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Thank you for standing by, and welcome to the Fluence Corporation Quarterly Business Update. [Operator Instructions] I would now like to hand the conference over to Mr. Richard Irving, Chairman. Please go ahead.
Thank you, Kelly, and welcome to you all. Those in Australia, good morning. Those in the U.S., good afternoon, good evening and the rest of the world. Thank you for hanging on perhaps at the very inhospitable time. We do appreciate you joining us today. Very happy to be able to talk to you about our first quarter results. And very importantly, also to be able to introduce to you Tom Pokorsky, who joins us as CEO and joined us in the middle of March, as this is his first call with you all. And as we said in today's release, Tom and I anticipate being in Melbourne and Sydney, the week of May 23. And so we do hope that we have the opportunity to meet some of you. We will be at our AGM in person. That's our plan, subject, of course, to being allowed in by your government. So hopefully, that will happen.
So without further ado, I would be delighted now to introduce you to Tom, our new CEO.
Well, thank you, Richard. Good morning, good evening, good afternoon, depending on where you are. It's a real pleasure to join you all on this call today for my first quarterly update.
As I just recently joined the company, I've asked Richard to join in on this call as Chairman of the company. We're very pleased to report significant quarterly sales growth this year on year, including a 116% increase in Q1 revenues over the prior period and 78% growth in SPS revenues. We're also pleased that almost 90% of our Q1 SPS revenues came from outside China. China and much of Asia remain very important markets for us. But as you saw when we reported 2021 results in January, we are seeing growing demand in a number of other geographies, and this trend is continuing. This is important not only to increase our market penetration and lay the groundwork for future SPS revenue growth, but it's also to lower our dependency on China, where we continue to see COVID lockdown delays that are delaying the closing of orders and execution of projects.
We do not see any evidence yet that we have lost business due to COVID and are pleased that the supply chain issues in terms of pricing and lead time have not yet materially impacted our results. The overall growth in revenue was helped significantly by the fact the Ivory Coast project is progressing rapidly, allowing us to recognize more revenue. Besides the Fluence team on the ground in Ivory Coast, the plant now has a team of about 400 working on the site from our subcontractor partners. I encourage all of you to view the videos of the construction progress on our YouTube channel. We post updated videos monthly.
Many of you know that the past several years, we have substantially improved our operating efficiencies. In the past, this has allowed us to steadily reduce absolute dollars spent on operating expenses. As our revenues continue to grow, we inevitably will see some growth in operating costs in absolute terms. However, these increases will mainly be in sales and marketing costs, allowing us to keep operating costs as a percent of revenue carefully under control with a goal of not exceeding 20% of revenues.
As you can note, OpEx represented 19% of Q1 revenues, down 40% from Q1 in 2021. Along with our target to achieve blended gross margins of 35% after we complete the Ivory Coast project, OpEx of 20% would result in a target EBITDA at that point of 15% of revenues.
In addition to confirming our fiscal 2022 guidance given in January, we are also guiding full year total revenue of $144 million, $109 million or 76% of this is covered by our Q1 revenue and the portion of contracted backlog anticipated to become revenue in 2022. As a reminder, we guided in January to SBS revenue of $45 million and EBITDA of $3 million, which we now reiterate.
From that, I'll turn it over to Francesco.
Thank you, Tom. Fluence had a strong revenue growth with an audited revenue of $34.5 million for Q1 2022. This more than doubled the revenue in the same quarter of 2021. Revenue from Smart Products Solutions is building nicely and was $7.3 million in Q1 2022, up 78% compared to Q1 of 2021.
Fluence management continues to focus on managing expenses while growing the business. As a result, fixed expenses in the quarter were significantly reduced as a percentage of revenue compared to the same quarter of 2021. Those were 19% in Q1 2022 compared to 40% in Q1 2021.
During the quarter, we received $12.9 million of payment from customers, none of which related to the Ivory Coast project. And net cash used in operating activities was $10.4 million. This is in line with our expectations and reflects the large inflow received by the company in Q4 2021, mainly related to the collection of milestone #5 on the Ivory Coast contract.
Cash flow profile of Ivory Coast contract continued to drive the overall company cash flow. During Q1 2022, the company made payment of about $2 million to suppliers and subcontractors related to this contract and expect to make further $24 million payment in Q2 2022. In the second quarter, we also expect to receive approximately $18 million payment related to the payment of milestone #6 on the Ivory Coast contract. Overall, cash flow from Ivory Coast project continued to be positive on a cumulative basis.
Fluence continued to have a strong cash position with cash and cash equivalents of $31.1 million at the end of March 2022. In addition, the company holds $20.6 million in short and long-term liquid investments that provide adequate operating reserves.
Finally, Fluence had a contract backlog of $99.3 million at the end of March 2022, including $25.4 million for Smart Products Solutions. $75 million of backlog is expected to become revenue in 2022.
Looking ahead, the guidance for revenue for the year is underpinned by backlog, strong pipeline and the potential orders from existing customers in Southeast Asia. Fluence expects to achieve $144 million revenue in 2022, of which Smart Products Solutions is $45 million and achieved a $3 million positive underlying EBITDA.
I will now hand back the call to Richard.
Thank you, Tom and Francesco. Kelly, if you can just remind us, as we now go to Q&A, how everyone can submit questions.
[Operator Instructions]
Terrific. So I think the first question I see here, which I'm going to refer over to Tom, is regarding why, Tom, you joined the company? What made you choose to jump in now? How do you see the innovation of MABR and how this is going to become adopted? And what involvement you continue to have in some other water businesses that you've been involved in over your significant career in this space?
Sure. Well, the reason I decided or when I decided to join this boat, if you will, was after I had a long full day conversation with Richard about where the company sits, what its future prospects were. And quite frankly, I am intrigued and excited about the MABR technology, along with some of the other things Fluence does. I've been aware of Fluence for many years, even back to the old RWL days. And I thought the MABR situation was an exciting growth prospect. And after meeting with Richard for a day, I decided I would be something I'd be excited to take on, and that's when I decided.
And what about -- where do I plan to take the company? Well, like any other company, higher growth and higher profitability, and that's where we want to go with the company. The ultra-conservative water industry we're in, yes, it is ultra conservative. And -- but the difference is, unlike a couple of other competitors we have, the -- our MABR is installed and operating in numerous plants, and that is exactly what this conservative industry wants to go forward. They want proof it works and they want experience. And we have that significantly over any competitor we have.
So that leads -- but having said that, there is that slower process to prove that we can do it, and that will be part of our growth plan going forward. I -- my experience with newterra was long and varied. I was on the Board -- Chairman of Board. I sat in as interim CEO for a better part of a year while we were looking for a new CEO. Yes, it's a similar company, but I'm no longer involved with them. They were sold off, and I no longer have any involvement with any other water company. I think that answers all your questions.
Very good, Tom. Very helpful. Thank you. I also see some questions here in regards to water-as-a-service and some of the water standards involved. And maybe I'll just jump in and take this. Water-as-a-service, as many of you know, it's been a major, major target for us. We're very satisfied, more than satisfied actually, with the kind of pipeline we are developing. This is a very popular theme. We, of course, see demand for desalination. As you know, we -- many of you know, we have a Hilton resorts in the Bahamas that pays us on a water-as-a-service basis, which is working well.
We're very keen to bring some of our pipeline opportunities for MABR across the line, particularly where they're focusing on reuse of wastewater because that can be very attractive both for our customers and for us. So that remains the priority.
There are a lot of good opportunities in the Caribbean. We're very interested though with regards to the pipeline to say that opportunities are showing up in other regions. And I don't want to say too much more about that, but it's very encouraging to see that.
In regards to standards, they do vary. And because MABR inherently delivers a very high-quality treatment of wastewater, frankly, we want to go to places that value the quality. It's a more attractive opportunity for us than people who just want to do the minimum necessary. And standards, what's interesting and encouraging is that not just in North America, but in many countries, including, of course, as you know, China, but certainly also throughout Asia, standards required for wastewater treatment and enforced the wastewater treatment are increasing all the time, and that plays very much into our hat. So that is a major priority for us.
So Richard, maybe I'll answer a couple of questions. There is a question on the cash flow. The overall cash flow, as I said, for Fluence, the cash flow profile is really driven by Ivory Coast that has quarter with large payments, like the one we just had a quarter in which we make payment, but we also have collection of the progress milestone. So on a quarterly basis, we will continue to see some lumpiness on the cash flow driven by Ivory Coast. But on a cumulative basis, both Ivory Coast cash flow and the company cash flow, if we go back even just to Q4 2020, has been cumulative positive.
The other question is about the asset held for sale. So we concluded the sale of the Peru project. The question was related if there is any further write-down. No, there'll not be any further loss or write down on that project. And the transaction didn't generate any material loss or gain from a tax point of view. While in reference to the sale of the Italian business, that is continuing, and as we said in the business update, is expected to be concluded about midyear at the end of Q2.
Thanks, Francesco. And I also see a question about looking back to the history of Fluence and some of the cash losses that took place over the past and wanted to become sustainably cash flow positive.
We have forecasted or provided guidance for that. But I can tell you that in prior years, I would say, really between 2016 and into 2020, there was a tremendous outflow of cash because the company was losing money because the company, frankly, was trying to do too many things in too many places, and therefore, spending too much money and not producing the revenues to cover it.
Really, if you look at our cumulative operating cash flow and you add that together for all the quarters ever since the merger in 2017 or even from the beginning, you will see that there has been a turning point, and that turning point has happened. That doesn't mean we're sustainably cash flow positive but a big project like Ivory Coast, the cash balances do bounce up and down, but cumulatively, it's going to be a positive contributor. It already is, and it will remain so.
So we believe we have turned the corner and the strict control of operating costs and basically, what I alluded to earlier in terms of saying percentage of sales taken up in terms of operating costs, we're saying that as we grow sales, yes, we can grow our operating cost, but not as a percentage of sales. It may grow in absolute terms, but only because we're growing the top line profitably. The goal is to stay profitable and not have some of the losses in the use of cash we've seen in the past. And so far, we're, I think, being very successful with that.
There's also a comment here. I see a question in regards to talking about cost -- supply cost increases and how we are able to resolve those with clients? And how that's likely to be going forward?
As we all know, having lived through 2 years of the pandemic, it has been a challenging time. We have had to be very nimble in terms of where we source things from and whether it's between our different geographical operations or even within the geographical operation in a large region, for example, like China, we have been -- I think our teams are working very hard to be very resourceful in sourcing supplies so we can minimize the impact of price increases and any lead time increases.
And indeed, for the most part, we've been able to mitigate those. This is something we're continuously working on. We can't predict when that's going to end. There have been some, as I said, COVID-induced issues. There've been some inflation-induced issues. Some costs have been passed on to clients. But in general, I think we've been pretty successful in maintaining our overall cost and most importantly, maintaining our overall margin.
And Richard, I want to add to this point. From an interest rate point of view, our financing is all at fixed rate. So we are not exposed to the expected increase in interest rate...
Great points. Great.
I also see some coined here, I will answer a couple of questions. One was to clarify how much of the backlog is SPS, and that is $25.4 million. Also, I want to put this in the context that Q1 has been always our lowest quarter in terms of revenue. And therefore, the $45 million SPS revenue guidance versus the $7.3 million booked in Q1 needs to keep in consideration the backlog, but also the fact that we [indiscernible] prior year profile.
Great. Thanks, Francesco. And I guess I see a number of questions in regards to China, both in terms of material impact on the company and manufacturing operations.
So the situation in China at the moment is quite actually remarkable in the sense that what we see in the rest of the world is that pretty much everywhere, people have kind of learned to live with COVID, and it's not creating the kind of enormous disruption that I think we've all lived with in the last couple of years. At various times in China, that's very much the opposite of the case, the lockdowns have become extreme, but they've also been sporadic and they've also been, generally speaking, relatively limited. The consequence of that is to say that we're -- as Tom said earlier, we're definitely seeing a slowdown in terms of getting projects closed and getting projects executed in this immediate period because where there are lockdowns, there have been times we've had to suspend production in the factory because of a lockdown for a day or 2.
So far, the factory's ability to produce stuff has not been impacted in any way that's materially impacted orders. But I won't mess around by pretending otherwise the situation. I don't think the situation in China is sustainable. This has got to be addressed. Their economy cannot survive. In the sense we're doing fine. But for them, it's just not sustainable to keep going like this.
At the same time, our China team, a team that's in China and also based on other locations in Asia, are the ones who are driving our Asia business. And as you know, from the things we've announced in Cambodia, in Vietnam and Taiwan and the Philippines, there's a lot of demand outside of China due to drought, due to water scarcity and due to tightening wastewater treatment standards. So in a sense, we can -- as we have done over the last few quarters, made a bit of a pivot towards Southeast Asia to basically give China to recover -- time to recover. But I do believe China will remain an important geography for us, as will Asia.
At the same time, I see questions also about what's the strategy for the company for the next 5 years, what about North America and soon. We need to come back to you on that. Tom's been with us for about 6 weeks. The team is hard at work figuring out the next steps in our strategy. We would anticipate around the time of the AGM to be able to give you a little more detail on that. Suffice it to say that North America is the largest water market in the world. It's not a market we can ignore. But that doesn't mean we're moving away from the markets that we're currently in. We need to figure out a way to carefully balance dealing with both opportunities without a substantial increase in expenses.
We see a question about...
And I think -- what I think -- go ahead, sorry.
Yes, Richard, we see one question about Peru. If proceeds of the sale have been received?
Yes, those have been received, but they've been received in Q2. So they are not reflected in the 4C that we filed today.
And I think also I see a question here talking about meeting with folks, particularly in the ESG space. This is an incredibly important area, not just because it's fashionable or popular, but really, it is an important area in the sense of climate change and so on. And as we said in the update slides that we released today and they're basically in regards to sustainability. The slide is the same as what we released 3 months ago, because we typically check these things on about a half year basis.
And this is very important. When you talk about CO2 mitigation, that comes from saving energy. And as you know, MABR is very energy efficient. So that's great. So we save CO2 in regard to that. About 23,000 tons a year between our MABR NIROBOX plant. But something and this is an important point, right? If you haven't seen this in our investor deck, this has been the message we've been putting out for the last 3 or 4 months.
There's a much bigger problem than CO2 in terms of atmospheric warming and that is nitrous oxide emissions. Nitrous oxide is emitted from all wastewater treatment plants other than MABR. If MABR emits any, it's maybe 1% of what's emitted from other plants. Now why is nitrous oxide such a big issue from a viewpoint of climate change because nitrous oxide has about a 300x greater effect compared to CO2 in regards to atmospheric warming.
So if you look at what our existing plants or existing MABR plants are saving in terms of nitrous oxide emissions, it translates into about 94,000 tons of CO2 emission, which is about 4x as much as our energy savings from MABR. So from a sustainability viewpoint, both of those things are incredibly important. And so the ESG funds are recognizing this. For those of you who saw some of their comments in Global Water Intelligence, our industry publication, they cited this as one of the major values of MABR.
So whether it's stricter wastewater treatment standards, expensive energy that you can save, climate change or nitrous oxide, I mean there's a lot of drivers that are moving in the direction of using MABR and that's why that will remain our focus. That will be our primary -- that's our flagship as we lead the company forward.
So very much appreciate all of you joining. I'm aware of where we are in time here. I want to be respective of your time. Really hope to have the opportunity that we can meet in person. And as we've said on every call, do reach out to us for those questions that were not answered, we will endeavor to get back to you with a response in the coming days. Thank you all very much for joining us. Thank you.
That does conclude our conference for today. Thank you for participating. You may now disconnect.