Q1 2021 Bloom Energy Corp Earnings Call
Good afternoon, and welcome to the Bloom energy first quarter 2021 earnings call. At this time, all participants are in a listen only mode.
Later, we will conduct a question and answer session and instructions will follow at that time.
And a reminder, this conference call is being recorded.
And not like to turn the conference over to Suzanne with Investor Relations. Please go ahead.
Thank you operator, good afternoon, everyone and thank you for joining us on Bloom energy first quarter 2021 earnings conference call to supplement this conference call. We have furnished our Q1 2021 earnings press release with the SEC on form 8-K and have posted it along with supplemental financial information.
And then 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 our future financial performance.
These include statements about the company's business results products strategy financial position liquidity and outlook.
These statements are subject to risks and uncertainties as discussed in detail in our documents filed with the SEC from time to time, specifically the most recent reports on form 10-K for the year ended December 31, 'twenty, and 'twenty, which identifies important risk factors that could be.
Cause actual results to differ materially from those contained in the forward looking statements.
We assume no obligation to revise any forward looking statements made on today's call.
During this call and in our Q1 2021 earnings press release.
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.
A reconciliation between the GAAP and non-GAAP financial measures is included in our Q1 2021 earnings press release available on our Investor Relations website.
Joining me on the call today are K R Street, our founder Chairman and Chief Executive Officer.
Cheryl and Moore, Chief Marketing Officer, and Greg Cameron Chief Financial Officer.
K R will begin with an overview of business highlights and the quarter.
Cheryl and will then provide an update on bloom roadmap and Greg will review, the operating and financial highlights for quarter.
After the prepared remarks, they will take questions.
I'd also like to note that we're 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 thank you very much for joining us on this call.
Bloom since our prayers and well wishes to the people of India.
The safety of our employees and supply chain partners in India.
It's a very high priority for us.
And we are delivering equipment that will enable hospitals and medical professionals to provide oxygen to more patients.
I'm proud of the Bloom team, which has continued to exhibit ingenuity and community spirit.
No.
For the company themselves.
We had a strong first quarter and are reaffirming our previously stated annual guidance on.
Revenue is up almost 24% compared to the same period last year.
Our gross margin is approaching 13% almost 13 percentage point improvement year over year.
You will share more detail on the corner from Greg shortly.
Our team has proven its operational excellence by executing on the ambitious roadmap, we laid out two years ago.
And the run up to our IPO.
Here are a few highlights.
It almost doubled our annual acceptance rate since 2018.
From 2017 to 2020 revenue has increased at a keg or of almost 30%.
Since 2018, we have reduced our product cost by over 30%.
During the same period, we have reduced our product price by almost 20% to lower the delivered cost of electricity and enabled gross.
While increasing our non-GAAP product margin from about 28% to 38%.
Our service business.
Which lost $17 million in 2018 is now profitable.
We achieved these operational and milestones while investing in innovation and extending our core platform to address multiple market adjacencies.
Our labors for additional growth.
Based on our confidence in the growth of our core business alone.
We are doubling our manufacturing capacity.
From 200 megawatts to 400 megawatts per year.
This expansion.
It simplifies multiple compelling competitive advantages.
Unique to Bloom.
One.
We can stand up a copy exact manufacturing line in about a year.
For our capital investment, which will payback in less than a year.
True.
Our manufacturing lines can build both our current core product.
And our future growth products.
And as hydrogen and electrolyte Earth Marine power.
And carbon capture enabled system.
Three.
This enables us to practice flexible manufacturing and dynamically adjust to market demand.
This flexibility is a huge asset.
And in industry undergoing transformation.
It will enable us to be at the forefront of innovation with.
With the Optionality to manufacture one gigawatt of hybrids and electric licenses.
However.
We can utilize our expanded factory.
Build our current product should the hydrogen economy be slow to take hold.
In contrast to companies building factories.
Only capable of producing hydrogen and the like for likes it.
V at Bloom are not exposed to the downside risk of idle factories and associated expenses.
In order to carry forward, our business momentum with utmost focus on our core competencies of.
Hologic innovation operational excellence and customer service.
We are actively engaging partners.
Assume full responsibility for installation.
This quarter provides for good window into how the shift will enable us to Delaware better margin.
Greg will discuss this in more detail.
No.
Let us focus on bloom through in the energy industry, which is undergoing seismic transformation.
Two day cut.
Customers are demanding that the energy solution our cost predictable.
Resilient.
And clean.
Unlike the power grid.
Which is growing more expensive and less reliable.
Bloom offers companies unprecedented reliability.
And a predictable price.
Companies are learning.
That resilience is imperative.
So for losing power is catastrophic.
And yes.
It is very worthwhile to pay for resiliency.
And a digitally the lion quote.
Which cannot operate without electricity our product is not on luxury.
It is a necessity.
Regulators.
Investors customers and.
Employee and citizen.
Our demanding that their companies and governments and protect the environment.
Bloom energy solution on.
Offers power.
That is cleaner than.
Any other always on source of distributed energy.
And we offer it.
Clear pack to affordable zero carbon power generation.
And this and fueling energy transformation.
We are both the bridge.
And the destination.
Indeed.
We are the only solution.
And that all for everything that customers are looking for today.
Cost predictability.
Lillian and environmental sustainability.
It is little Wonder then.
That we see opportunities to unlock many new markets.
To do that.
We plan to form strategic alliances.
Emulating our successful model and South Korea.
Two day.
We are excited to announce.
And important collaboration.
And with Baker Hughes.
He will work together to build micro grid for our many clients.
Who demand regularly and to power.
Baker Hughes.
And also collaborate with us to.
To develop and deploy integrated carbon capture and hydrogen solutions.
The announcement today.
With others to soon follow.
Combined with our market expansion enabled by our cost reduction.
Should facilitate high growth.
I want to note that our current factory expansion plans are based on the demand we are anticipating through expansion of our core business in the U S and internationally.
It is also based on the changing business behavior, we see now.
Influenced by power disruptions.
S T pressures.
And policy pronouncements.
But.
There is a tremendous potential for additional growth.
In Europe and Asia.
Policymakers are advocating for investments and incentive and clean energy.
The infrastructure Bill and the U S.
Will catalyze demand for clean and resilient power.
At a scale never seen before.
Our financial forecast.
Do not account for potential benefits from these tailwind.
But we have strong policy and global business development team in place and well positioned.
To seize these opportunities.
Finally on.
I'm very encouraged by the progress, we're making on our growth levers.
I'd like to invite Sherlin more.
Our chief marketing officer to provide more detail.
Sure Linda.
Thank you K R and you're right for today's announcement with Baker Hughes is a great example, on how Bloom energy is executing to plan with tangible progress and increasing list.
She took relationships and collaboration Baker.
Baker Hughes is the most recent strategic announcement for.
And for more.
And first of all other products and capabilities are we know that the energy transformation is a multi trillion dollar effort and it's going to require a large ecosystem that works synergistically over the next few decades.
Multifaceted energy industry has several players and specialize in industry and customer segments and know the needs of their segment well and.
And it's why obtaining key strategic partnerships agreements and collaboration are critical to our strategy.
He has stayed as it perfectly and the joint press release today.
<unk> connect zero carbon emission.
Include partnerships and collaboration we Couldnt agree more.
Now I would like to take a step back and provide a broader perspective of bloom energy strategic approach and how we are positioned to win now and for the long term.
And energy has one primary platform with the for being our solid oxide energy server. This remarkable technology has been proven and the field and it is commercially successful.
And he has been focused on ensuring we meet the needs and our customers with resilient and 24 seven always on.
On power and as we've discussed previously and might have on ongoing cost reductions. We are now expanding into more U S States and have recently announced the appointment and international leadership and strengthen our global expansion efforts.
A couple of this expansion with an increasing need for resiliency due to extreme weather events and the fact that we require hardly any water and do not admit any harmful air particulates.
We are saying and market increase and give me here.
And <unk>.
Pierre mentioned earlier, regardless of the NDA and our Bloom energy servers, and engineering sourcing and manufacturing all use the same existing infrastructure.
And also means that discoveries are cross down and one.
And can be quickly applied across the platform benefiting multiple product lines and a cost efficient manner.
Each of our five levers of growth marine carbon capture biogas hydrogen fuel cell and electric libraries are rooted in this breakthrough technological platform, which speed product development and deployment.
For full appreciation of Bloom energy revenue trajectory, we need to view the gross levers not simply as expansion into different vertical but also as a marking interrelated total addressable market is enormous site.
The success of each initiative opens new and used it and perfect for technology.
Directing our solutions too unforgiving real world conditions.
For every hour our products are and you. There is knowledge gained that is transferrable across the entire platform, thereby fueling additional ground growth and experience expertise and relationships and revenues with corresponding cash flow used to invest in R&D and manufacturing achieving economies.
Scale.
We continue to make significant progress on our anticipated business roadmap and.
I would like to now share some important updates on the milestones that have been achieved as well as the application of each of our gross levers and the sizable total available market each and use our marks for the sake of time I won't discuss the installation of the technology from each segment now, but we can address that and the Q&A.
Marine first lets discuss marine fuel cell powered ships will help realize our shared vision and a more sustainable eco friendly marine shipping industry.
Virtually eliminate harmful air pollution, including sulfur dioxide nitrogen dioxide and particulate matter and this.
And this can be achieved with only negligible methane slip and we'll accomplish sharply reduce C O two emissions.
Superior energy efficiency will also reduce fuel consumption.
And the modularity biofuels sell on the flexibility of ship design and increases power reliability.
Each design win and opened a new addressable market from cargo vessels of all sizes to cruise ships.
And as the underlying technology. The same we can quickly expand unpack hanger wins.
As most of you know we have previously announced a joint development agreement with Samsung heavy industries, with whom we're working with to realize the potential I feel felt powered shipping.
And the certification process of marine fuel cells requires the new technologies be subjected to rigorous testing under a variety of operating scenarios to ensure that the products can withstand harsh.
Conditions.
Vacation societies like the American Bureau, and shipping or ABS require a series of tests, such as telephone and vibration test.
To be granted and N T Q new technology qualification.
We have dedicated engineering and product teams, who are readying our for yourselves for use on ships and we have pulled and naval architects and Marine engineering firm for ship to collaborate on engineering aspects specific to the marine environment.
Following extensive testing on land.
Ladies and the Ocean environment.
We'll complete the final testing phase, which is and on water and demonstration expected to begin in 2022.
Thereafter, we will be able to present, our designs for customers the testing and marine fuel cells is well underway and we will update you as additional milestones are achieved.
While we were ready and our technology for the fee, we are engaging with other partners as well.
With the goal of forging additional relationships that will help accelerate our deployment and shipping and as soon as possible.
See marine as a significant opportunity with an estimated addressable market of 165 billion.
Now on to carbon capture our cash.
And capture technology is unique.
And what's out hydrogen and carbon dioxide and such.
We extract and carbon from the emissions of natural gas power and fuel cells.
This allows our customers to deliver carbon neutral generation utilizing abundant natural gas or even carbon negative generation with biogas. This can be helpful. During the energy transition.
Carbon capture is a natural complement to our solid oxide technology. This.
And this technology completely changes the profile of industrial organizations with a heavy carbon footprint and <unk>.
<unk> will save time money and regulatory compliance and the planet.
Rather than emitting greenhouse gases.
<unk> will be and near pure stream of C O, two which can be utilized or geologically sequestered.
This additional capability allow us to further differentiate our core micro grid.
And continuous power offering we are having positive discussions with potential customers and are getting strong feedback on this add on option.
Next up is biogas or biogas technology is the pit and music suppression, turning and negative into a positive.
Methane emissions cause from livestock, many on and landfill it accounts for 44% and daily carbon released into the atmosphere and the United States.
By working collaboratively with industry partners, such as Cal bio our technology harnesses harmful greenhouse gases and converse central renewable carbon neutral baseload with 20% and availability.
Our platform is designed to utilize any source of biogas, including the dirtiest sources from landfills and wastewater treatment facilities.
We offer and end to end solution for gas conditioning power generation and interconnection services.
The dress the low market is estimated at $140 billion and essentially includes every livestock farm landfill and wastewater treatment facility on the planet of course, no single company would have the production capacity to serve the entire market, but the sheer size should help you gauge the value of the opportunity.
During our 2020 analyst day, we provided a slide that showed our anticipated business roadmap for all of our gross levers and the progression segmented into phases manufacturing demos and demonstration projects first commercialization and finally production ramp.
The progression and biogas follows the same road map and our work with various partners and customers continue.
Now I'd like to take a moment to discuss our hydrogen fuel cells, which one on pure hydrogen and provide 24, seven and always on power without harmful emissions.
Hydrogen fuel cells offer superior efficiency compared to other fuel cell technology and they leverage the same core platform technology that has decades of experience and testing behind it.
Climate experts and governments across the globe increasingly recognize hydrogen as an essential tool for full de carbonization.
Although hydrogen has been identified for decades, and the clean alternative and commercially viable technology did not exist until now as you saw on our recent announcements we have successfully deployed on schedule and 100 kilowatts, a fully operational solid oxide fuel cell powered solely by <unk>.
Hydrogen and South Korea, generating zero carbon on site electricity.
Our development Road map has our first commercial project shipping later this year 600 kilowatt followed by an additional one two megawatts that will ship in 2020, two and support of South Korea's Chengguan Rd 100, a global renewable energy initiative led by the climate group to accelerate.
And the move towards zero carbon electricity grids and.
Announced in November 2020, Bloom energy and SK E&C, when a competitive bid for the Chengguan, our eight 100 to supply Bloom energy hydrogen powered fuel cells, and electrolyze theirs and industrial complex, our full commercial ramp will occur in 2020 three.
Given the progress we've made to date, we remain confident that we are on track.
I opened my comments by stating that our all of our gross levers are rooted in the same breakthrough technological platform.
Volatile oxide Electra Liza is a perfect example is and efficient way to create hydrogen to produce clean fuel for carbon free power generation injections for natural gas pipeline or for use and industrial processes.
Bloom energy electric wiser requires less electricity.
Eight hydrogen than alternative Electra laser technologies, thereby offering superior efficiency.
Green hydrogen has tremendous promise as a carbon neutral energy solution, we can produce green hydrogen when utilizing electricity from excess renewable.
This technology is highly flexible and its applications. It can be employed to create hydrogen for multiple generation sources, allowing us to adapt to whatever the macro fuel environment is.
Finally, our announcement with Baker Hughes is yet. Another example of what a powerful strategic partnership for meal by coupling Baker Hughes compressor technology with Bloom energy Electrolyze their technology, we can commercialize and deploy integrated power generation and hydrogen cushion to decarbonize the energy.
And industrial sectors around the globe.
We are excited about our clean hydrogen offerings and our growing list of strategic relationships, which will enable us to capture a portion of the 300 billion addressable hydrogen market.
Bloom energy will hold a hydrogen and focused investor event, and the near future, which we expect to provide further updates on our progress and discuss details are forthcoming demonstration projects.
Information for that event will be shared very soon.
In conclusion, we continue to execute successfully against our business roadmap and expected new application and we are well positioned to meet increasing demand for clean renewable energy across industry, we've created multiple paths to deploy environmentally friendly energy solutions.
That are commercially viable.
Each development path has its own challenges and opportunities, but they are not entirely independent because they were supported by the same underlying platform <unk>.
Research dollar spend and lessons learned on each development cash benefit the entire system and.
And we are in the market engaging with partners and customers for that as these markets develop and mature we are in front of the demand curve and not behind it.
Thank you I will now turn it over to Greg for further update.
Thank you Cherilyn, it's great you were able to share the progress at the engineering product management and commercial teams are making on our growth initiatives.
This work is positioning bloom for our future growth and most folks don't have the opportunity to see the advancement. The teams are making across these initiatives.
Also for point to you and pay on both made about what's unique to the bloom technology and its flexibility to address multiple market opportunities by leveraging the same platform. It's important not only and our time to market, but also the flexibility of our investments are energy server can support our expansion initiatives with minimal customer.
<unk>.
Sure our server will be optimized for each application, but its the same basic design of a solid oxide fuel cell and will utilize the same supply chain manufacturing capacity and engineering teams.
This flexibility dramatically changes, the economics of new product and market expansion opportunities and <unk>.
And as a cost and time to market advantage when entering these high growth adjacencies like marine and carbon capture and hydrogen economy.
Within our core <unk>.
And growing emphasis and awareness on climate issues is accelerating the demand for clean efficient natural gas fuel cell deployment for resilient baseload power and our cost down efforts continue to open up markets and the U S and internationally.
As Cheryl and described we are building the direct and partnership origination models to access additional states and countries to capture this accelerating demand.
As the world moves forward with hydrogen and we're confident our solutions will be competitive and their inherent efficiency advantages and leveraging our current supply chain and manufacturing scale.
Hydrogen and adoption accelerates and markets and applications, we can allocate manufacturing capacity to meet the demand for electrolyze ours and hydrogen fuel cells.
And as we make progress on and adding our solid oxide fuel cell for marine applications and will come from the same manufacturing sites and global suppliers for our land based servers.
The singular platform creates tremendous flexibility.
I'll spend more time on our capacity builds later, but I thought it was important and reinforce how key this is where our investment thesis.
Now let me spend some time reviewing the first quarter financial performance, we've kept the format for earnings release, and supplemental information and some of the last quarter and I'll be referring to slide presentation posted on our website.
We're off to a good start for the year, we had strong growth versus the prior year and our mix of accepted deals resulted and attractive margins.
We achieved a record first quarter acceptances of 359 up 42% versus the first quarter of 2020.
Revenue totaled $194 million up 23, 8% versus the first quarter of 2020, non-GAAP gross margins of $29 seven increased 13, five points and positive non-GAAP operating income of $2 8 million increased $26 2 million Boes.
Versus prior year.
As you can see from the revenue and margin analysis slide for the presentation. There were several factors underlying this performance.
First based on our strong growth and acceptance as our product revenue was up 38, 5% versus the prior year.
<unk> margin improved seven nine points as product costs were down 12% versus the prior year.
Overall revenue growth was impacted as many of these acceptances and did not have installations.
Either because the inflation was done by our partner in Korea or for a specific customer the installation will be performed later in the year, thus, reducing our installed revenue 83, 7% versus the first quarter 2020.
It's important to remember most installs are targeted at breakeven. So as we find more installation partners and will provide the margin improvement that we saw this quarter.
We are having discussions with potential partners that can provide the installation services and earn the revenue on future projects well. This may reduce our revenue it should be a benefit to our margins and reduce our operating complexity.
Maybe most important and the margin analysis is that the service business reported non-GAAP gross profit and the first quarter of $1 million.
As we discussed during our service business presentation, a few months ago, the significant improvements and our power module life.
Cost reductions and our actions to proactively manage the fleet have accelerated our expectations on profitability for our service business.
Like to congratulate Glenn Griffis, do pop sugar and carry Boucher on achieving profitability and the first quarter and rely on their goal to be profitable each quarter as we work towards our targeted services non-GAAP gross margin of 20% by 2025.
We delivered adjusted EBITDA of $16 1 million for the first quarter and improvement of $25 nine versus the same period prior year and our adjusted EPS improvement of 27 versus the prior year.
With respect to our cash flow and debt analysis on slide five our usage of $89 million and operating cash or CFO way reflects an increase in working capital to support shipments later this year without the benefits of receiving deposits from our customer financing vehicles.
At the end of last year, we did not renew our 2020 PPA financing providers as they were tax equity constraint.
We had already engaged with several new and former for Nancy yours to support conversion of our backlog and growth.
Our first quarter did not require these new financing vehicles for the in place to facilitate acceptances.
But not having that did reduce our CFO way just over $20 million as we were not collecting the milestone payments. We generally received prior to accept it.
And the.
<unk> quarter, we expect to close these financings to support the second quarter and nearly all of our 2021 U S. C&I acceptances.
Before I leave the debt analysis I wanted to note, we adopted new accounting guidance for two 5% Green convertible notes due August 2025.
Under prior guidance, we were required to allocate the principle between debt and equity because of the embedded conversion features.
Beginning in the first quarter will be accounting for the entire unamortized balances debt.
While this increases the debt balance on our balance sheet. It does not change the amount we owe on the notes.
We feel it more closely aligns with our capital structure.
There is an impact for interest expense as we will no longer amortizing the debt discount.
And the first quarter results best reflect our current quarterly interest expense run rate.
Non-GAAP operating expenses of $54 8 billion have increased $6 million versus the first quarter of last year.
The increase was driven by investments and our front and originations capability both in the United States.
And as we announced a few weeks ago by building our international resources under <unk> Mohammad.
We also continue to invest in R&D capabilities to support the technology roadmap.
I would expect as we continue to invest in these areas there will be increasing operating expenses and the coming quarters.
While we only provide booking and backlog annually.
And our early stage pipeline Youre seeing an increase and commercial momentum for our current product offering.
Our always on energy server offering $24 seven resilient baseload power.
With a greater percentage of large megawatt opportunities and that pipeline.
Our pipeline reflects the changes we've made to include new states.
International and focus on larger transactions.
We are encouraged by this progress and look forward to moving these and additional opportunities through.
Through the pipeline and in the bookings.
Our supply chain team continues to execute and a challenging environment.
Even with the significant impacts of COVID-19, especially in India, and the logistic disruptions from and the Suez Canal blockage and the team has successfully secured the inventories and we need to run our factories.
And we're working with our suppliers and logistics providers to proactively identify potential disruptions and mitigates.
We are experiencing some increased costs for expediting airfreight and safety stock.
We are mitigating most of these increases through logistics optimization.
But we still expect cost increases and the range of 1% to 2% of material costs.
We expect these costs to be temporary but necessary to meet our customer commitments.
Overall, we are pleased with our performance and the first quarter as I said at the end of last year. We believe these financial and operating accomplishments provide meaningful proof points on our growth journey.
Now, let me turn to manufacturing capacity investments.
It's important for me to point out that we currently manufacture our fuel cell stacks, and California, and do the remaining manufacturing and final assembly and our plan and Newark, Delaware.
Our facilities and Delaware were constructed to support over one gigawatt of annual production.
And we can scale quickly by adding additional manufacturing employees and that attractive market.
In fact with minimal capital investment and the right Labor planning, we can increase our capacity to nearly two gigawatts of annual production there.
In addition to Delaware as our Korean volumes continue to grow we're building capability and our joint venture with SK E&C to support not only that market.
But also help us enter additional markets across Asia.
Our press and constrained as unlocking additional capacity is production and our fuel cell stacks at our Sunnyvale, California facility. We currently have about 200 megawatts of Bloom five data revenue stack manufacturing capacity there with no remaining additional space to increase capacity at this site.
To support our growth expectations and with the introduction of Bloom seven five this quarter, we secured a 154000 square foot facility for additional stack manufacturing capacity.
The facilities and Fremont, California, close to our engineering team, which we think is important.
Sensus coincide with our introduction of the next generation of technology Bloom seven five.
For ordering the tooling required to build this platform.
And as I've discussed previously, we're investing $50 million to $75 million to bring additional 200 megawatts of capacity on line over the course, and then next year as we operationalize manufacturing and Bloom seven five.
The facility, we've secured is large enough.
For a total investment of $200 million, we can increase the capacity roughly to around one gigawatt of bloom seven five fuel stacks.
Our introduction of Bloom seven five remains on track we are seeing the performance that we expected and will continue to introduce that product into additional field types.
We will cadence Bloom, seven five manufacturing and investment with the demand for additional capacity.
We believe this to be an attractive return profile to allocate capital and we have the additional confidence given this stack capacity can be utilized across applications.
Given the inherent advantages that we have with our platform. We believe that our investment strategy, which is to focus on technology innovation of the platform manufacturing excellence and the distribution of our product and our core and adjacent markets with meaningful partnerships is the most efficient value Maxim.
<unk> approach from.
From an investment thesis and the diversification across and market provides us with significant opportunity to de risk our investment.
That's what gives us such strong confidence to make the investments and technology and additional manufacturing capacity.
On slide seven we highlight our 2021 outlook and we're reaffirming all of our 2021 targets.
For revenue after a strong start we maintain our expectation to be between $950 million to $1 billion.
Based on our mix of expected acceptances and increases and installations over the next several quarters, we expect total year non-GAAP gross margins to be around 25%.
And positive non-GAAP operating income of roughly 3% of revenue.
As I previously mentioned, we expect to continue to invest and our sales and marketing and our research and development, increasing each quarter and I would expect operating expenses as a percentage of revenue for 2021 to be similar to 2020.
We are also maintaining our outlook on CFO way as approaching positive.
While we do not provide quarterly guidance there are a few aspects of the second quarter that I wanted to highlight.
All of these are accounted for and our 2021 framework and do not change our yearly targets.
On revenue.
And we'd expect second quarter revenue growth to be similar to our annually targeted revenue growth with installation revenue more in line with the 2020 as a percentage of revenue.
Gross margins may be sequentially lower due to one large transaction and the quarter that was booked 18 months ago and has lower product margin and then our norm.
As well as the dilution from increased installations.
It's likely that when incorporating second quarter into the first half 2021 results non-GAAP gross margin percentages will be in line with our total your expectations.
These factors combined with an increase in operating expense will result in sequentially lower.
Operating income and the second quarter, but are all factored into our full year targets.
In summary, we had a strong operating performance and the first quarter and are very confident and our future.
We're gaining momentum and our commercial operations, and we're seeing opportunities with new customers and new geographies.
We are investing and our technology manufacturing and front and originations teams.
Our service business has improved and demonstrating and its results and we are reaffirming our 2021 framework.
We feel bloom energy is well positioned and has the product team to be the leader and distributed generation and we're doing and with some real focus on disciplined financial management and operational excellence, which creates value for our shareholders.
With that operator, let's open up the line for questions.
Thank you at this time I would like to inform everyone in order to ask a question. Please press star one on your telephone keypad again that is star one to ask a question.
We have your first question from Noel Parks with do he brothers your line is open.
Good afternoon.
Yes.
No.
I wanted to and I'll touch on low no sorry.
Yeah.
Hi, I wanted to touch on the Baker Hughes.
New agreement.
And I'm more familiar with the company sort of legacy oilfield service business.
The gas turbine business and so.
Is there and expectation that.
They would ultimately have direct involvement in and manufacturing.
And is the gas turbine business sort of on the main thrust of the opportunity sort of utility scale projects.
No. So this is K R. There are three ways to think about this potential collaboration that we're looking together.
That can be very strategic for both companies horse too.
If you look at the.
And if you look at Bloom.
Hydrogen.
Electrolyze their project.
And if you look at the compressor line that Baker Hughes.
They can take debt electrolyze or use the Baker Hughes compressors and.
And inject the hydrogen into the pipeline and they are very big in the gas price.
Blaine compression business.
And therefore, thereby offer a blended fuel.
To reduce the carbon footprint because as you know this is a journey.
And not a switch going from natural gas for hydrogen.
Alright, so day rate that blended fuel can be used both by bloom fuel cells.
As well as <unk>.
By Baker Hughes has advanced with cash drove them.
And to provide baseload and peak load and therefore provide.
Both our end customers.
Tremendous opportunities for micro grid.
That all for the three things.
Cost predictability.
That resiliency and other liability using and micro grid.
And the path to de carbonization and that starts right away rather than waiting for some future.
Great. Thanks, Thanks that clarifies a lot.
And I guess I wanted to turn to the marine business.
It sounds like it's at.
At least.
And today, it was more sort of front and center.
And.
I guess could you just talk a little bit in the market about.
For the the replacement cycle.
And I guess I'm thinking of the ships that it might be longer than for example.
Commercial vehicle heavy duty.
Ground transportation applications. So.
I just.
And trying to get a sense of maybe where.
Where things stand for the business and.
And it did.
A question for the joint development agreement, so with Samsung so any any updates on that over the last quarter or so it would be great.
Yeah, Hello, Cherilyn. Thanks for the question.
We are in the midst of working with Samsung we are going through the testing and the certification processes.
We are talking to other shipbuilders and customers and potential partners as well. So there is quite a bit of activity.
As I mentioned in my remarks, I will go through the testing phases and.
And we'll be in a position to start showing designs that cash.
And 2022.
And ramp up would likely be and the 2023 timeline and it's not.
And industry that is going to be extraordinarily rapid.
And we think by putting the time into it and you really work with the right players early on and we're really ready to.
And just to start meeting their demands really the 2023 timeline for my commercial standpoint and beyond.
We have your next question from Michael Bloom with Wells Fargo. Your line is open.
Thank you good afternoon everybody.
Hey, Michael.
So you so you announced a series of new hires globally. So I wonder if you could talk about some expansion plans and these mood and.
Regions and.
With these global initiatives include all the different applications you are developing or are there specific applications that youre targeting for different markets.
Sure.
Yes. Thank you and we have made a series of announcements regarding our international expansion, we have our office open and Dubai are leader appointed with as these Mohamad and a series of what we believe are the industry best leaders and key markets and we have leaders and.
Tablets and markets that we've announced and Germany, U K, France, Australia, and clearly the middle east as well as appointments.
And southeast Asia, but that gives you an idea on where we see a.
Particularly interesting market and routes and now while we're assessing those markets. Our goal is really we have really viable a strong core business today that is what will start both standard solid oxide fuel cells for resiliency.
To help with time to power.
And two I really chart, a path to a clean energy for sure.
And the future so that's where we start.
And my longer term all of the growth levers that I talked about today, we see widely applicable and most other markets in which we serve.
Now to wrap up the market for the most interesting for us are the ones that have viability for our core and I.
If you'll sell operating today and inroads into the gross levers for tomorrow.
Great. Thank you.
I guess my other question and I wanted to ask was just about average selling price obviously down.
Year over year.
Just wanted to get a sense for how we should think about how that should trend.
Over time, maybe throughout this year.
And kind of timeframe, you're willing to talk about it thank you and.
Michael It's Greg So so when you look at the slide that we've got in there you've got to take the selling price and pick it apart two ways right. Because one we include both there and the product costs and the install so knowing that we didn't do the installs. This quarter you do you take that revenue as well as the cost out so when you when you take it down.
On a year over year and you can extract.
The install out either there really wasn't a lot of difference.
And in our Asps given the mix of deals we had this quarter year over year and you can deconstruct that just just taking the total numbers and dividing that by the acceptances that are and Theyre listen overtime I would expect is the easiest way I can think about it is in order to get to that 25% to 30% revenue growth numbers that.
We talk about you.
And Youre looking at about 10 points more on volume growth.
In order to get there. So we were always targeting about 10% to 15% down on cost so that gives us a bit of and expanding expanding.
<unk> margin, if we hold that.
But over and over time, we should be pretty well close to our cost down targets and our asps because that's a way to open up.
More markets for Us, which we think is important now and then we've got our product margins, where they are where we want them to be.
We have your next question from Michael Weinstein with Credit Suisse. Your line is open.
Hi, KR Greg.
Hi, Thanks.
Yep.
Hey, Greg you mentioned that you.
You were seeing some traction and and.
And some of the new markets that you guys are targeting this year.
Obviously, youre not going up and.
Update the backlogs and the middle of the year, but maybe you can give some more color on what youre seeing and the degree of improvement for a degree of excitement that youre seeing and these new markets.
Yeah.
We are seeing some some interesting.
On.
Momentum commercially right and in the first place you begin to see that and the numbers that I look at is really around the pipeline. We think now that we have the opportunity to expand our sales force both in the U S and international as we start to talk to more and more companies, we find them to be to be the excited about the.
Product that we're bringing which is really around the resiliency and the cost predictability and all the benefits.
And in our machine. So we're not we're not surprised by the fact that we're seeing a lot of commercial momentum there it.
It's a it's exciting every Monday, when we get together and we go through it and the trickier right is to stay focused as a team and move those opportunities through the pipeline with discipline, which with Sherwin is built out and take those into bookings and I'm looking forward to I'm looking forward to share and that share and that strong backlog with you guys. When we reported at the end of the year.
Great and.
And.
Could you talk a little bit about.
Any potential for other jv's as additional partners as you move forward, perhaps for some of these new products.
Yeah.
And I'll kick that one over to Cheryl Lynn.
Yeah, So and yeah, we do see debt that you know Baker Hughes is a great example of the type of partnerships that we wish to pursue having a partner.
That is really has the depth of expertise and their segment and vertical and potentially geography, along with value.
Value added components of our full solution and make those types of partners really a great fit for us and a great win for them.
We do have a variety of partnerships for pursuing and as soon as both parties are ready when they are putting out more announcements.
Michael Michael Let me add to that here the following right.
If you think about the multi trillion dollar opportunity.
And if you look at the scale of what is going to happen.
Companies that believe that they can vertically integrate and grow are just not going to make it.
And it is going to take and variety of technologies.
And each one is and it fit and in certain areas and.
And this energy market is so diverse.
And there are so many players and the scale that understand their particular customers very well and that means very well.
So bloom strategy for growth.
Finding win win collaboration and then.
Partnerships.
And two a.
So the customer extremely well.
B.
To create that synergies between the two companies that one plus one is greater than two so what.
The reason get excited about Baker Hughes is you'd bring that kind of an opportunity to other people very similar to what we did in Korea and yes, you are going to hear more and the near term.
And they will be very similar to that.
The principles that I just laid out for you because that is our strategy.
We have for your next question from Stephen Byrd with Morgan Stanley. Your line is open.
Oh, Hi, it's Dave for cover one for Stephen and Thanks, So much for taking my questions and hope you're doing well.
Yeah.
I was hoping that you might be able to give just an update on your latest thinking for the carbon capture and prospects here.
And any updated sense of when we should think about timing of.
When you might be able to find and strategic partner announce something commercially and then also kind of early.
Early aspirations are thinking on the cost of that technology solution.
Yeah, great. Thanks.
You know we are in demonstration of our carbon capture technology now and we look forward to.
Talking about that more publicly towards the back half of this year and.
We really see this year as being.
Demonstration phase and looking at continued.
For customers and projects into 2022.
And we'd be ramping and the 2022 likely back half of that year and as we see things really ramp up so we are and that demonstration base.
And we are getting a really great input and that will give a great option for where the fuel cell is already a fit.
But the ability to separate and actually pull the carbon out of that solution is really additive to the value proposition and.
So that.
And we can see continued interest and we'll see what next year brings and and then I'll also ask here to weigh in.
So Steve and if you just look at our.
Joint press release between Baker Hughes and zone today.
And we are talking about that that's one of the potential areas for collaboration.
Why is central element and try Baker Hughes and some of the business.
Serving the.
Gas industry.
And with their compressors for compression.
And the business of serving the oil and gas and that's really what they need and if they can help and industry decarbonize using carbon sequestration and that'll be fantastic. So using the same <unk>.
And I'll, let me on the same customer base they have.
Combining that with our carbon capture technology and doing what they need to do that combination two and customer that needs. It and a very big way as me move forward and the flow would be an example for you in terms of how we're thinking about doing this going back again to my point it is going to be significant large.
Collaboration.
And to make things like this happen and what we're doing now is.
Validation.
Yeah and are you on.
On our own facilities.
And for affecting this technology.
Such debt.
And it can be then plugged and integrated.
With these other things to serve the customer.
We have your next question from Colin Rusch with Oppenheimer. Your line is open.
Hey, guys. This is Brent and keep it on for Colin.
Just first for our North American customer and can you give us a sense of how the sales cycle is trending from a timing perspective, and then where you are in terms of lead conversion.
Yes. Thank you.
We are eight and we have a sales cycle that is roughly nine to 12 months, which I think we've mentioned in the past you know it is a consultative sale.
And we really partner with our customers what I can say is that as we look at on.
And where we are this year.
And typically our business has seasonality to it and typically a larger.
Back half of the year, where we see the larger uptick.
But when we look at the back half this year with what we have on our pipeline it is never and healthier and it does today.
And we're really seeing the consolidation of factors.
Increased interest and actually wanting to protect themselves for resiliency, it's less of a nice to have and more of a need to have.
And we're seeing a lot of great upside in expanding into additional U S States.
And that area, we can now work with customers to expand current customers and those states as well as we're actually talking to customers. In these states that we haven't talked to you before so the rest of the results of all of those three things.
Really additive and we.
Our directly seeing the impact of that and our pipeline and we're really excited about this year.
We have your next question from Paul Coster with J P. Morgan Your line is open.
Yes. Thanks for taking my question I think Kyle the Baker Hughes a partnership it sounds very exciting but it also so amongst the departure from our price strategy at least it sounds like it which is that you know it would be one size fits all type of solution set that you'd have.
Beautiful.
And the Bloom energy servers, outsides and parking lots and so on and all wherever.
Very modular.
Barry.
Scalable business and it sounds like issues Youre going to start to go the more sort of installation specific route.
Is that correct and if it.
Is correct is it scalable.
Yes.
The number of projects finite number on each one very complex sales and lengthy sales process.
So Paul Thank you for that question for me clearly.
I think your question and illustrates that we clearly have not articulated.
Our our vision of what the product looks like quality low EBIT.
It couldn't be further from what you said.
What I've always said.
And at the core product.
And modular copy exact always on.
And I've used the example of the computer Chip if you just remember that chart on the computer chip its the same chip.
That gets integrated and there's so many applications for input output, we have talked about us being the Swiss army knife.
Being able to adapt to any input on the inside and Yep Yep right. So what we're thinking here Paul is our core product does not change and we integrate something.
And what we do with Baker Hughes, but.
Imagine.
Our core product and.
And a variation of that being hydrogen.
And that hydrogen comes out.
How is that going to get compressed how is that going to get leukocyte, how is that going to go into our pipeline.
Is that core to us or is that context to us it.
It is context to us.
And the scores for Baker Hughes.
Why would you and we're not married core and core and provide the customer what they need and getting on changing anything and what we do and again in this particular case equal not changed the models because we will ship the color product.
And Dave will integrate what what it needs to get integrated and this particular examples. So he does he didn't say reaffirmation.
The other platform on to which you can stick on so many different apps. If you want to think about your iPhone. The iPhone and you can stick a lot of apps on debt and.
And there's so many apps Baker Hughes Springs, and and we are delighted.
Okay with that I just wanted to say.
We are running out of time, we have three minutes past, we apologize for it.
And believe on starting on time and any one time. Thank you. All we appreciate your support of Bloom energy and begun and tell you. How excited we are for the future.
Good evening.
Ladies and gentlemen, this concludes today's conference call. Thank you for your participation you may now disconnect.
No.
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