April 17, 2023 | 00:01 ET~ Fluence Energy FLNC-NSDQ Rating Market Perform Price: Apr-14 $21.35 Target $24.00 Total Rtn 12% Energy Transition & Infrastructure Ameet Thakkar Analyst (713) 546-9741 ameet.thakkar@bmo.com Initiating Coverage of FLNC at Market Perform and $24 Target Price Bottom Line: Initiate coverage of FLNC at Market Perform and $24 target price. Fluence is a leading global developer of energy storage systems. We see robust demand for storage as rising portion of electricity is supplied by renewable resources taxing electric grids. We believe tailwinds for hardware margins, IRA PTCs, and current investor sentiment favoring utility-scale exposure are largely reflected in share price, which has outperformed the S&P/TAN/ICLN indices by over 70% LTM. We could become more constructive on signs software and service revenue are growing faster than our estimates. Key Points We are going to need a bigger boat. FLNC's leading position in the energy storage systems (ESS) sector offers investors leverage to robust revenue growth as grid-scale operators increasingly adopt storage as a means to integrate renewables, enhance grid stability, and increase operational capacity. ESS capacity for utility-scale and large C&I users that FLNC targets likely expands at a CAGR +40% in the U.S. and +41% globally (ex China) through 2030. This drives robust revenue growth for FLNC as we estimate that FLNC hardware deployments will expand by 9x by 2030. What keeps us on the sidelines for now. We think FLNC hardware margins are set to improve as legacy lower margin contracts are starting to roll off and supply chain conditions improve. We estimate FLNC hardware margins can expand to around 15% by 2025, which is likely meaningfully higher than other companies involved in ESS hardware as the company enjoys strong relationships with key renewable developers. However, we see future margin expansion not to mention diversification away from potential longer-term competitive pressure on hardware predicated on increasing service and digital (software) revenue growth which realize substantially higher margins. However, even using our assumptions of a 95% service contract attachment rate and digital AUM growing at a faster rate than product sales through our forecast horizon (implying FLNC can expand its software to non-FLNC storage assets), we see limited upside in our longer-term DCF valuation beyond what is currently priced in. Additionally, we think some sell-side 2025+ service and digital revenue growth estimates are too high. Legal Entity: BMO Capital Markets Corp. 40 2YR Price Volume Chart 35 30 25 20 20 15 15 10 10 5 5 Apr LHS: Price ($) / RHS: Volume (mm) Oct Apr Source: FactSet Company Data 0 in $ Dividend $0.00 Shares O/S (mm) 174.8 Yield 0.0% Market Cap (mm) $3,731 P/BV (44.5)x Net Debt (mm) $63 BMO Estimates in $ (FY-Dec.) 2022A 2023E 2024E EPS $(1.08) $(0.61) $0.03 $(3) $101 $250 EBIT (mm) $(177) $(88) $33 EBITDA (mm) $(184) $(99) $20 Gross Mrgn (mm) Consensus Estimates 2022A 2023E 2024E $(0.76) $0.00 2022A 2023E 2024E P/E NM NM NM EV/EBITDA NM NM NM EPS Valuation QTR. EBITDA Q1 Q2 Q3 Q4 2022A $(43) $(53) $(48) $(40) 2023E $(25)a $(32) $(26) $(15) 2024E $(1) $3 $8 $10 Key estimates. Our 2023-2026 consolidated revenue estimates are $1.7 billion, $2.35 billion, $3.1 billion, and $3.9 billion. We estimate 2023-2026 gross margins of 6%, 11%, 15%, and 16%, respectively. We see 2025 EBITDA of $222 million excluding PTCs and $276 million if included. Our Thesis For disclosure statements, including the Analyst Certification, please refer to page(s) 36 to 40. FLNC is a leading developer of energy storage systems used by utilities and large-scale C&I users. While we forecast robust demand for energy storage, these products offer limited gross margins. Additional upside will need to come via service and software growth; however, we believe consensus estimates are predicated on unrealistic expectations for these products. We take a more cautious view. Fluence Energy - Block Summary Model Income Statement 2022A 2023E 2024E Revenues $1,199 $1,708 $2,350 (3) 101 250 Gross Margin (%) -0.2% 5.9% 10.6% Consolidated EBIT (177) (88) 33 7 11 13 (184) (99) 20 Interest Expense 2 1 0 Income Tax 1 (1) 0 (289) (155) (44) Upside Scenario 173 176 179 Diluted Operating EPS $(0.60) $(0.88) $(0.25) Dividends per Share $0.00 $0.00 $0.00 Cash Flow Statement 2022A 2023E 2024E Operating Cash Flow (282) (170) 41 Our upside scenario reflects higher-than-expected demand for the company's Fluence IQ software platform, as well as a higher attachment rate on FLNC's professional services, increasing both revenue and consolidate gross margins. Our upside scenario also assumes more robust hardware deliveries over our forecast period, driven primarily by higher backlog conversion rates. Investing Cash Flow (148) (20) (19) Financing Cash Flow 817 23 0 Net Change in Cash Flow 386 (167) 22 EOP Cash on Balance Sheet 430 257 279 0 0 0 Net debt issued/(repaid) (103) 21 0 Free Cash Flow (290) (186) 22 (2) (1) 0 Balance Sheet 2022A 2023E 2024E Common Equity 436 339 345 Non-controlling Interest 193 178 178 0 0 0 Enterprise Value $3,335 $3,534 $3,571 Common equity % 1.8% 1.6% 1.6% 0.0 0.0 Gross Margin Depreciation & Amortization EBITDA Income from continuing operations Weighted Average Shares Outstanding Common stock (net) Free Cash Flow to Equity per Share Total Debt Preferred equity % Total Debt % (0.82) (0.56) (0.61) Book Value per Share $2.51 $1.93 $1.93 Source: BMO Capital Markets, Company Reports Valuation We value FLNC using a blended approach that combines our DCF, EV/EBITDA, and EV/sales valuations. The implied equity values under this approach are weighted 50%/25%/25% to arrive at our target price. Our EV/EBITDA and EV/sales valuations assume a 2025E multiple of 11x and 1.8x, respectively. Our DCF assumes a 13% discount rate and 5% growth rate. We include $2.74 of upside from PTCs under the IRA. $31.00 Downside Scenario $14.00 Our downside scenario reflects slower growth in FLNC's digital applications AUM, a reduced software ASP escalator, as well as a lower attachment rate on professional services. Our downside scenario also assumes slower-thananticipated hardware backlog growth and lower backlog conversion rates, driven by reduced demand and longerthan-expected lead times. in USD -34% +12% Downside Scenario 14.00 Current Target Price Price 21.35 24.00 +45% Upside Scenario 31.00 Key Catalysts We believe that battery module manufacturing tax credits under the IRA could translate into a meaningful boost to hardware product gross margins that are not currently present in official estimates. Additionally, FLNC will have the opportunity to double capacity of its U.S. module manufacturing facility once online in 2024. Growth in the company's digital applications segment will be important. Company Description Fluence is a leading developer of energy storage products and services and artificial intelligence-enabled digital applications to optimize grid and generation asset performance. The firm also offers owners of its storage systems the ability to contract for maintenance services or outsource operation of onsite storage. FLNC-NSDQ Research Fluence Energy Inc. | Page 2 Glossary Company Models April 17, 2023 Table of Contents Initiating Coverage of Fluence Energy at Market Perform and $24 Target Price ........................................... 4 Investment Thesis ............................................................................................................................................. 5 Business Overview ............................................................................................................................................ 6 FLNC Reporting Segments .................................................................................................................. 10 Peer Competitive Overview ................................................................................................................ 11 Energy Storage System Basics ........................................................................................................................ 12 The Daily Operation of an Electric Grid Is a Delicate Balancing Act Made Harder by Growth in Renewables and Extreme Weather .................................................................................................... 13 Location Within Electric System Determines Range of Applications/Revenue Potential ................ 14 FLNC Investment Positives ............................................................................................................................. 19 We Are Going to Need a Bigger Boat: Storage Growth Will Be Robust Through End of Decade… . 19 ….Which Should Drive Backlog Growth (More Revenue Visibility) and Eventually Larger Annual Deployments for FLNC ........................................................................................................................ 20 Hardware Margins Appear Set to Turn the Corner Driving Attractive Rate of Change Story ........... 21 IRA Battery Module PTC Upside From Planned U.S. Site; Standalone ITC supports Acceleration of Storage Demand ................................................................................................................................. 23 Investment Risks............................................................................................................................................. 24 Hardware Margins Have Limited Longer-term Upside and Service/Digital Growth Needs to Be Outsized to Move Needle ................................................................................................................... 24 Concentrated Ownership and Limited Public Float Currently ............................................................ 26 Ties That Bind: Sales to AES Likely Represent Large Portion of Current Revenue ............................ 27 Supply Chain and Regulatory and Policy Risks .................................................................................. 27 Demand Is Strong for Solar and Storage, but Interconnection Delays Are Mounting ...................... 28 Valuation and Key Estimates .......................................................................................................................... 28 Management Overview .................................................................................................................................. 31 Fluence Energy Inc. | Page 3 April 17, 2023 Initiating Coverage of Fluence Energy at Market Perform and $24 Target Price Initiate on FLNC at Market Perform and $24 target. ESS volumes growing fast but we await more evidence that software and service demand can expand consolidated margins. We initiate coverage of FLNC at a Market Perform rating and $24 target price. FLNC is a leading global developer of energy storage systems used by utilities, renewable power developers, and large C&I users. We see robust demand for energy storage as the portion of the electric grid both at the front of the meter and behind the meter is supplied by more renewable resources. We believe near-term tailwinds that will expand hardware margins, Inflation Reduction Act (IRA) production tax credit (PTC) upside, improvements under a new management team, and current investor sentiment favoring utility exposure are largely reflected in current share price, which has outperformed the S&P/TAN/ICLN indices by over 70% LTM. We could become more constructive on evidence that higher-value product segments such as software (digital) and services are growing faster than our estimates. Exhibit 1: 1-Year Relative Performance Overview Exhibit 2: 1-Year Forward EV/Sales Overview Storage 1- Year Relative Indexed Storage Forward 1 Year EV/Sales 140% 5.0x 130% 120% 4.5x 110% 100% FLNC, 100% 4.0x 90% 80% 3.5x 70% 60% 3.0x SPX, 2.8x ICLN, 2.7x 50% 40% 2.5x 30% TAN, 2.1x 20% 2.0x 10% 0% 04/13/2022 -10% TAN, 5% 05/26/2022 07/12/2022 08/23/2022 10/05/2022 11/16/2022 12/30/2022 02/14/2023 03/29/2023 SPX, -7% ICLN, -7% -20% STEM, 1.7x 1.5x 1.0x FLNC, 0.9x -30% -40% 0.5x -50% STEM, -54% -60% 0.0x 04/13/2022 STEM FLNC Prices as of 4/14/2023 Source: FactSet, BMO Capital Markets TAN SPX ICLN 05/26/2022 07/12/2022 08/23/2022 10/05/2022 STEM FLNC 11/16/2022 TAN 12/30/2022 SP50 02/14/2023 03/29/2023 ICLN Prices as of 4/14/2023; *Multiples are based on fiscal year estimates Source: FactSet, BMO Capital Markets As shown above FLNC has strongly outperformed both the broader clean energy sector (TAN/ICLN) and the broader market. This reflects improvement on the part of a new leadership team that has helped more consistently deliver on expectations following disappointing results after its October 2021 IPO under the previous management team. In addition, investors have gravitated towards equipment/hardware suppliers that focus on utility-scale renewable developers that are perceived to have greater leverage to the IRA and less interest rate sensitivity. While FLNC continues to trade at a discount on one-year EV/sales to the broader clean energy sector, we assign a lower weighting on this valuation metric, as discussed in the valuation section of this report. Perhaps more importantly and as we have discussed in our prior work, we see greater potential for sustainable and more attractive margins on equipment providers that target higher-margin customers. In the exhibit below we highlight the public equity comparable universe we think is most applicable to Fluence and Stem Inc. (STEM-NYSE, $4.69, Market Perform). Pure-play comps for the type of energy storage development FLNC and STEM are engaged in are limited currently. We broaden our coverage universe to include other solar equipment providers that are leveraged to many of the same fundamental drivers as we see energy storage growing largely in tandem with larger solar developments globally. Fluence Energy Inc. | Page 4 April 17, 2023 Exhibit 3: FLNC Comps Include a Mixture of Energy Storage Developers and Solar Equipment Providers Storage Developer Comp Table Last Market Cap Enterprise Value 5-Year Sales EV/Sales Consensus Estimates EV/EBITDA Consensus Estimates Price Millions $ Millions $ CAGR 2023E 2024E 2025E 2023E 2024E 2025E P/E Consensus Estimates 2023E 2024E 2025E Storage Focused STEM Stem Inc $4.69 $725 $1,019 98% 1.7x 1.2x 1.0x -52x 31.4x 8x -6.6x -12.8x 33.6x FLNC Fluence Energy, Inc. Class A $21.35 $2,481 $2,228 41% 1.2x 0.9x 0.7x -30x 28.8x 9x -37.8x 89.6x 20.8x TSLA Tesla, Inc. $185.00 $585,359 $569,822 40% 5.5x 4.2x 3.4x 29x 20.8x 15x 46.9x 33.1x 26.6x FREY FREYR Battery $8.26 $1,154 $608 - 115.4x 2.2x 0.6x -4x -5.1x -18x -5.8x -5.3x -4.5x $9.44 $5,708 $6,103 6% 0.9x 0.9x 0.8x 9x 7.8x 7x 16.0x 13.4x 11.4x WRTBF-US Wartsila Oyj Abp Solar Equipment Suppliers FSLR First Solar, Inc. $208.40 $22,217 $19,870 16% 5.6x 4.3x 3.5x 17x 10.4x 7x 30.4x 16.1x 10.4x SEDG SolarEdge Technologies, Inc. $300.46 $16,870 $16,581 32% 4.0x 3.3x 2.8x 21x 16.7x 14x 33.2x 25.9x 21.7x ENPH Enphase Energy, Inc. $208.90 $28,514 $28,216 45% 8.9x 7.0x 5.7x 29x 21.2x 17x 38.2x 28.4x 22.8x ARRY Array Technologies Inc $21.39 $3,225 $4,170 24% 2.2x 1.9x 1.6x 16x 12.2x 10x 25.8x 17.4x 13.6x NXT NEXTracker, Inc. Class A $34.84 $1,598 $5,452 - 2.6x 2.2x 1.9x 21x 15.7x 13x 26.0x 19.1x 16.3x Storage focused Avg ex FREY 46.2% 2.3x 1.8x 1.5x -10.7x 22.2x 9.6x 4.6x 30.8x 23.1x Solar Equipment Providers 29.4% 4.7x 3.7x 3.1x 20.9x 15.2x 12.3x 30.7x 21.4x 16.9x Prices as of 4/14/2023; * Multiples are based on calendar year estimates Source: FactSet, BMO Capital Markets FLNC’s ability to offer service and software in addition to hardware, as well as lower margin contracts rolling off should allow product margins to outpace other storage providers, but we see further expansion dependent on significantly higher levels of software sales growth and are somewhat concerned longer term that consensus assumptions on this front may be too high. Investment Thesis Fluence today: Direct beneficiary of growth of large-scale energy storage demand in the age of renewables. Energy storage systems (ESS) will play an increasingly vital and complementary role to growth in front of the meter renewable generation as solar and wind generation will be developed in tandem with storage or existing capacity is retrofitted to include it. In addition, growth in renewable generation behind the meter is causing additional stress on electric grids with ESS likely a key resource to alleviate it. Fluence’s leading position in the ESS sector offers investors leverage to robust revenue growth as grid-scale operators increasingly adopt storage as a means to integrate renewables, enhance grid stability, and increase operational capacity. We see energy storage capacity for utility-scale and large C&I users that FLNC targets expanding by a CAGR of +40% in the U.S. and +41% globally (ex China) from 2022 through 2030. As a result, we estimate FLNC’s consolidated revenue grows at a 26% CAGR from 2022 through 2030 and FLNC’s storage deployments grow by 9x over this period. In addition, the company’s capital-light operating model and our expectations for moderating operating expense growth means the company is further along in generating consistently positive FCF and EBTIDA than many of its energy transition peers. What keeps us on the sidelines. That said, we see the majority of FLNC’s revenue and EBITDA growth coming from its hardware segment where gross margins are improving in part due to contract roll-offs of older, lower-margin agreements. However, we estimate gross margins in this segment will eventually top out at ~15%. We believe most providers of energy storage hardware will likely realize margins substantially lower than this. The actual battery or ESS hardware FLNC provides can be commoditized to a certain extent; however, the company’s ability to overlay its Fluence OS and IQ software solutions and service offerings to create purpose-driven ESS solutions in a variety of Fluence Energy Inc. | Page 5 April 17, 2023 applications differentiates it from almost every player in the industry, save for Tesla (TSLA), and drives loyalty to its platform. However, additional margin expansion beyond when we see hardware gross margins crest needs to come via FLNC’s higher-margin service and digital applications businesses where gross margins are in the range of 20-30% and 70-80%, respectively. We assume a 95% service contract attachment rate on hardware sales and software/digital AUM growing at a CAGR of 48%, which exceeds our hardware volumetric outlook and assumes FLNC is successful in growing its software on third-party systems. However, even using what we see as fairly optimistic assumptions we see the company’s overall business mix significantly reliant on equipment sales to large renewable developers that have narrow returns on projects. Given the still relative infancy of the energy storage sector and negative near-term free cash flows, we see valuation of the sector dependent on longer-term estimates under DCF valuations. In the case of FLNC and STEM (initiating at Market Perform also and $5.50 target price), we believe consensus estimates in many cases imply valuations that are predicated on unrealistic expectations for software and service revenue growth. We could become more constructive if the company’s margins inflect higher than what we currently forecast or if capacity growth further exceeds our already robust outlook. While FLNC will begin to produce its own U.S.made battery modules in 2024, the company is more an integrator of storage systems and provider of professional services and software, rather than a battery OEM. Business Overview Based in Arlington, Virginia, Fluence Energy is a leading global developer and provider of grid-scale energy storage systems (ESS), services, and AI-enabled software to optimize power dispatch. To be clear, today Fluence is not a battery OEM or producer of battery cells but rather a full-service integrator of the various components needed to develop on-site ESS and looks to increasingly overlay ongoing services and software products. However, given incentives under the IRA, FLNC will begin to produce battery modules/packs (not cells) domestically in the U.S. in mid-2024. We think what separates FLNC from other players in the broader battery/storage space is its ability to call upon its extensive data and experience in providing modular and customizable solutions. The company’s AI-driven software and algorithms have been enhanced over time as the company has increasingly become one of the top providers of large-scale storage systems. Fluence’s energy storage hardware is built on the company’s sixth-generation Technology Stack, which integrates Fluence’s proprietary operations software, Fluence OS, and AI-driven optimization software, Fluence IQ. The company’s primary hardware offerings, Gridstack, Sunstack, Edgestack, and Ultrastack, are purpose built for a range of applications, including grid-scale standalone storage, utility-scale solar and storage integration, and behind-the-meter (BTM) commercial and industrial storage and transmission. The company also offers a range of operational services, from simple hardware maintenance to complete asset management and third-party ownership. Fluence is one of the largest storage suppliers globally, with over 1.9 GW of cumulative energy storage assets deployed. Fluence Energy Inc. | Page 6 April 17, 2023 Exhibit 4: FLNC Is an Integrator and Developer of Storage Systems and Storage Software Key Hardware Housed in the FLNC "Cube" along with battery racks, heating/cooling systems and other electric hardware FLNC OS and other custom software products customized to fit asset operator needs Source: Company Filings, BMO Capital Markets Ownership history. Fluence was originally formed as a joint venture between subsidiaries of German industrial leader Siemens AG (SIE-GR, $80.31, not rated) and AES Corporation (AES-NYSE, $24.86, not rated), a U.S.-based leader in global renewable energy development and utility holding company. In December 2020 prior to FLNC’s October 2021 IPO, an affiliate of the Qatar Investment Authority (Qatar Holding, LLC) invested $125 million for a stake in FLNC. The company’s shares are structured into class A and B shares. AES is currently the sole owner of class B shares that results in a 34% share of economic interest in Fluence and 72% of combined voting power. Siemens and associated entities own a 51% share of Class A shares and 14% of voting power. Qatar Holding owns ~16% of class A shares. Fluence’s sixth-generation Technology Stack. Fluence’s products are all built on the company’s sixthgeneration Technology Stack, which is comprised of the company’s modular hardware building block, Fluence Cube, proprietary operations software, Fluence OS, and AI-driven optimization software, Fluence IQ. Fluence Energy Inc. | Page 7 April 17, 2023 Exhibit 5: Fluence Sixth-Generation Technology Stack Exhibit 6: Fluence “Cube” Source: Company Filings, BMO Capital Markets Source: Company Filings, BMO Capital Markets The Fluence Cube offers a low-cost, standardized, and easy to install unit that customers can scale up or down depending on their project requirements. The Cube is battery technology agnostic and comes preinstalled with a heating and cooling system, battery racks and modules, power supply, controllers, and safety components and is the housing for the company’s energy storage products. FLNC’s energy storage products are housed within the modular and technology agnostic Fluence “Cube” and are tailored for a range of specific use cases for both utility and C&I customers. The company’s key energy storage products include the following: Ultrastack – Fluence’s newest storage product is designed specifically to meet the needs of energy transmission and distribution systems. Ultrastack applications are designed to reduce grid congestion, support stable system operation, and help operators increase utilization of transmission assets (powerlines). Gridstack – Fluence’s grid-scale standalone energy storage product is designed to aid utilities in boosting grid flexibility and resiliency. Gridstack enables a range of functionality to customers, including flexible peaking capacity, frequency regulation, renewable integration, and power transmission and distribution enhancement. Sunstack – The company’s large-scale solar-focused energy storage product is designed to expand the capabilities of solar generation by optimizing energy capture and delivery. The Sunstack system integrates batteries and PV on the same side of the DC bus in order to maximize solar yields and comes equipped with all power conversion and controls needed to send solar energy to the grid. Edgestack – The company’s C&I-focused energy storage and transmission product is designed to reduce monthly electricity costs by discharging when needed to flatten a facility’s energy load profile. Edgestack is available in 500 kW blocks but is scalable to meet the needs of larger facilities. Each of the company’s hardware products comes with FLNC’s controls and operational software, Fluence OS, which allows customers to view system information and operate storage assets in real time. Additionally, Fluence OS can be used to manage storage operations according to configurable pre-set models. Offered as an additional product is the company’s subscription-based digital platform, Fluence IQ, which is meant to improve storage system performance and enhance customer revenue generation. The key Fluence IQ applications are the following: Fluence Energy Inc. | Page 8 April 17, 2023 Fluence Mosaic – FLNC’s automated bidding software for utility-scale storage and conventional generation assets. The Mosaic application provides asset owners with a range of key energy trading indicators, including advanced price prediction, automated trading, and optimized bidding. Mosaic is technology agnostic and vendor agnostic and is delivered through a software-as-a-service subscription model. FLNC acquired Mosaic from Advanced Microgrid Solutions (AMS) in 2020. Fluence Nispera – The company’s performance management software. The Nispera application allows customers to monitor, analyze, forecast, and optimize energy assets. Nispera’s flagship offering is a utility-scale-focused application that has 8 GW of assets under management across 450 wind and solar projects. FLNC acquired Nispera in 2022. In addition to energy storage products and software, the company offers four operational services packages: The company currently assembles its hardware products at its two dedicated contract manufacturing lines in Utah and Vietnam, with plans to bring a European location online this year. The Utah facility is also slated to begin module manufacturing in July 2024. Fluence Energy Inc. | Page 9 Level 1: Guided Service – FLNC will offer comprehensive training to customers on how to best use their products and how to perform preventative and reactive maintenance. Level 2: Shared Service – On top of the offerings of level 1, the company will perform reactive maintenance and offer 24/7 monitoring. Level 3: Complete Service – The company will perform all preventative and reactive maintenance and 24/7 monitoring of the system. Complete service includes performance guarantees for time-based availability. Level 4: Asset Management – The company’s third-party ownership, Energy-as-a-Service (EaaS) offering. FLNC will provide complete asset management on behalf of the customer, including contractual, financial, and risk management. The company will manage relationships with any stakeholders, including grid operators, off-takers, and contractors. FLNC contract manufacturing model. Today Fluence produces 100% of its products through a contract manufacturing model, limiting both the capital intensity of adding manufacturing capacity and the company’s direct exposure to fluctuations in the prices of raw battery materials and metals. The company currently has two dedicated contract manufacturing lines, one in Utah (operational since September 2022) and one in Vietnam (operational since 2020), with plans to bring online a third line in Europe sometime in 2023. The company’s Utah facility, which currently serves as a manufacturing line for the Fluence Cube, will begin producing battery modules starting July 2024, with over 6 GWh of initial capacity. We note that aside from the manufacturing of the Fluence Cube, these facilities operate more as final assembly lines rather than component manufacturing factories. Therefore, most of the battery components and materials used in the company’s storage products are sourced from third parties often located in Asia. Additionally, the company operates two spare parts hubs, one in Ireland and one in Utah, to support ongoing maintenance of deployed storage assets. April 17, 2023 Exhibit 7: FLNC Contract Manufacturing Sites Exhibit 8: FY 2022 Revenue by Geography FY 2022 Revenue by Geography 15% 49% 15% 21% U.S. Source: Company Filings, BMO Capital Markets Other Americas APAC EMEA Source: Company Filings, BMO Capital Markets FLNC Reporting Segments Fluence currently operates and recognizes revenue under three business segments: Energy Storage Products and Solutions – Fluence’s energy storage products segment recognizes revenue from all energy storage hardware, inclusive of the company’s Fluence Cube, Gridstack, Sunstack, Edgestack, and Ultrastack solution, as well as any other delivered hardware from third-party vendors. Services – Recognizes revenue for service contacts on storage system hardware. Services revenue is derived from the company’s Service Contracts AUM. Digital Applications and Solutions – Recognizes revenue from the company’s Fluence IQ software platform, inclusive of Nispera and Mosaic. Digital applications and solutions revenue is derived from the company’s Digital Contracts AUM. While we see opportunity for robust growth in the company’s digital applications and services segments, we believe that, even looking longer term, the company’s hardware segment will continue to represent the vast majority of revenue. Fluence Energy Inc. | Page 10 April 17, 2023 Exhibit 9: FLNC Revenue Mix Dominated by Hardware Sales FLNC Segment Revenue Share 100% 1% 2% 2% 2% 3% 99% 98% 98% 98% 97% FY 2021 FY 2022 FY 2023E FY 2024E FY 2025E 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% Energy Storage Products Revenue Share Combined Digital Applications and Service Revenue Share Source: Company Filings, BMO Capital Markets Peer Competitive Overview We believe the Tesla Megapack, along with Tesla’s comprehensive energy management software, competes most directly with FLNC’s product offerings; however, we see FLNC’s multiple use casespecific products and varying service levels as offering a more customizable set of solutions as compared to the “all-in-one” Megapack. Given the relatively nascent nature of the industry, there are few grid-scale pure-play energy storage companies and even fewer publicly traded companies that serve as good comps to Fluence. Our initial battery coverage of FLNC and STEM is focused on energy system providers not battery manufacturers such as CATL, LG, BYD, Samsung SDI, and others. While far larger and multi-faceted, we believe that Tesla, and more specifically Tesla’s Megapack product, represents the company’s most direct and significant competitor in grid-scale/FTM storage. Similar to FLNC, the Megapack has a roughly equivalent installed base of ~5 GWh+ and offers similar unit sizes to FLNC’s Gridstack and Edgestack offerings (2-3 MW) which are scalable to GW sized installations. More importantly, the Megapack is coupled with Tesla’s proprietary software platform, Tesla Energy Software, which houses multiple applications similar to those offered by Fluence IQ. The Tesla software platform includes the company’s proprietary auto-bidding application, Autobidder, comparable to FLNC’s Mosaic application, as well as a suite of monitoring and performance optimizing applications (Opticaster and Powerhub), which offer similar functionality to FLNC’s Nispera application. Additionally, the Tesla platform includes a tool that autonomously maintains grid stability and helps to reduce microgrid operational costs (Microgrid Controller), as well as a program that can offer larger-scale grid stability by virtually emulating the mechanical inertia the grid loses when replacing fossil fuel generation with wind and solar (Virtual Machine Mode). However, we believe that Fluence, through its multiple product iterations and service tiers, offers more flexible and customizable solutions as compared to Tesla. While Tesla’s Megapack represents an “all-inone” storage product, we believe Fluence draws competitive advantage by being able to offer its customers more use-case-specific systems, such as the company’s DC coupled Sunstack tailored for maximizing solar yield or transmission-focused Edgestack for reducing C&I customers’ utility bills. Similarly, While Tesla Energy Software offers a slightly more comprehensive suite of tools, the software can only be paired with the Tesla Megapack or other Tesla products, whereas FLNC’s Mosaic and Nispera Fluence Energy Inc. | Page 11 April 17, 2023 are not only hardware agnostic, but are able to be paired with pure renewable systems that don’t have storage. Additionally, Fluence is able to provide O&M software to solar, wind, pumped hydro, and BESS assets, further differentiating Fluence IQ from competing software products. Beyond TSLA we think it’s important for investors to consider that other large U.S. renewable energy developers, such as NextEra Energy (NEE-NYSE, $78.43, Outperform, $95 target price; covered by BMO Power and Utilities Analyst James Thalacker), also have extensive expertise in developing energy storage systems and well over 1GWh of capacity installed, implying more competitive players depicted below. Elsewhere we see U.S.-based private storage developer Powin Energy, Finnish equipment provider Wärtsilä, and Stem Inc. representing other direct competitors. In the exhibit below we offer a side-by-side comparison of Fluence and its main competitors. Exhibit 10: Peer Competitive Overview Grid Scale Storage Leaders Hardware Offerings Fluence Energy • Gridstack • Sunstack • Edgestack • Ultrastack Unit Size Hardware Primary Applications Software Application Software Tools Key Geographies Storage Installed Base 500 kW - 2 MW • Traditional grid-scale storage • Solar focused large-scale storage • C&I storage and transmission • Energy transmission and distribution systems • Fluence Nispera • Fluence Mosaic • Automated bidding and energy trading • Performance management • Asset optimization • Project forecasting Primarily U.S., followed by APAC and Europe 5.1 GWh Primarily U.S., followed by APAC and Europe 5 GWh Primarily Europe, with presence in the U.S. 2.5 GWh Primarily U.S. 2 GWh • Athena • Automated bidding and energy trading • Performance management • Asset optimization • Project forecasting • Solar asset monitoring and optimization Primarily U.S., small presence in Europe 2.5 GWh (AUM) • Nextera 360 • Automated discharge and energy trading • Performance management and asset optimization • Project and portfolio planning • Grid analytics U.S. 1 GW Tesla • Megapack 3 MWh • Grid-scale and C&I storage • Tesla Energy Software • Automated bidding and energy trading • Performance management • Asset optimization • Project forecasting • Autonomous grid stability Wartsila • GridSolv Quantum 1.5 MWh • Grid-scale and C&I storage • GEMS Digital Energy Platform • Automated bidding and energy trading • Performance management • Asset optimization • Project forecasting Powin Energy • Stack 230P • Stack 230E • Stack 360E • Stack 750 230 - 750 kWh • Grid-scale and C&I storage • Stack OS Stem No in-house hardware offerings, acts as a third party supplier offering system design and engineering Nextera Energy / Nextera Energy Partners No in-house hardware offerings N/A N/A • C&I Storage with focus shifting to utilityscale • Grid-scale storage • Battery/energy management • Battery/system monitoring Source: Company Filings, BMO Capital Markets Energy Storage System Basics For investors new to grid applications we offer a brief overview of some of the roles energy storage plays in power markets. Energy storage systems (ESS) at its most basic level can be described as an asset that charges (or collects) electricity from an energy-producing asset in order to discharge that energy at a later time, to provide electricity or other grid services when needed or when more economical to do so. The key operating metrics in measuring battery storage systems include the following: Fluence Energy Inc. | Page 12 April 17, 2023 Rated Power – The total possible instantaneous discharge capability (measured in kW or MW) or maximum rate of discharge that a BESS can achieve, starting from a fully charged state; Energy Capacity – The maximum amount of stored energy (in kWh or MWh); Storage Duration – The amount of time a storage system can discharge at its rated power capacity before depleting its energy capacity, with most batteries having a duration of 2-4 hours; Round-Trip Efficiency – The ratio of the energy collected by the battery to the energy discharged from the battery. Additionally, a battery’s cycle life measures the number of cycles of regular charging and discharging a battery can provide before failure or significant degradation. While several battery technologies are commercially available, lithium-ion based batteries, due to their increasingly low cost, are the most common battery technology used in ESS applications. The Daily Operation of an Electric Grid Is a Delicate Balancing Act Made Harder by Growth in Renewables and Extreme Weather Electricity has traditionally been the most volatile energy commodity we follow. The reason for this in part had been the inability to store electricity. In addition, other sources of volatility in power markets are a result of the increase in renewable generation (solar + wind) that is intermittent and at times deviates from forecasts or subject to intraday fluctuations from factors such as cloud cover or other changes in weather. Add to this the increased number of extreme weather events, the global electric grids are increasingly being tested. As a reminder, the U.S. grid operates at a frequency of 60 Hz with most other grids operating at a frequency of 50 Hz, and deviations from this level can trigger wider spread outages as either power plants are automatically tripped or load must be cut. Fluence Energy Inc. | Page 13 April 17, 2023 Exhibit 11: Winter Storm Uri in Texas Demonstrates Grid Fragility – Energy Storage Systems Helps Alleviate F r e q u e n c y HZ Source: ERCOT For instance, if the amount of generation supply exceeds demand (load) on the grid generation, supply needs to be lowered quickly as frequency will deviate from 60 Hz threshold. Conversely, and as shown above, if frequency starts to fall below this threshold, load is cut or shed on a power grid. The example above highlights how during winter storm Uri additional load shedding was trigged as the frequency of the grid dropped as fossil generation began to fail and some wind generation was unable to operate. We see batteries as providing an important stabilization mechanism for the grid going forward and as needed to accommodate renewable generation growth and more extreme demand/supply fluctuations. Location Within Electric System Determines Range of Applications/Revenue Potential The U.S. grid, which is FLNC’s largest market, is a mosaic of different degrees of deregulation and market designs with large sections of the grid managed by a regional system operator (ISOs + ERCOT) where market-based pricing mechanisms for electricity (energy + capacity) and grid stabilization products (ancillary services) are available to power resources like power plants and increasingly now ESS. A brief snapshot of the types of ancillary service markets is shown below. For regions of the U.S. and elsewhere globally where there is not a competitive market for energy, capacity, and ancillary services products, the incumbent utility or grid operators will still see a significant need to procure storage particularly as it’s paired with solar generation. In most instances we see utilities entering into bilateral contracts with renewable energy developers who partner with companies such as FLNC as part of the utilities’ integrated resource planning process (IRP) where they increasingly procure additional generation capacity and now energy storage. Fluence Energy Inc. | Page 14 April 17, 2023 Exhibit 12: Energy Storage Products Contracted Backlog (MW) Exhibit 13: Ancillary Services Markets Source: ISO/RTO Council, BMO Capital Markets Source: AEP We can further bifurcate the storage market, similar to how we describe the broader solar sector, into segments on where storage is deployed, either front of the meter/utility-scale or behind the meter. The location of where storage resides, either at the front of the meter in wholesale power markets or behind the meter, tends to provide the owner of the storage asset differing opportunities to extract value. Front-of-the-meter (FTM) storage, which occurs outside of local distribution networks, is primarily used by independent power producers (IPPs), utilities, and power and distribution systems operators and/or very large industrial users of power. These tend to be significantly larger deployments of storage in terms of MW and in some cases GW of capacity. Deploying energy storage systems allows for electricity generated by a power plant or utility-scale renewable assets (i.e., wind and solar farms) to be stored so that it can be later e introduced onto the grid depending on the grid’s needs for energy or ancillary services. Behind-the-meter (BTM) storage occurs within local distribution networks and allows commercial and industrial (C&I) and homeowners to store energy produced by individual renewable assets co-located on individual sites to reduce net electric consumption or send back to the grid to generate savings or provide additional back-up power to the site itself if there are outages on the grid. Furthermore, energy storage systems can be aggregated to participate in selling into capacity markets and resource adequacy markets whereby load serving entities like electric utility distribution companies ensure they have enough capacity to meet peak demand with a portion that can be called from large C&I customers or aggregating a group of C&I sites. Fluence Energy Inc. | Page 15 April 17, 2023 Exhibit 14: FTM vs. BTM Source: Department of Energy, BMO Capital Markets Key opportunities for storage assets in FTM. The ability of traditional, fossil fuel-based plants to generate power continuously as well as the historical flow of power in one direction (from utility generation to distribution) negated much of the need for utility-scale energy storage. However, as renewable generation becomes more prevalent along the grid, this has enhanced the need for storage. When combined with growth of distributed solar that allows for power to flow to the grid from both the front and back of the meter, the need for grid flexibility and capacity further increases. Power from renewable generation, particularly wind and solar, is more variable and intermittent than traditional sources, introducing the need for systems that can smoothly integrate variable renewable energy (VRE). ESS offers utilities and others to accommodate more growth of renewable energy. Other key applications of storage systems for FTM users include the following: Energy storage systems offer a range of uses for FTM customers, from enhancing grid reliability, ensuring the smooth integration of renewable energy sources, and reducing net loads and therefore grid operating costs, to name a few. Fluence Energy Inc. | Page 16 Flattening the “duck” curve (i.e., load leveling). Throughout a typical day, the net load a utility experiences (the total demand for electricity minus any renewable energy on the grid) will decline during the day when solar assets, both at the utility and residential level, are producing energy and spike in the evening as the sun sets and resident electricity demand increases. These variations in net load both increase costs to utilities and introduce grid instability. Additionally, the trough to peak in daily net load continues to widen as more residential solar is installed. Utility-scale energy storage works to flatten the duck curve by allowing utilities to store VRE during times of low demand and dispatch it to the grid during peak hours, decreasing the variations in net load throughout the day. April 17, 2023 Exhibit 15: Net Load “Duck” Curve: Solar Has Shifted the Net Load Profile for Electric Distribution Source: CAISO, BMO Capital Markets Fluence Energy Inc. | Page 17 Energy arbitrage. Similar to flattening the duck curve, storage systems allow utilities to store energy when electricity prices are low and discharge during more expensive hours, increasing income from power generated. Sudden deviations from predicted renewable generation output or unexpected weather can cause significant volatility in shorter-term power markets. The spot market for power consists of both a day-ahead market and a real-time market. In the day-ahead market power is priced in 1-hour increments based on the expected hourly load and dispatch of generation assets. In contrast, the real-time market is priced in 5- to 15-minute intervals. Storage assets, particularly with AI-enabled software such as provided by FLNC and STEM, can anticipate and quickly act to take advantages of shifts in real time. Below we show how power prices spiked during February 2022 when wind gen fell below forecasted levels while fossil gen ramped up. April 17, 2023 Exhibit 16: ERCOT North Real-Time Average Hourly Power Prices, February 23-34, 2022 Power Volatility Comes From Demand and Shifts in Renewable Output $4,000.00 30,000 $3,500.00 25,000 $3,000.00 20,000 $2,500.00 $2,000.00 15,000 $1,500.00 10,000 $1,000.00 5,000 $500.00 $- 1 2 3 4 5 6 7 2/23/2022 (Price $/MWh) 8 9 10 11 12 2/24/2022 (Price $/MWh) 13 14 15 16 17 2/23/2022 ( Wind MWs) 18 19 20 21 22 23 24 2/24/2022 (Wind MWs) Source: BMO Capital Markets, ERCOT Fluence Energy Inc. | Page 18 Capacity and resource adequacy markets. Load serving entities (i.e., electric utilities) are often required to ensure a sufficient amount of reserve margin above forecasted peak demand levels. Given the likely unavailability of a certain portion of generation assets due to outages and/or maintenance and the shifting mix fuel costs that may make certain generation plants dispatch power less than their capacity due to price, many power markets utilize a capacity or resource adequacy market to ensure power demand can be met on demand in return for fixed payments. Given the ability of storage assets to dispatch power to the grid, it allows both FTM and larger BTM customers to participate in what serves as a de-facto insurance market for the power grid. Frequency regulation (reg up/reg down). An imbalance in power supply and power demand can lead to a dip or rise in grid frequency beyond specified limits. Battery storage systems can be used to regulate grid frequency, and while conventional plants take several minutes to respond to system operators’ instructions, ESSs can typically respond almost instantaneously. We note that FLNC’s systems have demand response times of around 100 milliseconds. Reg down is a particularly interesting opportunity for batteries; when abundant solar generation means excess generation on the grid, batteries can take this excess power and effectively get paid to charge up. Cleaner and cheaper “black start.” When starting up, large generators need an external source of electricity (usually taken from the grid) to perform key functions before they can begin generating electricity. However, in the event of a grid failure, generators must be started through an onsite source of electricity (“black start”). An onsite ESS can perform this function both cheaper and cleaner than traditional diesel generators located onsite for emergency startups. Transmission and distribution upgrade deferrals. The electric grid’s transmission and distribution infrastructure must be sized to meet peak demand, which may only occur for a few hours every year. When anticipated growth in peak demand exceeds the grid’s existing capacity, investment in grid infrastructure is needed. ESS can defer or circumvent the need for new grid investments by meeting peak demand with energy stored from lower demand periods. Additionally, during peak demand distribution networks may become congested as power flow-through exceeds the load carrying capacity of transmission lines. Instead of adding expensive transmission infrastructure, storage systems located at congestion points can be used as “virtual power lines.” April 17, 2023 Storage for BTM (C&I). Although storage systems for commercial and industrial customers offer similar functionality as utility-scale, these systems are primarily used for electricity bill savings through demand-side management. C&I customers can utilize storage paired with a distributed generation source (solar) to engage in energy arbitrage by storing power produced onsite during times of low demand (when electricity is cheap) and using that power (or selling it back to the grid) during peak demand (when electricity is more expensive). Additionally, an ESS can increase energy resiliency by offering a reliable source of stored power in the event of a disruption to the grid. This can be particularly important for customers in regions where grid outages are frequent or customers who cannot afford interruptions in power supply (e.g., a hospital). Finally, for customers that require a consistent supply of high-quality power, BTM storage systems can ensure power from the grid within tight voltage or frequency tolerances. As C&I and residential ESS deployment they can be aggregated as virtual power plants (VPPs) to support the grid by offering some of the capabilities normally found through the ancillary services market. Finally, we see the substantial need for growth in EV charging infrastructure at public and commercial locations as a potential large driver of C&I ESS growth. FLNC Investment Positives We Are Going to Need a Bigger Boat: Storage Growth Expected to Be Robust Through End of Decade… Our TAM and cumulative capacity forecasts indicate that we are on the precipice of rapid growth in the utilityscale and C&I ESS market, where we see FLNC as one of the key beneficiaries. We believe that the adoption of large-scale energy storage systems is still in its early stages and is set for a period of robust growth. This will be driven by the need to pair new solar/wind generation with storage, retrofit existing renewable sites that currently lack storage, and add standalone storage for grid resiliency and power quality issues for behind-the-meter C&I sites. In the figures below we highlight BNEF’s estimated energy storage growth for the utility-scale and C&I segments excluding China and residential markets. Growth in renewables and energy storage within China are forecast to be at least as big as the rest of the world combined, but given the geographic focus of our energy storage sector coverage, we present a more conservative look at energy storage rather than an overall global forecast. Exhibit 17: Cumulative Capacity by Region (GWh) Exhibit 18: Cumulative Capacity by End-User Segment Global Cumulative Capacity Growth Ex China (MWh) Cumulative Capacity Growth by Region (MWh) 900 900 800 800 700 700 600 600 500 500 41% CAGR 400 400 300 300 200 200 100 100 0 0 2021 2022 2023 2024 Americas Source: BNEF, BMO Capital Markets 2025 2026 APAC (Ex China) 2027 EMEA 2028 2029 2030 2021 2022 2023 2024 Utility-scale 2025 2026 Commercial 2027 2028 2029 2030 Other Source: BNEF, BMO Capital Markets We estimate that global cumulative storage capacity will grow at a ~41% CAGR (2021-2030), reaching ~780 GWh by 2030, up from ~35 GWh as of 2021. Additionally, we see the Americas, particularly the U.S., as representing the largest storage market outside of China. We estimate cumulative storage capacity in the Americas reaches 430 GWh by 2030 (90% U.S.). We see this growth expanding the global utility-scale and C&I storage total addressable market (TAM) to ~$231 billion by 2030 from roughly $22 Fluence Energy Inc. | Page 19 April 17, 2023 billion today. We note that the majority of our 2030 TAM and cumulative capacity estimates can be attributed to growth in the utility-scale segment where we see FLNC along with TSLA as the leading players in storage development in these regions. Exhibit 19: 203E Utility-Scale + C&I Storage TAM 2030E Utility Scale + C&I Storage TAM Segment Cumulative Capacity (GWh) $/kwh Americas Utility Scale Americas Commercial 397 27 $300 $300 $119,181 $7,989 EMEA Utility Scale EMEA Commercial 205 5 $300 $300 $61,450 $1,619 APAC (ex China) Utility Scale APAC (ex China) Commercial 117 18 $300 $300 $34,964 $5,503 Total TAM ($mm) 769 $230,707 Source: BMO Capital Markets The EIA forecasts renewable energy’s share of U.S. power capacity growing from 27% in 2022 to over 64% by 2030. Exhibit 20: 2022 U.S. Power Sector Generation Mix Hydro, 2% Other, 1% Renewables, 27% Exhibit 21: 2025 U.S. Power Sector Generation Mix Exhibit 22: 2030 U.S. Power Sector Generation Mix Other, 3% Other, 2% Hydro, 2% Hydro, 2% CCGT - Gas, 25% CCGT - Gas, 26% CCGT - Gas, 25% Renewables, 39% Fossil Peaking, 20% Fossil Peaking, 20% Renewables, 64% Fossil Peaking, 24% Nuclear, 8% Coal, 15% Coal, 18% Coal, 9% Nuclear, 8% Source: EIA, BMO Capital Markets Source: EIA, BMO Capital Markets Nuclear, 8% Source: IEA, BMO Capital Markets ….Which Should Drive Backlog Growth (More Revenue Visibility) and Eventually Larger Annual Deployments for FLNC Driven by our growth forecasts for the global ESS market, we estimate FLNC’s cumulative deployed base expands from 1.9 GW today to ~33 GW by 2030, driving a 31% revenue CAGR from 2021 to 2030. As highlighted in the section above, the overall market for energy storage systems is expanding quickly on high demand and will be further accelerated in response to policy mandates and other policy support (e.g., IRA in the U.S.) in coming years. FLNC’s storage product backlog, which represents signed purchase orders or contractual minimum purchase commitments, has already grown to over 4.3 GW as of Q1 2023, more than double the company’s current installed base of 1.9 GW. In our view this has increased investor confidence that the company’s FY 2023 revenue guidance of $1.6-1.8 billion or +42% y/y at the midpoint is well on track. Our FY 2023 revenue estimate is $1.7 billion. Although the larger storage developments FLNC focuses on are often subject to longer lead times, we believe the visibility in backlog and ability to increase the pace of moving storage from backlog to the field are net positives. Our acceleration in deployed MW in the 2025+ timeframe reflects our belief that delays in utility-scale development from supply chain disruptions are easing and interconnection delays in the U.S. should alleviate. Fluence Energy Inc. | Page 20 April 17, 2023 Exhibit 23: Energy Storage Products Contracted Backlog (GW) Exhibit 24: Year-End Cumulative Deployed GW 40.0 Year End Cumulative Deployed GW's 36.8 Energy Storage Products Contracted Backlog (GWs) 35.0 32.7 35.0 31.7 30.0 30.0 27.4 25.3 25.0 25.0 21.3 19.0 20.0 20.0 15.4 13.9 15.0 15.0 11.1 10.0 7.7 5.0 1.9 2.7 3.2 3.6 3.7 3.7 4.3 9.7 10.0 6.6 GW 5.3 4.3 GW 5.0 1.0 GW 0.0 Q3 Q4 Q1 Q2 Q3 Q4 Q1 FY FY FY FY FY FY FY FY 2021 2021 2022 2022 2022 2022 2023 2023 2024 2025 2026 2027 2028 2029 2030 1.8 GW 2.7 GW 0.0 FY 2021 FY 2022 FY 2023E FY 2024E FY 2025E FY 2026 FY 2027 FY 2028 FY 2029 FY 2030 Year End Cumulative Deployed GW's Source: Company Filings, BMO Capital Markets Source: Company Filings, BMO Capital Markets Looking longer term, we note that FLNC’s energy storage products pipeline (potential revenue from contracts in process which have a reasonable likelihood of contract execution within 24 months) has grown to over 9.7 GW (Q1 2023), much of this before the benefits of the U.S. IRA were clear or available to developers. This is reflected in our estimates for forward FLNC backlog growth that will drive increases in its cumulative deployed base, which we forecast will grow from 1.9 GW as of Q1 2023 to 6.6 GW and 33 GWs by end of 2025 and 2030, respectively. The growth in product deployment anchors our forecasted revenue CAGR of 46% from 2021 to 2025 and 31% over the 2021-2030 timeframe. Hardware Margins Appear Set to Turn the Corner Driving Attractive Rate of Change Story We believe that visibility to meaningful near-term hardware gross margin improvements creates a clear path to consistently generating positive adjusted EBITDA by the middle of 2024, with margins continuing to improve through FY 2025. Fluence Energy Inc. | Page 21 We appreciate the investor community focus on potential margin expansion for storage developers like FLNC and STEM to attach software and service-related products to a rapidly growing base of storage assets that have been deployed. Software and service margins are materially higher and provide potential longer-term recurring streams of revenue. However, our estimates and forecasts suggest that hardware-related revenue will be the lion’s share of revenue and margins through the end of the decade even using our assumed attach rate for service of 95% and 48% annual growth of digital assets under management through 2030. That said, we see meaningful product-related gross margin expansion through 2025, driven by legacy contracts with meaningfully lower-margin contracts beginning to roll off. Combined with our bullish outlook for storage demand and FLNC deployments means that going forward, the company’s storage deliveries mix will begin to skew more towards newer, higher-margin contracts. Contracts signed today appear to be around 10-11% gross margins (vs. Q1 implied product gross margins of <4%) and likely will begin moving closer to ~15%. We believe this results in roughly 270 bps of hardware gross margin improvement over the next few quarters. Additionally, we expect an accelerating cadence of highermargin contracts being deployed, driving hardware gross margins from an implied ~3.3% in Q1 2023 to 14% in FY 2025. This is the primary driver of our estimated consolidated gross margins rising from 4% to 15% over the same time period. April 17, 2023 Exhibit 25: EBITDA Margin Improvement Driven by Product Margins… Exhibit 26: …And Benefits of Growing Installed Base Driving Revenue Growth FLNC Revenue vs. Opex % of Revenue Adj. EBITDA Margin, Hardw are Margin $3,000 45% 14% 15% 40% 10% 10% $2,500 7% 35% 5% 5% $2,000 1% 30% 0% 25% $1,500 -5% 20% 18% -6% -6% $1,000 -10% 15% 15% 12% 12% 9% -15% -20% 10% $500 -15% 5% FY 2022 FY 2023E Adj. EBITDA Margin Source: BMO Capital Markets FY 2024E Energy Storage Products Gross Margin FY 2025E $0 0% FY 2021 FY 2022 FY 2023E Revenue FY 2024E FY 2025E Opex % of Revenue Source: BMO Capital Markets More importantly our estimates suggest that FLNC should begin to generate positive adjusted EBITDA consistently its second fiscal quarter in March 2024. In an industry with many nascent companies or technologies that operate at negative gross margins or operating earnings, we see the transition to positive EBITDA as a differentiator. We forecast adjusted EBITDA margins from -8% in Q1 2023 to roughly +7% in FY 2025. Finally, our confidence on an inflection point for margins emerging near term is also based on improvements in supply chain management. Potential emerging tailwinds from raw material prices and transportation costs are another. In our view, greater supply stability was a key driver of FLNC’s relatively new management team already raising FY 2023 guidance during its most recent earnings call. As can be seen above with respect to FY 2022 EBITDA and gross margins, FLNC like many in the utilityscale development segment saw a sequential decline in realized margins. However, we think many of the factors that drove tough conditions are starting to alleviate. First, as FLNC has highlighted earlier this year, it has largely secured its supply of batteries for FY 2023 with all supply currently located in-country or in transit. This should eliminate cost of delays incurred in 2022. In addition, we see shipping and raw material prices declining which should provide a tailwind in 2023. We also believe FLNC has broadened both the number of battery OEM makers and geography of suppliers. As an example, we note FLNC is working with Northvolt in Europe. Fluence Energy Inc. | Page 22 April 17, 2023 Exhibit 27: Shipping Costs Continue to Fall Exhibit 28: Lithium Price Indexes Have Moderated as Well Freight Container Shipping Index ($/40 ft box) Lithium Price Index $11,000 1200 $10,000 $9,000 1000 $8,000 $7,000 800 $6,000 600 $5,000 $4,000 400 $3,000 $2,000 200 $1,000 0 $0 Source: Bloomberg, BMO Capital Markets FLCN has positioned itself to be eligible for battery module PTCs under the IRA by mid2024, providing a potentially significant boost to margins that we think is currently underappreciated. Source: Bloomberg, BMO Capital Markets IRA Battery Module PTC Upside From Planned U.S. Site; Standalone ITC Supports Acceleration of Storage Demand As we have discussed in our previous work on the implications of the IRA, we believe that investment tax credits (ITCs) under the IRA will drive additional storage penetration in the U.S., particularly now that a standalone storage ITC is available for the first time, when previously ITCs were only available when paired with solar PV. ITCs for storage are set at a 6% level but we see most projects meeting prevailing wage and apprenticeship requirements reaching a base of 30% with potential for additional upside from bonus adders for owners of storage projects, thereby increasing demand for FLNC products. Exhibit 29: Summary of Key Battery Materials IRA Tax Credits Exhibit 30: U.S. Demand for Batteries Enhanced by ITC for Storage U.S. Cumulative Capacity Growth by Segment (GWh's) 450 400 350 Key Battery IRA Tax Credits Type Amount Electrode Materials PTC 10% of Cost Battery Cells PTC $35/kWh 200 Battery Modules PTC $10-45/kWh 150 Critical Minerals PTC 10% of Cost 100 Developer Investment ITC 30% - 50% 50 300 250 0 2021 2022 2023 2024 Utility-scale Note: ITC assumes wage and labor requirements are met Source: BMO Capital Markets 2025 2026 2027 Commercial Other 2028 2029 2030 Source: BNEF, BMO Capital Markets Among storage developers we see FLNC as one of the best positioned to take advantage of U.S. PTCs, which should drive upside to adjusted EBITDA estimates when its planned Utah contract manufacturing facility begins producing battery modules in July 2024. Modules produced at the site will be eligible for the 45X battery module manufacturing production tax credit of $10/kWh. Fluence Energy Inc. | Page 23 April 17, 2023 Exhibit 31: 45X Credits Should Be Meaningfully Accretive to Product Margins and EBITDA From Utah Facility FLNC Potential U.S. PTC Impact Metric/Assumption Utah Facility Initial Production (GWh) Utah Facility Initial Production (KWh) [a] Low High 6 12 6,000,000 12,000,000 Battery Module PTC Value ($/KWh) [b] $10 $10 Assumed PTC Retention Rate [c] 90% 90% PTC Value Retained - ($/KWh) [b*c] $9 $9 Total PTC Value Retained ($mm) [b*c*a] $54 $108 FY 2025 Model Energy Storage Products Revenue ($mm) $3,002 $3,002 FY 2025 Model Energy Storage Products COGS ($mm) $2,592 $2,592 FY 2025 Model Energy Storage Products Gross Margin 13.7% 13.7% PTC Adjusted FY 2025 Model Energy Storage Products COGS ($mm) $2,538 $2,484 PTC Adjusted FY 2025 Energy Storage Products Gross Margin 15.5% 17.3% FY 2025 Model Adj. EBITDA FY 2025 Model Adj. EBITDA Margin $222 7.2% $222 7.2% PTC Adjusted FY 2025 Model Adj. EBITDA PTC Adjusted FY 2025 Model Adj. EBITDA Margin $276 8.9% $330 10.7% Source: BMO Capital Markets With a planned initial capacity at the Utah facility of 6 GWh, these PTC credits will represent a potentially significant boost to gross margins for the company’s hardware segment that we believe will increasingly provide a boost to consensus estimates for gross margins and adjusted. EBITDA. While we currently don’t include the PTC value in our official estimates (as the company is still in early negotiations regarding levels of credit sharing), we incorporate the upside to our FLNC valuation and estimate adjusted EBITDA with and without the benefit of the PTCs. In the table above we highlight the estimated uplift to 2025 gross margins from modules produced at the Utah facility. Our low case is based on the plant’s initial 6 GWh of capacity and assumes FLNC retains 90% of the upside with credit and shares 10% likely via lower ASPs with customers. In the high case we assume the facility’s capacity can be doubled as outlined by management. At 6 GWh of capacity, PTCs imply a 24% increase to standalone adjusted EBITDA estimates in 2025, and at 12 GWh of capacity 49% additional upside compared to if PTCs were not available. The Utah facility is slated to begin production of modules in mid-2024. While we forecast no shortage of storage demand, we see margin expansion beyond 2025 slowing as hardware margins top-out and think many of our peers are over-estimating growth in the company’s digital and service segments. Fluence Energy Inc. | Page 24 Investment Risks Hardware Margins Have Limited Longer-term Upside and Service/Digital Growth Needs to Be Outsized to Move Needle As we highlighted in our investment positives, we see a clear path for product gross margins to inflect meaningfully higher the next few quarters based on a combination of out-of-the-money contract rolloffs and improving supply chain variables supported by high demand. However, we believe that gross margins from the storage product segment are unlikely to expand beyond 15% and could eventually see downside pressure. FLNC, as a trusted developer of storage applications for large utility-scale projects, will have ample opportunities to grow its asset base, but we see solar and wind project IRRs similarly April 17, 2023 range-bound within ~5% to ~9% as competition remains strong among large renewable developers and often subject to regulatory approvals in IRP processes. Therefore, especially looking back at utility and large-scale C&I equipment margins, we see potential for storage developers to see pressure on ASPs and margins. Exhibit 32: Despite Robust Digital and Services Revenue Growth... Exhibit 33: …Hardware Comprises Bulk of GM, Even in 2030E Digital Applications and Services Revenue ($ million) Segment Gross Margin Contribution $500 100% $450 90% $400 80% 5% 5% 4% 6% 16% 12% 70% $350 60% $300 50% $250 90% 89% 40% $200 80% Digital CAGR 73% 53% Services CAGR 30% $150 20% $100 10% $50 0% FY 2023E $0 FY 2022 FY 2023E FY 2024E FY 2025E FY 2026E FY 2027E Digital Applications and Solutions Revenue Source: Company Filings, BMO Capital Markets FY 2028E FY 2029E Services Revenue FY 2030E FY 2025E FY 2030E Digltal Applications Gross Margin Contribution Services Gross Margin Contribution Energy Storage Products Gross Margin Contribution Source: Company Filings, BMO Capital Markets As a result, FLNC’s services and digital segments represent key drivers for additional margin expansion once energy storage products reach our expected 15% long-run equilibrium level. As a leading developer of projects FLNC can build a growing amount of recurring revenue from providing service on installed storage systems as well as layering on either monitoring software or providing competitive bidding software, allowing for optimized dispatch of storage assets. We estimate service and digital margins are roughly 30-35% and 80-85% through 2030, respectively. TSLA and FLNC currently enjoy a significant lead on competitors for applications of larger storage systems. With respect to service margins we see a reasonable likelihood of success that FLNC’s service contract AUM and associated revenue can grow in tandem with our forecasted product volumes. We assume a 95% attachment rate of service contracts on storage product sales that is likely consistent with consensus estimates. Any deviation from this high level of service attachment rates could present downside risk to our assumptions. We believe in the 2025+ time frame consensus estimates for growth in IQ software sales (i.e., digital assets) likely diverge and are subject to more uncertainty. As can be seen in the figures above and below our assumed improvement to 19% gross margins by 2030 can in part be ascribed to our assumption that digital revenue grow at a ~80% CAGR from 2022 to 2030, based on estimates that digital AUM MW (volumes) grow at a CAGR of 48%. This exceeds the rate of growth we assume for hardware deployments over the same time frame (+44% CAGR). This means that a larger portion of the company’s software products are deployed onto third-party energy storage systems. We note our 2025 gross margins are likely ~100 bps below consensus estimates, as we believe some in the investment community assume much higher levels of digital growth and third-party sales. Fluence Energy Inc. | Page 25 April 17, 2023 Exhibit 34: Post 2025 GM Expansion Depends on Steep Acceleration of Software Expansion Consolidated Adj. Gross Margins 25% 20% +4% 19% 15% 15% +15% 10% 5% 0% 0% -5% -10% FY 2022 FY 2023E FY 2024E FY 2025E FY 2026E FY 2027E FY 2028E FY 2029E FY 2030E Source: Company Filings, BMO Capital Markets Concentrated Ownership and Limited Public Float Currently As discussed earlier and illustrated in table below, FLNC’s founding shareholders that include affiliates of AES and Siemens and pre-IPO investor Qatar Holding, LLC hold the majority of the economic and voting power of FLNC shares. FLNC investors currently have to contend with a limited float % of total class A shares outstanding. In addition, we note on June 2022 Siemens converted its holdings from Class B voting shares to Class A non-voting shares but also transferred ~32% of those shares (18.8 million shares) to one of the company’s pension entities that may opportunistically sell shares, which while improving the overall public float, may pressure FLNC’s share price. In addition, while we are not aware of any pending plans of AES, Siemens, or Qatar Holding LLC’s affiliates to trim their ownership stake, it is not unusual among companies in the energy transition sector to see legacy founders opportunistically monetize their holdings as these nascent businesses build an adequate track record as public companies. Fluence Energy Inc. | Page 26 April 17, 2023 Exhibit 35: FLNC Shares Have a Limited Public Float and Concentrated Ownership Base Shareholder(s) Share Class MM Shares AES (AES Grid Stability, LLC) B-1 58.6 Siemens AG A 39.7 Siemens Pension Trust E.V, A 18.8 Qatar Holding LLC A 18.5 Shares Held By Pubilic A 39.0 Total Diluted Shares 174.7 Class A Total 116.1 Class B Total 58.6 % of Class A Shares Held by Public 34% % of Class A Shares Held by Public and Siemens Pension 50% Source: BMO Capital Markets, Company Filings Ties That Bind: Sales to AES Likely Represent Large Portion of Current Revenue FLNC along with TSLA currently have developed strong relationships with key utility, IPP, and C&I customers that are driving renewable generation development or others that have grid and power quality needs and are often the first call for energy storage systems, software, and services. That said, FLNC’s five largest customers in aggregate accounted for 77% of its FY 2022 (ending September 30, 2022) revenue and 61% of FLNC’s remaining backlog, as of year-end 2022. Of this amount orders from AES accounted for 54% of the company’s FY 2022 revenue. Two customers accounted for 51% of total sales in 1Q 2023 (quarter ending 12/31/2022) which we suspect likely incudes AES. That said, going forward Fluence believes AES will represent roughly 25% of revenue over the next three years. However, we continue to monitor AES’s renewable development pipeline as one barometer of growth and progress in diversifying its customer base. As we also previously highlighted, we see the potential for large renewable energy developers like NEE and others choosing to develop energy storage software and hardware on their own. Supply Chain and Regulatory and Policy Risks We like FLNC’s capital-light operating model that is based upon the company’s use of contract manufacturing for 100% of its production needs and provides an attractive path towards sustainable positive FCF. That said, the company currently only has two primary contract manufacturing lines, one located in Asia and one in the U.S. (a third in Europe is expected to come online sometime in 2023). Should these facilities experience any disruptions, it could lead to delays in delivering its storage products. FLNC currently relies on only three battery module suppliers, with one supplier accounting for 64% of FLNC’s module purchases in FY 2022. That said, FLNC will be adding module production/assembly at its U.S. facility in order to take advantage of PTCs under the IRA. Energy storage systems are dependent on the availability of key battery raw materials, including lithium, nickel, copper, aluminum, and others that are subject to volatile pricing and supply disruptions which can impact margins or cause project delays. Regulatory uncertainty particularly in the U.S. can have an outsized impact on utility-scale renewable development given long lead times for procurement of equipment and project development. FLNC and other utility-scale equipment suppliers had a tougherthan-expected 2022 given project delays caused by ongoing supply chain issues and, more significantly, the uncertainty that was introduced by the Department of Commerce investigation of solar module Fluence Energy Inc. | Page 27 April 17, 2023 imports from SE Asia that accounts for 80% of U.S. solar module supply. The threat of tariffs and potentially retroactive penalties caused many utility-scale projects to be delayed. While the Biden administration ultimately provided a two-year moratorium for potential AD/CVD (anti-dumping and circumvention of duties) related to the Department of Commerce ongoing process, a bipartisan group of legislators has introduced a congressional review act (CRA) resolution seeking to overturn the Biden waiver of tariffs. The CRA resolution would only need a simple majority in both houses to pass but would likely face a Presidential veto that would require 2/3 to overturn. We think odds favor the tariff waiver continuing but this is a source of uncertainty. Finally, while we have highlighted the passage of the U.S. IRA’s positive impact in driving renewable and energy storage growth, application of tax credits and rules for which they may be claimed remain subject to further clarification from the Department of Treasury. Key items such as potential domestic content requirements will have an impact on project returns and therefore demand and pricing for renewable and storage equipment. Demand Is Strong for Solar and Storage, but Interconnection Delays Are Mounting As we have highlighted throughout this report, demand for solar and storage particularly for the larger customer segments that FLNC targets is very strong. However, we are increasingly concerned that the pace of storage deployments can be delayed compared to estimates due to delays in interconnection approvals on the part of grid operators that are increasingly overwhelmed by the number of requests of new generation and storage capacity looking to come online in coming years. We point to: In 2022 alone there were 700 GW of new interconnection agreement applications on the U.S. grid. There is roughly 2,040 GW of interconnection requests in the queue, of which 1,260 GW are for solar and battery capacity. Wait times for approval according to the DoE have risen to as much as five years (was less than three years in 2015). PJM, the largest ISO or grid authority in the U.S., has paused new interconnection requests until 2025. Valuation and Key Estimates Our valuation of FLNC implies $24/share based on our blended valuation approach (DCF, EV/EBITDA, and EV/sales) and includes an estimated $2.74 of additional value for our estimate of the DCF of future PTC benefits under the IRA. Valuation metrics for energy transition and infrastructure are still developing and vary by subsector. Some companies within the space, such as Fluence, have limited operating histories as public companies compared with more mature energy sectors, such as power and utilities or oil and gas. As such, the scope of their business and addressable markets are expanding quickly. Valuation for pure-play energy storage providers can be especially challenging because our forecasts imply negative EPS and free cash flow, and in FLNC’s case, negative EBITDA in the near term. We believe there has been an overreliance among some to solely utilize an EV-to-forward sales approach two to three years out in time when valuing emerging energy transition companies. Therefore, we utilize a blended valuation approach that incorporates a longer-term DCF approach that estimates future FCF to equity that accounts for the next few stages of the industry we think will Fluence Energy Inc. | Page 28 April 17, 2023 emerge over the next 10 years as FLNC continues to scale its hardware, services, and software products. This approach also allows us to monitor the portion of our DCF valuation owed to our terminal value assumptions compared with the discounted cash flows over the next 10 years in our valuation models. Our target price is based on our DCF valuation of free cash flow to equity of $20/share and we apply a 50% weighting in arriving at our $24 target price. We note the following: We adjust our FCF to equity estimates downward to exclude value for our estimates for stockbased compensation; we believe that some on the sell side do not adjust for this. We use a 13% discount rate and 5% terminal growth rate. Our valuation methodology, which can be seen in the exhibit below, also includes an EV/EBITDA and EV/sales based multiple approach which we weight 25% each, respectively. Our EV/EBITDA valuation utilizes an 11x multiple to our 2025 estimate for adjusted EBITDA while our EV/sales valuation assumes a 1.8x valuation based on storage-focused comparable companies as well as solar equipment providers that we see as subject to the same general industry trends as FLNC. A list of the comparable companies and their respective and group average multiples can be found in Exhibit 3. Fluence Energy Inc. | Page 29 April 17, 2023 Exhibit 36: FLNC Valuation DCF Valuation 2023E 2024E 2025E 2026E 2027E 2028E 2029E 2030E 2031E 2032E CFO Less: Stock Based Compensation Less: Capital Expenditures ($169.7) (44.5) (16.5) $40.5 (50.0) (18.8) $228.4 (60.0) (21.7) $316.2 (70.0) (23.5) $360.7 (80.0) (26.1) $430.0 (80.0) (28.2) $516.5 (80.0) (30.1) $619.9 (80.0) (30.4) $685.7 (80.0) (31.0) $724.4 (80.0) (31.6) FCF PV ($230.7) ($204.1) ($28.3) ($22.1) $146.7 $101.7 $222.7 $136.6 $254.6 $138.2 $321.8 $154.6 $406.4 $172.7 $509.6 $191.7 $574.7 $191.3 $612.8 $180.5 DCF Through 2032 Terminal Value DCF Value $1,041 $2,257 $3,298 Less 2023 YE Adj. Net Debt ($188) Equity Value $3,486 2023 YE Diluted Shares Implied Target Price 175.7 $19.84 Weighting Discount Rate Terminal Growth EV/EBITDA Adj. EBITDA Enterprise Value 2025E $222 11.0x $2,443 Less net debt Equity Value 2023 Shares Implied Target (188.2) $2,632 175.7 $14.98 Weighting EV/Sales 2025E Sales $3,100 1.8x $5,424 Enterprise Value 50% 13% 5% Less net debt Equity Value 2023 Shares (188) $5,613 175.7 $31.94 Weighting Implied Valuation Plus DCF Value of Future PTC Value $21.65 $2.74 Implied Valuation $24.39 25% 25% Source: BMO Capital Markets A summary of key model assumptions and financial outputs used in our model can be found in the exhibits below. As a reminder FLNC is on a September 30th year-end and our estimates reflect year-end values as of this date. Fluence Energy Inc. | Page 30 Our 2023-2026 consolidated revenue estimates are $1.7 billion, $2.35 billion, $3.1 billion, and $3.9 billion, respectively. Our 2023-2026 gross margin estimates are 6%, 11%, 15%, and 16%, respectively. Our 2023-2026 adjusted EBITDA estimates are -$99 million, $20 million, $222 million, and $311 million, respectively, and do not include the benefit of PTCs. Key assumptions used to derive our estimates are shown in the table below and include our estimates for cumulative deployed MWs, Service Contracts AUM, and Digital Assets AUM. April 17, 2023 Exhibit 37: Model Key Operating Assumptions and Outputs Exhibit 38: Model Select Financial Outputs $ MM except per-share data Model Key Operating Assumptions and Outputs 2022A 2023E 2024E 2025E 2026E Revenue From Sale of Energy Storage Products $1,180 $1,678 $2,295 $3,002 $3,760 Revenue From Services $16 $24 $41 $67 $106 Revenue From Digital Applications and Solutions $2 $6 $14 $30 $52 Other Revenue $0.1 $0.4 $0.0 $0.0 $0.0 Total $1,199 $1,708 $2,350 $3,100 $3,919 0% 6% 11% 15% 16% Cumultive Deployed MW's 1,800 2,742 4,305 6,566 9,713 Service Contracts AUM (MW) 2,000 2,605 4,090 6,238 9,227 Digitial Assets AUM (MW) 13,700 30,758 63,780 100,359 136,537 Select Financial Outputs 2022A 2023E 2024E 2025E 2026E Select Income Statement Items Revenues Gross Margin EBIT (GAAP) Adj. EBITDA PTC Adj. EBITDA $1,199 -$62 ($276) ($184) ($184) $1,708 $95 ($157) ($99) ($99) $2,350 $245 ($30) $20 $33 $3,100 $456 $162 $222 $276 $3,919 $605 $241 $311 $365 Inccome (Loss) (GAAP) EPS ($289) ($0.60) ($155) ($0.88) ($44) ($0.25) $147 $0.81 $226 $1.21 Gross Margin % Adj. EBITDA Margin -5% -15% 6% -6% 10% 1% 15% 7% 15% 8% Cashflow Items CFO (GAAP) Capex FCF FCF to Equity Per Share Cash Flow from Investing Cash Flow from Financing ($282) ($8) ($290) ($2) ($148) $817 ($170) ($16) ($186) ($1) ($20) $23 $41 ($19) $22 $0 ($19) $0 $228 ($22) $207 $1 ($22) $0 $316 ($24) $292 $2 ($24) $0 Balance Sheet Items Cash Total Debt Net Debt Net Debt/adj. EBITDA $357 $0 ($357) $2 $188 $0 ($188) $2 $210 $0 ($210) ($11) $417 $0 ($417) ($2) $709 $0 ($709) ($2) Total Equity $436 $339 $345 $553 $848 Minority Intereest $193 $178 $178 $178 $178 Total Capitalization Debt/Capitalization $436 -82% $339 -56% $345 -61% $553 -75% $848 -84% Diluted Shares Market Capitalization Enterprise Value 173 $3,703 $3,539 176 $3,752 $3,742 179 $3,813 $3,782 182 $3,884 $3,646 186 $3,967 $3,437 EV/Adj. EBITDA P/E -19.2x -35.4x -37.8x -24.2x 193.6x -87.0x 16.4x 26.3x 11.0x 17.6x Book Value per Share $2.51 $1.93 $1.93 $3.04 $4.57 Revenues By Segment ($ MM) Consolidated Adj. Gross Margin Key Segment Assumptions Energy Storage Products Gross Margin -6% 5% 10% 14% 14% Services Gross Margin 25% 25% 30% 32% 34% Digital Applications and Solutions Gross Margin 70% 75% 77% 80% 82% Opex % of Revenue R&D 5% 4% 3% 3% 3% S,G&A 13% 11% 10% 7% 7% Total Opex 18% 15% 12% 9% 9% Source: BMO Capital Markets Source: BMO Capital Markets Management Overview Fluence went public on October 28, 2021, with a management team that initially consisted of Manuel Dubuc as CEO, Dennis Fehr as CFO, and Seyed Madaeni as Chief Digital Officer. The IPO was well received and well supported by long-only investors. However, the post-IPO honeymoon did not last long as FLNC's 4Q 2021 earnings call held a little over a month following the IPO saw results miss consensus expectations. The company quickly fell from its post-IPO high, trading down over 70% over the following four months. Disappointing earnings results in Q1 2022 and Q2 2022 placed continued pressure on the stock. Fluence’s current management team, consisting of CEO Julian Nebreda, CFO Manavendra Sial, and Chief Digital Officer Krishna Vanka, were appointed to their respective roles in the summer of 2022, following the resignation of previous leadership. We believe that much of the company’s recent success can be attributed in part to this new team, which has helped Fluence more consistently deliver on expectations, already raising FY 2023 guidance on the company’s most recent earning calls. We believe that this team will be a key driver of Fluence’s success going forward. Julian Nebreda, President and CEO Julian Nebreda has served as Fluence’s President and CEO since being appointed to the role in August 2022, and has served as a member of the company’s board of directors since 2021. Prior to joining the company, Mr. Nebreda was President of the South American Strategic Business Unit of AES Corporation since 2018. He also acted as President of AES Brazil Strategic Business Unit from 2016 to 2018 and President of the Europe Strategic Business Unit from 2009 to 2016. Prior to that, Mr. Nebreda has held Fluence Energy Inc. | Page 31 April 17, 2023 various other senior positions at AES since 2005. He currently also serves as Chairman of the Board of AES Andes and AES Brazil. Manavendra Sial, SVP & CFO Manavendra (Manu) Sial serves as Fluence’s SVP and CFO. Prior the joining the company, Mr. Sial served as Executive Vice President and CFO at SunPower Corporation for four years. Prior to SunPower, he served as Executive Vice President and CFO of VECTRA, a portfolio company managed by affiliates of Apollo Global Management, from 2015 to 2018. Mr. Sial has also held various finance and operations leadership roles at SunEdison Inc. and General Electric and earned his MBA from Duke University’s Fuqua School of Business and his Bachelor of Commerce from Delhi University in India. Rebecca Boll, SVP & Chief Product Officer Rebecca Boll serves as Fluence’s SVP and Chief Product Officer. Prior to joining Fluence, she was Chief Technology officer for the Digital Buildings business at Schneider Electric, where she led a team focused on assessing technologies to make buildings more sustainable. She has previously held various other leadership roles at General Electric, including Chief Technology Officer at GE Licensing and Technology Ventures. Rebecca received her bachelor’s degree in applied mathematics from Boston University and master’s in human relations from the University of Oklahoma. Brett Galura, SVP Fluence Next & CTO Brett Galura serves as Fluence’s SVP and CTO, where he leads the company’s technology selection, integration design, controls development, and market & system modeling for Fluence’s storage solutions. He also oversees Fluence Next, which focuses on advancing the company’s long-term R&D strategy. Prior to Fluence, Brett held a number of roles at AES while working there for over 20 years, including leading the company’s Energy Storage Solution Development team from 2010 until joining Fluence. Krishna Vanka, SVP & Chief Digital Officer Krishna Vanka serves as Fluence’s SVP and Chief Digital officer, where he leads efforts to grow the company’s digital applications business. Prior to joining Fluence, he served as chief product officer at InCharge Energy, was founder and CEO of MyShoperoo, as well as worked at Telogis Inc. Mr. Vanka brings with him over 16 years of experience and holds a Cum-Laude B.A.Sc. in Computer Engineering from the University of Ottawa and an MBA from Georgia State University. Fluence Energy Inc. | Page 32 April 17, 2023 Exhibit 39: FLNC Income Statement $ MM except per-share data Income Statement 2018A 2019A 2020A 2021A 2022A Dec-22 Mar-23 Jun-23 Sep-23 2023E 2024E 2025E 2026E Total Revenue $92.2 $561.3 $680.8 $1,198.6 $310.5 $427.9 $458.2 $511.1 $1,707.7 $2,350.0 $3,099.7 $3,918.9 Total COGS Gross Margin 100.1 ($7.9) 553.4 $7.9 749.9 ($69.1) 1,261.0 ($62.4) 298.4 $12.0 408.7 $19.2 428.4 $29.8 477.6 $33.5 1,613.1 $94.5 2,104.9 $245.1 2,643.4 $456.3 3,313.5 $605.5 9.9 28.9 11.5 34.2 23.4 60.8 60.1 153.9 19.2 40.1 17.1 46.4 18.3 49.7 15.3 45.2 69.9 181.3 81.1 194.5 82.1 212.1 99.9 264.2 38.8 ($46.7) 45.7 ($37.8) 84.2 ($153.4) 214.1 ($276.4) 59.2 ($47.2) 63.5 ($44.3) 68.0 ($38.2) 60.5 ($27.1) 251.3 ($156.7) 275.6 ($30.5) 294.2 $162.1 364.1 $241.3 0.0 2.9 1.8 0.1 3.0 0.6 1.4 5.1 (0.3) 2.0 7.1 (2.3) 0.8 2.4 12.6 0.0 2.4 0.0 0.0 2.7 0.0 0.0 3.0 0.0 0.8 10.6 12.6 13.4 - 14.7 - 15.7 - ($155.5) $225.7 $0.0 Research annd Development SG+A Total Opex EBITDA 0.0 $0.0 Interest Expense D+A Other Income (Expense) EBT $0.0 ($47.8) ($40.3) ($160.2) ($287.8) ($37.8) ($46.7) ($40.9) ($30.1) ($43.8) $147.4 Income Tax Expense (Benefit) (0.0) (0.8) 6.4 1.8 1.4 (0.6) - - - (0.6) - - - Rate #DIV/0! 1.6% -15.9% -1.1% -0.5% 0.0% 0.0% 0.0% 0.0% 0.4% 0.0% 0.0% 0.0% Net Income ($0.0) ($47.0) ($46.7) ($162.0) ($289.2) ($37.2) ($46.7) ($40.9) ($30.1) ($154.9) ($43.8) $147.4 $225.7 ($47.0) ($46.7) ($162.0) (184.7) ($104.5) (12.6) ($24.6) ($46.7) ($40.9) ($30.1) ($154.9) ($43.8) $147.4 $225.7 0.0 1.0 0.0 84.2 8.5 51.0 0.9 1.7 1.3 - 1.3 - 1.3 - 4.7 1.7 5.0 0.0 6.0 0.0 7.0 0.0 Adj. Gross Margin % ($7.9) -9% $8.9 2% $15.0 2% ($2.9) 0% $14.7 5% $20.5 5% $31.1 7% $34.7 7% $101.0 6% $250.1 11% $462.3 15% $612.5 16% Adjustments to EBITDA D+A Interest Expense (Income) Intome Tax Expense Stock based compensation Other Non-Recurring Expenses 2.9 (1.2) (0.8) 4.5 3.0 (0.4) 6.4 1.8 5.1 1.4 1.8 89.0 7.1 (0.3) 1.4 27.6 69.2 2.4 (0.7) (0.6) 8.5 2.1 2.4 12.0 - 2.7 12.0 - 3.0 12.0 - 10.6 (0.7) (0.6) 44.5 2.1 13.4 0.0 0.0 50.0 0.0 14.7 0.0 0.0 60.0 0.0 15.7 0.0 0.0 70.0 0.0 ($41.6) -45% ($35.9) -6% ($64.7) -9% ($184.2) -15% ($25.5) -8% ($32.3) -8% ($26.2) -6% ($15.1) -3% ($99.0) -6% $19.5 1% $222.1 7% $311.3 8% ($184.2) -15% ($25.5) -8% ($32.3) -8% ($26.2) -6% ($15.1) -3% ($99.0) -6% 13.5 $33.0 1% 54.0 $276.1 9% 54.0 $365.3 9% 3.6 89.0 4.6 27.6 69.2 1.5 8.5 2.1 12.0 - 12.0 - 12.0 - 1.5 44.5 2.1 50.0 - 60.0 - 70.0 - ($69.5) -10% ($187.8) -16% ($25.1) -8% ($34.7) -8% ($28.9) -6% ($18.1) -4% ($106.8) -6% $6.2 0% $207.4 7% $295.7 8% NCI Net Income Atrributable FLNC ($0.0) Adjustments to GM Stock based compensation (incentive award) Other non-recurring expenses Adj. EBITDA % PTC Adjustment PTC Adj. EBITDA % Adjustments to Net Income Ammortization of Intangibles Stock Based Compensation Other Non-recurring Expense Adj. Net Income % Adj. EPS Basic EPS Diluted EPS Basic Shares Diluted Shares #DIV/0! #DIV/0! ($0.40) ($0.40) ($0.40) ($0.40) ($0.59) ($1.38) ($1.38) ($1.08) ($0.60) ($0.60) ($0.14) ($0.21) ($0.21) ($0.20) ($0.27) ($0.27) ($0.16) ($0.23) ($0.23) ($0.10) ($0.17) ($0.17) ($0.61) ($0.88) ($0.88) $0.03 ($0.25) ($0.25) $1.14 $0.81 $0.81 $1.59 $1.21 $1.21 117.17 117.17 117.17 117.17 117.17 117.17 173.46 173.46 174.66 174.66 175.37 175.37 176.07 176.07 176.78 176.78 175.72 175.72 178.62 178.62 181.92 181.92 185.82 185.82 Source: BMO Capital Markets Fluence Energy Inc. | Page 33 April 17, 2023 Exhibit 40: FLNC Cash Flow Statement $ MM except per-share data Cash Flow Statement 2018A 2019A 2020A 2021A 2022A Dec-22 Mar-23 Jun-23 Sep-23 2023E 2024E 2025E 2026E (47.0) 2.9 (0.8) 6.0 (46.7) 3.0 1.9 (2.9) (162.0) 5.1 14.2 (1.3) 27.2 (289.2) 7.1 0.8 2.5 44.1 0.5 30.0 (37.2) 2.4 0.2 (0.3) 8.5 (1.0) (2.7) (46.7) 2.4 12.0 - (40.9) 2.7 12.0 - (30.1) 3.0 12.0 - (154.9) 10.6 0.2 (0.3) 44.5 (43.8) 13.4 50.0 147.4 14.7 60.0 225.7 15.7 70.0 (6.4) (4.6) 1.3 (9.8) (3.6) 12.4 65.5 4.3 2.7 4.9 (70.9) (90.3) 1.2 (26.6) (2.0) 63.1 29.7 122.8 0.8 3.0 1.3 (1.9) (6.9) (366.7) (33.6) 73.9 153.0 21.3 7.0 4.2 (29.2) (115.2) (45.0) (265.5) (33.8) 230.9 201.0 (32.4) (1.8) 12.6 33.5 (86.0) 8.0 (430.5) (3.1) 252.4 196.0 (20.9) (3.2) (5.1) (70.2) 54.2 (15.9) 115.8 (38.6) (21.7) (265.1) 9.1 5.7 17.0 (7.0) (11.7) (26.3) (36.8) 27.7 (13.5) (13.9) 257.2 0.8 22.1 (4.6) 2.3 (36.1) (8.3) 29.8 52.8 (3.5) 13.9 (50.8) (1.6) 5.6 (4.5) 5.1 (84.4) (66.4) (14.8) (234.1) (58.8) 230.8 137.3 8.2 12.5 4.7 (4.8) (94.8) (77.1) (29.3) (165.2) (32.1) 147.5 218.6 6.1 38.0 6.0 3.5 (105.1) (90.0) (34.3) (242.8) (37.5) 161.6 283.9 4.4 55.3 7.0 3.8 (108.1) (98.3) (37.4) (295.2) (41.0) 201.0 296.7 6.5 67.7 7.6 4.7 $0.0 $27.7 ($14.0) ($265.3) ($282.4) ($88.9) ($249.0) $177.2 ($12.7) ($169.7) $40.5 $228.4 $315.6 $0.0 (2.7) (20.0) ($22.7) (1.8) 20.0 $18.2 (4.3) (18.0) ($22.3) (7.9) (29.2) (111.3) ($148.4) (2.5) (3.8) ($6.3) (4.3) ($4.3) (4.6) ($4.6) (5.1) ($5.1) (16.5) (3.8) ($20.3) (18.8) ($18.8) (21.7) ($21.7) (23.5) ($23.5) $0.0 10.0 $10.0 2.5 $2.5 100.0 6.3 121.7 3.2 $231.1 (103.4) 920.4 $817.1 21.1 2.1 $23.3 $0.0 $0.0 $0.0 21.1 2.1 $23.3 $0.0 $0.0 $0.0 (0.8) 1.3 (0.5) 5.4 (5.8) - - - (5.8) - - - 14.1 72.9 $87.0 8.0 87.0 $95.1 (57.0) 95.1 $38.1 391.7 38.1 $429.7 (77.8) 429.7 $352.0 (253.3) 352.0 $98.7 172.6 98.7 $271.3 (17.8) 271.3 $253.5 (172.6) 429.7 $257.2 21.7 257.2 $278.9 206.7 278.9 $485.6 292.1 485.6 $777.7 CASH FLOW FROM OPERATIONS Net Income Depreciation & Amortization Amortization of debt issuance costs Inventory provision Stock based compensations Deferred Income Taxes Provision (benefit) on loss contracts Trade Receivable Unbilled Receivable Advances to Suppliers Inventory Other Current and Non Current Assets Accounts Payable Deferred Revenue Personnel Related Liabilities Accruals and Provisions Taxes Payable Other Current and Non Current Liabilities Net cash used in operating activities CASH FLOW FROM INVESTING Capex for PP&E Acquisitions Short-term Investments and Equity Securities Net cash used in investing activities CASH FLOW FROM FINANCING Issuance / (Repayment) of Debt Capital Contribution of Members Equity Proceeds, Net Other Net cash provided by financing activities FX Effects Change in Cash and Cash Equivalents Beginning Cash and Cash Equivalents Ending Cash and Cash Equivalents $72.9 Source: Company Filings, BMO Capital Markets Fluence Energy Inc. | Page 34 April 17, 2023 Exhibit 41: FLNC Balance Sheet $ MM except per-share data Balance Sheet 2018A 2019A 2020A 2021A 2022A Dec-22 Mar-23 Jun-23 Sep-23 2023E 2024E 2025E 2026E - 84.1 13.6 9.7 0.0 0.0 4.0 10.7 26.1 148.3 93.8 84.5 100.0 0.0 0.0 2.9 37.3 8.9 327.5 36.8 80.0 102.0 0.0 0.0 9.7 389.8 43.2 661.5 357.3 198.8 138.5 62.4 110.4 54.8 652.7 26.6 1,601.5 286.7 165.3 224.5 55.2 109.9 55.2 1,083.6 29.7 2,010.1 33.4 235.5 170.3 55.2 109.9 71.1 967.8 68.4 1,711.6 206.0 247.2 196.6 55.2 109.9 107.9 940.0 81.9 1,944.8 188.2 283.2 204.9 55.2 109.9 78.0 887.2 85.4 1,892.1 188.2 283.2 204.9 55.2 109.9 78.0 887.2 85.4 1,892.1 210.0 378.0 282.0 55.2 109.9 107.4 1,052.4 117.5 2,312.4 416.7 483.1 372.0 55.2 109.9 141.6 1,295.2 155.0 3,028.7 708.8 591.2 470.3 55.2 109.9 179.1 1,590.5 195.9 3,900.8 0.0 4.0 28.8 4.7 1.6 1.5 188.8 5.2 26.3 4.7 0.0 0.4 364.0 8.2 36.1 9.2 1.2 1.5 717.7 13.8 51.7 24.9 3.0 50.8 1,745.7 15.2 51.5 25.8 2.6 46.8 2,151.9 17.0 51.5 25.8 2.6 46.8 1,855.3 18.9 51.5 25.8 2.6 46.8 2,090.3 21.0 51.5 25.8 2.6 46.8 2,039.7 21.0 51.5 25.8 2.6 46.8 2,039.7 26.4 51.5 25.8 2.6 46.8 2,465.4 33.4 51.5 25.8 2.6 46.8 3,188.7 41.3 51.5 25.8 2.6 46.8 4,068.7 0.0 78.7 53.0 5.0 17.8 5.2 0.0 1.1 160.7 78.1 146.3 8.5 137.7 5.9 0.0 1.6 378.2 158.4 299.3 12.9 186.1 12.9 100.0 1.9 771.5 304.9 579.4 21.3 183.8 11.1 8.9 1,109.5 505.6 827.2 14.4 160.2 7.9 0.0 11.1 1,526.4 483.9 562.0 23.5 165.9 24.9 0.0 4.1 1,264.4 470.0 819.3 24.3 188.0 20.4 0.0 6.4 1,528.3 483.9 768.4 22.6 193.6 15.8 0.0 11.4 1,495.8 483.9 768.4 22.6 193.6 15.8 11.4 1,495.8 631.5 987.0 28.7 231.5 21.8 14.9 1,915.4 793.0 1,270.9 33.1 286.8 28.7 18.7 2,431.3 994.0 1,567.6 39.6 354.5 36.3 23.5 3,015.6 0.0 1.6 0.1 0.0 0.9 2.6 1.8 0.3 0.2 0.8 3.0 1.6 0.3 0.0 0.5 2.4 4.9 2.1 7.0 3.5 23.1 26.6 3.5 23.1 26.6 3.5 23.1 26.6 3.5 23.1 26.6 3.5 23.1 26.6 3.5 23.1 26.6 3.5 23.1 26.6 3.5 23.1 26.6 $0.0 97.4 (1.3) (70.6) $25.5 99.9 0.2 (117.3) ($17.2) $0.0 $188.8 $364.0 117.2 106.2 (0.3) (279.3) ($56.2) $717.7 537.6 2.8 (104.5) $435.8 193.4 $1,745.7 549.6 0.4 (129.2) $420.8 178.2 $2,151.9 561.6 0.4 (175.9) $386.1 178.2 $1,855.3 573.6 0.4 (216.8) $357.2 178.2 $2,090.3 585.6 0.4 (246.9) $339.1 178.2 $2,039.7 585.6 0.4 (246.9) $339.1 178.2 $2,039.7 635.6 0.4 (290.7) $345.3 178.2 $2,465.4 695.6 0.4 (143.3) $552.8 178.2 $3,188.7 765.6 0.4 82.4 $848.4 178.2 $4,068.7 ASSETS Cash and Cash Equivalents Accounts Receivables Unbilled Contract Receivables Restircted Cash Short Term Investments Advances to Suppliers Inventory Other Current Assets Total Current Assets PP&E Intangible Assets Goodwill Deferred Tax Asset Other Non-current Assets Total Assets LIABILITIES Accounts Payable Deferred Revenue Including Related Parties Personnel Related Liabilities Accruals and Provisions Taxes Payable Short Term Borrowings Other Current Liabilities Total Current Liabilities Personnel Related Accruals and Taxes Accruals and Provisions Deferred Income Tax Liability Other Non-current Liabilities Total LT Liabilities SHAREHOLDER EQUITY Mezzanine Equity Capital contributions Additional Paid-In Capital Accumulated other comprehensive loss Accumulated deficit Total Shareholder Equity NCI Total Liabilities + Shareholder Equity Source: Company Filings, BMO Capital Markets Fluence Energy Inc. | Page 35 April 17, 2023 Fluence Energy Inc. Rating History as of 04/14/2023 $40 $35 $30 $25 $20 $15 $10 $5 Jul 2020 Oct 2020 Jan 2021 Apr 2021 Jul 2021 Oct 2021 Closing Price Jan 2022 Apr 2022 Jul 2022 Oct 2022 Jan 2023 Apr 2023 Target Price Outperform (OP); Market Perform (Mkt); Underperform (Und); Speculative (S); Suspended (Spd); Not Rated (NR); Restricted (R) Source: FactSet, BMO Capital Markets NextEra Energy Rating History as of 04/14/2023 OP:$65.50 04/21/2020 OP:$63.25 05/21/2020 OP:$71.50 07/21/2020 OP:$73.25 09/14/2020 OP:$79.25 10/07/2020 OP:$89.00 01/25/2021 OP:$91.00 04/21/2021 OP:$89.00 10/19/2021 OP:$98.00 12/07/2021 OP:$101.00 01/10/2022 OP:$105.00 04/21/2022 $110 $100 $90 $80 $70 $60 $50 Jul 2020 OP:$93.00 06/13/2022 Oct 2020 OP:$92.00 07/20/2022 Jan 2021 OP:$100.00 09/15/2022 Apr 2021 OP:$89.00 10/25/2022 Jul 2021 OP:$91.00 10/31/2022 Oct 2021 OP:$96.00 12/19/2022 Closing Price Jan 2022 Apr 2022 Jul 2022 Oct 2022 Jan 2023 Apr 2023 Jul 2022 Oct 2022 Jan 2023 Apr 2023 OP:$95.00 01/24/2023 Target Price Outperform (OP); Market Perform (Mkt); Underperform (Und); Speculative (S); Suspended (Spd); Not Rated (NR); Restricted (R) Source: FactSet, BMO Capital Markets Stem Inc. Rating History as of 04/14/2023 $60 $50 $40 $30 $20 $10 $0 Jul 2020 Oct 2020 Jan 2021 Apr 2021 Jul 2021 Closing Price Oct 2021 Jan 2022 Apr 2022 Target Price Outperform (OP); Market Perform (Mkt); Underperform (Und); Speculative (S); Suspended (Spd); Not Rated (NR); Restricted (R) Source: FactSet, BMO Capital Markets IMPORTANT DISCLOSURES Analyst's Certification I, Ameet Thakkar, hereby certify that the views expressed in this report accurately reflect my personal views about the subject securities or issuers. I also certify that no part of my compensation was, is, or will be, directly or indirectly, related to the specific recommendations or views expressed in this report. Analysts who prepared this report are compensated based upon (among other factors) the overall profitability of BMO Capital Markets and their affiliates, which includes the overall profitability of investment banking services. Compensation for research is based on effectiveness in generating new ideas and in communication of ideas to clients, performance of recommendations, accuracy of earnings estimates, and service to clients. Fluence Energy Inc. | Page 36 April 17, 2023 Analysts employed by BMO Nesbitt Burns Inc. and/or BMO Capital Markets Limited are not registered as research analysts with FINRA. These analysts may not be associated persons of BMO Capital Markets Corp. and therefore may not be subject to the FINRA Rule 2241 restrictions on communications with a subject company, public appearances and trading securities held by a research analyst account. Company Specific Disclosures Disclosure 1: BMO Capital Markets has undertaken an underwriting liability with respect to NextEra Energy within the past 12 months. Disclosure 2: BMO Capital Markets has provided investment banking services for remuneration with respect to NextEra Energy within the past 12 months. Disclosure 3: BMO Capital Markets has managed or co-managed a public offering of securities with respect to NextEra Energy within the past 12 months. Disclosure 4: BMO Capital Markets or an affiliate has received compensation for investment banking services from NextEra Energy within the past 12 months. Disclosure 5: BMO Capital Markets or an affiliate received compensation for products or services other than investment banking services within the past 12 months from NextEra Energy. Disclosure 6A: NextEra Energy is a client (or was a client) of BMO Nesbitt Burns Inc., BMO Capital Markets Corp., BMO Capital Markets Limited or an affiliate within the past 12 months: A) Investment Banking Services Disclosure 6C: NextEra Energy is a client (or was a client) of BMO Nesbitt Burns Inc., BMO Capital Markets Corp., BMO Capital Markets Limited or an affiliate within the past 12 months: C) Non-Securities Related Services. Disclosure 9B: BMO Capital Markets makes a market in NextEra Energy and Stem Inc. in United States. Methodology and Risks to Target Price/Valuation for Fluence Energy Inc. (FLNC-NSDQ) Methodology: Our target price is based on a blended valuation approach that combines our DCF, EV/EBITDA, and EV/sales valuations. The implied equity values under this approach are weighted 50%/25%/25%, respectively. Our DCF assumes a 13% discount rate and 5% terminal growth rate. We include $2.70 of upside from PTCs under the IRA. Risks: Risks to FLNC shares include the ability for the company to reduce lead times and increase backlog conversion, maintain low levels of opex, as well as maintain a high attachment rate on service contracts and expand adoption of the company's software platform. Additionally, significant changes to the implementation of IRA tax credits or eligibility requirements could negatively impact FLNC shares, in our view. Methodology and Risks to Target Price/Valuation for NextEra Energy (NEE-NYSE) Methodology: Our target price is arrived at using a sum-of-the-parts methodology. Our framework begins with the relevant sector average P/ E and EBITDA multiple using 2023E EPS as a base, which we then adjust (premium, discount, or no change) to reflect the relative fundamentals of that segment. Risks: NEE's regulated electric and gas distribution companies are subject to numerous state and federal regulatory agencies that determine the rates it can charge for its services. Utility businesses are highly correlated to interest rate movements. NEE's development of solar and wind generation assets is often dependent on the presence of federal and state tax incentives that may not be renewed. NEE owns and operates multiple nuclear generation assets that are subject to federal and state regulatory on operational and safety standards. Methodology and Risks to Target Price/Valuation for Stem Inc. (STEM-NYSE) Methodology: We value STEM using a blended approach that combines our DCF, EV/EBITDA and EV/sales valuations. The implied equity values under this approach are weighted 50%/25%/25% to arrive at our target price. Risks: Risks to STEM shares include slower growth in contracted storage AUM, driven by slower adoption of the company's Athena software platform, slower solar monitoring AUM growth, driven by solar permitting delays and contract cancellations, and the company's ability to continue reducing opex levels. Distribution of Ratings (April 16, 2023) Rating category BMO rating BMOCM US Universe* BMOCM US IB Clients** BMOCM US IB Clients*** BMOCM Universe**** BMOCM IB Clients***** StarMine Universe~ Buy Outperform 48.0 % 17.9 % 50.6 % 53.6 % 59.0 % 57.7% Hold Market Perform 49.3 % 16.2 % 46.9 % 44.5 % 39.0 % 37.5% Sell Underperform 2.7 % 15.4 % 2.5 % 1.7 % 1.5 % 4.8% * Reflects rating distribution of all companies covered by BMO Capital Markets Corp. equity research analysts. Fluence Energy Inc. | Page 37 April 17, 2023 ** Reflects rating distribution of all companies from which BMO Capital Markets Corp. has received compensation for Investment Banking services as percentage within ratings category. *** Reflects rating distribution of all companies from which BMO Capital Markets Corp. has received compensation for Investment Banking services as percentage of Investment Banking clients. **** Reflects rating distribution of all companies covered by BMO Capital Markets equity research analysts. ***** Reflects rating distribution of all companies from which BMO Capital Markets has received compensation for Investment Banking services as percentage of Investment Banking clients. ~ As of April 1, 2019. Ratings Key (as of October 2016) We use the following ratings system definitions: OP = Outperform - Forecast to outperform the analyst’s coverage universe on a total return basis; Mkt = Market Perform - Forecast to perform roughly in line with the analyst’s coverage universe on a total return basis; Und = Underperform - Forecast to underperform the analyst’s coverage universe on a total return basis; (S) = Speculative investment; Spd = Suspended - Coverage and rating suspended until coverage is reinstated; NR = No Rated - No rating at this time; and R = Restricted - Dissemination of research is currently restricted. The total return potential, target price and the associated time horizon is 12 months unless otherwise stated in each report. BMO Capital Markets' seven Top 15 lists guide investors to our best ideas according to different objectives (CDN Large Cap, CDN Small Cap, US Large Cap, US Small Cap, Income, CDN Quant, and US Quant have replaced the Top Pick rating). Prior BMO Capital Markets Rating System (April 2013 - October 2016) http://researchglobal.bmocapitalmarkets.com/documents/2013/rating_key_2013_to_2016.pdf (January 2010 - April 2013) http://researchglobal.bmocapitalmarkets.com/documents/2013/prior_rating_system.pdf Other Important Disclosures For Important Disclosures on the stocks discussed in this report, please go to https://researchglobal0.bmocapitalmarkets.com/public-disclosure/ or write to Editorial Department, BMO Capital Markets, 151 West 42nd St, 33rd Floor, New York, NY 10036 or Editorial Department, BMO Capital Markets, 1 First Canadian Place, Toronto, Ontario, M5X 1H3. Dissemination of Research Dissemination of fundamental BMO Capital Markets Equity Research is available via our website https:// researchglobal0.bmocapitalmarkets.com/. Institutional clients may also simultaneously receive our fundamental research via email and/or via services such as Refinitiv, Bloomberg, FactSet, Visible Alpha, and S&P Capital IQ. 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You should seek advice from a financial adviser regarding the suitability of the investment products, taking into account your specific investment objectives, financial situation or particular needs before you make a commitment to purchase the investment product. This report has not been registered as a prospectus with the Monetary Authority of Singapore. Accordingly, it should not be circulated or distributed, nor may the securities described herein be offered or sold, or be made the subject of an invitation for subscription or purchase, whether directly or indirectly, to persons in Singapore other than (a) to an institutional investor or a relevant person as defined in and pursuant to and in accordance with the conditions of the relevant provisions of the Securities and Futures Act of Singapore or (b) otherwise pursuant to and in accordance with the conditions of, any other applicable provision of the SFA. 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Click here for data vendor disclosures when referenced within a BMO Capital Markets research document. For assistance with accessible formats of online content, please contact research@bmo.com. The recommendation contained in this report was produced at April 16, 2023, 21:40 ET. and disseminated at April 16, 2023, 21:40 ET. ADDITIONAL INFORMATION IS AVAILABLE UPON REQUEST BMO Financial Group (NYSE, TSX: BMO) is an integrated financial services provider offering a range of retail banking, wealth management, and investment and corporate banking products. BMO serves Canadian retail clients through BMO Bank of Montreal and BMO Nesbitt Burns. In the United States, personal and commercial banking clients are served by BMO Harris Bank N.A., (Member FDIC). Investment and corporate banking services are provided in Canada and the US through BMO Capital Markets. BMO Capital Markets is a trade name used by BMO Financial Group for the wholesale banking businesses of Bank of Montreal, BMO Harris Bank N.A. (member FDIC), Bank of Montreal Europe p.l.c, and Bank of Montreal (China) Co. Ltd, the institutional broker dealer business of BMO Capital Markets Corp. (Member FINRA and SIPC) and the agency broker dealer business of Clearpool Execution Services, LLC (Member FINRA and SIPC) in the U.S., and the institutional broker dealer businesses of BMO Nesbitt Burns Inc. (Member Investment Industry Regulatory Organization of Canada and Member Canadian Investor Protection Fund) in Canada and Asia, Bank of Montreal Europe p.l.c. 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