Ann: Fluence Continues to Deliver on Growth Strategy, page-20

I read this 4c report and the accompanying Growth Strategy update as a clear statement that progress is solid but we are at a critical juncture where progress needs to trip over into self sustained momentum. Soon. Very Soon.

Just on the numbers - cash inflow a bit disappointing, but not due to poor revenues (at this stage of our lifecycle). More to do with prepayments of 15.6m (in previous Q) and around $7m in 'growth' in debtors ledger. Nevertheless leaves us with $40.6m cash in bank and an expected net outflow of $13.6m which is expected to leave us with around $27m in the bank as at September 30.

So the question becomes (for me): what is the pathway towards cash-flow positive which has been guided by management to be "sometime in 2019"? And what likelihood does that pathway entail a CR or other form of potentially dilutive funding?

Looking at the cash outflow outcome from Q2 and the projection for Q3, "product manufacturing and operations costs" are approx $11.8m in each of those quarters and I am assuming are included as part of COGS and hence are not required to be funded from the $22-25m gross margin. So the remaining costs to be financed from gross margin are around $11m per quarter (as seen in Q2 actual and Q3 projections). And if gross margins are around 21% (based on $22-25m GM on revenues of $105-115), then we need to be on a run rate commensurate of $52m revenue per quarter. Of course, that is also assuming that the $11m non-product related costs per quarter are largely 'fixed'.

So seeing management guidance of $105-115m achieved is critical, but is only about 1/2 of the requirement, to be achieved (at least on a run rate basis) by the end of next year. Hence the importance of seeing some genuine momentum starting to build up in terms of sales volume from the various initiatives, trials and early sales that are in the pipeline. 21% gross margin is at the low end of the scale and as we all know, volume is key for a low margin business. Particularly so when you add a (relatively) high fixed cost base to the mix.

Next couple or three quarters will be key to determining whether we remain on that pathway, and the extent of short-term funding required to see us there.

All IMO. GLTA.