Thank you for standing by, and welcome to the Fluence Corporation Q2 FY 2024 results. All participants are in a listen-only mode. There will be a presentation followed by a question-and-answer session. If you wish to ask a question via the webcast, please enter it into the Ask a Question box and click Submit. I would now like to hand the conference over to Mr. Tom Pokorsky, CEO. Please go ahead.
Thank you very much. Good day, everyone. Thanks for taking the time to tune in to our 2024 first half, or Q2, report. With me today are Doug Brown, our Chairman of the Board, and Ben Fash, our CFO. And as you can see from the report that we issued this morning, the first half results were lower than our budget and expectations. This is mainly driven by delays in some projects, with the most significant effect coming from bureaucratic delays in the Ivory Coast Addendum project and a bit of some weakness in China showing up. We had expected to get nearly $10 million more revenue in the first half from the Ivory Coast project, as it was scheduled to start in January, start construction in January.
At the time, we were waiting for the financing to be finally signed and completed, but for some reason, that financing took 6 months to complete, mainly due to government and bureaucratic delays. In particular, it took a month and a half to get a presidential signature on it. So while the project is still proceeding and none of the revenue is lost, the delay has basically pushed the revenue forward by about 6 months. We have now received the financing approvals, and the contract is in force, and are awaiting the notice to proceed, which would come in days or a week from now or so. We expect to start the project in the coming weeks and try and make up as much of the revenue as we can, but that will be difficult.
As many of you may recall, last fall, we indicated a transition period for 2024 and 2025, where we'd concentrate on accelerating our growth in our higher-margin core business units while we finished off the addendum project for Ivory Coast, which is albeit low-margin but a big lump of revenue. While the Ivory Coast project took a delay, we are pleased to say that the business units in our growth areas, in particular industrial wastewater and biogas, industrial water, and municipal, have been growing according to plan. To that point, our SPS and recurring revenue in these core businesses increased by 14% over the first half of 2023. A nice highlight is recurring revenue alone has increased by $2.5 million year-over-year in the first half. That, of course, creates a result of higher gross margins, and our gross margins are increasing.
We're remaining above 30% for the year, which represents about an 8.3% increase over first half of 2023. The restructuring actions that we have been taking for the last year plus and cost savings activities also continue to decrease our SG&A and R&D expenses, resulting in a saving of approximately 20% in the first half of 2024 compared to the first half of 2023. These items do show that our strategy of concentrating on our key growth areas with SPS revenue and recurring revenue is, in fact, gaining traction. For new order activity, we are behind guidance by about $15 million due to some project delays, but we are showing signs of improving strength in this area.
Even though we're $15 million behind as of June 30th, we are quickly making it up, and we currently have signed letters of intent for new projects and other imminent signing of over $16 million that just didn't get in in the first half. We expect those orders to come in daily throughout August and maybe into September. For half two, we are expecting $50-$60 million in new orders. Our current backlog of orders sits at $96 million, which is an increase of over 83% over half one of 2023. Just to point out, we've had a number of key successes in the last couple of months. Ben, do you want to throw that slide up, please?
Yeah, absolutely.
Key success, yeah. As you can see, these are orders that were booked very late in Q2: a nice demi-water plant in Brazil, a power plant in Saudi Arabia, a nice Coca-Cola job, which is, again, a repeat customer. We did pick up a recurring revenue contract for the New Mansoura project, which we built a couple of years ago, and then a few other smaller orders that had just come in. And as of today, we received one of the other orders that was on hold, about a $750,000 project for a fish processing plant, which is a second order from the same customer for our industrial wastewater and biogas group. So we are showing strength in those areas. We also see a significant improvement in revenue, EBITDA, and orders for the second half.
Even so, not all of the delays can be made up in the second half. In particular, the six-month delay on Ivory Coast will delay that. The work is not gone. It's just pushed out a little bit. We're still excited about the growth prospects, but we have to change our guidance for 2024 because of the delay in Ivory Coast, and we're changing, Ben will go into more detail on that, and we're changing our guidance to $70 million-$75 million in revenue and EBITDA about break-even, which is similar to last year. I'll let Ben go through the details of the numbers on that. We look forward to a great second half and continued on in 2025. Ben, do you want to take over, and I'll go ahead with the details of the numbers?
Yeah. No, thank you very much, Tom. Good morning, everyone. Thank you to everyone who has dialed in, and I appreciate the opportunity to present the 2024 second quarter and first half financial and operations update on behalf of Fluence. So as Tom noted, while the headline numbers were disappointing and results did not meet management's expectations, there are promising areas of growth in our core businesses that we are encouraged about, which we're pleased to share here today. Overall, revenue in the first half of 2024 was $20.1 million, which was $10.5 million lower than the first half of 2023. However, as Tom noted earlier, when adjusting for the impact of the Ivory Coast project, revenue in the core business actually grew by $2.2 million or a little over 13%.
It is expected that revenue will more than double in the second half of 2024 when compared to the first half of 2024, given our current revised guidance, which I'll go through in a little more detail in a second. The shift in focus toward SPS and recurring revenue products and services is having the desired effect of improving gross margins, which saw an increase in the first half of 2024 to over 30%, and it's up 8.3% over the first half of 2023.
We're seeing SG&A and R&D costs continue to come down, which has been a theme for the last year and a half, as Tom noted, and with the full benefit of the reorganization that we announced in 2023, combined with the sale of the aeration assets in the first quarter of this year, the company has realized $1.4 million in cost savings in Q2 and $2.4 million in the first half overall, both representing improvements of approximately 20% when you compare it to the same periods in 2023. Despite the increase in SPS and recurring revenue, the higher gross margins, and lower SG&A and R&D, unfortunately, the administrative delays that we experienced on the Ivory Coast Addendum project and the slowdown that we're experiencing in China resulted in an EBITDA loss in Q2 2024 of $1.6 million and in the first half of $3.6 million, respectively.
As Tom mentioned, due to the delays in the Ivory Coast Addendum project , we will be unable to recover a significant amount of that revenue, and that, along with the ongoing softness in China due to the collapse in their property sector, has caused us to revise our guidance to $70-$75 million of revenue and expect our EBITDA to be break-even for the year. With that said, we are expecting strong results in the second half of 2024 across our core business units. In the first half, these core business units grew $2.2 million, or 14%, as I noted before. Our municipal water and wastewater group, our industrial water and reuse group, and our industrial wastewater and biogas group are all expecting revenue growth averaging approximately 40% for the full year 2024 when compared to fiscal 2023.
This demonstrates that despite the disappointment related to the Ivory Coast Addendum project and the slowness in the China market, the areas where we are placing our strategic focus are experiencing strong growth, which we are optimistic about. On the cash flow side of things, in Q2, cash ended the quarter at $7.9 million, and the company also holds $7.8 million in short and long-term deposits, of which $6.8 million are held as collateral for bank guarantees for the Ivory Coast project. Overall cash flow was negative $6.3 million in Q2. While it was expected that the company would generate negative cash flow in Q1 of 2024, the first half cash flow was certainly underperformed compared to our forecast.
This was primarily due to, as we've talked about several times on this conference call already, the delays in the Ivory Coast Addendum project and securing the initial deposits and ongoing milestone payments, collection delays in the Middle East, in particular around the New Mansoura project and a few other smaller projects, the slowdown in China, which has resulted in lower project revenue and delays in collections. We did repay more Upwell debt than we originally forecasted, and we'll talk a little bit about that here in a second as well. We did have some project delays in both of our industrial businesses, the industrial water and reuse business and industrial wastewater and biogas, that resulted in fewer deposits than we initially forecasted.
We do project that operating cash flow will reverse the negative trend in the second half of the year and will be positive for the balance of the fiscal year, and that's potentially to a significant extent. I'm also very pleased to announce that the company has fully repaid its loan facility with Upwell, which was announced yesterday. This includes both the term loan that was scheduled for maturity in July of 2024, as well as the Bimini project loan. For those that recall, as of Q3 of last year, the loan balance owing to Upwell was over $30 million. As a result of the repayment, the Upwell facility has been terminated, and all the collateral underlying the loan will be fully released, has been fully released at this point.
As part of that Upwell facility repayment, the company was able to arrange a revolving credit facility of up to $15 million. It was provided by Nikolaus Oldendorff and Douglas Brown on terms more favorable than the Upwell facility. The interest rate on the revolving facility is variable, and it will equal the U.S. prime rate, which currently sits at 8.5%. The initial term of the loan will be 21 months, with the option to extend an additional three months. But ultimately, the goal of this revolving facility is to bridge Fluence until such time as it can arrange a credit facility from a larger, more traditional commercial bank. The repayment of the Upwell facility represents a significant milestone for the company, and securing the revolving facility will provide the company with considerable interest savings, operating flexibility, and will support our continued growth.
It's a very exciting milestone for us to hit. Tom, that's it for me and the updates on the financials. I'll throw it back to you to provide any closing statements.
Okay. I think everything we said basically shows promise. The wrench in the works, if you will, came from the delay of the Ivory Coast project mainly, which is one that we're still going to get the revenue for. It's just going to be dragged out into next year more. But we're quite excited that we're seeing some tremendous traction, in particular in three strong business units: the Muni, the industrial wastewater and biogas, and the industrial water group. And we expect significant order activity from those units to grow for the rest of the year and beyond. Our pipeline continues to grow in all of those areas. With that, I think we can go to questions. And I see the first question is one regarding the USA production line for the membrane unit. That's a very good question. We are on track to get that done by year-end.
We have taken a little different approach to it. Instead of building a brand new machine right off the bat, we are taking our smaller machine from Israel and bringing it over to the US, subleasing a facility from another company to set it up and have them help us run it so we can get that going by the end of the year. Our volume is such that that machine will be fine for a while, and there are so many improvements in this technology. We thought it best to get going with that machine while our volume was still a little lower and ultimately design a new, updated, with current technology machine. So we do intend to have that operational by year-end at this point in time. Ben, the second question has to do with the financing. I think you answered it, but do you see it there?
Yes. The question is, "Good to read about the revised financing. Can you please advise on the thinking of the term of less than two years with additional interest for short extensions? Is there a plan to repay within two years or repay via shares or extend again?" It's our intention to repay within two years. That is the plan, that combined with arranging a more traditional commercial credit line with a more traditional bank. So it is our intention to repay with cash flow and financing with a traditional corporate bank.
Okay. Next question deals with an update on Ivory Coast going live and the operations contract and the likely start date. Well, currently, Ivory Coast is going through all the iterations of testing every piece of equipment and making sure it all works. There's water in the tanks. We're starting to treat some water. But going live is not going to be done very soon because they can't pump the water anywhere with the current status of their distribution system. And what likely will happen is there will be, in the next several months, a shortened operations contract to keep the plant idling until they get more work done on this addendum, which will help the distribution system going forward.
That's okay for us because we will probably end up with a one or two-year contract to operate it in idle mode and get practice with it before it goes full load live, which would be the big contract. Expect a smaller contract for the next 24 months and then the bigger long-term operating contract going forward. This is mainly to do with the ability for Ivory Coast, the government, and the water utility there to get the water distributed. They just can't do it yet. That's what's delaying that. I think we answered the next question pretty much. The drop from $100 million was a combination of China and the Ivory Coast, which is almost half of that drop in revenue. The delay, it just got pushed out. The next question is, "Any updates on JBS?" Yes.
JBS, we are setting up a meeting with the corporate executives now. As it turns out, every JBS plant has their own little management team, and these projects, it turns out, are a little bit beyond their capability to manage. So it's being kicked upstairs, if you will. And we are planning on meeting myself, Rick Cisterna, are planning on meeting with some of the corporate executives to try and figure out a way to at least get these projects moving. But it's still in play. It's just a little big for a smaller plant to take this on by themselves. They're going to need corporate help on it, and that's what we've seen. Let's see. Next question. Oh, there's a question about growth from Australia and New Zealand markets, and it's been historically challenging to penetrate for MABR. That is correct.
The markets, quite frankly, are not big enough for us to set up a full-time team to market in Australia at this point. We are paying attention to projects as they come up. There was, in my knowledge, only one MABR in the last year there. And so we're keeping an eye on it. And we are still continuing discussions with a couple of Australian companies to partner with there. So it's just a matter of allocating SG&A to the best market areas at this point in time.
Tom, I can talk a little bit about this next question if you'd like me to.
Okay. Please do.
Yeah. Yeah. So the question is, "When are we likely to see backlog secured in the North American market?" Looking at the secured work during the quarter, this was basically all in Europe and South America. I think what you're referring to are the announceable transactions that went out, which are typically of the larger size. But what I can tell you is we are seeing significant backlog being secured in the North American market, particularly the municipal water and wastewater market that has secured new orders that are more than double where they were at the same point last year. So we are having success. The pipeline is growing quite significantly. In fact, it's the largest growing portion of our sales pipeline right now.
We think that we are having success in North America, albeit we would like it to be faster, of course, but we are seeing the results of the investment that we've been making in the market there.
Yeah. These orders are typically $500,000-$2 million, and they don't rise to the level of a corporate announcement on ASX. So you don't see every one that comes out, but they are far ahead of any previous years with order booking in North America. And quite honestly, I said there's a few projects ready to go forward. They have a couple of them. So we're making headway there. Let's see. What's next? I don't know if we see any other one we can give an answer to. That would be ours to answer anyway. Ben, do you see any more questions that we could answer? I think there's one or two that there's one or two that we really can't address.
Maybe the second to last one could be addressed, but that's up.
But the question for Doug?
Yes.
Sure. Okay. Yeah. The question is, "What timeframe do you think shareholders should be viewing these growth plans and profitability?" I think that you'll see a significant improvement in performance in the second half of this year. Next year should be a much stronger year for the company. And 2026, we will be done with the Ivory Coast, and we will be focusing on our core business units. They are growing, and they have been showing some strong growth even in the first half, and we expect that to continue. So I think that over the time period for 2025 should be a real proving ground for us.
I don't know if I'm sorry.
Oh, it's Ben. I just said I think that's it in terms of questions.
Yeah. That we can answer, yes. Okay. Well, thank you all for tuning in. We really are excited about the future, yet. Even though we had some hiccups in the first half of this year and timing, we think we'll have a very strong second half and ongoing into 2025. Thank you all for tuning in.
That does conclude our conference for today. Thank you for participating. You may now disconnect.