I would now like to hand the conference over to Mr. Tom Pokorsky, CEO and Managing Director. Please go ahead.
Thank you. Good day, everyone. Welcome to our Q3 2024 business update call. As the moderator stated, I am Tom Pokorsky, the Fluence CEO and Managing Director. With me on the call today is Doug Brown, our Chairman of the Board, as well as Ben Fash, our CFO. By now, many of you have likely seen the update report we lodged with ASX. I'll make some brief comments about the year to date, and then I'll turn it over to Ben to comment on the details. Then we'll take questions, so our results for the year have primarily been negatively affected by project delays, the most significant of which is the Ivory Coast addendum work, as well as a sluggish China market. Despite the disappointing financial performance, we still remain encouraged that the core areas of our business are performing well and showing healthy growth.
Last year, about the same time, we told you that we were going to transition away from large CES projects for a number of reasons, primarily due to lower margins and lumpy cash flow, but also how one big project delay can affect a whole year. We signed the Ivory Coast addendum last fall for EUR 48 million, which would provide a critical water connection to the Ivory Coast distribution system, which would ultimately allow for much-needed water flow, and it also provided us an opportunity for us to negotiate an operations contract with Ivory Coast to operate the water plant we just built. This connection was required to make water flow, and without that flow, there was nothing to operate.
That revenue was to be taken over 2024 and 2025, and we indicated last year that this was going to be a bridge for us to continue to grow revenue in other areas of our core operating businesses and ultimately replace the large amount of revenue provided by Ivory Coast over the past number of years. Throughout this year, we have been building up a backlog with higher margin projects in our core businesses to ultimately replace the low margin Ivory Coast revenue that in the past has made up a large percentage of our company's revenue. What we are seeing is that the SPS, or product revenue and recurring revenue in our core businesses, is in fact growing as we had planned, but we've been unable to realize almost all of the Ivory Coast revenue this year due to administrative delays.
The revenue has not been lost. It's just delayed. This is the primary reason for our change in guidance for this year. This has also caused a significant delay in collecting the initial EUR 9 million milestone payment, which has negatively impacted our cash flow. At this time, the contract for Ivory Coast is in force, and all financing has been approved, but we are simply waiting Notice to Proceed from the Ivory Coast government. As soon as that is issued, we can start work on the project and ultimately start taking revenue. Unfortunately, we had planned to do that starting in January, and it's, of course, now approaching November. There have been positive developments on that front in recent days, including a call this morning, and we expect Notice to Proceed to happen very soon.
But, of course, the timing has pushed the majority of the estimated 2024 Ivory Coast revenue into 2025. As you will see when Ben goes through the numbers in detail, our backlog for 2025 will be very good and will give us a great opportunity for significant growth in 2025. So despite the negative performance in the first three quarters of 2024, we do believe our strategy is working, and it is setting us up for a profitable growth in the future. Our SG&A has been significantly reduced over the last two years, and our pipeline and order forecast for all segments except China has increased. Despite this setback with Ivory Coast project timing, we are confident we are still on a strong path forward. We understand and acknowledge the frustration of shareholders given the poor year-to-date financial performance, which has, of course, led to a weakened share price.
But we believe that as our operating performance improves, so, of course, should the share price. Anyway, now I will turn it over to Ben to go through the details that I just described on the financials. Ben?
Yes. Thank you, Tom. Good morning, everyone. Thank you to everyone who has dialed in, and I appreciate the opportunity to present the Q3 financial and operations update on behalf of Fluence. As Tom noted, while our year-to-date financial performance has been disappointing and the results have not met management's expectations, there are promising areas of growth in our core businesses that we are encouraged about, which I will discuss. Revenue through Q3 of 2024 was $ 30.3 million, 28% lower than the same period in 2023. This was almost entirely a result of the reduction in revenue from Ivory Coast, and when you exclude the impact from Ivory Coast, revenue in the core business grew by $ 2.9 million, or 11%.
Q4 2024 revenue is expected to be significantly higher than it has been in the first three quarters of the year, primarily due to the Ivory Coast addendum finally moving forward and stronger performance in all our business units, save for the Southeast Asia and China business unit, which remains challenged due to the slowdown in the property sector in mainland China. Growth in SPS and recurring revenue has been strong through Q3 of 2024, now totaling $29.1 million, which is 13% higher than the same period last year. That shift in focus toward our SPS and recurring revenue products and services is having the desired effect of improving gross margins. We've seen an increase through the first three quarters of the year to 31.8%, up 5.5% versus the same period in 2023.
We have seen strong growth year-to-date across our core business units, with our Industrial Water and Reuse and Industrial Wastewater and Biogas businesses standing out. Industrial Water and Reuse delivered strong revenue growth of $ 1.8 million through the first three quarters of the year, or about 17%. Industrial Wastewater and Biogas has generated revenue growth of $ 0.7 million, or 15%. And with them in particular, the backlog is sitting at $ 12.8 million, an increase of approximately $ 1.9 million, or 17%, over the same period last year. And therefore, the Industrial Wastewater and Biogas business unit expects significant growth in this year, driven by a strong Q4 to finish the year.
Municipal Water and Wastewater shows a reduction in revenue in EBITDA through Q3 of 2024, this is primarily due to a recognition of a significant amount of remaining revenue, about $ 2 million, in the prior year-to-date period in 2023 from the completion of the $20 million New Mansoura water treatment plant in Egypt. The project had minimal costs against that final $ 2 million in revenue recognition, and therefore the margins and EBITDA were higher than normal, given the size of the project and the revenue contribution on the municipal water and wastewater business in North America has grown its revenue by 44% on a year-to-date basis in 2024, and it is also projected to finish 2024 with almost as much backlog as it is expected to generate in 2024 revenue, which sets the business unit up for really strong growth in 2025.
These examples demonstrate that despite the disappointing delays from the Ivory Coast project and the softness we're experiencing in China, the areas where we are placing our strategic focus are experiencing healthy growth, which we are optimistic about. SG&A and R&D costs continue to come down as well due to the actions taken by management. With the full benefit of the fiscal 2023 reorganization combined with the sale of the aeration assets in Q1 of this year, the company has realized $ 3.1 million in cost savings on a year-to-date basis, which is 20% lower than the same period last year. To provide some additional context, SG&A and R&D is expected to finish 2024 approximately $6 million lower than fiscal 2022. That represents a decrease of more than 23% in two years.
This lower fixed cost overhead provides a platform for significant operating leverage and profitability as revenue rebounds, particularly at the higher margins that we are generating. Additionally, the company will be executing a further restructuring of its global municipal business to further align resources, increase efficiency, and reduce fixed costs. The restructuring is expected to occur in Q4 of this year and result in annualized SG&A and R&D savings of $1-$2 million per year. Fortunately, despite the increase in SPS and recurring revenue, the higher gross margins that we are delivering, the lower SG&A and R&D, the continued administrative delays that we've experienced on the Ivory Coast addendum project have resulted in a year-to-date EBITDA loss of $5.1 million.
Moreover, due to the continued delays that we've experienced on the Ivory Coast addendum, we will not be able to recover those revenues this year, although those will push forward into 2025. And that, along with the ongoing softness in China due to the collapse of their property sector, has driven us to revise our guidance to $50-$60 million of revenue and an EBITDA loss of $3.5-$4.5 million. On the cash side of things, as of the end of the quarter, cash sat at $4.9 million, and the company holds $7.5 million in short and long-term deposits, of which $7.2 million of those are held as collateral for bank guarantees on the Ivory Coast project, some of which will be released in Q4. Operating cash flow in Q3 was a negative $3.5 million.
And so while it was expected that the company would generate negative cash flow in the early part of the year, operating cash flow has certainly underperformed compared to our forecast, primarily due to the fact that we've had delays in the Ivory Coast addendum project and securing that first milestone payment, as well as future milestone payments as that project advances, collection delays in new Municipal Water and Wastewater business in the Middle East, the slowdown in China resulting in lower project revenue delays and collections, additionally repaying the Upwell facility in full, which we did in July of this year. With that said, Fluence expects that the operating cash flow will be positive in the second half of 2024, with significant positive cash flow in Q4, led by the receipt of the first addendum milestone payment.
As announced in our Q2 update, in July of this year, the company repaid the Upwell facility in full. Since the Upwell facility was put in place in July of 2020, Fluence had drawn down $30.3 million. A substantial portion of that was repaid in 2023 and the first half of 2024, while the remainder was repaid in July of 2024. On a year-to-date basis, the company has repaid $17.7 million of debt. Also, in July of 2024, the company did replace that Upwell facility with a revolving facility for up to $15 million at a much more attractive interest rate and more flexible terms for the company than the Upwell facility. Just today, on October the 31st, the revolving facility was expanded by $5 million to $20 million total to provide additional working capital and to fund new project wins.
The repayment of that Upwell facility in July and securing the revolving facility provides the company with considerable interest savings, operating flexibility, and will support our continued growth. Just to change gears a little bit here and talk about the pipeline and backlog growth, company continues to see strong growth in its sales pipeline, which is now 88% higher than it was a year ago. The growing pipeline is leading to increased conversion as well, particularly in our core markets like in North America.
For example, our Industrial Wastewater and Biogas business has now won four projects in North America over the past year, with several additional orders expected to close in the coming months. Fluence is expected to finish 2024 with strong order bookings in Q4 and overall bookings in the second half. Backlog has continued to grow through 2024 as well, currently sitting at over $ 100 million.
More importantly, the backlog that is expected to convert to revenue in the next 12 months now sits at over $70 million, 39% higher than it was at the beginning of the year. In conclusion, while management is disappointed in the financial results on a year-to-date basis, we are seeing strong growth in our core markets, and with the Ivory Coast addendum expected to commence soon, we are positioning the company for a strong and profitable 2025. At this time, I will turn it back over to Tom for any parting comments and to take questions from webcast participants. I truly appreciate your time and your continued interest in Fluence. Tom, over to you.
Thank you, Ben. Thanks, Ben. We'll go right to the questions. The first question kind of follows along with what you were discussing, Ben, regarding the Ivory Coast part of the backlog and other parts of the business. Why don't you handle that one, please?
Absolutely. So the question was, what is the amount of Ivory Coast that is included in the backlog and net of Ivory Coast? Are you satisfied with the traction in all the other segments of the business? Approximately $45 million of the backlog is related to the Ivory Coast addendum. And yes, net of the Ivory Coast, we are satisfied with the traction that we're seeing in other segments of the business, as we discussed, I think, in detail through the course of this presentation.
Thank you. I'll take the next question. The next question is regarding BOO pipelines. The question is, BOO pipelines have been looking very large, but we have not seen much on this department announced. How close are we on gaining some mentionable success? That's a multifaceted question, and I will address it with the first part. We hope to have a significant BOO success announced before the end of the year. I won't go into any more detail on that, but it's getting closer. We have a couple of smaller ones that would not rise to the level of a major announcement, but we put on our website.
There have been a couple of projects that were medium-sized that actually went from BOO to leases, which is going to turn out to be a product sale for us and then ultimately an operating contract, but we're not owning and financing the plant. There are a couple of other very large ones, but these projects take very long to develop, once the client decides it's the way they want to go, we have to invest money and do designs and get the financing squared away, so they just take time, and then I will also say that getting into a better cash position would help us become a little more aggressive on these, and so we're kind of buying some time to get a little better cash position before we go after them real strong, but there are some coming, and you'll hear about it soon.
The next question I'll take. The question is, regarding the Ivory Coast addendum project, how much longer are we going to allow the customer to delay before we renegotiate the contract price? Considering it's already a low-margin project, I fear rising costs caused by delay will render it unprofitable. That's a very good question. The answer to the question is we do have some clauses in the contract that allow us some pricing increase tied to indexes and so on, and we just did a thorough review of the current project as it sits, and we are actually looking at a slightly higher margin than we originally projected at this point in time, so we are not in any trouble on that part of it. We have it covered.
And as far as how long, I think there's probably another nine months to a year before we could say we're going home and we're not going to do it. But I think we're covered pretty good on it. Okay, next question. Oh boy. Let's see. Okay, the question was really centered around we said months ago, and you're right. we haven't received the Notice to Proceed was imminent three months ago. It was. And let me just briefly state that there was some work required by a French bank involved in getting this finalized. And unfortunately, France, because of the Olympics, stalled everything all the way through the end of August into September. And we had no idea that no work was going to get done on it in that amount of time. And that was a good chunk of the reason.
It is very disappointing that we haven't received the Notice to Proceed yet. but that's how it went from days to months. And that's where we're at. And we are confident now, though, that we're over that hump and that it truly will be a short time before it goes forward. Ben, you want to handle the next one?
Yeah, absolutely. So the question is, do we need cash raising now that we only have $4.7 million of cash in the bank? It's a good question. The answer is no. We do have sufficient liquidity to operate the business. We expect Q4 to be a very strong cash-flowing quarter, as we do expect the addendum to push ahead. And with the additional working capital provided by the expansion of the revolving credit facility, we do not need an additional cash raising at this time.
Okay.
I'm going to take the one two down here, Tom, on forecasted order bookings.
Okay.
Yeah. So Matt, there's a question here on forecasted order bookings of $50-$60 million. What's the time frame to convert to revenue, however? I ask because a lot of commentary is around forecasted bookings and backlog, but for the past few years, conversion to revenue seems to be a key part lacking. I think that the short answer of that is a significant portion of that $50-$60 million would be expected to convert in, I would say, a 12-18-month period going forward. And there is a portion of that that is related to an expansion of an existing build-own-operate contract that we've talked about previously with Bimini. But a significant portion of that, probably half to maybe a little bit more, is related to new projects that would proceed ahead in a more expedited manner.
I think a big part of what we've been trying to achieve over the past year with investing in sales talent in the regions we're focused on. It takes some time to build the pipeline up, and then the next phase is converting that to orders and backlog, which is starting to occur, and it is what we are starting to see.
Okay.
Do you want me to take that question that's addressed to me?
If you like.
Yeah, if you don't mind.
Yeah, sure. There's two of them actually. Well, I'm looking at the first one from Matt. And the pace at the turnaround has been more challenging than we expected two years ago. Probably the biggest problem was that the company needed to be restructured, which it has been. And we needed to get the business units in industrial water and high-strength waste and biogas really functioning more efficiently, which they are now. And so the other big problem is that, frankly, the company was over-reliant on the Ivory Coast project. It dominated the P&L. And we needed to wean ourselves off of that. And I think we've done a decent job of doing that. We'll get the addendum built, and we have a very coherent plan for how to replace the Ivory Coast revenue with much higher margin revenue. And that's working. I mean, it's working.
When you look at the bookings from our targeted business units, they're encouraging. The gross margins are encouraging. We've significantly increased the gross margins from those targeted business units, and so, yeah, it's taken longer than we expected two years ago, but it is happening, and I share management's confidence that 2025 is going to be a very strong year for the company.
Thank you, Doug. I can quickly address. Do you want to take it, Ben?
I can take it. Yeah, yeah. I'll take it as it pertains to; it's a question around the revised downward EBITDA of a $3.5-$4.5 million loss. And is it due to the delay in the Ivory Coast? And the answer to that is primarily that downward revision is related to the delays that have been experienced in the Ivory Coast project. I would also say the continued slowness has resulted in our business in China likely finishing the year weaker than we anticipated at the end of Q2. And we're going to see a pretty significant reduction in that business on a year-over-year basis. So those two aspects have really contributed to the downward revision.
Okay.
There's a question. I can take the one on engaging institutional investors, Tom, as well.
Yeah, why don't you take that one, and I'll take the next one. And Doug, you can look at one there.
Yeah. So there's a question on, are you engaging institutional investors to support share price? What is being done in this area? I imagine incredibly difficult given performance. I think, obviously, given the underperformance on the financial side, yes, that has been difficult. But we do have an active investor relations program that we are working. We've been able to add research coverage over the course of this year and continue to look to try and do that as well. We are engaging with institutional investors as much as possible and taking and engaging meetings with the team members, both myself, Tom, Doug as Chairman, have taken a significant amount of our time to try and engage and try and educate the investor community on where we are in this transition.
So that's a longer answer to say, yes, there is an engagement program and an investor relations program that we will continue to enhance and grow. And it will certainly get easier as the operating performance improves.
Thank you. I can take the next one regarding the question: is Fluence Legal Department causing increased delays to securing revenue from projects? Can efficiencies be improved here at all? That is a question that we discuss very often. In fact, our legal department is helping alleviate some of the delays by getting involved on some of these big contracts. One thing that we do need to improve efficiency is our commercial team is a little less experienced. They have to see some of the crazy terms and conditions that are out there earlier so we can address them faster. But we're also being a little bit more selective. And we're fighting hard to get very safe terms and very good cash flow setups on these, which has caused some extra time. We will admit that, but it's going to make for better projects.
We are still dealing with some legacy projects. I think earlier in the year, we wrote off some receivables from China because perhaps more legal work done on the contracts would have been better before we started. But no, the legal team is not delaying. They're actually helping. But we can be more efficient with our commercial team before we get that far to help us out. So it's a good question. I'll handle that. The other one there about 2025 and simply say we are in the middle of the budgeting process right now. We are analyzing the projects coming in between now and year-end. That'll give us the backlog for January 1 complete, which we have a pretty good handle on, as we pointed out in our presentation. We are looking at the best SG&A model to put together for next year and doing a little more restructuring.
In December, we will present the board with a plan for 2025. We have nothing to say publicly on that right now. We will have that out early next year. I think. Did we hit all the questions? I believe we did.
I think we did, Tom. And if I could say, we really appreciate the engagement from everybody on the phone call and the questions. There are many good ones here. So we appreciate your interest in the business and asking good questions. And we appreciate taking the time to formulate them. And hopefully, we were able to answer those.
Yeah. I will just conclude the call with a statement saying, "I've been in the water business a long time, as Doug and Ben both have been. These projects take time. And we started with almost a clean sheet of paper a year and a half ago with restructure. And to build up the momentum takes a bit of time. But it's working. And I think you will see that shortly, even though perhaps our credibility, as someone mentioned, is not the strongest at this point. Everything is moving as planned, just slower than planned. And we hope to please you more in the future." Let's put it that way. With that, we'll end the call. Thank you all for your interest and participation.