Q4 2020 Bloom Energy Corp Earnings Call
[music].
Ladies and gentlemen, and thank you for standing by and welcome to the Bloom Energy fourth quarter 2000, and 'twenty earnings Conference call. At this time all participants are in a listen only mode. After the speaker's presentation. There will be a question and answer session to ask a question. During the session you will need for press star.
Then one on your telephone please be advised the today's conference is being recorded if you require any further assistance. Please press star zero and I would now like to hand, the conference over to Suzanne Schmidt with Investor Relations. Thank you. Please go ahead.
Thank you operator, good afternoon, everyone and thank you for joining us and Bloom energy fourth quarter, 'twenty and 'twenty earnings Conference call.
To supplement this conference call, we have filed our Q4 'twenty and 'twenty earnings press release with the SEC and have 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 SEC.
Typically the most recent reports on forms 10-K, and 10-Q, which identify important risk factors, 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 effects of COVID-19 on the company's business results and financial position liquidity and the outlook.
We assume no obligation to revise any forward looking statements made on today's call.
During this call and in our Q4, 'twenty and 'twenty earnings press release, we refer to GAAP and non-GAAP financial measures.
These non-GAAP financial measures are not prepared in accordance with U S. Generally accepted accounting principles and are in addition to and not a substitute for or superior to measures of financial performance prepared in accordance with GAAP.
The reconciliation between the GAAP and non-GAAP financial measures is included in our Q4, 'twenty and 'twenty earnings press release, joining me on the call today.
K R of Sri Dar founder, Chairman, and Chief Executive Officer, and Greg Cameron Chief Financial Officer.
K R and Greg will review, the operating and financial highlights of the quarter and then we will 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 K R.
Good day, and welcome to Bloom energy fourth quarter and fiscal year, 'twenty and 'twenty earnings call. Thank.
Thank you for joining us.
I'm delighted to report that because of our efforts in 2020 Bloom energy is financially strong and even more resilient and transform baidu than ever before.
2020 was our best year, yet on so many dimensions.
Here are a few highlights.
Our fourth quarter and full year revenue or a company record.
The annual non-GAAP gross margin is the highest to date.
The improved our financial health.
Hiring the high interest debt that was coming to you.
The added for exceptional leaders to our management team with proven record of operational excellence.
Our team and supply chain manufacturing installation and silver navigated through the myriad of local and global obstacle.
To safely and manufacturer except and sell it.
The numbers of Bloom servers.
A clear demonstration of dedication and commitment.
The announced application and partnership.
Net leverage of our platform and innovative ways.
We are advancing the technology for our hydrogen fuel cell and the electrolyte.
Biogas power generation and carbon capture the.
And also forged a partnership.
The deploy our fuel cells on ship.
The Bloom teams community spirit and contribution but also the highlight of 2020.
We refurbished rental later.
Weighted emergency clean power to pop up hospitals and hurricane victims.
And began co hosting a COVID-19 testing lab for local company school and underserved community members.
We made deliberate and tough decisions.
To ensure that we emerge out of the crisis.
The stronger company.
And conserve our cash until the it strengthened our balance sheet.
The delayed our manufacturing facility expansion and early 2020.
The focused instead on increasing the production.
And reducing the cost of our current product and existing factories.
We were able to sell out our manufacturing capacity for 2021.
Based on sales and our current geographies.
This enabled us to defer and market expansion related expenses and further manage our cash position.
The made sure that we kept our innovation team well funded.
And securing financing we have initiated a plan to double our manufacturing output by the end of 2021.
The new facility.
Detected and it kept to build our gen seven five product.
We had also making the requisite investments too.
To expand to new states and countries.
Our product install and service cost reductions now enable us to offer a resiliency solutions and states the commercial and industrial customers the.
Nine cents per kilowatt hour or more for power.
At this price point.
We are competitively positioned and the majority of the 50 states. According to the U S Department of energy data.
In 2021.
We will enter the news team by securing orders with.
Both existing and new customers.
Outside the U S.
Bloom head of international growth.
As these mohammed.
Actively building a strong team to expand our global business.
The maritime market.
And also a large growth opportunity for bloom as we discussed during our Investor day.
I'm happy to report that the them Schweikert, who was the president and CEO of General Electric Marine solutions.
Has joined Bloom at the special look like the <unk>.
Our collaboration with Samsung heavy industry is making good progress.
With all of these positive developments.
We expect robust backlog growth in 2021.
That expectation of robust backlog growth.
The strengthened by several quality and market tailwind.
Both nationally and globally.
In the U S credit.
And bite and energy and climate agenda.
Costs for the extension of existing clean energy incentives like the federal investment tax credit.
The increased subsidies for carbon capture and.
And the investments in Blue and Green hydrogen.
The president has pledged to deploy billions of dollars to improve infrastructure.
And in Peru climate resilience.
Bloom.
He is ideally suited to provide the reliable power and clean energy solutions that the administration is looking for.
Treasury Secretary Janet Yellen.
Has pledged to pursue pro market policy.
Debt augur, well for increased investment and our infrastructure.
Energy Secretary nominee, Jennifer Granholm have called an American company.
The partner in the clean energy transformation.
And create good paying job.
She has emphasized the need for carbon capture and sequestration technology.
Enable cleaner natural gas power generation and.
And ensure that the clean energy the evolution of.
Also benefit cash producing state bloom.
Bloom energy technology solution.
And its American made products are.
Ah well suited to meet these needs and aspiration.
We have seen similar bold move from leaders in Europe, and Asia and recent months.
These policy announcements.
Coupled with market pool Cree.
Create the potential for robust growth and several new area.
Let me highlight one such market opportunity.
Power and electric vehicle.
Which are becoming more prevalent.
The federal government has recently pledged to convert it and tie of fleet into electric vehicles.
General Motors aims to produce only zero carbon and vehicles.
2035.
And many global automakers have set similar goals.
Increased adoption of electric vehicles.
We'll put a greater of strain on the aging electric grid.
Toyota President of key.
Toyota recently noted of Japan would run out of electricity and the summer if all cars because of anything on electric power.
Even if the generation capacity, but increased the.
The last mile distribution upgrades and cities like New York took you in Mumbai.
Would be cost prohibitive.
Additionally, part.
Park with the often disrupted.
For prolonged periods of time after the natural disasters.
In the world.
Fleet with electric vehicles.
Resilient power is vital for safety and security, enabling people to evacuate if needed.
And for essential aid to be delivered.
Bloom energy.
Offers that there's the leant solution.
Our unparalleled all of these on product <unk>.
Includes 24, seven and Baseload power with <unk>.
Very high availability.
Quality.
And point of consumption generation.
Bloom, Kuwait and auction for electric utility.
Eliminate or mitigate the need to upgrade local distribution.
Or create new generation capacity.
This presents an opportunity for bloom servers.
To be part of the infrastructure that powers the vehicles as fleet terminal.
More broadly at the new network of charging stations.
Our 400 volt.
Direct current output.
And ideally suited.
What reliably.
Rapidly.
And most efficiently charging EV batteries.
And offers the flexibility to operate on clean and green fuel.
I want the stress the significant progress.
The Bloom energy has made since the start of last year.
Yeah, the stronger company today.
And then be very a year ago.
We have balance sheet strength and flexibility.
We have a very compelling value proposition.
And our message to policymakers.
Resonating now more than ever.
P.
At the forefront of innovation in the energy sector.
20 years ago, we laid out of bold vision for energy transformation.
We have been developing and delivering solutions.
Based on the activation.
The field immensely encouraged by the momentum that we are generating and are confident and our ability to execute.
With the strong leadership team.
New solution.
New market.
And multiple pathways to low and zero carbon energy.
Bloom energy.
And is exceedingly well positioned for this moment.
Let me now turn it over to Greg.
Thanks, KR and it's a pleasure to connect with everyone again before I jump into the financials I want to highlight some of the changes we've implemented to our earnings process in order to provide additional transparency and a more standardized format.
As you of hopefully already observed with the increase the information and our earnings release, we will no longer be providing the shareholder lighter weight of included the relevant information into the earnings release.
We have evolved the supplemental financial information presentation to provide additional insight into our operating environment.
We've made these changes based upon your feedback and will incorporate additional input going forward.
Now, let me get into the financial performance for the fourth quarter and the year 2020, I'll be referring to the slide presentation posted to our website.
For 2020 was an exceptionally challenging year, we were pleased with the progress we've made to advance our strategy grow our business and deliver strong financial results, all while improving our balance sheet.
We are well positioned and 2021 and beyond to enter new markets evolve our technologies and build larger operating scale.
We ended the year with 450, acceptances and the fourth quarter up 16, 6% versus the fourth quarter 2019, bringing us to 1000 and 326 systems for the total year.
11% versus last year.
These are record numbers for bloom, both in the quarter and the total year for acceptances.
These acceptance is also delivered record revenue for the fourth quarter of $249 4 million up 16, 8% versus the fourth quarter 2019.
Even in this challenging environment, we were able to improve our performance versus 2019, increasing our total year revenue by $9 million to $794 2 million for 2020.
We are proud of our team's effort and in a very difficult operating environment.
Moving onto our profitability metrics, we continue to see improvement in our margins and we drove a reduction of nearly 17% and our total product costs for the year.
And the fourth quarter, our non-GAAP gross margins were 27 per cent.
Up 11, three points versus the fourth quarter of the prior year and $23. One for the total year up four nine points versus 2019, as Youll see and the upcoming analysis on slide five of the presentation, we continue to improve margins through lower product cost and debt.
Better performance on installations.
More to come on this later.
The improvement in gross margins translated to improvements and operating income with non-GAAP operating income of 12 million for the fourth quarter and improvement of $23 8 million versus the fourth quarter of last year, we improved our total operating income by $29 6 million versus 2019.
We delivered adjusted EBITDA of $25 5 million for the fourth quarter and $45 5 million for the total year 2020.
With the increase and acceptance Susan revenue, the fourth quarter was up $24 $3 million versus prior year.
This resulted in a total year increase of $2 6 million as the fourth quarter performance was enough to surpass the higher EBITDA profile of the Repowering of the second and third quarter of 2019.
These margins and operating income performance, when coupled with the reduction and our debt costs dramatically improved our adjusted EPS versus prior periods.
With respect to our debt and balance sheet, it's important to revisit and in the fourth quarter. We completed the retirement of the 10% senior secured notes due July 2024, and the conversion of the remainder of our 10% convertible notes due December 2021.
This addressed our near term maturity overhang and when compared to last year improved our cash position by $39 million, while reducing our debt outstanding of $131 million.
Overall, we're pleased with our performance in 2020 and encouraged by the fourth quarter, both and our ability to grow revenues and maintain our trajectory of unprofitability.
These are meaningful proof points on our journey to the objectives, we share data analyst day.
We feel we have a strong franchise with our core product. It's a platform that's flexible and adaptable as we execute on our growth pillars. We can build additional applications for hydrogen fuel cells, Electrolyzed marine biogas and carbon capture technologies.
Now, let's take a look at our bookings and backlog as we only provide this one time each year.
Even in a very difficult environment. We're pleased that we were able to maintain our backlog of nearly 2000 and systems.
Many of our customers such as hospitals universities and retailers were impacted by Covid, especially early in the year and as we proceeded through the year each quarter, we saw an increase and our bookings as customers re engaged.
We are encouraged by the continued commercial momentum and are hopeful to see additional opportunities with the new administration's focus on clean infrastructure.
In addition to our system backlog, we have of service backlog of $3 4 billion in line with the increase in our installed base when combined with our system backlog. Our total backlog is for $4 billion.
As we discussed during the analyst day presentation. There is currently enough system backlog for nearly all of our planned acceptances required to support the $950 million to $1 billion of revenue targeted for 2021.
Meaning within the U S market, we're not dependent upon any new bookings and 2021 to support our projections and.
And for our international business, given the short timeframe between booking and acceptance. We planned 2021 acceptance is either identify and pipeline or backlog.
Given our growth expectations, we've reached the point, where we will be making investments to increase our manufacturing capacity today.
Today, we have capacity to support 200 megawatts of revenue system stacks, we are securing an additional 200 megawatt fuel cell manufacturing line as part of our Bloom seven five introduction.
This combined capacity will provide 400 megawatts of fuel cell or nearly one gigawatt of electrolyzed the capacity that we can allocate based upon market demand.
As K R mentioned earlier, a significant benefit of our platform and so we can utilize the same manufacturing for all of our applications with limited investment our customization.
And the investments we do make are very efficient and investment of $50 million to $75 million required of the double our capacity is the payback of less than one year when fully utilized.
And Bloom seven five we completed our first customer installation and December the unit is functioning as expected and we are gathering performance data, we will operationalize the manufacturing of Bloom seven five and increased production throughout 2021 and in 2022 Bloom seven five will crossover to being the majority.
<unk> of our systems being manufactured.
Given the strong performance of our current Bloom five Dido technology as demonstrated in our margins for now we'll continue the manufacturer at its current levels the.
The new investments, we made for Bloom seven five and the manufacturing facility that we are securing will have the space to triple our capacity of our first line.
With 2021 underway our team is focused on increasing our bookings to support at least 25% growth and 2022.
And we've made adjustments to our sales force and focused on expanding and the U S with additional states.
And through new partnerships, both domestically and internationally the.
These expansions coupled with the technology roadmap of our fuel flexible platform provide multiple avenues to secure new bookings to support our growth.
Moving on to slide five for our margin analysis here, we've broken down our non-GAAP gross profit and margins by source of revenue.
Our overall increase and non-GAAP gross margins as wire of the truly driven by improvements to the product margin, resulting from continued reductions in product costs.
For the fourth quarter, we achieved our targeted 40% non-GAAP gross margin for product.
We had a good quarter on our performance on installations, where we nearly broke even.
For the year were roughly the same as 2019 remember this is a part of our business, where we're targeting breakeven as we pass along the budgeted cost of installation to our customers.
Boeing forward, we are exploring partnerships that would be accretive to our margins as those partners will perform the installs and earn the revenue thus, reducing the operating complexity and dilution to our margins.
For consistency we have included the dollar per kilowatt and analysis that we have historically provided and our shareholder letter the.
The profit per kilowatt results are similar to the total business with an increase in profitability in 2020 versus 2019.
Specially in the fourth quarter of 2020.
As we go forward I would expect that each quarter, there may be some variation and our profitability depending upon acceptance mix.
Our service business lost nearly $7 million for the fourth quarter, we have committed resources to achieve profitability and the near future.
If you turn to slide six we lay out the changes and results to our service business.
Our references in his opening remarks, so I'd like to share some additional details.
We have more than doubled the life of our power module since 2012 and expect our most recent vintages to season with over a five and a half year lives we've.
We've also made changes using data from our systems and the field and how to optimize the fleet by targeting specific power modules for replacement.
These changes are important as they reduce the frequency of providing power modules, which is a significant portion of our service cost.
In addition, since 2012, we've reduced the cost of each of these power modules by 61%.
The combination of all of these changes result in less service costs are as we are required to provide less power modules and those we do provide or at a lower cost.
And the second half of 2020, we made an investment to provide additional power modules to increase the power output for our customers.
<unk> increased our cost.
As part of our pathway to profitability, we plan to make that investment over the course of two years.
And when additional modules became available we took the opportunity and accelerate the shipments and moved the business towards profitability sooner.
And analyst day, I committed to the service business being profitable by 2022 now.
Now with these investments we are projecting to achieve profitability for the year 2021.
Earlier than we anticipated and.
And we expect the service revenue to grow and profitability to be sustained over the long term of <unk>.
A very positive development for our overall business.
As part of our commitment for increased transparency, we are planning to host an investor event. This month to provide additional detail on the economics and processes underlying our service business.
We think these focused presentations and the follow on discussions are of good way to go a little bit deeper into our business and helped the financial community understand our approach.
I look forward to sharing more and the team's performance as we delivered through 2021.
The next slide is in the analysis of our cash flows cash balances and debt levels a few highlights from the page.
Going forward, we will focus our cash performance and cash flow from operating activities for CF OA. As this provides insights and of the cash generation capability of the business.
While we were user of cash and 2020.
We reduced our usage and the fourth quarter, two and increase in our EBITDA and a reduction and our cash payments for debt interest.
These improvements were not enough to offset the need for working capital within the quarter.
Specifically, we secured an additional $22 million and safe harbor inventories to ensure our customers retain the ITC benefits scheduled to be reduced at year end.
While ITC was extended for two years and December it occurred so late in the year that we were unable to significantly adjust these inventory levels over.
Over the course of 2021, we expect to utilize these inventories while avoiding additional investments thus, reducing our working capital.
Our cash balances have increased since last year.
Total cash increased by $39 3 million to 416, the $7 million and the unrestricted component grew by slightly more up $44 1 million versus prior year to reach $246 9 million.
The reduction and unrestricted cash from the third quarter was driven by the payoff of the 10% senior secured notes due July 2024 for approximately $79 million.
We have reduced our recourse debt by $117 million over the course of the year, both by paying off high coupon notes and the exchange to equity of our legacy convertible debt.
These reductions and the decrease in comparable interest rate for the convertible green bonds issued in August.
Have reduced our annual debt service cost by $44 million since the first quarter.
The savings place Bloom, and a much stronger and liquidity position and we were just nine months ago and provide us with the opportunity to further invest in growth.
On slide eight we revisit the outlook we provided in December and we are reaffirming all of our 2021 targets.
For revenue based upon the visibility of our backlog and pipeline, we expect to be between $950 million and 1 billion net.
Non-GAAP gross margins are targeted at around 25 per cent and we expect to deliver a positive non-GAAP operating income of roughly 3% of revenue.
With the extension of ITC, we should be able to reduce our inventory levels, creating less need for working capital, providing an opportunity to improve on the cash metric and.
CFO ways of new metric for us the forecast I've left the outlook as approaching positive.
As we proceed through the year gained more visibility I will provide updates on this expectation.
While we are not providing quarterly guidance each earnings call, we plan to provide and update on performance and expectations versus our 2021 framework Alan.
Ill endeavor to highlight anomalies, while incorporated and our internal plan may not be apparent and the total year framework.
One example.
Just as in prior years, we expect the second half revenue to be greater than the first half of.
Also like most product companies, we expect to be of user of cash and the first half of the year as we build inventories for the second half deliveries.
In summary, we.
We had a very strong operating performance and the fourth quarter and given the environment. It was a really good year for us and 2020.
We are gaining momentum and our commercial operations and are expanding our footprint and the U S and internationally.
We continue to have great relationships and growth opportunities and South Korea, and are focused on new market opportunities and geographies as well as partnerships both domestically and internationally.
Our service business outlook is improving we now expect to be profitable year sooner.
Our liquidity position has strengthened versus a year ago with increased cash and reduce debt.
Lastly, we are reaffirming our 2021 framework.
Bloom energy is well positioned and has a roadmap to create significant shareholder value.
With that operator, let's open up the line for questions.
Certainly at this time of as a reminder, in order to ask a question. Please press Star then the number one on your telephone keypad.
To remove your question press the pound key.
We will pause for just a moment to compile the Q&A roster.
Your first question comes from the line of Stephen Byrd from Morgan Stanley. Your line is open.
Hi, Good afternoon, and hope you all are doing well.
Great and Stephen how are you.
Doing well thank you.
Wanted to explore a couple of of technology and product developments, if I could maybe first just on carbon capture and just interested in your latest thoughts in terms of both the.
And the technical product feasibility as well as sort of the commercial.
Interest and the product and sort of your general views on the progression care you know that there there is certainly as you know.
Potential support here at the type of level, but I was just curious for your thoughts on on your own product development and sort of commercial rollout.
So Steven Great question and this is extremely important.
And look at.
Whether it is the department of energy with the the IPCC and eat.
The IEA.
All talk about carbon capture the essential in this transformation is the go forward and a bridge to dig out of the maintained which is the most important thing for climate change and.
And the beauty of our technology here that has it changed since the last talk to you of connecting the hydrogen demand and carbon capture of together.
And that makes this even better really one plus one being greater than two kind of an example of you right which is.
And with our server.
We can now bring and natural gas.
And we can produce blue hydrogen.
Electricity.
And carbon capture and.
And we can dial between the amount of blue hydrogen and previews and the electricity we produce.
You remember our old.
Technology flow diagram from the hydrogen analysis that we showed you.
Coming out of our system, we can separate out the hydrogen and carbon dioxide and you can eat the send the hydrogen and back into the fuel cell to produce electricity.
We can supply that hydrogen.
For hard to Decarbonize industrial uses.
Which becomes the premium product.
So being able to work.
And.
2500 megawatt chunks.
There we can produce.
Tri generation, if you want to think about it that way of <unk>.
Electricity hydrogen and carbon dioxide together. So this is the technology, that's being rapidly debt will look in the lab working on it and I think given what you've seen in the federal government and the interest and seeing all of the about the Decarbonize the technology.
And I'm very bullish about it.
Did you understand the ability to come by and carbon capture and hydrogen.
That makes sense and and the ability to sort of toggle and flex makes makes sense and and I guess I would've thought the the the.
The energy sector broadly would be would be highly interested and this and this product and interest in and rollout of that is that fair to say that there is interest and the energy sector for this.
There is interest and the energy sector for this and the or we are building our <unk>.
A lot of demonstrations and.
And again.
Working very hard to demonstrate it and the beauty that our system debt again I want to emphasize.
Unlike many technologies that you develop and the lab and small scale.
But when you scale. It you have scaling issues because of the modular architecture that we have.
We can build this add ons to the platform.
And demonstrated at the power module level and the scaling is not the scaling issue for us.
Unlike anybody else. So that's one of the advantage.
And the second advantage here.
And also.
And while we are focused on C. O. Two let's also remember that this is the only technology that does not bring about the air pollution and does not require water and does not need that big land deals you need and.
And some other cases and easy to permit you put those things together it becomes a very compelling value proposition.
That makes sense and then maybe just for my other area of focus EV charging and this I guess care links to the power density point, you raised and I think it's a.
It's an important point debt.
As we think about fast charging it is challenging for utilities to.
Put in place the infrastructure needed for for very high voltage very fast charging so I see the potential advantage here of of what you offer could you just maybe speak a little bit more to the the path to the sales for this and sort of how.
And how you might approach the set and just kind of curious everything from.
But likely types of customers to sort.
<unk> or just other sort of qualifications needed to sort of heavier product be a viable option here for fast charging.
Sure.
So there are three of four things that I wanted to talk about and for people to appreciate the time.
Sure.
But for everyone to understand right just imagine.
Significant double digit adoption of electric vehicles happening very soon and you don't have to imagine it's going to happen right. So when you see this happened and metro areas.
Yes every family has an electric car and they need to charge.
The increase in the amount of electricity needed and any one Zip code.
It's going to be so large that that last mile transmission and distribution upgrades that needs to happen and imagine having fleets of vehicles, whether it is delivering vehicles their house vehicles all of those things.
They had a fleet of vehicles that needs to be charged that of bus depots that need to get charged school buses that need to get charged.
Significant amount of power that needs to come in.
And that now pauses and very good option for the utility to consider and.
And going to invest and transmission distribution and last mile issue the very difficult Department.
Or do I want to put resilient power right that I can charge and the efficiency of not having the transmission and distribution losses.
The efficiency of not converting.
Power from DC to AC and then back to D. C to charge the vehicle to get that high voltage radically and needed to not create instability and the glut.
It's a huge advantage. So the question you asked there is with all of these advantages who has an idea of customer that's of great question and it could be depending on the locations and.
And depending on the customers it could be very different in many places I would imagine the utility would want to own that asset and be able to provide that power and rate base. It because they can defer T&D cost and it is the it's a win win for the customer and the utility.
And for the local Lithia and.
And some other cases it could be the fleet vehicle owners.
And that want to offer not only of the fleet vehicles, but also the charging episodes and in that case it will be the fleet on the that'll be.
And that'll be the customer and some cases it could be the large corporations that own. These the.
It is similar to them buying the PPA electricity from US would also want us to be part of it and and some of the case that it could be the charging infrastructure of people.
And that would want to not only provide the charging infrastructure, but also have the generation. So they can avoid the demand charges and standby charges that come from and.
So it could be all of the of all.
That's really helpful. Thanks, so much.
Your next question comes from the line of Michael Weinstein from Credit Suisse. Your line is open.
Hi, guys.
Hey al.
And in the past.
And limiting the backlog updates to once a year and I think thats.
And because of the Lumpiness of bookings over the course over the course of the year it could make it a highly volatile.
Stick to the.
The updating but I wonder if if and this case of this year, maybe it might make sense of maybe a midyear update on it just just to you know I mean, you've said it you extent of pretty good year for bookings this year and.
And I do you know you're going to get asked a lot about this for the rest.
And next year or so.
Yeah, Yeah, Hey, Michael it's Greg So so listen and.
We went through and got a lot of feedback, especially around the analyst day and what the expectation was for.
Some folks and and how they think about it and and overwhelming for sure no. One was encouraging us for every quarter to put that out just because of the volatility some of our large bookings and the distraction that may create from our operating performance.
I think though going forward rather than may be doing of quarterly or even semi annually.
What I'll endeavor to do is similar to how we're approaching our total year framework and.
Not providing specific guidance on each quarter I think theres insight that we can give on each one of these calls and how we're doing.
Without providing you the number of right are we making progress are we seeing activity internationally or are we getting into the additional states that we thought we would are we getting interest there that releasing leading to bookings and are we establishing the partnerships who want so feedback well taken and going forward I'll take it on personally to make sure I'm, providing some transparency on that even if we.
Even if we don't publish the number.
Great and also on service profitability I think you mentioned it might it will be coming in earlier than expected is that this year you think by the end of the series that you can be profitable and our run rate <unk> by the end of the year. Yeah. Yeah. Yeah. So we are Glenn and the team there is done an amazing job of positioning that business both in driving.
Cost out.
Of the of the individual power modules as well as the cost to provide service. The backlog continues to grow or the installed base continues to grow and we fully expect that business to be profitable for the total year 2021, and and top of that we expect our revenues to grow in line with.
With the installed base and to maintain that profitability in the go forward basis, So and Youll remember that that was of business that from a profitability standpoint struggled.
And incurred some big losses, and the past so we feel like we've turned the page on that business and we're really encouraged to see that to be a contributor to our gross margins and the net positive to our operating income.
Michael.
My other line Michael.
And let me at the language.
What what the heck, yes, that's right.
Ever since the first time.
Thank you.
You know you were asking the questions. This was one of the big concerns and the industry and for all of you right.
On service and.
And what does this mean for out of long term contracts and things like that so the key playing debt, Greg made and I will emphasize the game.
And the vivo breakeven and get the profitability this year, but every year, we expect net margin to grow and this is going to be humans.
Good.
Annuity business for Us and this is what we believe and this is what he built the infrastructure of far and.
And of the.
And can see and clear pathway for that.
When do you think youll get to the 20% gross margins I think of as the original goal and yeah.
Yeah. So so we're pricing at the today so those deals go in.
And as we continue to mix and as well as his continued to take the costs down and our current contracts it'll move towards profitability I wouldn't commit to you. It's not of 21 and it's not of 'twenty two as we forecast it out it's probably more and the 23 range till we get till we get to that level of profitability maybe.
<unk> 'twenty for on the outset, but we will definitely be profitable and will move up to that that 20% as we continue to price at that level and book new deals of that level.
And again the key point here as the contracts for me of writing today over the life of the contract and there'll be there'll be at that or better margins and expect the expected alright.
Okay.
And the other question could you do you think we will see of cash flow positive situation for 'twenty, and 'twenty ones and especially since no safe harbor purchases are going to be needed.
Yeah. So we've spent a lot of the time on that metric and I tried to give you. The the context, how I see it is it is a new metric for us to forecast, we've obviously been publishing our CFO and CFO way and investing and financing components for a long time, but as we forecast that that number it is not.
Not the easiest number to forecast it has a bunch of different variables across the business that I'll come into that I would agree with your debt not having the ITC and the safe Harbor its the $22 million that we invested in in 'twenty. One and then there was probably that number and again some of that was originally and our 'twenty one plan.
Those should be good tailwind I wanted to get through a quarter or two on it but we are targeting and I'm being cash flow positive.
And we are much more confident and are approaching positive and im hopeful that I can update that outlook for folks and the quarter or two as we just get some more operating experience under our belt, if that makes sense, but I would agree with you based on based on the changes day of ITC based on the improvements that we expect and our EBITDA based on the reductions and our.
Debt service costs, all of those are big tailwind to getting us from being a cash user to a cash provider.
Got it Hey, one more question just to get it and the record what's the service life of off of of Gen. Five module now and where do you think 75 is going to come in at.
Yes, so I'll give you I'll give you a five so there's a little bit theres always the.
We're observing versus what we're seeing so from the things that are out and the field better at that median life. They are observed now right at about the five year, if not a little above that the ones that we're forecasting for the five of those that have gone out last year as well as will go out this year are well over well over five and a half.
And continuing to push forward our expectation as we rollout Gen. Gen. Seven five is that we'll continue to extend that life towards <unk>.
Towards six years as we get more.
Experience and operational capability and our manufacturing, but our goal is to be moving towards that six year life.
Great. Thank you very much.
Your next question comes from the line of of Paul Coster from Jpmorgan. Your line is open.
Thanks, very much and thanks for took.
And my question.
So it sounds like you are growing at the pace at which you are investing in capacity this year.
Is that the true statement all of you since you're leaving money on the table or is it could you be growing faster.
What is the growth rate that you think the market can support.
Yeah, It's a great question Paul.
And now that we've got the balance sheet and a place and given us a lot more flexibility. We're very happy that we've secured this manufacturing space for our stack stack manufacturing, we're going to put our first line in for 200 megawatts. There's 160000 square feet. There we can put three lines in place and it's relatively.
Capital efficient so for the $50 to 75 that we put in for another $150 million, we could get to and get to a total of 600 megawatts of bad of fuel cells.
Capacity and that will get us towards two gigawatts of Electrolyzed of capacity. So I don't think that for the for our current.
The list of orders and where were at that we are limiting.
And our acceptance is based on our manufacturing capacity, but it is my full expectation that I will be back to KAR and the board.
On the time through the course of the year and timing when we add that additional capacity. So we don't run into that situation.
Is it conceivable that you could do upside to 'twenty and 'twenty, one revenues or is it just equally you've locked in now.
I think Paul we've got we've got the space, we're putting in and plays we've ordered the long lead items, but they are really not going to be fully operationalized towards the backend of the year. So we are a bit limited on that.
But as you start to move into 'twenty, one and we build the order book like we expect.
And that capacity will come online and support growth that year.
Got it Okay, and then just a little bit on the international markets, which of those two Mr. Pause because so much of his career.
And then the levels for the moment, but you've talked of other parts of Asia and you go to the team now and it's focused on it and.
And you have mentioned Europe true, which is C has to be a hotbed of hydrogen.
Can you just give us some sense of what's happening where you think your best prospects or are you going to build it and then they will come or you're going to flow your cost of the moves into the markets.
It's a little bit of of a little different strategy, depending upon the geography, you're in and I was on the phone. This morning at seven and bright and early with the CS Muhammed for extended team. He's done a really good job of finding some industry expertise and market, especially in Europe.
For some people that can help it buys as we look for partners to build out as you know Paul of the amount of euros that are being invested the especially in Europe, especially around hydrogen.
As well it is a huge opportunity around around our electrolyze are but we think theres opportunities for our fuel cell technology, there as well maybe not maybe not everywhere, where there is there is strong resiliency and the grid, but theres definitely opportunities for it. So I think as you think about Europe. The countries that you think about all of our.
The ones you would expect us to be working on the France is the Germany, Italy, Spain, the U k's and.
And we're putting resources on ground there to begin to engage I think the middle East is incredibly attractive and I think parts of Asia are attractive as well so I'm very hopeful that the resources that has eased and building out, we'll we'll be bringing opportunities for us and I would expect you to be hearing about those over the course of the year I think it's I think it's a huge.
Opportunity.
And just on the launch.
Sure.
While this character of add to the two questions that you asked.
They are the right questions you should be asking us and I think we've made it very clear until we figure it out of balance sheet and stabilize NAV.
Italy.
Dealer prudent and the use of our cash and we made sure that the sweated at much of the assets that we had already invested in and the factory and got the maximum out of it.
Peter do you start product cost heavily.
And the future.
And both of that and as soon as the circular that starting in Q4.
We have green lighted the.
Factory expansion as.
And I love to ask you are seeing very visibly look the money into the market expansion and.
And this is the long lead market expansion so expect.
Starting this year to see expansion both of the 50 United States.
Well of international.
Got it and my last question and as you've seen one of your competitors and it's really sort of dose gold every opportunity that's coming along of any scale the.
The grabbing and the.
And I'm afraid of entering into joint venture partnerships and excepting the policy cash to scale fast and no <unk>.
Could easily build another.
$50 million to $75 million to build the.
The the capacity and this big chunk and then you could easily.
Double or triple and quadruple your capacity with the help of policies in other regions is this a strategy that you're open to or is the I mean.
To be the embodiment of.
And the space at the moment.
The stand and look what youll.
<unk>.
Look I don't think given that the.
We went out.
And our <unk>.
And the restaurant base.
The management team our leadership of our employees for <unk>.
10 years worked on the technology that nobody could make happen and other ideas.
And said, we know how to do it I don't think anybody can question and then.
And we have the appetite for risk.
We have the appetite for risk and we take the most prudent risks that we need to take out here.
The thing the market opportunity is so large.
It's not the first person who comes to the market and perhaps something up there. This is the transformation of and the energy and to see the multi trillion.
And the fact pleasingly of building unlike what other people do.
Our flexible to.
And to build fuel cells.
And to use any kind of yield.
To be able to do of carbon capture.
The either produce hydrogen for the automotive market, our electricity for the automotive market.
If you look at transportation the color of both ends of it if you look at electricity generation and he can do it at small utility scale of carbon capture and he can do it right at the site for resilience. If you look at industrial heat being the place by electricity Zika and electrify. So we have the Villa building factory.
The <unk> platform that we don't have to wait for the market one market to develop within the time or not highlight of capacity. We can use debt capacity for all of these of the thesis.
So of do you think the building a very prudent.
The approach to how we build for the future.
And the B.
We are marching to that and very comfortable with it.
Greg pointed out now that we are focusing on the top line.
We are going to make sure that we're not going to leave money on the table to answer your question earlier.
And then when the when the opportunity of that but we wanted to be prudent about watching than the market.
As opposed to what people think it will develop into.
Yeah.
Got you. Thank you.
Very helpful. Thanks, Paul.
Your next question comes from the line of Colin Rus from Oppenheimer. Your line is open.
Thanks, So much guys can you give us a sense of how much of the backlog and your expected 2021 revenue is coming from the international markets.
Yeah.
And it's on the backlog, it's hard because they all price net price and the acceptance timeframe is different and I think the way I'd answer we broke out how our revenues are today kind of internationally.
On that percentages.
I would say going into next year.
The total year will look very similar to what the total year this year and looked like on it I would say early in the year of my expectation is there are some large deals that will get shipped.
That debt ratio, maybe a little bit tilted internationally, but as we go through the course of the year and <unk>.
Complete some of our U S installations based on their size I would expect to get very close back to back to the ratio we had for this year.
Okay. Thanks, and then from a project level of capital perspective can you give us a sense of where <unk>.
Capital is pricing out.
You know and and what Youre doing with kind of the available pricing power that that enables it seems to me and with interest rates, where they're at right now there's an awful lot of kids and in terms of the pricing model.
Yeah. So we're in that process now.
Working with a couple of providers on it we definitely expect it to price inside of where it's been traditionally that's partly driven by by some of the some of the improvements and our own credit outlook as well as they continue to work with with new providers provide debt capital I'd tell you that the biggest issue remains not the quantity of.
The capital the biggest issue and the marketplace remains the attacks.
Tax capacity that's there so while we were all very encouraged to see ITC extended and I understand there is some bills I hope that would not only but extend and increase the most hope that I would ask from our friends, who are and decision, making places was to help us create the capacity on that we're doing very well.
<unk> and our processes, we go through it but it's an effort.
To make sure that we are securing that for the behalf of our of our customers and given the amount of capital that's out there.
Bringing in more tax capacity would definitely make for the for the <unk>.
Whole industry make it easier.
Okay. Thanks, so much guys.
Your next question comes from the line of Noel Parks from Tuohy Brothers. Your line is open.
Good afternoon.
Okay.
Just a couple of things.
As you are in the process of making the transition from the the Bloom five point of outages of 75.
Modules.
Just curious could you just sort of talk about.
A little more about.
How the the manufacturing transition happens and I know you said that the five.
And <unk> Plano.
Williams would probably be relatively unchanged, while you ramp up to seven five and I was just curious as.
And as far as actual implementation of the seven fives do you.
Does it make a difference or are there advantages to rolling them out.
Upgrades and place to existing.
Installations versus.
Going to a brand new installation just with all of the seven five.
Yeah. So no. It's of Great question, So how were operationalized and manufacturing of $7 five of that as part of the new facilities that we're securing and in.
And yeah. So we are tooling that all of the tools, we're buying or are specific to the $7. Five we're doing it in a way in which we're not going to just dropped five day at all because it's a great. It's a great product, we continue to find ways to take cost out of it.
And it does what we need but we will operationalize seven dark fiber and once we figure out.
All of the process of that we will we can expand from one line to two and ultimately the three lines.
That space within the plan is we've always are backward compatible and everything around our different rollouts of our technologies and for the most part.
And I'd say for the complete part.
Our customers are indifferent.
And which technology that we ship.
So it'll be for US then we can continue to supply the five and $7. Five comes on we'll begin bringing that into our into our installation process and that'll be really just part of our new installations and start with and at some point that will be the predominant.
The predominant technology out there and that'll be part of our replacement power modules that we'll bring into the fleet as part of our as part of our service offerings.
Yeah.
Great. Thanks for for that clarification, and just to touch.
Again, a little bit more on international expansion, you've talked about having.
Good success and <unk>.
Hiring.
And with your your new International Biz, Dev, she's having come on and and.
Any thoughts as far as.
What that might mean for <unk>.
The sales cycles and I'm sure it wouldn't move the needle on the full company's numbers, but but also.
Is there a point that where we're gonna be seeing.
The.
Pretty distinctive ramp up and sales and marketing expenses.
And maybe in advance of of realizing the revenues from the new partnerships and so forth.
And hopefully you saw we included the page I didn't reference it and in my comments, but it was posted on we've we're making investments not only to our R&D and our technology, but to our sales and marketing team and it is.
As part of the late and as part of what we lay out our financial model here, we're going to improve our gross margins each year to get to get to the from the 25% to 30% like we laid out at analyst day, we're going to increase our.
Our investment and that will show up as expense not only in R&D, but in our sales and marketing and part of that a big part of that will be building out our presence internationally and I think the right model. The have will be won through partners.
What we use with SK and South Korea. So that team is focused on finding partners for us to distribute our products through.
And I wouldn't expect to build out of direct sales force internationally, but they will there'll be and these are very senior people that are very steeped in their geographies and there.
And can be very helpful to us to not only make introductions, but to build the types of partnerships that we're going to need.
Great. Thanks, a lot.
Thanks, Paul.
Your next question comes from the line of Ben <unk> from Baird. Your line is open.
Hey, guys.
Great job.
Just a question.
S K, because I get it from the investors.
I'm trying to differentiate between the difference between what Youre doing with debt and what plug is doing with them and the investment.
And then just the.
Second question.
My new share with the seal to us or is there another revenue stream and you can get from capturing the right.
And like brakes or or or soda for something like that.
Or what do you do with Sue and capture.
Sure So Ben.
Let me answer the question and I'll keep it fairly short because we are running overtime and.
So the first question on SK look they are a large Korean conglomerate and they were in the energy before they formed the partnership with us and they have many lines so that the energy business.
And each one of those business units operate that the independent independent businesses.
<unk> seen the at home we have the partnership is different from SK, E&S plug and signed the deal with and.
And the the.
SK E&C working on stationary power generation utility scale.
And Korea, and also with advertisers and the electrolyte and hydrogen fuel cells.
And that relationship is strong and going forward very well.
Of the yet not exclusive to them, they're not exclusive to us and but it's a very strong partnership and.
And the fact that they are signing up other deals shows that the AD.
And can they come with it because of its energy transformation and many of the A&D is like the automotive there.
And he does not play for us and they need other other players and partners.
The aspect to C O two.
That is the 45 Q.
The federal subsidy that.
Our understanding is that administration, and that's going to improve upon per caps and carbon.
And that carbon being provided for news and so many industrial cases.
Definitely and application.
And definitely for the early applications of the year to capture and it'll be there, but once here to capture and becomes ubiquitous the amount of CEO to generate out of the very large and at that point in time, and you would have to sequestration and rather than just utilize it but and the early days for at least the few years there'll be lots of users for that carbon dioxide.
To be utilized and the industrial processes.
Thank you very much.
We have time for one last question. Your final question comes from the line of part of our Mulch and <unk> from Raymond James Your line is open.
And thanks for taking the question.
I have just one.
One of kind of high level.
Cost of capital.
We see in across the clean Tech is extremely low.
You have moved away from the Bloom electrons model many years ago, but I'm wondering would there be any appetite for reviving the recurring revenue nature of the business in terms of leasing out assets on your own balance sheet.
And it's good to hear you and is it the next day capital person, Nevada under $1 billion balance sheet of leasing and his last job, but it's definitely something we think about this and I think as we prioritize our capital today, where we really wanted to make sure. We're using it is for investing in our Manny.
Factoring capacity and investing and our technology and investing in our brand and product management I think there'll probably be a few areas, especially where we can't find sources of capital at a competitive basis, then I'd be willing to use some of our own balance sheet there.
To help facilitate maybe of new technology or new application, but for the most part given the amount of capital that's out there and where there's great expertise on that I'll leave it for there are cost of capital.
It wouldn't be one and which would look attractive given where other providers would be and the space and if anything what we're finding is we lineup with with some of our future providers as they can take on some of the operating complexity that we've had here right and we've had our teams that had been built over time to help build <unk>.
Aren't structures and things for our customers and makes us to find people, who we can we can leverage the partnerships do that and me to take that talent and work with them to reply to apply them on some other opportunities and we have the and the companies. So short way of saying it is not something I don't think about a especially.
Especially given my background, but I think given given our priorities, we're going to focus on growing the business from there and leave the the leverage to people who have it.
Thanks, very much thanks Bill.
That concludes Q&A for today I'll now turn the call to CEO cares for Dar for closing remarks.
Thank you very much I know that and running.
All the time, so I'll keep this very short.
Two of our employees to all our stakeholders, who helped the 'twenty and 'twenty into it some of this year the entre the challenging circumstances.
And I say, thank you and to our shareholders. Thank you for your continued support if you just look at where we are at the company.
And so much stronger today.
And any place.
The commercial customers are buying electricity.
For nine cents of Ohio and.
And you can economically compete with them.
Think about the strength of the adviser proposition.
The Brazilian power you don't have to worry about Nashville disastrous we don't have to worry about since the cost of electricity coming from the grid.
The worry of our sustainability because of the of future Proofing you you can start with natural gas you can go to the biogas.
So you can use hydrogen.
You can.
If you electrify your vehicles.
For the best option for them.
That combined value proposition.
And not pulling the thing the air.
Knock using water.
Having electricity, where you need it so you can control the other electricity does too.
Means that with the existing customers and new customers.
And we can at least approach and majority of the 48 and that states the contiguous United States today.
And that.
Yes.
In addition to that what are you doing internationally of Cisco.
And we looked at 'twenty and 'twenty one.
We are excited to be building more capacity.
Excited for out of topline growth and.
And optimistic that and you will have a great here and the great future going forward.
Streaming and well positioned and couldnt be more thrilled with the momentum of your experiencing thank you very much.
Thank you everybody for joining today that concludes today's conference call you may now disconnect.
And then.
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Yes.
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