issued bonds up to a certain price cap.

Benefits for the company:

Stock price stability: Reduces stock price volatility, especially when bonds are approaching their maturity date or are being converted.

Financial flexibility: The company can use capped call proceeds to offset potential costs associated with a higher share price in bond conversion.

Risks and limitations:

This arrangement can be expensive, and its benefits depend on market conditions.

If the stock price remains low, the capped call does not provide additional value to the company.

Capped call arrangements are particularly common in technology companies and other high-growth industries where convertible bonds are a popular form of financing.

Practical example (also ChatGPT as source)

If Fluence Energy’s share value is initially $17, here’s an example of how a capped call arrangement would work in connection with their convertible bonds:

Convertible bond terms:

Fluence sets the conversion price at, for example, $22 per share (approx. 30% higher than the current market price of $17).

Bondholders can convert their debt into shares only if the market price of the share exceeds the conversion price.

Capped call arrangement cap:

Fluence buys capped call options with a cap set at, for example, $28 per share (approx. 65% higher than the original share price).

Possible scenarios:

Share price remains below $22: Bondholders do not convert their debt, and the capped call arrangement is not used.

Share price rises between $22 and $28: Holders convert their debt into shares, but the capped call arrangement compensates Fluence for the impact of this price increase. This limits the dilution caused by the increase in the number of shares.

Share price exceeds $28: Fluence does not receive protection from price increases exceeding $28. The additional value of the shares is fully transferred to the bondholders, but the capped call arrangement has still limited a significant increase in dilution.

Financial impact:

A capped call helps Fluence limit risks if the share price rises sharply. For example, without a capped call arrangement, the conversion of bonds into shares at a high price would significantly increase the number of shares and weaken the ownership stake of existing shareholders.

Financing the capped call arrangement:

Fluence uses part of the proceeds from the sale of convertible bonds ($300 million + option for $45 million) to finance the option arrangement.

A capped call arrangement limits dilution and makes convertible bonds a more attractive financing instrument in the market, especially for companies with a low share price but growth potential.