New Fluence CEO Julian Nebreda is likely to oversee a period with less rapid top-line growth but a greater emphasis on making that growth profitable, an equity analyst told Energy-Storage.news.
In response to this, the global battery energy storage system integrator’s VP of investor relations Lexington May indicated to Energy-Storage.news that it may indeed be more selective about projects in future, but would still grow strongly.
“Fluence is making a primary focus on profitable growth. That does not suggest that top line will suffer, quite the opposite given the tailwinds from the Inflation Reduction Act. We expect to continue to grow with the market while focusing on generating healthy returns by focusing on higher margin projects,” May said.
News of a change in CEO and then CFO came either side of a set of quarterly results which saw revenue fall for the first time since going public late last year. Quarter three did see the company approach a positive gross profit margin, but a net loss of US$61 million off US$239 million in sales – 50% up year-on-year despite the 14% fall in sales – prompted further discussions about its path to profitability during an analyst call.
Discussing these developments, Evercore ISI Research’s senior research analyst James West told Energy-Storage.news that while the CEO change was most likely a mutual decision, it should help the company deliver on generating returns.
“Manuel (Pérez Dubuc, now former CEO) has done a good job running the business, putting in a ‘land and expand’-type strategy, growing their presence in the market. He’s very close to Julian so it’s not surprising that he is ready to turn it over to somebody he trusted to get them on this path to profitability. It appears to me that they were both on board with the change,” West said.
“Julian as he takes over as Fluence CEO is very focused on that path to profitability. So I think they’ll be less inclined to just chase customers for customers’ sake, but will be more inclined to chase the profitable jobs.”
“Part of the CEO change was that Manuel was more of a kind of startup CEO with the ‘land and expand’ approach. Julian is more ‘we’re still going to expand but we’re going to drive it profitably’. Going forward the top line growth may not be as rapid as before, but it will be profitable growth.”
Revenue growth has been high up until the recent quarter; 250% in Q2, for example. Much of the downturn in Q3 was put down to logistics and supply chain issues blighting the whole sector, and a new contract manufacturing facility opening this month in Utah should mitigate these for its US projects.
“The company has lacked global contract manufacturing and supply chain management problems have hurt them as well,” West said. “I think they could have been more proactive on lining up contract manufacturers in the US and Europe more quickly. But nobody saw the Asian supply chain challenges that have unfolded coming.”
Carol Couch, Fluence SVP & chief supply chain and manufacturing officer, told Energy-Storage.news that the company has been proactive in this regard and expects to bring a European facility online in 2023.
Adding: “It takes well over a year to establish a new contract manufacturing facility. In fact, Fluence began negotiating with contract manufacturers for its Utah facility prior to going public in October 2021. Given the challenges from a global supply chain standpoint, and given the highly complex nature of our products, it takes time to qualify new vendors and suppliers.”
As Energy-Storage.news reported, Fluence also recently changed CFO, replacing Dennis Fehr with Manavendra (Manu) Sial from home solar and storage company SunPower. SunPower had no immediate replacement lined up.
Lexington May confirmed West’s suggestion that this change was driven by Nebreda, saying: “Correct, Fluence’s CFO change was not a reflection of Dennis’ performance but rather Julian wanting to bring in his own CFO, someone with a clean slate and fresh perspective.”
Discussing the timing, West added: “Julian felt like he had Manu available now so decided to go ahead and do it now rather than drag it out for a few quarters.”
James West is senior managing director and senior research analyst for Evercore ISI, responsible for research coverage of sustainable technologies & clean energy and the oil service, equipment & drilling industries.