Q3 2020 Bloom Energy Corp Earnings Call
Ladies and gentlemen, todays conference is scheduled to begin shortly please continue to standby and thank you for your pace.
[music].
Ladies and gentlemen, thank you for standing by and welcome to the energy third quarter 2020 earnings call. At this time all participants lines are in a listen only mode. After the speakers presentation. There will be a question and answer session. That's good question during the session Press Star one on your.
Telephone.
Please be advised that todays conference is being recorded.
Or any further assistance. Please press star Zero, Oh, now like to hand, the conference over to your speaker today, Mr., Mark Mesler VP of finance and Investor Relations. Thank you. Please go ahead Sir.
Thank you operator.
Good afternoon, all we appreciate you joining us on Bloom Energy's third quarter 2000, <unk> earnings Conference call.
Just talk about this conference call, we have furnished our Q3 2020 shareholder letter and earnings release with the FCC and posted it along with supplemental financial information that we will periodically reference throughout this call to our Investor Relations website.
The matters, we will be discussing today include forward looking statements regarding future events and the future financial performance of the company.
These statements are subject to risks and uncertainties that we discuss in detail in our documents filed with the FCC.
Specifically the most recent reports on forms 10-K and 10-Q.
Which identify important risk factors, including.
Including those related to the COVID-19 pandemic that could cause actual results to differ materially from those contained in the forward looking statements.
These include statements about the company's business results financial position liquidity demand for energy server and new applications timing of new applications, and the supporting market ecosystem and outlook.
We assume no obligation to revise any forward looking statements made on today's call.
During this call and in our Q3 2020 shareholder letter you refer to GAAP and non-GAAP financial measures.
Non-GAAP financial measures are not prepared in accordance with U.S. generally accepted accounting principles and already addition to and not a substitute for or superior to measures of financial performance prepared in accordance with GAAP era.
A reconciliation between the GAAP and non-GAAP financial measures is included in our Q3 2020 shareholder letter.
Which has been furnished on form 8-K and posted on the company's Investor Relations website.
Joining me on the call today are Kay our Shreedhar principal co founder and Chief Executive Officer, and Greg Cameron Burns Chief Financial Officer.
Karen Greg will review, the operating and financial highlights for the quarter and then we'll take questions.
I would also like to note that we are all dialed into this call remotely. So we apologize in advance for any audio issues that may occur.
I will now turn the call over to Carol.
Good day, and thank you for joining us.
Bloom energy has made substantial progress in the third quarter as we continue to bring operational discipline and agility to drive our innovation and industry leadership.
The flipping upon current quarter, though.
I was reminded that we announced our fourth quarter and year end 2019 Arnie.
On March 16.
The first day of Bay area shelter in place order.
It's impossible to know at that time, how the unfolding situation would affect our business and our lives.
For the outstanding collaboration.
Grow our business and drive innovation.
I'm exceptionally proud of how team Bloom responded to the challenge.
In a nutshell.
Bloom energy is stronger today than it was in March we are performing well in our outlook is brighter.
This year, we have embarked on numerous initiate at two am.
Enter large new market.
Now, let me share with you some of the highlights of this period.
First our financial help is greatly enhanced.
We have reduced that extended maturities reduced our interest expense and added cash to our balance sheet.
Greg who led the successful effort will provide more detail shortly.
The radio set so with his allowing us to prudently invest in blooms expansion, we are accelerating a research and development and investing in top line growth and manufacturing capacity.
Second.
Increasingly markets are valuing the core attribute of our technology platform.
Power disruptions have grown more frequent and prolonged.
As hurricanes storms and wildfires have ravaged many parts of the country.
Mrs are increasingly seeking resilient cost effective all Nathan power solution.
Manufacturing warehousing Hell.
Health care and retail businesses.
<unk> that now is the time to take action to improve energy security.
The hundred and three always on micro good.
That we have deployed have allowed our customers to write 239 or disruption during Q3.
If you're a natural disasters are also providing clear evidence of the acceleration of climate change.
Company.
In addition to wanting to protect their businesses.
Also want to be responsible stewards of the environment and are increasingly seeking more sustainable solutions like.
Like Bloom energy biogas and forthcoming hydrogen products.
In the third quarter B, a strengthened relationships with our public utility partners, who are increasingly encouraging and embracing technology transformation in the energy industry.
In Louisiana, we are partnering with entergy to support mission critical energy in the face of severe weather.
Together with the energy.
V C opportunity to be facilitators in a new energy landscape.
Creating local micro good investing in a decentralized future and providing the tools and services to achieve the carbonization.
Third.
Yep advancing our technology roadmap.
Which will accelerate our growth by capitalizing on emerging market opportunities.
Our growth initiatives include the Devil up being a hydrogen fuel cell and hydrogen electrolyte Sir.
Sustainably powering the maritime industry.
Implementing cost effective carbon capture solution.
And enabling widespread adoption of biogas feast power generation.
You have excited to share our progress in greater detail during our forthcoming investor day in December.
Fourth.
Our innovation extends beyond our products and into our installation group.
In the area of deploying our systems, we are continuously improving upon the ease and predictability of our installation process as part of a broader effort to simplify our business.
This is necessary give.
Given the exogenous impediments that are installation team encounters.
World dealing with climate change.
An example is bloom energies new skid product.
Recently, we shipped our first systems pre assembled for rapid installation on his kid ready.
Ready to deploy autoharp actually in Delaware.
Kid essentially creates a pre packaged enlightenment there are a lot of the wiring in construction is eliminated.
Loving us to drop in the system and.
And be ready to hook, it up eliminating pouring concrete and elongated the construction profit.
We have included a picture of the Bloom energy scared in our presentation.
By transferring a significant portion of integration work and time from less predictable feel conditions to the controls actually environment.
<unk> cost and time overrun.
It is our expectation that are dedicated blue manufacturing team that as well trained in the final assembly process will deliver a more integrated product to the field and make it easier for field contractors to install.
The ease of installing his kid in a customer location will enable bloom two offers simple standardized procedures to outsource installation partners, thereby enabling bloom scaleup, it's operation Board geographically and in Walgreen.
It will also enable us to power customers on a short term are emergency basis.
Fisk.
Our products performance is unparalleled in the industry.
Are 8.35 megawatt power tower installation in Korea, with a week away from its two year anniversary.
Here are the highlights.
Not one of the 167 power modules have required a field replacement you on it.
The capacity factor of our system.
In other words, the amount of megawatt hours, Delaware at a fraction of the name plate.
Is 98.7%.
According to the department of Energy S E I E.
Combined cycle gas turbines have.
Have a capacity factor of about 50%.
<unk> have a capacity factor of around 30% solar panel, having capacity factor of only 20%.
Other than a 16 hour period than our systems had to stand for a customer initiated maintenance project unrelated to our servers.
Art installation provided power.
20, 473 65.
At 100% availability.
Let me repeat 100 per cent availability.
Compare this to traditional base load power plants that have availability between 70 and 90%.
And solar which have less than 20% availability.
The lifetime efficiency of this installation.
Is 57.4%.
The.
City factor and.
And performance efficiency.
Far exceed.
Our contract shall commitments.
In summary.
The Bloom energy servers, that'd be continuously improved over the years.
Now showing a performance level and reliability that I've never been demonstrated by fewer call.
Six.
I'm delighted by the level of talent, you being able to attract to the company.
Especially in senior leadership position.
Since the March call.
B O hired Greg Cameron Ah so are CFO.
Sherlin more F. R C M L.
And Carl Guardino.
R E V P of government affairs and policy.
Shortly.
Announcing U E V P of international business development.
This person is exceptionally qualified and it'll be responsible for pursuing regional relationships similar to our <unk> partnership with S. K in South Korea.
By leveraging Tastic partners to grow its market footprint.
Bloom can focus on what it does best innovating.
In Delaware in best in class products and services to its customers.
We are very pleased with the progress we have made in 2020.
This has certainly been a year that has tested management team.
And their ability to lead.
In our case, we have overcome formidable challenges.
And forged ahead stronger.
Executing at a high level and.
And are coming out in a better position that the company has ever been in.
We are excited about our future and believe that has never been a better time for Bloom energy.
With that I will turn it over to Greg.
Thanks, K R. As you said, we accomplish a great deal on the third quarter, our management and operating teams or demonstrating our ability to execute in a complicated business environment as.
As we discussed them protocols when I joined the company My near term focus was to simplify our business improve our liquidity and address our debt.
During the third quarter U successfully raise 230 million new financing through a convertible greenbone offering at an attractive right true.
We completed the conversion of a 10% convertible promissory notes do 2021 retiring the entire June 30th balance of 249 million.
The majority of these converted chairs have now been traded by the former Debtholders and are part of our public float.
Additionally, we have called the outstanding balance of 79 million of the 10% Senior secured note do 2024, and we'll pay off the entire balance on November 9th.
And our supplemental financial information slide Jack that Mark referenced we've included a pro forma capital structure. The details are post retirement outstanding debt cash balances and Leverages.
A few highlights since the end of the first quarter, we have reduced our recourse outstanding debt by $143 million a.
Eliminated any debt maturities prior to 2025 improved are available cash over 60 million and reduced our annualize that service by $44 million.
Today or recourse get less unrestricted cash or net debt is only 57.7 million.
These actions, which are improved our balance sheet provide bloom with the additional capital and the flexibility to pursue our technology roadmap and further advance our manufacturing capacity.
With an improved capital structure, you're clearly well positioned for growth, but I want to be clear that we will continue to be disciplined around those investments to ensure that the applications, we develop and have market demand meaningful scale and real opportunity for attractive return on our invested capital.
Now, let's turn to the third quarter financial performance for your reference in the supplemental financial information Slide. We've also provided a summary of key financials, along with a summary piano and balance sheet.
I want to highlight some of the key financial matrix provide some additional context around a result.
A couple of items of note in our comparisons.
Similar to last quarter and 2019, we benefited from a large repowering that did not repeat this year, making comparisons where she's prior year less relevant.
Also this quarter's results include a release of 14.2 million.
And previously deferred revenue relating to sales completed and 2014 and 2015. This isn't unusual item related to prior year sales so for transparency and to provide a benchmark for future operating performance, we referenced some metrics excluding the side.
And 314 acceptances revenue for the third quarter was 200.3 million.
6.6% from prior quarter as reported and roughly flat when adjusting for the revenue deferral.
We experienced some delays and installations that impacted revenue time.
Mostly related to storm activity in the northeast, where utilities rightly prioritize re establishing power service.
Besides are being recognized in the fourth quarter with 41 system's being accepted in the first two weeks of October.
Reported non-GAAP gross margin is 29.7%.
When he just it for the revenue deferral release, the business achieve 24.5%.
Significantly from the first half.
Our product and install unit economic profit excluding the revenue differ release was very strong this quarter at $1621 per kilowatt.
$679 per kilowatt from prior quarter, driven primarily by Laura product costs, and a more profitable mix of acceptances.
Our product margin remains strong at 40%.
And installations, we continue to look to simplify to partners may Doctor approach.
And the Skid design K R Rep highlighted.
We are committed to reducing operational complexity and improving the profitability in this component of our business.
Our service business recorded a 6.6 million dollar loss on a non-GAAP basis in the third quarter as.
As we made additional investments into our installed base to accelerate an increase in fleet output.
Our focus is to make this business profitable by achieving are targeted output.
Increasing our fuel cell life and reducing costs.
To improve performance and fleet management, we've reduced the number of replacement units required to support an installation by 45% since 2015.
During the same time period, we reduced a replacement cost per unit by 59 per cent. These.
These improvements will continue to expand the time between service events and reduce the cost prevent ultimately resulting in improved financial results. We expect a profitable service business by 20, twenty-two with expanding margins and revenue growth in line with the installed base into the future.
Reported non-GAAP operating income was 15.4 million and adjusted EBITDA was $27.7 million when adjusted for the revenue deferral non-GAAP Op income was 1.2 million and adjusted EBITDA was 13.5 million.
Last quarter, we were extremely pleased with a positive adjusted EBITDA.
And this quarter or even more pleased to have a positive non-GAAP operating income.
These matrix highlight our progress on the journey to profitability.
We ended the quarter with $504 million and consolidated cash are.
Our cash balance excluding restricted cash is 325 million an increase of $181 million from the prior quarter, reflecting the new convertible debt Reyes, partially offset by that service and working capital usage.
This balance will decrease 82 million in November when we pay off the 10% senior secured notes do 2024.
I mentioned, the continued reduction store product costs down 19% over the last year or enhancements to our manufacturing processes and.
And their supply chain management based.
Based upon the commercial pipeline, we need additional capacity in the near term to meet demand maybe begun to secure the long lead items, such as equipment and facilities there.
The relative investment is manageable on both sides and payback.
We expect to invest 50 to 75 million over the next two to three years to double our manufacturing capacity. While this may put some short term pressure on cost absorption. We believe this investment to be critical to facilitate the rollout of bloom seven dot five and our technology roadmap weeks.
We expect to fund these investments within our current capital structure framework utilizing equipment in real estate financing where appropriate.
As expected you plan to install our first Bloom 795 server into a customer site in the fourth quarter.
During 2021, you operationalized production as we build our manufacturing capacity or production will shift from primarily bloom five dot O to bloom seven five and 2022.
As we shift we expect to continue on the path aggressive cost reduction.
In 2020, we should spend it Ford estimate based upon the potential risks from Covid.
Like most other businesses the pandemic continues to challenge our supply chain manufacturing capability and in our case the completion of installations.
And the United States, we've seen an increase in climate driven weather events with fires on the west coast storms in the northeast and increased hurricanes in the southeast.
While these events further support the resiliency benefits of our product when coupled with the stress of the pandemic. They have caused understandable delays and our installations.
We are adapting to this reality and structuring or operations to manage these risks. We believe we have an opportunity to simplify to the partner relationships. We are building.
It is worth reiterating that despite the macro environment no customers cancelled the contract.
Additionally, we continue to have a strong pipeline and are making progress with several partners to secure customer product financing in 2021.
This demonstrates the importance of our products and the quality of our backlog.
We are seeing comparable cadence and a revenue and profitability is 2019 with a second half being stronger than the first.
For the fourth quarter, we expect revenue to be slightly better in the fourth quarter of last year, coupled with a strong operating margins and income performance, we reported in the third quarter of this year.
In closing I'd like to share a few additional update.
When I became CFO I committed to provide greater transparency into bloom energy.
Earlier this month, we held a teacher on our marine solution and discuss that in the future. We would have similar event on other initiatives.
Next month Ah November 18th we will hold an event to discuss our hydrogen plants we've.
We've made progress on the hydrogen energy server with the first one being shipped this quarter as well as advancement on our Electrolyze or.
During the hydrogen discussion you will share our technical roadmap commercialization plant and demonstrate the advantages of the solid oxide technology.
You can expect similar presentations on technologies, such as carbon capture and biogas in the coming months.
In addition, please plan to attend our very first Investor day presentation in December where we will discuss our technology roadmap commercialization strategy product cost approach and financial framework for 2021 M beyond.
We will share the details and logistics for that over the coming weeks I look forward to discussing our plans and hope together feedback in advance to ensure we address your questions.
With that operator, you can open up the line for questions.
As a reminder, if you would like to ask a question you would need to press star one on your telephone.
Again that is star one on your telephone to ask a question.
Your first question comes from the line of Steven Bird with Morgan Stanley.
Hi, good afternoon, and thanks for taking my questions.
Hi, Stephen.
I wanted to just talk about the fourth quarter correct. I think you had mentioned that you expect fourth quarter revenue to be similar to the fourth quarter of 2019, but margins Uhm I just Wanna make sure I understood. What you were messaging there in terms of the margin similar to sort of the the average for this year that we've seen similar similar to this call.
I just want to make sure I'm understanding kind of the margin outlook in the fourth quarter, yeah. So <unk> when when we think about the fourth quarter and where we are revenue should be a little better than we were a year ago and when I talk about margins. We've made a tremendous amount of progress on our margins over this year I think on our first call we were in the <unk>.
Mid teens.
Ah reported 29, but really when you strip out the revenue deferral. We're in the mid 24 25 range as well as positive on our operating income in EBITDA. So as I look forward to it the quarter, we should be a little bit better revenue year over a year and my expectation is that we will report.
<unk>, our profitability metrics, so so margin as well as the other metrics very similar to what they were on an operating basis in the in the third quarter. We are very focused on maintaining the improvements that we've made on profitability.
Understood and when you think about that the performance you you also talked about the some of the delays of installations and I think you mentioned 41 accepted and the first couple of weeks of October.
When you think about performance for the fourth quarter or are you sort of baking in some degree of conservatism on the risk for potential additional delays storms <unk> U M P E or yeah yeah.
Yeah, when we look right. So so those to your point those those 41 acceptance is for my timing basis could've fallen on either side of the reporting date. It gets more interesting as you think about the fourth quarter because not only do you have the normal cutoffs, but you've got the holidays, there as well and and histories told us that alone could put some pressure on it to is K O N I.
Built the operating plan for the fourth quarter, we were very focused on anything that had a December date on it seeing if we could get that earlier into the corridor or or make sure that'd be <unk>. It wasn't necessarily within the roll-up as we thought about a quarter. So we tried to we've tried to take the learnings we had from the <unk>.
From the third quarter enroll them through as as we think about for the fourth quarter. I'd say is is we think about the process right. The real end game here is to you know think about how we take some of that volatility out of our business I mentioned in the script around working with partners I think as we think about our installations, we've talked in the <unk>.
Passed around our ability to continue to simplify that and leverage partners that do that work is is a lot of oem's do and I think as we find partners like that I'm hopeful to find ones that have the ability to to on the only equipment through that process and take that volatility out of out of our operation to move it.
<unk> <unk>, where their core competencies are.
Gotcha and last one for me here, just as you think about growth overall.
<unk> <unk> what are the biggest limiting factors check to growth does it the issues around installation is it is a permitting us at appetite for natural gas usage.
What's what what would you characterize as a sort of biggest limiting factors on growth.
<unk> you know is is that.
Okay. Let me start and then and then I'll I'll hand, it over to K R. So I think we have made a tremendous progress this year I'm really growing Ah Ah relationships not only in South Korea, which KR talked about it within the U S as well and and I think in our shareholder letter I know when a shareholder letter, we we broke up.
Some of the distribution on where our revenues are to really show when you adjust out for the Repowering last year, how much growth. We've had just within within our U S business. So I think a little longterm right. The growth is really to continue to expand with your current customers as well as.
Find additional markets within the U S where they value the resiliency of our product I also think so we can expand the map within the U S and there'll be disturbing I also think there is a large larger play internationally I couldn't tell you how pleased I am with B S K relationship.
Not only from its operating mechanisms just but from her alignment from from an operating view in a process standpoint, as we look to expand internationally and we'll announce R. U International business development later, who I'm very excited about our hope is to find <unk> find partner similar to S. K, where we can expand.
An additional markets that'll value of products. So I look at it and say there's opportunity within the market. We we would that we're in today and there's an opportunity to play in some other markets as well.
And it to add to what Craig had to pay out here S. Steven If you just look at Korea that you know cause I talked about a numbers since.
Since the beginning of this year.
Our partner is getting Korea, since 12 58.8 megawatts.
Okay, that's fine and immediate systems to to install and so while in the past me what I've seen installation at potentially a getting item called what do you need to do.
What this is showing as when you find the right partners.
And then being able to leverage it you know that bottleneck can be significantly <unk> right and so that's part of what to me is planning to do is to find you know partnerships like that you know for sure should be a great opportunity for us going fall.
But.
Given the emphasis that they are putting on.
<unk> <unk>, that's the left or the Nancy, especially with hydrogen and get Super excited about that so those are the opportunity in terms of limitations.
Otherwise you know we just all that you need to do is to look across our country, whether it's flooding than the wildfires Hurricanes, alright, and N as in Nancy is becoming extremely unplug and <unk> see.
Our ability.
To put out.
The best available product today then.
When it comes to balancing the attribute sofa liabilities is silly and see.
Sustained nobody everything together.
A V C that he had them that I play so.
Look we will a V R V.
Very enthusiastic about what those teachers and hold fur.
Very good thank you very much.
Your next question comes from the line of Michael Weinstein with Credit Suisse.
Hi, guys.
Hi, Michael Okay.
Could you talk a little bit about the some of the drivers behind the total income installed system Costa declining I think it's probably your cost of goods sold roughly down 10% sequentially. It seems like a pretty good direction to be and then maybe you could talk more about.
With some of those factors that are driving that.
Yeah. No. We were we were very pleased on our unit economics, when we when we pulled them all together, especially after the second quarter. So up from 942 in the second quarter to 16 21, and the third quarter is you start pulling that apart. There's a couple of things that are happening within their.
One is just a very favorable mix on the deals that we were able to do within the quarter and the profitability related to them. Our our our our pricing that was in that number had improved significantly would help that margin in that that was accelerated by a reduction in product cost at.
At the same time, so those two things added to a lot more profitability. We also had some legacy issues I'd say in the second quarter as we work through some of some of our older installs that came through they were very available valuable projects to get done. We completed them. We were excited to get them done, but they didn't have the profitability that we would have going.
Ford, So a big change quarter over quarter, driven both by both bye bye margin on the product as well as a reduction on installation that we give it to you guys on on a fully loaded basis, but it's you know I look at it and operating basis Whereabout breakeven honor installation this quarter versus <unk>.
<unk> small loss on that last quarter as I think about that going forward.
We will continue to take cost out of our products. So you're gonna see continue to see that come down, but the favor ability on the mix that we had as I take a peek forward into the deals that are in our next short term installation process. My expectation is that number may not be as high when we get into the fourth quarter, you probably drift down more.
More towards not quite to an average over it's been over the last quarter, but we definitely benefited from a favorable mix and it can <unk>. You know these are the can move slightly each quarter. So as I think forward on at 16 21 was a great accomplishment I don't look at it as a high watermark, but I think in the short term, you'll see a drift down a few dollars as we move forward.
She makes <unk> yeah, yeah, so what you're saying is that you want once you won't see the same kind of decline going forward, but it's you don't expect it to creep up or anything like that yeah, Yeah, I mean, I overtime. It should right I mean, you're talking about product call. The timing out 19th Yeah, dark, 19% and we're doing a really good job on her discipline on price I'm really comfortable with.
With what we have there I would just look at 16 21 being a very favorable mix on this quarter versus what you Macy's and and kind of next quarter of the following quarter.
Alright, and I think Greg you mentioned that replacement costs are also down on the servicing side is that and yeah. You you expect to be able to do less replacements per cycle or for yeah. It's a combination. So there's a couple of things that are happening in there right. One is we just continue to improve on the stack life within the fuel cell and it's and it's <unk>.
You need to improve and we've written about that and technical papers and you could see that on the block. The other thing that the team has done really well is been managing the entire fleet in managing to make sure that we're achieving the outputs that we want and being <unk> and being well optimizing the the units that are there.
Those things two things combined so having a longer life and doing and doing a more more optimization around where we put our froze. His dress is has reduced the amount of field replacement unit that we've had to put out into into individual sites. We did ship a few extra this quarter.
For the team one is it helps them managing what the total output eyes and they can think about that and there's some good economic trades. There. We also did it as a way to when you look forward you can just see this business gaining profitability and the growing margins as well as revenue in the near future. So we're we're through a process.
That of trying to accelerate the other place similar to where you see it on total product costs with new with new units you say, you're a very similar cost profile with the replacement units and the team send a very good job of driving cost out. So we think you should go forward you need you need lots of them and each one you need is less cost and we see.
C. A very good trajectory out there I think we talked about 2020 to be in the crossover appointment of that business as possible and we expected to gain from that as well and and you get the very valuable service business that every OEM what.
Is that because it by 2022 basically all your is it only <unk> all the even the generation five and it'll be.
I guess, you'll only be working <unk> generation five at that point.
Yes that is <unk> that is correct and you know we would have lost I would like to see you and it's Michael speaking and that'd be with it and be able to replace them with our gen. Five units and again. The reason we talked about Korea installation date 0.25 megawatt system is because.
That performance has publicly reported and you know there are certain other systems to be have to be careful about contact really speaking here. It is you know eat is something that's publicate reported and look at it you know statistically even though you have you there'll be a beep, saying, what they're shipping as close to if I did life and chewing average data.
That doesn't mean statistically everything last for five years, but if he just look at this installation. It gives you a sense of.
Ah kind of quality the liability and life.
That can be a continuous knee.
And pulling upon right on on those mistakes hundred and 67 little.
Powerplants each putting out 50 kilowatts, not one of them has to be you know like a displaced person.
Alright, and continue to update and I gave you all the matrix that fit in this clip I don't want it to beat it here, but that performance is pretty astounding and it shows you how far we have uhm and making this technology robust and the most important thing is isn't you know isn't it great.
From people.
<unk> lighting wrongly how about how much of a liability that'd be will have going forward.
R C. A full amount telling you in 2022, so it'll be a profitable business.
<unk>.
Alright, I'll get back in the queue and C. C time. Thank you.
Your next question comes from the line of calling Rush Oppenheimer.
Thanks, So much guys now it is you think about these cost reductions on the service side, you know rolling through and and scaling how should we think about you know that's flowing through into your your bidding process and satisfy fine and and anything about pricing.
So far Arnold and we look at it.
So so for us Vinnie and we looked at it call in debate to think about it is.
Bailey.
At the end of the day of the customer.
What is the value proposition for them.
For them, it's not breaking it into fuel costs protocols sounds cool.
For them it is.
What is the quality of electricity with what attribute so they get at what price and what is that alternative.
So for us pricing will always be dictated by.
Market conditions.
On pricing it to make it an attractive value proposition for the customer in for Ya.
So a V would be would see and you know be with C. R costs coming down.
S E either <unk> ability to attract margin in certain places because that's still a very good value proposition for the customer and and certain other cases being let's see that as an opportunity for us to expand into markets.
There are economic value proposition may not be as high as it is as I said you know.
We'll get more attractive going forward with that lower cost structure that we have for the same lines and stuff do you want to come in that survey would say, Greg would you add anything to that.
No I think that's exactly right I think as we look at what our value prop to our customers are where we've been able to reduce our costs, whether it's on our product cos or on our service cost or installation costs. Those are all opportunities, where we can create value for our customer as well as for ourselves. So we want to make sure we're maintaining.
Some of that but using it as well to help us open up new markets, where we can be competitive as well.
Alright, and then on the the manufacturing side and devolution. The technology can you talk about the cadence of permits you know it sounded like there's a number of areas. It hasn't been working on and just different materials or I'm. Sorry factors can you talk about how that is progressing and how you should think about that so I'll answer.
The end of the end of the product Martin.
I think about the balance of this year. So yeah. You know it's it's we've talked about this in the past as we think about our our cost outings part of our D. N. A is part of our operating teams think about it in in any particular quarter or target or anywhere from 10% to 12% as high as 15%.
Cost out year over year on our on our product I'll tell Ya, we get it through a number of different ways. Our supply chain is fairly sophisticated in working with our vendors to improve they're manufacturing processes as well as simplify our product through engineering to make it cheaper for our supply chain to many.
Factor it so it can be assembled within our product I'm very impressed with the manufacturing processes and our engineers working with our team there and coming up with additional ways in which to improve whether it be yields take steps out of the process et cetera, all of those things help take the cost out and it's.
We project going out forward, we give the team fairly aggressive cost targets that we expect them to achieve and we give them the tools and resources to do that but it's part of our core operating D N a and how we move forward in any particular quarter. It may come from it may come from a different variable that they optimize.
But quarter any quarter ouch that team has been able to deliver on that on that product costs and as you start to look back at it year over year quarter over quarter. It really tendon Straits itself out. So we we count on that as as we think about how we grow the business. When you add some capacity we are gonna have a little bit of.
Challenge here the cost absorption. So the team is is ahead of that and thinking about how they bring those capital investments on and now they can <unk>. So they increase the number of units going through the volume will recapture some of that but our product cost is not an output metric. It is very much a target that we use.
To run the company around.
Great. Thanks, so much.
Your next question comes from them.
Women Kalo.
<unk>.
Hey, Hey that Guy's.
Good evening say that.
<unk>.
<unk> you guys had.
A couple of good and elsewhere adult analysis about new plotlines, you know with with the.
Sure project, the Electrolyze or in the Marine project.
Could you just tell us talk to us about you.
When those products were you'll initially developed a or sorry, you're coming from.
The the lab Tu Tu tu announcing that just.
Just some history there and then I think Greg you talked about having those a new head of of Europe.
Can you talk about just the management team and where you guys are <unk> <unk>, if there are holes or anything.
Yeah.
Sure then I'll get started and then I'll pass it on to Greg because he lost history.
So look.
The company is history started with this particular technology use doesn't electrolyze. There. That's my work that I did it you know.
For my left.
Even in the very early days of the company.
<unk> thinking about is our product going to be.
A single generation of electricity generation of electricity and heat generation of electricity heat and hydrogen.
So we have thought about <unk> and very uniquely.
The solid oxide process.
Is the only electrochemical process that you can effectively and practically done in it of our civil manner. The same day life can be done in one direction that they feel a pillow in another direction as an electrolyte, though that is called the thought about <unk> L. O S. A lot I see and I have some of the early papers.
Pattern from that and and as a company B L. O 19 patterns on this area and we have been doing a lot of research, but why have the Knoxville kind of thought as as I'm. So sorry, let me speaking about it now you'd be either because of market timing. It is it is it the rug.
One thing decarbonization in a very strong way number one and number two the cost of vanilla will electricity coming down debate has come down and then ubiquitous myself that in certain places that make it very attractive and policymakers realizing that this is coming and putting.
<unk> policy in place to enable to.
And automotive you know makers coming up with a need for it in the transportation sector.
And regulation coming along in the heart the Decarbonate the areas, saying that they would rather go to hydrogen then use other from other carbon intensive farm, some generating industrial heat and things like that he does that combination and so it's a matter of timing so.
You feel look into literature.
<unk> based on technology that is consensus.
That the solid oxide electrolyze there is far superior to the low temperature electrolyzed cause. It's academic research. This is D. O E. V. Search you can just look at that does not just company.
So V feel very confident that we will play a important contributing rule in this hypothetical anytime information and the timing this right.
And <unk> <unk>, a thumbs up rolling out of course, you know you know first product and also addressing the international market that with a friend Craig I'll pass it on to you.
Yeah. Thanks care. So so you know been when when I first started looking at Bloom, what attracted me to the company was not only the <unk>. The the product that we had today and it took clickability and its resiliency, but really what I got excited about was I spend time with the team around that technology roadmap we.
Have we called him five pillars internally that we are growing the company with so it's it's both forms of our hydrogen play whether it be the fuel cell or the electrolyze or marine we've talked about biogas, which I think is a really exciting opportunity and then carbon capture that can be part of part of our server process from there.
There and just some of the unique ability ability to do that with a solid oxide fuel cell in a fuel cell make that really attractive. So I think not only has the market opportunity come into play, but I feel now that we've got to the other side of what we needed to do with making sure.
That we four to five the balance sheet and take care of some of our short term issues. We have a lot more flexibility to go invest in those in those in those pillars. Then we may have had six or 12 months ago, and and you know the nice thing we've talked about it before the server is a platform. It can do all of those things without requiring.
Wiring.
Without requiring a lot of investment to go do that we do have an operating process set up internally with the engineers to make sure that they are moving through the process of doing the design. We've got sure Lemoore came in as our our marketing leader has a great product management background and really putting into place and how you commercialize these products.
So it feels like everything is coming together quite nicely all at the same time. So the company it'll be some time until we see major revenue contributions from these particular items, but I'm glad to know that it's out there at the same time when we're expanding the current product. So I don't think it'll help.
Uhm is that you asked about the team that sounds real impressed also with the team here at Bloom in their operations I talked about the the product cost management before but there's a there's a lot of good operating Grigor. I think is is the conversations with with the board around the leadership team going forward for me, it's really around.
Scalability and hopefully that's what you're seeing on the leaders that were bringing in it's how do you take a company that is $200 billion a quarter and grow into the size that you needed to grow and how do you take that complexity that exists as a business grows in operationalize it in a way to make it scale.
<unk>, so it's simpler and you'll see the backgrounds weather from the people that have joined they have been a different organizations. We have it all come from from from from the power.
With the power background, but we all come from organizations in which working together as leadership team and making sure. We're building resilient teams that can scale is is really what we need I think with with the last add here on our international business, we'd and it's just not in Europe.
When you see the background, you're gonna see that this this person complain a lot of different ways and we're really excited to have them come in and wake up in a different time zone to think about parts of the world that we may not be able to get to from from our desks or homestyle in California. So I'm really excited about the team we have here I feel like we're at an inflection point.
And I feel like feel like we are really pulling together nicely as a team and as a company.
Great. Thanks, guys. Thanks, Matt Thank you.
Your next question comes from the line of Jeff Osborne with Cowan and company.
Yeah. Good afternoon, a couple of quick ones on my end I know you don't discuss bookings are backlog, but I was wondering if you could just qualitatively talk about the fire season, and then coupling that with Covid and a lack of being able to my face to face is is a virtual sales or digital sales is that working for you. So.
We're industries transition will do that but I wasn't sure about you folks.
So.
Jeff as you know yeah, very clearly we don't give you solid guidance on sale send that and hope you're doing it's only once a year, but look our our sales team is doing very well reaching out to customers I would say getting those virtual meetings is probably a little bit easier then.
Then you know trying to go ahead and have a face to face and they are they are able to get a lot more of those calls then because that'd be or not that spending that time traveling and I think it's pretty remarkable I don't know, what you're saying everywhere else, but it's pretty remarkable oh, our ecosystem V C.
People know about that extremely well to this you know online digital.
Virtual process.
For everything other than the essential production processes and things like that that'd be need people out there. So I would say the momentum is good and I would say that V. R. Seeing traction. The one one you as in you know you heard us talk about entergy doing this threat.
You know there are parts of the country. There. The hurricanes are making people really want to think of address emergency you know very differently. This there's no. You know you you does not a new normal it is the beginning of a trend that getting worse by the day.
And so people are seeing that with it started about it whether it's the wildfires here in California, or or the or the curtains and on top of that the prices are going up not only the quality of the service not a <unk>.
You know not that it needs to be but the prices are going up and Greg talk to you about how you know Viet able to get out of unit economics to a place where we can blame seven you know some of these markets effectively that we could not in the past. So it's all acquainting in the right direction.
Got it and my phone was actually on Entergy, you know a couple of multipart or is it similar to southern and Duke where there'll be providing financing or are they just selling and you're owning who actually would own or is it a cache. All can you just talk about a you know when you would anticipate bookings.
And then b, what what they're actually doing.
Is it on until it or or the customer will own and operate the micro grids that you referenced.
No. This is a this is a new relationship here at the common interests that we have that interest and resiliency with extremely high just just think of the you know you know parts of Louisiana within the last 60 days three different hurricanes category two or higher.
Having impacted it has been devastating leather nature has been devastating so that you know like resiliency isn't that up their mind and for a certain fraction of their customer base. This severe it power or something that they were interested in and their leadership team is thinking is is very forward leaning on <unk>.
Carbonization. These have common interests you had exploring this opportunities together does he does a mutual interest be able to find a <unk> <unk> <unk> <unk> you know when when we have just discussing that and we'll share with you asked me to make progress.
Got it thanks, so much that's all I.
There are no other questions at this time.
This concludes today's conference call. Thank you for participating that is it.
<unk>.
Yes, Sir.
Yeah, I was going to just give it like concluding remark.
Okay No problem no connected.
Thank you so much so I want to take this opportunity.
To thank Mark Mettler business. This last meeting at RVP, you'll find that today Mr license.
Marcus forged strong connections that the Mister based on the analyst community and really adapt to the guy that and as far as you know something about the company.
He's leaving to join a promising silicon valley's caught up S. C F O.
Mark me. Thank you for all your services and we've issue Perry.
Very good furniture and your next time for Ya.
The blue team is.
Out of the work we've done over the last year, you have showed up or.
And I shall permission.
Our business operations are more nimble efficient and effective.
Customers are increasingly value valuing our submission asked me a bar to wildfires Hurricanes and public safety box shut off.
Our collaboration with public utilities, and commercial darkness, a robust.
And then actively engaging with new partners.
And the Devil it being Trailblazing no N Vito carbon power generation solution, yes, scalable affordable an integral to our planet's fight against climate change.
Future is very bright.
<unk> joins me in expressing our gratitude.
Does the investors are being stake holders with us and our Joni. Thank you very much have a good evening.
I need a gentleman and you may disconnect.
[music].