UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |||||
For the quarterly period ended June 30, 2023
OR
| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |||||
For the transition period from to
Commission file number 001-40978
(Exact name of registrant as specified in its charter)
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) | ||||
(Address of Principal Executive Offices) | (Zip Code) | ||||
Registrant's telephone number, including area code
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||||||
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company” and "emerging growth company" in Rule 12b-2 of the Exchange Act.
| Large accelerated filer | o | Accelerated filer | o | ||||||||
| x | Smaller reporting company | ||||||||||
| Emerging growth company | |||||||||||
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. x
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes o No x
As of August 8, 2023, the registrant had 118,507,081 shares of Class A common stock outstanding and 58,586,695 shares of Class B-1 common stock outstanding.
Table of Contents
| Page | ||||||||
Financial Statements (Unaudited) | ||||||||
Quantitative and Qualitative Disclosures About Market Risk | ||||||||
2
Cautionary Statement Regarding Forward-Looking Information
Certain statements in this Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2023 (this “Report”), excluding historical information, contain or may contain forward-looking statements. We intend such forward-looking statements to be covered by the safe harbor provisions for forward-looking statements contained in Section 27A of the Securities Act of 1933, as amended (the “Securities Act”) and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Statements regarding our future results of operations and financial position, business strategy and plans, and objectives of management for future operations, including, among others, statements regarding expected growth, introduction of new products and services, future capital expenditures and debt service obligations, are forward-looking statements. In some cases, you may identify forward-looking statements by terms such as “may,” “will,” “should,” “expects,” “plans,” “anticipates,” “could,” “seeks,” “intends,” “targets,” “projects,” “contemplates,” “grows,” “believes,” “estimates,” “predicts,” “potential” or “continue” or the negative of these terms or other similar expressions. Accordingly, we caution you that any such forward-looking statements are not guarantees of future performance and are subject to risks, assumptions, and uncertainties that are difficult to predict. Although we believe that the expectations reflected in these forward-looking statements are reasonable as of the date made, actual results may prove to be materially different from the results expressed or implied by the forward-looking statements.
Factors that could cause our actual results to differ materially from those indicated in any forward-looking statements, include, but are not limited to, the following:
•our future financial and operating performance, including our ability to achieve or maintain profitability;
•our ability to successfully execute our business plan and growth strategy;
•the sufficiency of our cash and cash equivalents to meet our liquidity needs;
•our ability to attract and retain customers;
•our ability to develop new offerings and services, including digital applications;
•our ability to optimize existing and future sales channels and market segmentation;
•our ability to compete with existing and new competitors in existing and future markets and offerings;
•our revenue may be affected by any disruptions in asset deployment caused by supply, construction or utility
delays;
•our ability to manage our supply chains and distribution channels, including our ability to secure inventory from suppliers to meet customer demand and source materials in line with our expectations;
•risk associated with fluctuations in the market prices of commodity raw materials, including steel, aluminum, lithium carbonate, and cobalt, that are used in components from suppliers, such as lithium-ion batteries, that are incorporated into our energy storage products and solutions;
•risk associated with estimation uncertainty related to our product warranties;
•our ability to attract and retain talent;
•the impact of economic, social, and political instability in the markets in which we operate and other regions of the world;
•instability in the financial services sector and the impact on the viability of financial institutions where we maintain our cash and cash equivalents;
•changes in levels of inflation, interest rates, and foreign currency exchange rates and related actions taken by government authorities in connection therewith;
•our expectations regarding the size and growth of our existing and future markets in which we compete;
•the potential future impact of a global pandemic on our ground operations at project sites, our manufacturing facilities, our customers, our workforce, and our suppliers and our vendors;
3
•our ability to maintain customer contracts due to events and incidents relating to storage, delivery, installation, operation and shutdowns of our energy storage products and solutions, including events and incidents outside of our control;
•our ability to prevent defects, errors, or bugs in hardware or software of our products and technology as well as any defects that may give rise to claims of product liability or other potential legal claims;
•our ability to manage information technology related risks;
•the impact of compliance with any existing and future applicable laws, regulations, sanctions, or tariffs on our business and operations;
•the potential implementation, reduction, elimination or expiration of government and/or economic incentives related to energy storage products and solutions and/or services and their related impact;
•our assessment and expectations regarding our global growth;
•our ability to maintain, protect, and enhance our intellectual property;
•our ability to recognize anticipated synergies from strategic initiatives and/or acquisitions by the Company;
•the increased expenses associated with being a public company;
•the continued listing of our securities on the Nasdaq Global Select Market;
•the significant influence that Siemens AG and AES Grid Stability, LLC have over us, including control over decisions that require the approval of stockholders; and
•other factors described in Part I, Item 1A “Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended September 30, 2022, filed with the Securities and Exchange Commission (“SEC”) on December 14, 2022 (the “2022 Annual Report”), as updated by Part II, Item 1A. “Risk Factors” and Part I, Item 2. “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in this Report and in our subsequent filings with the Securities and Exchange Commission (the “SEC”).
The foregoing factors should not be construed as exhaustive and should be read together with the other cautionary statements included in this Report. If one or more events related to these or other risks or uncertainties materialize, or if our underlying assumptions prove to be incorrect, actual results may differ materially from what we anticipate. Many of the important factors that will determine these results are beyond our ability to control or predict. Accordingly, you should not place undue reliance on any such forward-looking statements. We qualify all forward-looking statements contained in this Report by these cautionary statements. Any forward-looking statement speaks only as of the date on which it is made, and, except as otherwise required by law, we do not undertake any obligation to publicly update or review any forward-looking statement, whether as a result of new information, future developments or otherwise. New factors emerge from time to time, and it is not possible for us to predict which will arise. In addition, we cannot assess the impact of each factor on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements.
4
Part I - Financial Information
Item 1. Financial Statements
FLUENCE ENERGY, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(U.S. Dollars in Thousands, except share and per share amounts)
| Unaudited | |||||||||||
| June 30, 2023 | September 30, 2022 | ||||||||||
| Assets | |||||||||||
| Current assets: | |||||||||||
| Cash and cash equivalents | $ | $ | |||||||||
| Restricted cash | |||||||||||
| Short-term investments | |||||||||||
| Trade receivables | |||||||||||
| Unbilled receivables | |||||||||||
| Receivables from related parties | |||||||||||
| Advances to suppliers | |||||||||||
| Inventory, net | |||||||||||
| Other current assets | |||||||||||
| Total current assets | $ | $ | |||||||||
| Non-current assets: | |||||||||||
| Property and equipment, net | $ | $ | |||||||||
| Right of use asset - operating leases | |||||||||||
| Intangible assets, net | |||||||||||
| Goodwill | |||||||||||
| Deferred income tax asset | |||||||||||
| Advances to suppliers | |||||||||||
| Debt issuance cost | |||||||||||
| Note receivable - pledged as collateral | |||||||||||
| Other non-current assets | |||||||||||
| Total non-current assets | $ | $ | |||||||||
| Total assets | $ | $ | |||||||||
| Liabilities and Stockholders’ Equity | |||||||||||
| Current liabilities: | |||||||||||
| Accounts payable | $ | $ | |||||||||
| Deferred revenue | |||||||||||
| Personnel related liabilities | |||||||||||
| Accruals and provisions | |||||||||||
| Payables and deferred revenue with related parties | |||||||||||
| Taxes payable | |||||||||||
| Current portion of operating lease liabilities | |||||||||||
| Other current liabilities | |||||||||||
| Total current liabilities | $ | $ | |||||||||
| Non-current liabilities: | |||||||||||
| Operating lease liabilities, net of current portion | |||||||||||
| Deferred income tax liability | |||||||||||
| Borrowings against note receivable - pledged as collateral | |||||||||||
| Other non-current liabilities | |||||||||||
| Total non-current liabilities | $ | $ | |||||||||
| Total liabilities | $ | $ | |||||||||
| Stockholders’ Equity: | |||||||||||
Preferred stock, $ | |||||||||||
Class A common stock, $ | $ | $ | |||||||||
Class B-1 common stock, $ | |||||||||||
Class B-2 common stock, $ | |||||||||||
| Treasury stock, at cost | ( | ( | |||||||||
| Additional paid-in capital | |||||||||||
| Accumulated other comprehensive income | |||||||||||
| Accumulated deficit | ( | ( | |||||||||
| Total stockholders’ equity attributable to Fluence Energy, Inc. | $ | $ | |||||||||
| Non-Controlling interests | |||||||||||
| Total stockholders’ equity | $ | $ | |||||||||
| Total liabilities and stockholders’ equity | $ | $ | |||||||||
The accompanying notes are an integral part of these condensed statements
5
FLUENCE ENERGY, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND
COMPREHENSIVE LOSS (UNAUDITED)
(U.S. Dollars in Thousands, except share and per share amounts)
| Three Months Ended June 30, | Nine Months Ended June 30, | ||||||||||||||||||||||
| 2023 | 2022 | 2023 | 2022 | ||||||||||||||||||||
| Revenue | $ | $ | $ | $ | |||||||||||||||||||
| Revenue from related parties | |||||||||||||||||||||||
| Total revenue | |||||||||||||||||||||||
| Cost of goods and services | |||||||||||||||||||||||
| Gross profit (loss) | ( | ( | |||||||||||||||||||||
| Operating expenses: | |||||||||||||||||||||||
| Research and development | |||||||||||||||||||||||
| Sales and marketing | |||||||||||||||||||||||
| General and administrative | |||||||||||||||||||||||
| Depreciation and amortization | |||||||||||||||||||||||
| Interest expense | |||||||||||||||||||||||
| Other income (expense), net | ( | ||||||||||||||||||||||
| Loss before income taxes | ( | ( | ( | ( | |||||||||||||||||||
| Income tax expense (benefit) | ( | ( | ( | ( | |||||||||||||||||||
| Net loss | ( | ( | ( | ( | |||||||||||||||||||
| Net loss attributable to non-controlling interest | ( | ( | ( | ( | |||||||||||||||||||
| Net loss attributable to Fluence Energy, Inc. | $ | ( | $ | ( | $ | ( | $ | ( | |||||||||||||||
| Weighted average number of Class A common shares outstanding | |||||||||||||||||||||||
| Basic and diluted | |||||||||||||||||||||||
| Loss per share of Class A common stock | |||||||||||||||||||||||
| Basic and diluted | $ | ( | $ | ( | $ | ( | $ | ( | |||||||||||||||
Foreign currency translation gain, net of income tax expense of $ | |||||||||||||||||||||||
| Total other comprehensive income | $ | $ | $ | $ | |||||||||||||||||||
| Total comprehensive loss | $ | ( | $ | ( | $ | ( | $ | ( | |||||||||||||||
| Comprehensive loss attributable to non-controlling interest | ( | ( | ( | ( | |||||||||||||||||||
| Total comprehensive loss attributable to Fluence Energy, Inc. | $ | ( | $ | ( | $ | ( | $ | ( | |||||||||||||||
The accompanying notes are an integral part of these condensed statements
6
FLUENCE ENERGY, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY, MEMBERS’
EQUITY (DEFICIT), AND MEZZANINE EQUITY (UNAUDITED)
(U.S. Dollars in Thousands, except Shares/Units)
| Class A Common Stock | Class B-1 Common Stock | Additional Paid-In Capital | Accumulated Deficit | Accumulated Other Comprehensive Income (Loss) | Treasury Stock | Non-Controlling interest | Total stockholders’ equity and members’ deficit | ||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Shares | Amount | ||||||||||||||||||||||||||||||
| Balance at March 31, 2023 | $ | $ | $ | ( | $ | ( | $ | ( | $ | $ | |||||||||||||||||||||||||
| Net loss | ( | ( | ( | ||||||||||||||||||||||||||||||||
| Stock-based compensation expense and related vesting | — | ||||||||||||||||||||||||||||||||||
| Repurchase of Class A common stock placed into Treasury | ( | — | ( | ( | |||||||||||||||||||||||||||||||
| Effect of remeasurement of non-controlling interest due to other share transactions | ( | ||||||||||||||||||||||||||||||||||
| Proceeds from exercise of stock options | — | ||||||||||||||||||||||||||||||||||
Foreign currency translation loss, net of income tax expense of $ | |||||||||||||||||||||||||||||||||||
| Balance at June 30, 2023 | $ | $ | $ | ( | $ | $ | ( | $ | $ | ||||||||||||||||||||||||||
| Balance at September 30, 2022 | ( | ( | |||||||||||||||||||||||||||||||||
| Net Loss | ( | ( | ( | ||||||||||||||||||||||||||||||||
| Stock-based compensation expense and related vesting | — | ||||||||||||||||||||||||||||||||||
| Repurchase of Common Stock placed into Treasury | ( | — | — | ( | ( | ||||||||||||||||||||||||||||||
| Effect of remeasurement of non-controlling interest due to other share transactions | — | ( | |||||||||||||||||||||||||||||||||
| Proceeds from exercise of stock options | — | — | |||||||||||||||||||||||||||||||||
Foreign currency translation loss, net of income tax expense of $ | ( | ||||||||||||||||||||||||||||||||||
| Balance at June 30, 2023 | $ | $ | $ | ( | $ | $ | ( | $ | $ | ||||||||||||||||||||||||||
7
| Mezzanine Equity | Members’ capital contributions | Class A Common Stock | Class B-1 Common Stock | Additional Paid-In Capital | Accumulated Deficit | Accumulated Other Comprehensive Income (Loss) | Treasury Stock | Non-Controlling interest | Total stockholders’ equity and members’ deficit | ||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Shares | Amount | ||||||||||||||||||||||||||||||||||||
| Balance at March 31, 2022 | $ | $ | $ | $ | ( | $ | ( | $ | $ | ||||||||||||||||||||||||||||||||
| Net loss | — | — | — | — | — | ( | $ | — | ( | ( | |||||||||||||||||||||||||||||||
| Stock-based compensation expense and related vesting | — | — | — | — | $ | — | — | ||||||||||||||||||||||||||||||||||
| Repurchase of class A common stock placed into treasury | ( | — | — | — | — | — | — | ( | — | ( | |||||||||||||||||||||||||||||||
| Effect of Siemens Industry redemption of class B-1 common stock for class A common stock | ( | ( | — | — | ( | ||||||||||||||||||||||||||||||||||||
| Effect of remeasurement of non-controlling interest due to other share transactions | — | — | — | — | — | ( | |||||||||||||||||||||||||||||||||||
| Proceeds from exercise of stock options | — | — | — | — | |||||||||||||||||||||||||||||||||||||
Other comprehensive gain subsequent to the Transactions, net of income tax expense of $ | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||
| Balance at June 30, 2022 | $ | $ | $ | $ | $ | $ | ( | $ | $ | $ | ( | $ | $ | ||||||||||||||||||||||||||||
| Balance at September 30, 2021 | $ | $ | $ | $ | $ | $ | ( | $ | ( | $ | $ | $ | ( | ||||||||||||||||||||||||||||
| Net loss prior to the Transactions | ( | ( | |||||||||||||||||||||||||||||||||||||||
Other comprehensive income prior to the Transactions, net of income tax benefit of $ | — | ||||||||||||||||||||||||||||||||||||||||
| Effect of the transactions related to the IPO | ( | ( | ( | ( | |||||||||||||||||||||||||||||||||||||
| Issuance of class A common stock in IPO, net of issuance costs | $ | — | $ | — | |||||||||||||||||||||||||||||||||||||
| Net loss subsequent to the Transactions | ( | $ | — | ( | ( | ||||||||||||||||||||||||||||||||||||
| Stock-based compensation expense and related vesting | |||||||||||||||||||||||||||||||||||||||||
| Repurchase of Class A common stock placed into treasury | ( | ( | ( | ||||||||||||||||||||||||||||||||||||||
| Effect of Siemens Industry redemption of class B-1 common stock for class A common stock | ( | ( | ( | ||||||||||||||||||||||||||||||||||||||
| Effect of remeasurement of non-controlling interest due to other share transactions | ( | ||||||||||||||||||||||||||||||||||||||||
| Proceeds from exercise of stock options | $ | ||||||||||||||||||||||||||||||||||||||||
Other comprehensive gain subsequent to the Transactions, net of income tax benefit of $ | |||||||||||||||||||||||||||||||||||||||||
| Balance at June 30, 2022 | $ | $ | ( | $ | $ | $ | ( | $ | $ | ||||||||||||||||||||||||||||||||
8
The accompanying notes are an integral part of these condensed statements
9
FLUENCE ENERGY, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(U.S. Dollars in Thousands)
| Nine Months Ended June 30, | |||||||||||
| 2023 | 2022 | ||||||||||
| Operating activities | |||||||||||
| Net loss | $ | ( | $ | ( | |||||||
| Adjustments to reconcile net loss to net cash used in operating activities: | |||||||||||
| Depreciation and amortization | |||||||||||
| Amortization of debt issuance costs | |||||||||||
| Inventory (benefit) provision | ( | ||||||||||
| Stock-based compensation expense | |||||||||||
| Deferred income taxes | ( | ||||||||||
| Provision (benefit) on loss contracts | ( | ||||||||||
| Changes in operating assets and liabilities: | |||||||||||
| Trade receivables | ( | ( | |||||||||
| Unbilled receivables | ( | ||||||||||
| Receivables from related parties | ( | ||||||||||
| Advances to suppliers | ( | ( | |||||||||
| Inventory, net | ( | ||||||||||
| Other current assets | ( | ||||||||||
| Other non-current assets | ( | ( | |||||||||
| Accounts payable | ( | ||||||||||
| Payables and deferred revenue with related parties | ( | ||||||||||
| Deferred revenue | |||||||||||
| Current accruals and provisions | ( | ( | |||||||||
| Taxes payable | ( | ||||||||||
| Other current liabilities | ( | ||||||||||
| Other non-current liabilities | ( | ||||||||||
| Insurance proceeds received | |||||||||||
| Net cash used in operating activities | $ | ( | $ | ( | |||||||
| Investing activities | |||||||||||
| Purchase of equity securities | ( | ||||||||||
| Proceeds from maturities of short-term investments | |||||||||||
| Payments for purchase of investment in joint venture | ( | ||||||||||
| Capital expenditures on software | ( | ||||||||||
| Payments for acquisition of businesses, net of cash acquired | ( | ||||||||||
| Purchase of property and equipment | ( | ( | |||||||||
| Net cash provided by (used in) investing activities | $ | $ | ( | ||||||||
| Financing activities | |||||||||||
| Proceeds from issuance of Class A common stock sold in an IPO, net of underwriting discounts and commissions | |||||||||||
| Repurchase of Class A common stock placed into treasury | ( | ( | |||||||||
| Payment of transaction cost related to issuance of Class B membership units | ( | ||||||||||
| Payment of debt issuance costs | ( | ||||||||||
| Proceeds from exercise of stock options | |||||||||||
| Repayment of promissory notes – related parties | ( | ||||||||||
| Repayment of line of credit | ( | ||||||||||
| Proceeds from borrowing against note receivable - pledged as collateral | |||||||||||
| Payments of deferred equity issuance costs | ( | ||||||||||
| Net cash provided by financing activities | $ | $ | |||||||||
| Effect of exchange rate changes on cash and cash equivalents | ( | ||||||||||
| Net (decrease) increase in cash, cash equivalents, and restricted cash | ( | ||||||||||
| Cash, cash equivalents, and restricted cash as of the beginning of the period | |||||||||||
10
| Cash, cash equivalents, and restricted cash as of the end of the period | |||||||||||
| Supplemental Cash Flows Information | |||||||||||
| Interest paid | $ | $ | |||||||||
| Cash paid for income taxes | $ | $ | |||||||||
The accompanying notes are an integral part of these condensed statements
11
FLUENCE ENERGY, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
1. Organization and Operations
Fluence Energy, Inc., a Delaware corporation (the “Company”), was formed on June 21, 2021. We conduct our business operations through Fluence Energy, LLC, and its direct and indirect subsidiaries. Fluence Energy, LLC was formed on June 30, 2017 as a joint venture between Siemens Industry, Inc. (“Siemens Industry”), an indirect subsidiary of Siemens AG (“Siemens”), and AES Grid Stability, LLC (“AES Grid Stability”), an indirect subsidiary of the AES Corporation (“AES”), and commenced operations on January 1, 2018. We refer to Siemens Industry and AES Grid Stability as the “Founders” in this Quarterly Report on Form 10-Q (this “Report”).
Upon the completion of our initial public offering (“IPO”) on November 1, 2021, Fluence Energy, Inc. became a holding company whose sole material assets are the limited liability company interests (the “LLC Interests”) in Fluence Energy, LLC. All of our business is conducted through Fluence Energy, LLC, together with its subsidiaries, and the financial results of Fluence Energy, LLC will be consolidated in our financial statements. Fluence Energy, LLC is taxed as a partnership for federal income tax purposes and, as a result, its members, including Fluence Energy, Inc., will pay income taxes with respect to their allocable shares of its net taxable income. As of June 30, 2023, Fluence Energy, LLC had subsidiaries operating in Germany, Australia, Philippines, Chile, the Netherlands, the United States, India, Singapore, United Kingdom, Canada, and Switzerland. Except where the context clearly indicates otherwise, “Fluence,” “we,” “us,” “our” or the “Company” refers to Fluence Energy, Inc. and all of its direct and indirect subsidiaries, including Fluence Energy, LLC. When used in a historical context that is prior to the completion of the IPO, “we,” “us,” “our” or “the Company” refers to Fluence Energy, LLC and its subsidiaries.
Our fiscal year begins on October 1 and ends on September 30. References to “fiscal year 2021” and “fiscal year 2022” refer to the fiscal years ended September 30, 2021 and September 30, 2022, respectively.
The Company’s chief operating decision maker (“CODM”) is its Chief Executive Officer. The Company’s CODM reviews financial information on a condensed consolidated basis for purposes of making operating decisions, allocating resources, and evaluating financial performance. As such, the Company has determined that it operates in one operating segment, which corresponds to one reportable segment.
2. Summary of Significant Accounting Policies and Estimates
Principles of Accounting and Consolidation
Non-Controlling Interest
12
| June 30, 2023 | September 30, 2022 | ||||||||||
| Controlling Interest Ownership | % | % | |||||||||
| Non-Controlling Interest Ownership (AES) | % | % | |||||||||
Unaudited Interim Financial Information
The accompanying condensed consolidated financial statements as of June 30, 2023, and for the three and nine months ended June 30, 2023 and 2022 are unaudited. These financial statements should be read in conjunction with the Company’s audited financial statements included in our 2022 Annual Report. In our opinion, such unaudited financial statements reflect all adjustments, including normal recurring items, that are necessary for the fair statement of the Company’s financial position as of June 30, 2023, the results of its operations for the three and nine months ended June 30, 2023 and 2022, and its cash flows for the nine months ended June 30, 2023 and 2022. The financial data and other information disclosed in these notes related to the three and nine months ended June 30, 2023 and 2022 are also unaudited. The results for the three and nine months ended June 30, 2023 and 2022 are not necessarily indicative of results for the full year ending September 30, 2023 and 2022, any other interim periods, or any future year or period. The balance sheet as of September 30, 2022 included herein was derived from the audited financial statements as of that date. Certain disclosures have been condensed or omitted from the interim financial statements.
For a complete description of our significant accounting policies, refer to Note 2 - Summary of Significant Accounting Policies and Estimates in the audited consolidated financial statements included in our 2022 Annual Report. We include herein certain updates to those policies.
Use of Estimates
Cash, Cash Equivalents, and Restricted Cash
Cash and cash equivalents include cash on-hand and highly liquid investments readily convertible to cash, with an original maturity of 90 days or less when purchased.
Cash restricted for use as a result of financing or other obligations is classified separately as restricted cash. If the purpose of restricted cash relates to acquiring a long-term asset, liquidating a long-term liability, or is otherwise unavailable for a period longer than one year from the balance sheet date, the restricted cash is included in other long-term assets. Otherwise, restricted cash is included as a separate line item on the Company’s consolidated balance sheets.
The Company typically retains cash for operations within one or more bank accounts. These accounts may hold cash in excess of the FDIC limit of $250,000. As a result, we are subject to concentration risk associated with the underlying custodial banks with whom deposits of cash and cash equivalents in excess of the FDIC limits are held. If access to these accounts is delayed or suspended indefinitely, it could have a material adverse impact on the Company’s ability to meet its financial obligations required for operations.
13
The following table provides a reconciliation of cash, cash equivalents, and restricted cash at the end of each respective period as shown in the Company’s condensed consolidated balance sheets.
in thousands | June 30, 2023 | September 30, 2022 | |||||||||
| Cash and cash equivalents | $ | $ | |||||||||
Restricted cash | |||||||||||
| Restricted cash included in “Other non-current assets” | |||||||||||
Total cash, cash equivalents and restricted cash | $ | $ | |||||||||
Restricted cash at the end of each respective period consisted of the following:
in thousands | June 30, 2023 | September 30, 2022 | |||||||||
Collateral for credit card program | $ | $ | |||||||||
Collateral for outstanding bank guarantees | |||||||||||
| Collateral for surety program included in “Other non-current assets” | |||||||||||
Total restricted cash | $ | $ | |||||||||
Revenue and Cost Recognition
The Company’s revenue recognition policy included herein is based on the application of Accounting Standards Codification - Revenue from Contracts with Customers (ASC 606). As of June 30, 2023, the Company’s revenue was generated primarily from the sale of energy storage products and solutions, providing operational services, and digital applications and solutions.
Revenue from Energy Storage Products and Solutions: The Company enters into contracts with utility companies, developers, and commercial and industrial customers to design, advise on, and build battery-based energy storage products and solutions. Each energy storage product and/or solution is customized depending on the customer’s energy needs. Customer payments are due upon meeting certain milestones that are consistent with contract-specific phases of a project. The Company determines the transaction price based on the consideration expected to be received which includes estimates of liquidated damages or other variable consideration that are included in the transaction price in accordance with ASC 606. We assess any variable consideration using an expected value method. The transaction price identified is allocated to each distinct performance obligation to deliver a good or service based on the relative standalone selling prices. Generally, the Company’s contracts to design and build battery-based energy storage products and solutions are determined to have one performance obligation. The Company believes that the prices negotiated with each individual customer are representative of the stand-alone selling price of the product.
The Company recognizes revenue over time as a result of the continuous transfer of control of our product to the customer. This continuous transfer of control to the customer is supported by clauses in the underlying contracts that provide enforceable rights to payment of the transaction price associated with work performed to date for products that do not have an alternative use to the Company and/or the project is built on a customer’s land that is under the customer’s control.
Revenue for these performance obligations is recognized using the percentage-of-completion method based on cost incurred as a percentage of total estimated contract costs. Standard inventory materials that could be used interchangeably on other projects are included in our measure of progress when they are integrated into, or restricted to, the production of the customer’s project. Contract costs include all direct material and labor costs related to contract performance. Pre-contract costs with no future benefit are expensed in the period in which they are incurred. Since the revenue recognition of these contracts depends on estimates, which are assessed continually during the term of the contract, recognized revenues and profit are subject to revisions as the contract progresses to completion. The cumulative effects of revisions of estimated total contract costs and revenues, together with any contract reserves which may be deemed appropriate, are recorded in the period in which they occur. Due to the uncertainties inherent in the estimation process, it is reasonably possible that these estimates will be revised in a different period. When a loss is forecasted for a contract, the full amount of the anticipated loss is recognized in the period in which it is determined that a loss will occur. Refer to “Loss Contracts” below for further discussion.
Our contracts generally provide our customers the right to liquidated damages (“LDs”) against Fluence in the event specified milestones are not met on time or equipment is not delivered according to contract specifications. LDs are accounted for as variable consideration, and the contract price is reduced by the expected penalty or LD amount when
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recognizing revenue. Variable consideration is included in the transaction price only to the extent that it is probable that a significant reversal in the amount of cumulative revenue recognized will not occur when the uncertainty is resolved. Estimating variable consideration requires certain estimates and assumptions, including whether and by how much a project will be delayed and/or will not meet contractual performance specifications. The existence and measurement of liquidated damages may also be impacted by our judgments about the probability of favorable outcomes of customer disputes involving whether certain events qualify as force majeure or the reason for the events that caused project delays. Variable consideration for liquidated damages is estimated using the expected value of the consideration to be received.
At times Fluence will incur additional costs to execute on the performance of a contract. When this happens, we typically attempt to recover the revenue associated with these costs via a negotiated claim or change order with the customer. When this fact pattern occurs, it will create a timing difference between when we have incurred the cost versus when we record the revenue as costs are recognized immediately when incurred and the revenue from the change order is recognized as an increase to contract price when it is legally enforceable, which is usually upon signing a respective change order or equivalent document confirming the claim acceptance by customer. For the three and nine-months ended June 30, 2023, we recognized revenue of approximately $1.8 million and $26.1 million, respectively, on price increase change orders during the period in which the performance obligations were substantially satisfied in previous periods.
Revenue from Services: The Company also enters into long-term service agreements with customers to provide operational services related to battery-based energy storage products and solutions. The services include maintenance, monitoring, and other minor services. The Company accounts for the services as a single performance obligation as the services are substantially the same and have the same pattern of transfer to the customers. We recognize revenue over time using a straight-line recognition method for these types of services. The Company believes using a time-based method to measure progress is appropriate as the performance obligations are satisfied evenly over time based on the fact that customers receive the services evenly. Revenue is recognized by dividing the total transaction price over the service period.
Some of the agreements also provide a commitment to perform augmentation activities which would typically be represented by installation of additional batteries, and other components as needed, to compensate for partially lost capacity due to degradation of batteries over time. The obligation to perform augmentation activities can take the form of either maintaining battery capacity above a given threshold for a stated term while others provide a fixed number of augmentations over a contract term. Augmentation arrangements that require us to maintain battery capacity above an established threshold for a given term are considered service-type warranties. These represent a stand-ready obligation in which the customer benefits evenly over time, and we thus recognize revenue for these arrangements using a straight-line recognition method. Alternatively, augmentation arrangements that require us to perform a fixed number of augmentations over a contract term follow the percentage-of-completion revenue recognition method. Since these arrangements require a fixed number of augmentations be performed, we use the pattern of cost as a proxy to identify when our obligations are satisfied and to recognize revenue.
Revenue from Digital Applications and Solutions: In October 2020, Fluence Energy, LLC acquired the Advanced Microgrid Solutions (“AMS”) software and digital intelligence platform, which became the Fluence Trading Platform. In April 2022, the Company acquired Nispera AG, a Zurich based provider of artificial intelligence (AI) and machine learning-enabled Software-as-a-Service (SaaS) targeting the renewable energy sector. Contracts involving the Fluence Trading Platform are generally entered into with commercial entities that control utility-scale storage and renewable generation assets. Fluence Trading Platform arrangements consist of a promise to provide access to proprietary cloud-based Software-as-a-Service to promote enhanced financial returns on the utility-scale storage and renewable generation assets. The Fluence Trading Platform is a hosted service that delivers automated, market-compliant bids to local electricity market operators. Customers do not receive legal title or ownership of the software as a result of these arrangements.
The Fluence Trading Platform is technology and vendor-agnostic (i.e., it can be utilized for wind and solar assets as well as non-Fluence systems). The Fluence Trading Platform is separately identifiable from other services that the Company offers to its customers (i.e., it is not highly interrelated or integrated with other solutions). As such, we determined that the Fluence Trading Platform is accounted for as a separate performance obligation. Revenue from the Fluence Trading Platform includes an integration fee and a monthly subscription fee. We consider the access to the Fluence Trading Platform and related support services in a customer contract to be a series of distinct services which comprise a single performance obligation because they are substantially the same and have the same pattern of transfer. We recognize revenue over time using a straight-line recognition method.
For our sale of energy storage products, services, and digital applications and solutions contracts where there are multiple performance obligations in a single contract, the Company allocates the consideration to the various obligations in the contract based on the relative standalone selling price method. Standalone selling prices are estimated based on estimated costs plus margin. Revenue is recorded net of any taxes assessed on and collected from customers, which are remitted to the governmental authorities.
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Cost of Goods and Services: Cost of goods and services consists primarily of product costs, including purchased materials and supplies, as well as costs related to shipping, customer support, product warranty and personnel. Personnel costs in cost of goods and services includes both direct labor costs as well as costs attributable to any individuals whose activities relate to the transformation of raw materials or component parts into finished goods or the transportation of materials to the customer. Cost of goods and services are recognized when services are performed, or control of goods are transferred to the customers, which is generally based upon International Commercial Terms (commonly referred to as ‘‘incoterms’’) stated in corresponding supply agreements or purchase orders. Standard inventory materials that could be used interchangeably on other projects are included in cost of goods sold when they are integrated into, or restricted to, the production of the customer’s project.
Deferred Revenue: Deferred revenue represents the excess billings to date over the amount of revenue recognized to date. Contract advances represent amounts received by the Company upon signing of the related contracts with customers. The advances are offset proportionately against progress billings. Any outstanding portion is included in deferred revenue on the accompanying consolidated balance sheets.
Loss Contracts: A contract becomes a loss contract when its estimated total costs are expected to exceed its total revenue. The Company accrues the full loss expected in the period a loss contract is identified in “Current liabilities — Accruals and provisions” and “Cost of goods and services” on the Company’s consolidated balance sheets and consolidated statements of operations and comprehensive loss, respectively.
Inventory, Net
Software Development Costs
Our software development costs primarily relate to two categories: 1) internal-use software development costs, and 2) external-use software development costs. We capitalize costs incurred to purchase or develop software for internal use, and software to be sold or leased externally.
Internal-use software development costs are capitalized during the application development stage in accordance with ASC 350-40, Internal-Use Software. These capitalized costs are reflected in “Intangible Assets, Net” on the consolidated balance sheets and are amortized over the estimated useful life of the software. Our internal-use software relates to our SaaS customer offerings and is amortized to cost of goods and services. The useful life of our internal-use software development costs is generally 3 years.
During the three and nine months ended June 30, 2023, the Company capitalized $5.5 0.0 million
External-use software development costs developed to be sold or leased externally are capitalized upon the establishment of technological feasibility for a product in accordance with ASC 985-20, Software to be Sold or Leased Externally. These software development costs are reflected in “Intangible Assets, Net” on our consolidated balance sheets and amortized to cost of goods and services on a product basis by the greater of the straight-line method over the estimated economic life of the product, or the ratio that current gross revenues for a product bear to the total current and anticipated future gross revenues for that product. The useful life of our external-use software development costs is generally 5 years.
During the three and nine months ended June 30, 2023, the Company capitalized $1.8 0.0 million
Fair Value Measurements
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Level 1—Quoted prices are available in active markets for identical assets or liabilities as of the reporting date. Active markets are those in which transactions for the asset or liability occur in sufficient frequency and volume to provide pricing information on an ongoing basis.
Level 2—Pricing inputs are other than quoted prices in active markets included in Level 1, which are either directly or indirectly observable as of the reporting date. Level 2 inputs include those financial instruments that are valued using models or other valuation methodologies. These models are primarily industry-standard models that consider various assumptions, including quoted prices, time value, volatility factors, and current market and contractual prices for the underlying instruments, as well as other relevant economic measures. Substantially all of these assumptions are observable in the marketplace throughout the full term of the instrument, can be derived from observable data or are supported by observable levels at which transactions are executed in the marketplace.
Level 3—Pricing inputs include significant inputs that are generally less observable from objective sources. These inputs may be used with internally developed methodologies that result in management’s best estimate of fair value from the perspective of a market participant. The Company does not have significant recurring Level 3 fair value measurements.
The Company’s cash equivalents include term deposits with original maturity of less than 90 days and are recorded at amortized cost. Fair value of cash equivalents approximates the carrying amount. The carrying amounts of trade receivables, accounts payable and short-term debt obligations approximate fair values due to their short maturities.
| in thousands | Three Months Ended June 30, 2023 | Nine Months Ended June 30, 2023 | ||||||||||||
| Beginning balance | $ | $ | ||||||||||||
| Contributions / (withdrawals) | ( | ( | ||||||||||||
| Changes in fair market value | ||||||||||||||
| Ending Balance | $ | $ | ||||||||||||
Supply Chain Financing
As of June 30, 2023, three suppliers were actively participating in the supply chain financing program, and we had $17.3 million of payables outstanding subject to the program. All outstanding payments owed under the program are recorded within “Accounts payable” on the condensed consolidated balance sheets.
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Loss per Share
As of June 30, 2023, the Company’s amended and restated certificate of incorporation authorizes three classes of common stock: Class A, Class B-1 and Class B-2. Loss per share is calculated and reported under the “two-class” method. The “two-class” method is an earnings allocation method under which earnings (loss) per share is calculated for each class of common stock considering both distributions declared or accumulated and participation rights in undistributed earnings as if all such loss had been distributed during the period.
Basic net loss per share of Class A common stock is computed by dividing net loss attributable to Class A common stockholders by the weighted average number of shares of Class A common stock outstanding during the period. Diluted net loss per share of Class A common stock is computed by adjusting the net loss available to Class A common stockholders and the weighted average shares of Class A common stock outstanding to give effect to potentially dilutive securities. Shares of our Class B-1 and Class B-2 common stock are not entitled to receive any distributions or dividends. When a common unit of Fluence Energy, LLC is redeemed, at the Company’s election, for cash or Class A common stock by a Founder who holds shares of our Class B-1 or Class B-2 common stock, as applicable, such Founder will be required to surrender a share of Class B-1 or Class B-2 common stock, as the case may be, which we will cancel for no consideration. In the event of cash settlement, the Company is required to issue new shares of Class A common stock and use the proceeds from the sale of these newly-issued shares of Class A common stock to fully fund the cash settlement. Therefore, we did not include shares of our Class B-1 or Class B-2 common stock in the computation of basic loss per share. As we have incurred losses for all periods presented, diluted loss per share is equal to basic loss per share because the effect of potentially dilutive securities would be antidilutive.
The following table presents the potentially dilutive securities that were excluded from the computation of diluted loss per share:
| Three Months Ended June 30, | Nine Months Ended June 30, | ||||||||||||||||||||||
| 2023 | 2022 | 2023 | 2022 | ||||||||||||||||||||
| Class B-1 common stock | |||||||||||||||||||||||
| Outstanding stock options | |||||||||||||||||||||||
| Outstanding phantom units | |||||||||||||||||||||||
| Outstanding restricted stock units (“RSUs”) | |||||||||||||||||||||||
In October 2021, the existing limited liability company agreement of Fluence Energy, LLC was amended and restated which recapitalized all existing interests in the Company on the basis of a 14.79 -for-1 split. All shares and per share information has been retroactively adjusted to give effect to the recapitalization for all periods presented, unless otherwise indicated.
All earnings prior to and up to November 1, 2021, the date of completion of the IPO, were entirely allocable to non-controlling interest and, as a result, loss per share information is not applicable for reporting periods prior to this date. Consequently, only the net loss allocable to Fluence Energy, Inc. from the period subsequent to November 1, 2021 is included in the net loss attributable to the stockholders of Class A common stock for nine months ended June 30, 2023 and 2022. Basic and diluted net loss per share of Class A common stock for the three and nine months ended June 30, 2023 and 2022, respectively, have been computed as follows:
| Three Months Ended June 30, | Nine Months Ended June 30, | ||||||||||||||||||||||
| In thousands, except share and per share amounts | 2023 | 2022 | 2023 | 2022 | |||||||||||||||||||
| Net loss | $ | ( | $ | ( | $ | ( | $ | ( | |||||||||||||||
| Less: Net loss attributable to the non-controlling interest | ( | ( | ( | ( | |||||||||||||||||||
| Net loss attributable to Fluence Energy, Inc. | $ | ( | $ | ( | $ | ( | $ | ( | |||||||||||||||
| Weighted average number of Class A common stock - basic and diluted | |||||||||||||||||||||||
| Loss per share of Class A common stock - basic and diluted | $ | ( | $ | ( | $ | ( | $ | ( | |||||||||||||||
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Recent Accounting Standards Adopted
The following table presents accounting standards adopted during the nine months ended June 30, 2023.
| Standard | Description | Period of Adoption | Effect on the financial statements and other significant matters | ||||||||
| ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting; ASU 2022-06, Reference Rate Reform (Topic 848): Deferral of the Sunset Date of Topic 848. | In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting and subsequent amendment to the initial guidance: ASU 2021-01, Reference Rate Reform (Topic 848): Scope (collectively, “Topic 848”). Topic 848 provides optional expedients and exceptions for applying GAAP to contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met. The amendments apply only to contracts, hedging relationships, and other transactions that reference LIBOR or another reference rate expected to be discontinued because of reference rate reform. In December 2022, the FASB issued ASU 2022-06, Reference Rate Reform (Topic 848): Deferral of the Sunset Date of Topic 848. ASU 2022-06 defers the sunset date of Topic 848 from December 31, 2022, to December 31, 2024. | Q3 FY23 | Effective May 19, 2023, the Company transitioned its Revolving Credit Facility from LIBOR to the Secured Overnight Financing Rate ("SOFR"). The Company elected the optional practical expedient as it relates to our Revolver as the amendment does not modify terms that change or have the potential to change, the amount and timing of cash flows unrelated to the replacement of LIBOR. The Company adopted this guidance prospectively on May 19, 2023, and it did not have a material impact on the Consolidated Financial Statements. | ||||||||
Recent Accounting Standards Not Yet Adopted
The following table presents accounting standards not yet adopted:
| Standard | Description | Required date of adoption | Effect on the financial statements and other significant matters | ||||||||
| Accounting Standards Update (“ASU”) No. 2022-04: Liabilities-Supplier Finance Programs (Subtopic 405-50): Disclosure of Supplier Finance Program Obligations | In September 2022, the Financial ASU No. 2022-04, "Disclosure of Supplier Finance Program Obligations" ("ASU 2022-04"). ASU 2022-04 requires entities to disclose the key terms of supplier finance programs they use in connection with the purchase of goods and services, along with the amount of obligations outstanding at the end of each period and an annual rollforward of such obligations. This standard does not affect the recognition, measurement, or financial statement presentation of supplier finance program obligations. | ASU 2022-04 is effective for the Company beginning in its fiscal year ending - September 30, 2024 and is to be applied retrospectively to all periods in which a balance sheet is presented. The annual rollforward disclosure is not required to be made until its fiscal year ending September 30, 2025 and is to be applied prospectively. Early adoption is permitted. | The Company is evaluating the impact that this guidance will have on disclosures related to its supplier finance program obligations. | ||||||||
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3. Revenue from Contracts with Customers
Our revenue is primarily derived from sales of our energy storage products and solutions. The following table presents the Company’s revenue disaggregated by revenue type:
| In thousands | Three Months Ended June 30, | Nine Months Ended June 30, | ||||||||||||||||||||||||
2023 | 2022 | 2023 | 2022 | |||||||||||||||||||||||
| Revenue from energy storage products and solutions | $ | $ | $ | $ | ||||||||||||||||||||||
| Revenue from services | ||||||||||||||||||||||||||
| Revenue from digital applications and solutions | ||||||||||||||||||||||||||
| Other | ||||||||||||||||||||||||||
| Total | $ | $ | $ | $ | ||||||||||||||||||||||
The following table presents the Company’s revenue disaggregated by geographical region. Revenues are attributed to regions based on location of customers:
| In thousands | Three Months Ended June 30, | Nine Months Ended June 30, | ||||||||||||||||||||||||
2023 | 2022 | 2023 | 2022 | |||||||||||||||||||||||
Americas (North, Central and South America) | $ | $ | $ | $ | ||||||||||||||||||||||
| APAC (Asia Pacific) | ||||||||||||||||||||||||||
| EMEA (Europe, Middle-East and Africa) | ||||||||||||||||||||||||||
| Total | $ | $ | $ | $ | ||||||||||||||||||||||
Customer Concentration
For the nine months ended June 30, 2023, our top four customers, in the aggregate, accounted for approximately 62 % of total revenue.
For the nine months ended June 30, 2022, our top three customers, in the aggregate, accounted for approximately 80 % of total revenue.
Deferred Revenue
Deferred revenue represents the excess billings over the amount of revenue recognized to date. Deferred revenue from related parties is included in payables and deferred revenue with related parties on the Company’s condensed consolidated balance sheets. The following table provides information about deferred revenue from contracts with customers:
| In thousands | Three Months Ended June 30, | Nine Months Ended June 30, | |||||||||||||||||||||
| 2023 | 2022 | 2023 | 2022 | ||||||||||||||||||||
| Deferred revenue, beginning of period | $ | $ | $ | $ | |||||||||||||||||||
| Additions | |||||||||||||||||||||||
| Revenue recognized related to amounts that were included in beginning balance of deferred revenue | ( | ( | ( | ( | |||||||||||||||||||
| Deferred revenue, end of period | $ | $ | $ | $ | |||||||||||||||||||
| In thousands | Three Months Ended June 30, | Nine Months Ended June 30, | |||||||||||||||||||||
| 2023 | 2022 | 2023 | 2022 | ||||||||||||||||||||
| Deferred revenue from related parties, beginning of period | $ | $ | $ | $ | |||||||||||||||||||
| Additions | |||||||||||||||||||||||
| Revenue recognized related to amounts that were included in beginning balance of deferred revenue | ( | ( | ( | ( | |||||||||||||||||||
| Deferred revenue from related parties, end of period | $ | $ | $ | $ | |||||||||||||||||||
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Remaining Performance Obligations
The Company’s remaining performance obligations (“backlog”) represent the unrecognized revenue value of its contractual commitments, which include deferred revenue and amounts that will be billed and recognized as revenue in future periods. The Company’s backlog may vary significantly each reporting period based on the timing of major new contractual commitments and the backlog may fluctuate with currency movements. In addition, under certain circumstances, the Company’s customers have the right to terminate contracts or defer the timing of its services and their payments to the Company.
As of June 30, 2023, the Company had $2.9 billion of remaining performance obligations related to our contractual commitments, of which we expect to recognize approximately 80 % in revenue in the next 3 to 27 months and the remainder thereafter.
Variable Consideration
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4. Inventory, Net
Inventory consisted of the following:
In thousands | June 30, 2023 | September 30, 2022 | |||||||||||||||||||||||||||||||||
| Cost | Provision | Net | Cost | Provision | Net | ||||||||||||||||||||||||||||||
Cubes, batteries, and other equipment | $ | $ | ( | $ | $ | $ | ( | $ | |||||||||||||||||||||||||||
Shipping containers and spare parts | ( | ||||||||||||||||||||||||||||||||||
Total | $ | $ | ( | $ | $ | $ | ( | $ | |||||||||||||||||||||||||||
5. Other Current Assets
Other current assets consisted of the following amounts:
| In thousands | June 30, 2023 | September 30, 2022 | |||||||||
| Taxes recoverable | $ | $ | |||||||||
| Advance payments | |||||||||||
| Prepaid expenses | |||||||||||
| Prepaid insurance | |||||||||||
Derivative assets (a) | |||||||||||
| Other | |||||||||||
| Total | $ | $ | |||||||||
(a) Derivative assets represent forward contracts which are used predominantly to mitigate foreign exchange rate exposure on costs incurred on customer projects. Gains and losses on forward contracts are recorded to cost of goods and services.
6. Intangible Assets, Net
Intangible assets are stated at amortized cost and consist of the following:
In thousands | June 30, 2023 | September 30, 2022 | ||||||||||||||||||||||||||||||||||||
| Cost | Accumulated Amortization | Net | Cost | Accumulated Amortization | Net | |||||||||||||||||||||||||||||||||
| Patents and licenses | $ | $ | ( | $ | $ | $ | ( | $ | ||||||||||||||||||||||||||||||
Developed technology | ( | ( | ||||||||||||||||||||||||||||||||||||
Customer relationship | ( | ( | ||||||||||||||||||||||||||||||||||||
Trade names /Trademarks | ( | ( | ||||||||||||||||||||||||||||||||||||
| Capitalized internal-use software | ( | |||||||||||||||||||||||||||||||||||||
| Capitalized software to be sold | ( | |||||||||||||||||||||||||||||||||||||
Other | ( | |||||||||||||||||||||||||||||||||||||
Total | $ | $ | ( | $ | $ | $ | ( | $ | ||||||||||||||||||||||||||||||
Total amortization expense for the three months ended June 30, 2023 and 2022 was $1.9 million and $1.3 million, respectively. Total amortization expense for the nine months ended June 30, 2023 and 2022 was $5.3 million and $3.2 million, respectively. Included within amortization expense for the three and nine months ended June 30, 2023 was $0.5 No
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7. Goodwill
In thousands | Nine months ended | Nine months ended | |||||||||
| June 30, 2023 | June 30, 2022 | ||||||||||
Goodwill, Beginning of the period | $ | $ | |||||||||
| Foreign currency adjustment | ( | ||||||||||
Acquisition related goodwill | |||||||||||
Goodwill, End of the period | $ | $ | |||||||||
8. Current Accruals and Provisions
Accruals mainly represent milestones not yet invoiced for inventory such as batteries, cubes, and inverters. According to master supply agreements between the Company and suppliers of our inventory, vendor invoices are issued according to contracted billing schedules with certain milestones invoiced after delivery, upon full installation and commissioning of the equipment at substantial completion and final completion project stages. Current accruals and provisions consisted of the following:
| In thousands | June 30, 2023 | September 30, 2022 | |||||||||
Accruals | $ | $ | |||||||||
Provisions for expected project losses | |||||||||||
Warranty accrual | |||||||||||
| Total | $ | $ | |||||||||
Less: non-current portion | ( | ( | |||||||||
| Current portion | $ | $ | |||||||||
9. Debt
Revolving Credit Facility
On November 1, 2021, we entered into a credit agreement for a revolving credit facility (the “Revolver”), by and among Fluence Energy, LLC, as the borrower, Fluence Energy, Inc., as a parent guarantor, the subsidiary guarantors party thereto, the lenders party thereto and JP Morgan Chase Bank, N.A., as administrative agent and collateral agent (the “Credit Agreement”). The Revolver is secured by a (i) first priority pledge of the equity securities of Fluence Energy, LLC and its subsidiaries and (ii) first priority security interests in, and mortgages on, substantially all tangible and intangible personal property and material fee-owned real property of Fluence Energy, LLC, the parent guarantor and each subsidiary guarantor party thereto, in each case, subject to customary exceptions and limitations. The initial aggregate amount of commitments was $190.0 million from the lenders party thereto including JP Morgan Chase Bank, N.A., Morgan Stanley Senior Funding, Inc., Bank of America, N.A., Barclays Bank PLC, and five other banks. On June 30, 2022, the Company increased the revolving commitment available under the Revolver by $10.0 million to an aggregate of $200.0 million with the addition of UBS AG, Stamford Branch as an additional lender under the Revolver. The maturity date of the Revolver is November 1, 2025. On May 19, 2023, the Credit Agreement was amended to replace Adjusted LIBOR with Adjusted Term SOFR as the applicable benchmark interest rate with respect to certain classes of loans. The Company elected the optional practical expedient as it relates to our Revolver as the amendment does not modify terms that change or have the potential to change, the amount and timing of cash flows unrelated to the replacement of LIBOR.
The Revolver bears interest at (i) with respect to Term Benchmark Loans (as defined in the Credit Agreement), the Adjusted Term SOFR Rate, the Adjusted EURIBOR Rate or the AUD Rate (each as defined in the Credit Agreement), as applicable, plus 3.0 %, (ii) with respect to ABR Loans (as defined in the Credit Agreement) the Alternate Base Rate (as defined in the Credit Agreement) plus 2.0 %, or (iii) with respect to RFR Loans (as defined in the Credit Agreement), the applicable Daily Simply RFR (as defined in the Credit Agreement) plus 3.1193 %, in each instance subject to customary benchmark replacement provisions including, but not limited to, alternative benchmark rates, customary spread adjustments with respect to borrowings in foreign currency and benchmark replacement conforming changes. Fluence Energy, LLC is required to pay to the lenders a commitment fee of 0.55 % per annum on the average daily unused portion of the revolving
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commitments through maturity, which will be the four-year anniversary of the closing date of the Revolver. The Revolver also provides for up to $200.0 million in letter of credit issuances, which will require customary issuance and administration fees, as well as a fronting fee payable to each issuer thereof and a letter of credit participation fee of 2.75 % per annum payable to the lenders.
The Credit Agreement contains customary covenants for these types of financing, including, but not limited to, covenants that restrict our ability to incur additional indebtedness; incur liens; sell, transfer, or dispose of property and assets; make investments or acquisitions; make dividends, distributions or other restricted payments; and engage in affiliate transactions. The Credit Agreement limits our ability to make certain payments, including dividends and distributions on Fluence Energy, LLC’s equity, Fluence Energy, Inc.’s equity and other restricted payments. Under the terms of the Credit Agreement, Fluence Energy, LLC and its subsidiaries are currently limited in their ability to pay cash dividends to, lend to, or make other investments in Fluence Energy, Inc., subject to certain exceptions, including among others (i) the ability to make investments of up to the greater of (a) $10,500,000 and (b) 1.5 % of the consolidated assets of Fluence Energy, Inc. and its subsidiaries, and (ii) the ability to issue dividends and make other Restricted Payments (as defined in the Credit Agreement) (a) if after giving pro forma effect to such dividend or other Restricted Payment the Total Liquidity (as defined in the Credit Agreement) of Fluence Energy, Inc. and its subsidiaries party to the Credit Agreement is at least $600,000,000 , or (b) such dividend or other Restricted Payment is made to reimburse Fluence Energy, Inc. for certain tax distributions under the Third Amended and Restated Limited Liability Company Agreement of Fluence Energy, LLC (the “LLC Agreement”) and certain payments under the Tax Receivable Agreement, dated as of November 1, 2021, entered into connection with the IPO, by and among Fluence Energy, Inc., Fluence Energy, LLC and the Founders (the “Tax Receivable Agreement”) and certain operational expenses incurred in connection with the ownership and management of Fluence Energy, LLC.
In addition, we are required to maintain (i) minimum liquidity and gross revenue requirements, in each case, until consolidated EBITDA reaches $150.0 million for the most recent four fiscal quarters and we make an election, and (ii) thereafter, a maximum total leverage ratio and a minimum interest coverage ratio. Such covenants will be tested on a quarterly basis. As of June 30, 2023, we were in compliance with all such covenants or maintained availability above such covenant triggers.
As of June 30, 2023, we had no borrowings under the Revolver and have availability under the facility of $165.3 million, net of letters of credit issued of $34.7 million.
Line of Credit.
Prior to the IPO, the Company had an Uncommitted Line of Credit Agreement (“Line of Credit’) with Citibank, N.A. (“Citibank”) which allowed us to borrow an amount in aggregate not to exceed $50.0 million, with the expiration date on March 31, 2023. Outstanding borrowings from the Line of Credit were $50.0 million as of September 30, 2021. The weighted-average annual interest rate of the borrowing was 2.83 %. On November 1, 2021, the $50.0 million outstanding borrowings from the Line of Credit was paid off using the proceeds from our IPO and the Line of Credit was canceled shortly thereafter.
Borrowings Against Note Receivable - Pledged as Collateral
In December 2022, we transferred $24.3 million in customer receivables to Standard Charter Bank (“SCB”) in the Philippines for proceeds of $21.1 million. The receivables all related to our largest customer in that country. The underlying receivables transferred were previously aggregated into a long term note, with interest, and has a maturity date of September 30, 2024 and was previously classified under “Other non-current assets” on our condensed consolidated balance sheet. In April 2023, we aggregated into an additional long term note and transferred an additional $30.9 million in receivables with the same customer to SCB for proceeds of $27.0 million, upon substantially similar terms as the December 2022 transfer and has a maturity date of December 27, 2024. These transactions are treated as secured borrowings as we did not transfer the entire note receivables due from the customer to SCB. We continue to receive quarterly interest income from the customer, while SCB is responsible for collecting payments on the principal balances which represent the initial receivable balances from the customer. We have no other continuing involvement or exposure related to the underlying receivables. We will record aggregate interest expense of $3.2 million to SCB over the 24 months period from September 30, 2022 until the first note receivable is fully due from the customer. We will record aggregate interest expense of $3.9 million to SCB over the 21 month period from April 1, 2023 until the second note receivable is fully due from the customer.
Refer to Note 12 — Related-Party Transactions for details regarding borrowings from related parties.
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10. Income Taxes
The Company’s provision for income taxes is based on the estimated annual effective tax rate, plus discrete items.
Income tax expense (benefit) was $(1.3 ) million and $(1.0 ) million for the three months ended June 30, 2023 and 2022, respectively. The effective tax rate for the three months ended June 30, 2023 and 2022 was 3.6 % and 1.6 %, respectively. For the three months ended June 30, 2023, the Company’s effective tax rate differs from the U.S. statutory tax rate of 21% primarily due to flow-through losses attributable to the Founder, AES Grid Stability, valuation allowances and foreign exchange losses. For the three months ended June 30, 2022, the Company’s effective tax rate differs from the U.S. statutory tax rate of 21% primarily due to flow-through losses attributable to the Founders, AES Grid Stability and Siemens Industry, valuation allowances, and foreign exchange losses.
Income tax expense (benefit) was $(2.1 ) million and $(0.5 ) million for the nine months ended June 30, 2023 and 2022, respectively. The effective tax rate for the nine months ended June 30, 2023 and 2022 was 1.8 % and 0.2 %, respectively. For the nine months ended June 30, 2023, the Company’s effective tax rate differs from the U.S. statutory tax rate of 21% primarily due to flow-through losses attributable to the Founder, AES Grid Stability, valuation allowances and foreign exchange gains. For the nine months ended June 30, 2022, the Company’s effective tax rate differs from the U.S. statutory tax rate of 21% primarily due to flow-through losses incurred prior to the IPO on November 1, 2021, and flow-through losses attributable to the Founders, AES Grid Stability and Siemens Industry, valuation allowances, and foreign exchange losses.
As of each of June 30, 2023 and September 30, 2022, the Company does not
11. Commitments and Contingencies
Guarantees
As of June 30, 2023, the Company had outstanding bank guarantees, parent guarantees and surety bonds issued as performance security arrangements for a number of our customer projects. These contractual commitments are all accounted for off balance sheet.
The following table summarizes contingent contractual obligations as of June 30, 2023. Amounts presented in the following table represent the Company's current undiscounted exposure to guarantees and the range of maximum undiscounted potential exposure. The maximum exposure is not reduced by the amounts, if any, that could be recovered under the recourse or collateralization provisions in the guarantees.
| Contingent Contractual Obligations | Amount (in $ millions) | Number of Agreements | Maximum Exposure Range for Each Agreement (in millions) | ||||||||
| Guarantees and commitments | $ | $ | |||||||||
| Letters of credit under the bilateral credit facility | |||||||||||
| Letters of credit under Revolver | |||||||||||
| Surety bonds | |||||||||||
| Total | $ | ||||||||||
Typical turn-key contracts and long-term service agreements contain provisions for performance liquidated damages payments if the solution fails to meet the guaranteed performance thresholds at completion of the project or throughout the service agreement period.
Purchase Commitments
The Company has commitments for minimum volumes of purchases of battery modules under a master supply agreement. Liquidated damages apply if the minimum purchase volumes are not met. The Company expects to meet the
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minimum committed volumes of purchases. The following table presents our future minimum purchase commitments by fiscal year, primarily for battery modules, and liquidated damages, if the minimum purchase volumes are not met, as of June 30, 2023 :
| in thousands | Purchase Commitments | Liquidated Damages | ||||||
| 2023 | $ | $ | ||||||
| 2024 | ||||||||
| 2025 | ||||||||
| 2026 and thereafter | ||||||||
| Total | $ | $ | ||||||
During the three months ended December 31, 2021, the Company made a $60.0 million advance payment as a capacity guarantee pursuant to a purchase agreement with one of our suppliers, of which, as of June 30, 2023, the balance of $36.5 million is recorded within “Current assets - Advances to suppliers” and no portion remains within “Non-current assets - Advances to suppliers” on the condensed consolidated balance sheets.
Negotiations with our Largest Battery Module Vendor
In December 2021, we entered negotiations with our largest battery module vendor to amend our battery supply agreement. As part of the discussions the vendor sought to renegotiate the price, we were to pay for battery modules purchased in calendar year 2022 as well as those expected to be purchased during the remainder of calendar year 2022 and calendar year 2023. As part of these negotiations, we also discussed settlement of contractual claims by Fluence to the vendor. These negotiations continued throughout calendar year 2022.
On December 15, 2022, we finalized an agreement with the vendor, amending the supply agreement and resolving our claims. The amendments and settlement were consistent with what we had estimated and disclosed in our consolidated financial statements in our 2022 Annual Report. The approximately $19.5 million settlement for our claims was recognized as a reduction of costs of goods and services for the nine months ended June 30, 2023.
Warranties
The Company is party to both assurance and service-type warranties for various lengths of time. The Company recognizes revenue for service-type warranties using either a straight-line or cost-to-cost method depending on the contract. Extended warranties that customers purchase separately from the related products and services are accounted for as separate performance obligations.
The Company provides a limited warranty related to the successful operation of battery-based energy storage products and solutions, apart from the service type warranties described above and are normally provided for a limited period of time from to five years , after the commercial operation date or substantial completion depending on the contract terms. The warranties are considered assurance-type warranties which provide a guarantee of quality of the products and solutions.
For assurance-type warranties, we accrue an estimate of future warranty liability cost over the period of construction, consistent with transfer of control and revenue recognition on the equipment or battery-based energy storage products as part of our estimated recurring warranty reserve. Furthermore, we accrue the estimated liability cost of specific reserves or recalls when they are probable and estimable if identified. Our assurance type warranties are often backed by supplier covered warranties. We record a recoverable asset for any specific reserves or recalls when it is probable and estimable that the supplier will reimburse us for the expense.
Warranty expense is recorded as a component of “Costs of goods and services” in the Company’s condensed consolidated statements of operations.
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