Fluence Energy, Inc.

Welcome everyone to our earnings call for the fourth quarter of fiscal year 2021, which ended on September 30th. Before we begin, I would like to remind you that management will make statements during this call that include forward-looking statements within the meaning of federal securities laws, which are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are neither promises nor guarantees and are based upon our current estimates and various assumptions and are subject to material risks and uncertainties that could cause actual results or events to materially differ from those anticipated or implied by these forward-looking statements. These and other risks are described in our filings made with the Securities and Exchange Commission. We encourage you to review these filings for a discussion of these factors, including our annual report on Form 10-K for the fiscal year ended September 30, 2021, which will be filed next week. You are cautioned not to place undue reliance on these forward-looking statements, which speak only as of today, and the company disclaims any obligation to update such statements for new information. This call will also reference non-GAAP measures that we view as important in assessing the performance of our business. A reconciliation of these non-GAAP measures to the most comparable GAAP measures is available in our earnings materials on the company's investor relations page at ir.fluenceenergy.com. I will now turn the call over to our CEO, Manuel Perez Dubuc.

Thank you, Sam. I would like to extend a personal welcome to our investors, research analysts, employees, and customers who are listening to our first earnest call as a publicly traded company. This morning, I'm going to share our market outlook and provide an overview of our business for our new investor base. Afterward, I will give an update on some recent developments, and then I will hand the call over to our fluent CFO, Dennis Fair, who will discuss the financial performance and as well as provide some high-level revenue guidance. Before I jump into the market outlook, I would like to extend a sincere thank you to the entire Fluence team for their passion and commitment to delivering best-in-class products, services, and digital solutions to our customers. Our team is has demonstrated tremendous strength and resilience during the ongoing pandemic. It is thanks to their contributions that we have successfully completed our IPO, generating almost a billion dollars to help drive our next phase of growth. I will start on slide four on the quarterly earnings presentation with an overview of our business opportunities. Climate change is real and it poses an existential problem. We are finally seeing governments, companies, and citizens take serious steps to address this issue. The electric sector bears great responsibility in leading that effort as the world transitions away from fossil fuels towards renewable energy. In fact, renewables are now one of the cheapest sources of electricity further accelerating this monumental shift. This huge transformation is driving three revolutions that are happening at the same time. The first is the decarbonization of our planet and the transition to clean energy to help address climate change. The second is the electric revolution, which is an electrification of everything. The third one is the digital revolution, Machine learning and artificial intelligence are disrupting traditional processes, redefining energy markets, and enabling new opportunities. Fluence uniquely sits at the core of these three revolutions. As clean energy assets proliferate, they also create issues for grid because it was not originally designed to handle intermittent and variable power generation for renewables. Fluent energy storage systems and digital applications enable the clean energy transformation of the grid. Third-party research shows that the clean energy transition will likely require over $100 trillion of investment over the next 30 years. Bloomberg New Energy Finance also projects 194 gigawatts of installed energy storage capacity by 2030 alone. As conventional generation assets retire and are replaced by cheaper renewables, the need for energy storage compounds even further as the grid will require energy storage for stability and reliability. This opportunity is immense, and Fluence is well positioned to maintain our leadership position in energy storage solutions and digital applications. Turning to slide number five. Fluence is uniquely situated to drive the global transition to clean energy, led by pioneers of the energy storage and team members and leaders with the most experience in the industry. Many members of our current team literally invented the use of lithium-ion batteries on the grid. Fluence is a digital disruptor, and customers far and wide recognize the value of our Fluence IQ platform. While still in the early stages, we are already optimizing over 18% of all renewables in Australia with our Fluence IQ platform. One of the biggest factors that sets us apart from our competitors is our skill. We have one of the largest install bases that helps to expand our ecosystem. Product adoption and crop selling opportunities. Our scale is evident by our global offices and supply chain that has enabled us to operate in 30 markets across the world. We are also battery agnostics. I do not manufacture batteries. This is a strategic move for us as battery chemistries are constantly changing and evolving, enabling us to move quickly along the technology course as better solutions come to the market. And most importantly, we have secured over $1.7 billion in contracted backlog, which provide us with visibility to future cash flows that will be used to grow and accelerate our business. Turning to slide six, I would like to highlight this tremendous total addressable market. Starting with energy storage products, BNEF is forecasting a 24% compounded annual growth rate between 2020 and 2030. This equates to over 34 gigawatts of new installations in the year 2030 alone. For reference, at the end of the quarter, we had an aggregate of 3.7 gigawatts of energy storage products deployed and contracted. Also, based on BNEF forecast, energy storage services are expected to grow 31% compounded annually between 2020 and 2030. This equates to over 193 gigawatts of cumulative installed services base. For reference, at the end of the quarter, we had approximately 2.7 gigawatts under management and contracted for our energy services. And most exciting is the enormous total addressable market for our Fluence IQ digital platform, where the TAM is nearly 8,000 gigawatts. The TAM is so vast because we can optimize not only third-party energy storage products, but also pure renewable assets such as wind, solar, and hydro that do not have any storage components. This means the growth potential of Fluence IQ is not limited by installed energy base. As of the end of the quarter, Fluence IQ is optimizing or has contracted 4.7 gigawatts, so it's easy to see why we are extremely excited about Fluence IQ's future. Turning to slide seven and our quarterly results. In both, the fiscal fourth quarter and full year, we delivered record operational performance in our Fluence ecosystem, comprised of our three business lines. Looking first at new orders, our contracted megawatts of energy storage products increased year over year by 55%. This resulted in a record 1,300 megawatts. Additionally, our services business grew nearly 750% year over year, which resulted in almost 2,000 megawatts, a new all-time record for Fluence. And our Fluence IQ continued to build momentum as evident by our recent contract awards supporting our recurring revenue growth strategy. Speaking of Fluence IQ, we are extremely encouraged by the performance of our platform. In fiscal year 2021, we booked 2.7 gigawatts of new orders. Compared to 1.3 gigawatts of new orders for energy storage products, demonstrating the importance of Fluence IQ and its ability to optimize renewables beyond storage. We see substantial growth in all business lines, including our IQ platform, setting the stage for a robust 2022 and beyond. As we experience this strong growth in order trends, like so many other companies, we have also challenged by excess of shipping charges as well as other project charges were compounding effect on the COVID-19 pandemic. In the fiscal fourth quarter, some of our APAC-based customer sites have experienced temporary work interruption due to COVID-19. As such, we were not able to progress our installation work for storage equipment at these affected sites as planned. These temporary customer site closures resulted in delayed revenue recognition, as well as unanticipated costs related to these delays. We view these delays as temporary. However, we are realistic that the newly discovered COVID variant, Omicron, could prolong these delays even further. But it is still too early to make that determination. We are managing ongoing disruptions in our global supply chain, including shipping of our products. We have experienced delays in delivery times, increases in shipping rates, and decreases in freight availability. These issues have resulted in delays for a number of product deliveries, driving increases in short-term expenses, including expedited shipping costs and payments for overtime labors. In response, we are working on multiple solutions to improve our global supply chain, including negotiating guaranteed capacity on ocean freight liners with Tier 1 shipping companies to ensure our products get delivered from our contract manufacturing location in Vietnam to our end customers around the world. We will continue to monitor freight markets closely and take additional measures to protect our customers, and our revenue from future supply chain disruptions. This includes establishing a regional contract manufacturing and distribution model. In the coming several months, we expect to finalize the terms with a contract manufacturer to serve our North American market and thus reduce our reliance on shipping our products to Southeast Asia to the Americas. I would also like to make a few comments on the recent overheating event that occurred at one of our customers' facilities. On September 4, 2021, a 300-megawatt energy storage facility owned by one of our customers experienced an overheating event. Fluent served as one of the contractors for this facility to provide and install energy storage technology. which was completed in fiscal year 2021. As our customer reported, the facility experienced an overheating event that resulted in the system shutting down as designed to further mitigate any possible damage. No injuries were reported from the incident. The facility has been taken offline as teams from Fluence, our customer, and the battery manufacturer investigate the incident We are currently not able to estimate the impact, if any, that this incident may have in all our financial results. As information becomes available, we will update our shareholders accordingly. Turning to slide eight and some of our recent developments, I am pleased to announce Fluent signing a contract during the quarter to provide our energy storage products to the largest energy storage portfolio in Europe, featuring a total of 105 megawatts of energy storage system across two different locations. This order was placed by a repeat customer, which we believe reflects the value that we have already brought to that customer. This order was also accompanied by a 10-year service contract, providing us with visibility to future recurring revenues. Also, we recently announced a significant contract in Australia for the Hazelwood project with our partners, Engie and Macquarie. This is a significant achievement for us. The award includes 150 megawatts of energy storage plus a 20-year service contract and the assets will be optimized by our Fluence IQ platform. This is the perfect example of our cross-selling opportunities that enable us to expand our ecosystem for all three business lines. Continuing with these exciting awards, I'm pleased to announce we have recently signed our first contract with a customer in Taiwan. This commences our strategic entrance into the Taiwanese market. an area we see tremendous growth over the next 10 years and will play a large part in our overall strategy. For our services business line, during the fourth quarter, we recognized 100% attachment rate for our services for energy storage products that we sold in the EMEA region. This is truly spectacular. and also built on our model to generate recurring revenue through our services and Fluence IQ platform. For Fluence IQ, during the fourth quarter, we deployed our platform to optimize the trading of the largest solar farm in the southern hemisphere with the equivalent output of powering 150,000 homes. Additionally, Just in the fourth quarter alone, we added over one gigawatt under management as customers are realizing the value that Fluence IQ can deliver. In summary, and turning to slide nine, we have a tremendous opportunity in front of us as a result of the enormous total addressable market for energy, storage, and digital applications. we have positioned ourselves as a market leader with our skill, experience, and first mover advantage. Not only that, we are seeing very favorable momentum from foreign and domestic governments relating to policies and regulations most recently seen at the 2021 United Nations Climate Change Conference. In addition, Recent U.S. legislation, including the enacted infrastructure bill and the pending Build Back Better bill, are extremely supportive of our strategy and business. The infrastructure bill was a good first step to paving the way for increased grid stability and reliability, but we are even more encouraged by what we are seeing in relation to the BBB bill. This potential legislation may enable our industry to accelerate deployments on the pace needed to decarbonize the electric sector by 2035, which is aligned with the Biden's administration's stated priorities. Additionally, enactment of this legislation will create the stable, long-term demand signal needed to accelerate the clean energy transition and to incentivize a robust energy storage supply chain domestically and abroad. Ultimately, the BBB bill will allow our customers to green light more projects, many of which were previously shelved due to not meeting internal rate of return requirements. While we are hopeful the bill moves forward, we do not include any potential upside of government subsidies or policy changes in our business model. And that would be an incremental benefit. I would like to thank our founders, Siemens and AES, who created Fluence as a joint venture in 2018. We will continue to operate with the tagline, Fluence, a Siemens and AES company, as they will continue to support our mission. As a global player, we are managing through supply chain challenges stemming from the global pandemic, and we are taking short-term and long-term actions to mitigate the ongoing and future shipping delays. We view these delays as temporary, with the impact being strictly achieved in revenue recognition, which we expect to realize in the coming quarters. And finally, we have a best-in-class balance sheet, and strong visibility to future cash flows, thanks to our significant backlog of $1.7 billion. This growing backlog will enable us to continue to invest in our people and our business so that we can transform the way that we power our world for a more sustainable future. And with that, I will turn it over to Dennis.

Thank you, Manuel, and good morning to everyone on the call. During today's call, I will recap our fourth quarter and fiscal year 2021 results, discuss our outlook for fiscal year 2022, and talk through our capital allocation plans. As Manuel stated, we delivered a record year of new orders and have been successfully populating our ecosystems from both sides. We achieved record order intake of energy storage products. and came out very strong on Fluence IQ orders. Turning to slide 11, talking you through the numbers of the first table. In fiscal year 2021, we contracted a record 1,311 megawatt of energy storage products and a record 1,959 megawatt of energy storage services. Services megawatt exceeded product megawatt because we successfully sold service contracts on products sold in previous years. Overall, our aggregate attachment rate on services as of September 30, 2021, was approximately 74%. This attachment rate is very encouraging, as it is a continuous proof of our ecosystem strategy and provides us with recurring revenues and visibility to future cash flows. As already elaborated, We are seeing very strong demand for our Fluence IQ with a total 2,744 MW contracted, which provides future cross-selling opportunities for our products and services. Now moving to the second table. Despite delays in supply chain and temporary site restrictions due to COVID-19, the amount of MW that we deployed for our energy storage products more than doubled. growing 111% from the prior fiscal year. Due to our strong contracting, and in part due to the delays, contracted backlog megawatts grew 43%. Our product pipeline is being driven by strong tailwinds from the market and demand for proprietary Generation 6 products, and stood at 14,160 megawatts at the end of fiscal year 2021. Turning to energy storage services. Assets under management grew 180%, while contracted backlog grew 322% from the prior year, driven by the strong contracting activities and attachment rates mentioned earlier. Like our storage products, our services pipeline remains robust, standing at 10,930 MW at the end of this year 2021. Moving to our Fluence IQ digital platforms. During Q1 of fiscal year 2021, we acquired AMS. Since that time, our digital product has demonstrated tremendous growth and strong prospects for future growth. At fiscal year end, digital assets under management were 3,108 megawatts, while contracted backlog was 1,629 megawatts. Our digital pipeline was 3,301 megawatts at the end of fiscal year 2021. Let me point out that our digital pipeline typically converts about three times faster than our product and service pipeline. Our combined assets under management and contracted backlog for the digital business exceeds our products deployed and contracted backlog, reflecting the importance of Fluence IQ for our ecosystem. and demonstrating that the growth of Fluence IQ is going beyond energy storage. Turning to slide 12. Our fiscal year 2021 revenue grew 21% to a record $681 million versus $561 million for fiscal year 2020. In the fourth quarter, revenue decreased 21% as a result of the mentioned shipping and COVID-19-related delays. whereby revenue recognition was delayed from the fourth quarter fiscal 21 into fiscal year 22. We view the delays of revenue recognition as temporary, with expectations that they will be resolved by H2 of fiscal year 2022. Let me point out that this is strictly a shifting of revenue and does not represent any contract terminations. Turning to slide 13. Cross-profit for fiscal year 21 was negative 69 million compared to 8 million in fiscal year 2021. In the fourth quarter, cross-profit was negative 59 million. This decrease is driven by 68 million of non-recurring expenses in Q4, which included 16.7 million related to non-recurring excess shipping cost, 48.2 million related to project charges which are compounding effects of the COVID-19 pandemic, and 2.6 million related to the 2021 cargo loss incident. Adjusting for these non-recurring items, we generated adjusted cross-profit of 15 million in fiscal year 21 versus 9 million in fiscal year 2022. In the fourth quarter, adjusted cross-profit declined in line with the decline in revenue. As Manuel already discussed, we are taking steps to help mitigate the impact of continued ocean freight challenges, such as securing guaranteed availability with Tier 1 shipping companies. The shipping delays have compounding effects on additional expenses that we are required to incur, such as additional expenses for contractors waiting on equipment and other project charges. For the first half of fiscal year 2022, we are forecasting at least 50 to 55 million of non-recurring expenses related to shipping and other COVID-related items. versus 72 million in fiscal year 2021. We are currently seeing that these expenses are decreasing from quarter 421 to the first half of fiscal year 2022. Continuing to slide 14. EBITDA in fiscal year 2021 was impacted by the same non-recurring expenses as the cross-profit. In addition, there are 4.8 million of non-recurring IPO-related expenses which did not qualify for capitalization. Other than that, we increased our expenses to support the future growth of the company, which drove the adjusted EBITDR to negative 65 million in fiscal year 2021. Moving on to slide 15 and our revenue outlook. Based on our current contracted backlog of 1.7 billion, we are providing guidance for fiscal year 2022 revenue in the range of $1.1 billion to $1.3 billion. Our guidance takes into consideration of potential delays in revenue recognition resulting from shipping and COVID-19-related delays and our ability to recognize revenue from our energy storage products on a timely basis in H2 fiscal year 2022. Turning to slide 16. We would like to highlight the seasonality that we have in our revenues and order intake. This seasonality is due to customers' desires to have products operational in time for summer in the Northern Hemisphere. Historically, we recognized approximately 70% of our revenue mostly in our fiscal second half. This is aligned with our patterns for order intake. As a result, fiscal first half result will usually be lower compared to our second half. However, for this upcoming first half of fiscal year 2022, there is a caveat to the seasonality in that we expect a good portion of the delayed revenue from the fourth quarter of fiscal year 2021 will be recognized during H1 fiscal year 2022, leading to a slightly stronger revenue during that time. Moving on to page 17. As we look ahead to our next phase of growth, we would like to highlight our capital allocation strategy, which is bolstered by the strong balance sheet that we have set in place following the IPO. With a post-IPO debt-free cash balance of approximately $850 million, we are well positioned to invest to further strengthen our ecosystem. As we deploy capital, we will always stay true to our strategic framework of enhancing unit economics, expanding recurring revenues, and developing structured offerings, with a primary focus on the former two initiatives. M&A is an additional avenue to help us executing our strategy, and we have a strong track record of making and integrating strategic acquisitions, such as AMS. This concludes our prepared remarks. Operator, we are now ready to take questions.