Q2 2021 Bloom Energy Corp Earnings Call
Okay.
Good day, good afternoon, and welcome to the Zumba is known and known energy second quarter of 'twenty 'twenty..1 earnings conference 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.
As a reminder, this conference call is being recorded I would now like to turn the conference over at the Investor Relations. Please go ahead.
Thank you operator, good afternoon, everyone and thank you for joining us on Bloom Energy's second quarter 2021 earnings conference call.
To supplement this conference call, we furnished our Q2.2021earnings press release with the SEC on form 8-K and have posted it along with supplemental financial information that we will periodically reference throughout this call to our Investor Relations website.
The matters that 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, new markets strategy financial position liquidity and full year outlook for 'twenty 'twenty 1.
These statements are subject to risks and uncertainties as discussed in detail in our documents filed with the SEC from time to time, including our most recently filed forms 10-K and 10-Q.
These documents identify important risk factors that could 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 Q2.2021earnings press release, we refer to GAAP and non-GAAP financial measures the.
The 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 Q2.2021earnings press release available on our Investor Relations website.
On the call today are K R Street, our founder Chairman and Chief Executive Officer, and Greg Cameron Chief Financial Officer.
K R will begin with an overview of business highlights from the quarter.
Greg will review, the operating and financial highlights of the quarter and after the prepared remarks, they will take questions.
I'll now turn the call over to K R.
Good day, and thank you very much for joining us on the call.
I'll share my thoughts on the state of the energy market.
The company progress before turning it over to Greg.
I'm, a big picture perspective, the 3 key attributes that matter when it comes to energy.
And the electricity, our resiliency sustainability and cost of predictability.
You are the trends that we see in the marketplace with respect of these value propositions.
First on resiliency.
You're all experiencing and witnessing the increased frequency with which natural disasters are impacting our everyday life.
Yes events around the world caused major disruptions to energy supply and availability.
The adverse impact on businesses ability to operate.
Lingers for a prolonged period of time.
After the disastrous strikes.
In the United States.
2021 report on commercial and industrial power reliability states at 44% of companies reported that.
But the lost power.
Please once a month.
This is double the number of outages from just 2 years ago.
The situation worldwide is even worse.
World Banks research shows that on a global basis companies experienced 2.42 power outages and of typical of a month in 2019 and that number.
Ballooned to 6.19 part of the just per month in 2020.
That is the 155 per cent increase in just 1 year.
Contrast, this to.
So the 117 micro grids Bloom energy had operational in 2020.
Our Michael the site locations experienced several hundred utility grid power outages during 2020, and Bloom micro grids protected our customers from business disruption or 19, 9% of the time.
No the second value proposition sustainability.
The World Wildlife Federations power forward for point of report.
The fact, the commitments of companies to sustainability and decarbonization.
We are seeing a dramatic shift in the.
The efforts businesses are making to decarbonize their footprint.
In 2020.
60% of Fortune 500 companies.
The climate Corp.
Energy related commitment.
After nearly 300 companies.
83 are sitting net zero carbon emission goals.
Aggressive timelines.
Businesses are leading the way and not waiting for regulation to kick in.
As companies look for ways to meet their science based targets the Bloom energy platform with its flexible fuel approach of low leakage natural gas biogas.
Our hydrogen.
And also the practical solution that works now.
And the future proofed pathway to satisfy their sustainability commitments for years to come while simultaneously enhancing the resiliency and business continuity needs.
No.
Let's turn to cost predictability.
You heard a few facts about the REIT structure for electricity.
Policy and regulatory framework mandate the costs associated with building reconstructing operating and upgrading the grid are shouldered by power consumers.
In the future our nation's aging grid will need expenses updates.
Resilience to climate related disasters.
More generation assets will need to come online.
Enable electrification of transportation.
And standard assets like coal and aging nuclear there'll be decommissioned and replaced by newer and cleaner alternatives.
All of these developments will come with the big price tags and lead to steep and unpredictable escalations of utility prices for consumers.
Again.
Contrast that to bloom.
Over the years, we have demonstrated our ability to reduce our costs and offer a lower electricity prices to our customers.
You're committed to and confident of continuing this trend.
Our behind the meter all of these on Bloom solution offers cost predictability.
Our customers can lock in the electricity tolling rates with us for up to 20 years.
As cost of grid based electricity increases.
Our costs are coming down.
On the cost of goods based electricity is unpredictable.
We offer from and predictable calling rates.
I believe these facts underscore bloom score value as the solution provider in the transforming energy space.
I see this as a perfect opportunity for Bloom energy and getting well positioned to seize it and grow.
The executed well in the first half of the year and delivered on our promise of resiliency cost predictability and sustainability.
Now.
I want to talk about our year to date progress on key investments.
We are confident in our solutions and the value the offer our customers.
That is why we have.
Putting our capital to work on investing now to enable future growth.
Full sort of future demand and further advance our technology leadership.
These investments.
Will create long term value for our shareholders.
The 2 important investment areas I want to focus on our technology.
Technology leadership.
And people and infrastructure.
Sure.
The quality leadership.
You know our hydrogen product development.
Just a few weeks ago, we unveiled the bloom electrolyze where the.
The most energy efficient electrolyze to.
The produce clean hydrogen to date that is up to 45% more efficient than any other product on the market today.
This is not a concept, but the reality.
It is of functioning electrolyze, there and the major leap forward for our company on the hydrogen economy.
It relies on the same commercially proven and proprietary solid oxide technology platform used by Bloom energy servers to provide on site electricity at high fuel efficiency.
It offers unique advantages for deployment across a broad variety of hydrogen applications using multiple energy sources, including intermittent renewable energy in excess of waste heat.
Given the sufficiency and input options to make hydrogen.
Bloom energy Electra lighter.
The produce hydrogen through electrolysis.
The lower price than any alternative on the market today.
Our efforts in hydrogen.
Also include a partnership between Neogen to produce green hydrogen from water using on lease solar based heat and electricity.
In keeping with our sustainability values.
Last week.
We announced that we will convert our entire global natural gas fleet the <unk>.
Certified lowly natural gas.
Brilinta the lease of harmful methane emissions stemming from upstream gas production.
Bloom energy.
Beginning with this initiative hopes to catalyze a robust certified gas marketplace.
That is prime for widespread adoption.
The goal of this program is to make it easy for consumers to procure lowly natural gas in the market.
Bloom energy.
The launch of campaign to urge all of large users of natural gas demand and the purchase.
Environmentally responsible option from their suppliers.
Thereby sending of market signals to the gas supply chain.
While the methane leaks.
We think of this as the equivalent of fair trade coffee.
And conflict free minerals and it is critically important to our commitment to being a sustainable company.
Our progress in the Marine marketplace also continues.
As we announced the achievement of 2 key milestones on our path to Decarbonize centuries old maritime industry.
Our initial design with Samsung heavy industries for an engine less fuel cell powered liquefied natural gas carrier.
The <unk> received approval in principle from.
DNV.
Premier International Maritime Classification Society.
Either also verified.
On alternative power source for vessels as part of the American Bureau of shipping New technology qualification service.
We are committed to the marine sector.
And are investing today to be the market leader in the segment.
In biogas, we have deployed bloom energy servers that use landfill biogas with the major Silicon Valley based technology company the <unk>.
System is operational and we will share more about our biogas developments in the months ahead.
And we announced the first combined heat and power project in collaboration with SK equal flat.
This is a new 4.2 megawatt installation and Mark South Korea's first ever utility scale solid oxide fuel cell CSP initiative and construction will begin this year on this project.
No.
Let me turn briefly to our investments in people and our infrastructure.
Since the start of the pandemic Bloom.
Bloom has increased its total number of jobs by more than 20 per cent.
Additional hires in sales and marketing will create more demand the <unk>.
Hires in operations will fulfill this demand.
Our increased R&D head count the.
Accelerate our innovations.
We have expanded our headquarters in San Jose and opened offices in Dubai in Japan, adding.
Adding critical sales and support staff.
Extend our international reach and presence.
1 higher in particular.
Im excited and want to welcome to the company is Philip Brooks, who is our new executive Vice President sales for the Americas.
I used the joining bloom energy Billy.
Third is the executive director of business development at Nextera Energy, Inc.
The provider of clean energy solutions and services.
Where he oversaw the development of utility scale solar generation assets.
And he was key energy execute of.
The general electric in the United States and abroad, including CEO of Latin America head of global sales and Chief commercial officer.
Welcome Billy.
Also I want to emphasize that we are making progress on our over 3 football fields size manufacturing facility in Fremont, California.
Enhance our production capability and be the factory.
7.5 fuel cell columns are made.
Do you still elements.
The investments.
Select our confidence in our <unk>.
Future.
Our focus on growth.
With that.
Let me turn it over to Greg.
We'll go through the financials.
Thanks, KR, yes, we had a busy quarter and we've accomplished a great deal on the first half of 2021.
I'll go through each of these in more detail, but I wanted to give some highlights.
We achieved record of acceptances and revenues through the first half of the year.
We made progress on our technology roadmap to deliver our new products to market.
Continue to invest in our commercial capability, both from the U S and internationally.
We commenced the build out of the manufacturing capacity needed to meet future demand.
As we emerge from the pandemic like other global manufacturing businesses, we've experienced some supply chain pressures the team's relentless focus on cost reduction has enabled us to offset these pressures to roughly hold our product costs flat over the last few quarters.
Given the strength, we're seeing across our business. We are referred reaffirming all of our 2021 targets.
First let me go through our financial performance. We are proud of how the business is performing and the progress we've made relative to the milestones that we laid out for you at analyst day on the foundation that this creates for us for 2022 and beyond.
Please note we've kept the format of the earnings release from the supplemental information like previous quarters.
And I'll be referring to the slide presentation posted to our website.
Building off of last quarter's momentum, we continue to have strong growth versus the prior year.
Although as expected our mix of accepted deals this quarter impacted margins.
This is 1 of the reasons why of encourage you all to look at our business on an annual basis.
Not simply quarter to quarter.
We achieved record second quarter acceptances and revenue.
Acceptances of 433 were up 41% versus the second quarter 2020.
Revenue totaled $228.5 million up 22% versus the second quarter 2020.
On last quarter's call I spoke of the challenges of the tax equity market and the revenue timing risks of having financings to support our second quarter acceptances.
I am pleased to report the team worked with our financing partners to provide financing for 23 megawatts in the second quarter the.
The completion of these financings as a testament to our partner's relationship and our attractiveness of our offerings.
In the second quarter, our non-GAAP gross margins were 18%, increasing 1.5 points versus the second quarter 2020.
But down roughly 12 points versus the prior quarter.
As I outlined on last quarter's earnings call. The reduction in margin was expected with the mix is the primary driver.
In the first quarter, we had very few of the U S installations.
In the second quarter, we returned to our historical level of installations negatively impacting our non-GAAP gross margins.
These results reinforce our efforts to find U S EPC partners to perform future installations.
Also within the quarter, we had a 10 megawatt legacy development project.
Cured in 2018 at a lower initial margin.
The project, 4% and 20% service margin over the next 20 years, ensuring that the overall project is profitable.
This project is an outlier and not indicative of the project profile of the rest of our backlog.
Also as I mentioned net the opening we are experiencing some product cost pressures tied largely to the realities of global manufacturing business emerging from the pandemic lockdowns.
While overall product costs were down 5% versus the second quarter 2020, the relatively flat to last 2 quarters.
We are being impacted by increases in freight and pressures on our component manufacturing costs.
While we expect most of these pressures to be temporary they are likely to persist through the remainder of the of the year, creating 2 to 3 points of non-GAAP gross margin pressure.
We have implemented initiatives to offset these cost pressures.
As examples we've consolidated our shipments from Asia.
We've priced hedge our commodity purchases for the remainder of the year.
Partnered with our supply chain to reduce material costs and formed cross functional teams to lean manufacturing costs.
So far of we've been successful on offsetting increases in keeping our product costs roughly flat.
Fundamental tenant of our business model is to reduce our cost and as we exit the post pandemic environment, we remain committed to reducing product costs to support our growth strategy.
Non-GAAP operating expenses increased in the second quarter to $64.7 million up $22.8 million from the second quarter 2020.
The primary drivers of the increase are our continued commitment to expand our commercial capability.
The invest more aggressively in our technology and ensure our control environment is ready to scale as we grow.
We have significant confidence in our ability to grow our business across geographies and product lines. We've made several investments this quarter to accelerate our strategy.
Commercially these include strengthening our go to market sales strategy.
Processes and talent in the U S and the international markets.
Conducting a detailed analysis of tariffs in new U S markets, and adding international commercial resources to support our expansion and growth.
Within technology, we're adding engineers and investing in product materials needed to support innovation for our growth levers.
For example, we are building and deploying demonstration units within our investments in our control environment, We've added technical expertise and our accounting compliance and regulatory functions and are leveraging external resources to meet the current operational needs.
While the increases in head count on now within our expense base. Many of our external investments are project based and will not repeat.
As such we expect operating expenses to decrease in subsequent quarters.
For the year I expect 2021, non-GAAP operating expense as a percentage of revenue to be comparable to the prior year.
In the second quarter, we had of non-GAAP operating loss of $23.6 million.
Adjusted EBITDA loss of $10.9 million and adjusted EPS loss of 23.
These losses were the result of lower non-GAAP gross margins with an increase investment in our non-GAAP operating expenses.
With respect to cash flow and debt analysis slide 5 CFO way was a positive $53.7 million for the second quarter as we executed the customer financing vehicles, which fueled top line growth and improved our working capital.
Our total cash balances improved $34.8 million versus the first quarter 2021 to 400.
$5 million, while recourse debt remained relatively flat versus the first quarter at $300 million versus the second quarter last year, our recourse debt has been reduced $106 million, reflecting our last year's deleveraging accomplishments.
<unk> had several technology effort underway and I want to provide a brief update to our CMO Cheryl Lynn Moore presentation last quarter as.
<unk> laid out in the lead we are on track for our 2020 on milestones that position us well for 2022 and beyond.
We continue to make progress and operationalized the fifth generation of our energy server Bloom 7.5 the servers are performing according to specifications and we continue to put more units and the demonstration service together performance data.
As we've previously discussed we make our stacks in Sunnyvale, California, and perform our final manufacturing Assembly and our Newark, Delaware facility.
To meet future demand, we need to add additional stack manufacturing.
Bloom 7.5 is being operationalized in our new facility in Fremont, California.
This facility is large enough to add several stack manufacturing line and we expect to build over 1 gigawatt of fuel cell stack capacity on the facility in the coming years.
While we expect our operationalize our new manufacturing through 2022. It has become apparent that we will require additional capacity to meet 2022 demand.
Beginning next year, we can leverage of portion of our Bloom 7.5 investments to manufacturer of roughly 25% more bloom.
<unk> stacks.
Once we've created enough bloom 7.5 capacity will allocate back this tool.
The short term shift will allow us to meet demand, while providing the time, we need to operationalize Bloom 7.5.
A few weeks ago as care of highlighted we unveiled the bloom electrolyzed.
The most energy efficient electrolyze to produce gleet clean hydrogen to date with commercial shipments expected in the fall of 2022.
We are also excited that we'll be shipping our first electrolyze to the U S Department of Energy's, Idaho National Laboratory in the third quarter to test the use of nuclear energy to create clean hydrogen through the Bloom Electrolyzed zone.
And reflecting our commitment to move quickly from innovation in the lab to capitalize on commercial opportunities. We are working with several customers on renewable natural gas or biogas and should have our first and second on site installations Commission and announced in the coming months.
Our carbon capture technology is performing as expected and in the lab and we are working to secure demonstration this year.
As I previously noted our platform approach provides us with the clear competitive advantage due to the bloom's unique technology and its flexibility to address multiple market opportunities by leveraging the same platform for different end customers' needs.
As we've previously discussed we do not expect the new products to significantly contribute to 2022 revenue, but they are imperative as we expand our product offerings to meet our customers' needs.
Importantly, this approach enables us to expand the base of clients across multiple products industries, and geographies, which are key to our growth and ensuring that we have diversified revenue stream to drive profit and create value for our shareholders.
While we only provide bookings and backlog annually in our pipeline. We continue to see increases in commercial momentum for our current product offerings are always on energy server with a greater percentage of large megawatt opportunities in that pipeline.
The pipeline reflects the changes we've made to include new states international opportunities and focus on larger transactions.
As <unk> discussed we are very excited to have bill Brooks joined the team as our U S. C&I sales leader and are already seeing the benefits of his leadership.
Internationally as these Mohammed the team is gaining traction of finding partners and identifying potential customer needs. We are encouraged by this progress and look forward to moving these and additional opportunities through the pipeline and in the bookings.
On slide 7 we highlight our 2021 outlook and we are reaffirming all of our 2021 targets.
For revenue, we expect between $950 million to $1 billion, depending upon the timing of a few late year projects.
We are managing through our supply chain supply chain pressures and I believe we will achieve our total year non-GAAP gross margin of 25%.
We will continue to invest in our capability, while targeting our non-GAAP operating income of roughly 3% of revenue.
We are encouraged by our cash flow performance of <unk> and maintain our outlook on CFO way as approaching positive.
While we do not provide quarterly guidance and I stress our business should be looked at on an annual basis. There are a few aspects of the third quarter that I wanted to highlight.
These are accounted for in our 2021 framework of do not change our yearly targets.
Based on likely project completions, I would expect third quarter revenue to be similar to second quarter.
I'm expecting a slight improvement in non-GAAP gross margins of roof should result in similar improvement in op margin and EBITDA.
Our business is always more weighted to the second half, particularly the fourth quarter given the expected timing of project completions I would expect this year to be no different.
In summary, we had a very strong operating performance in the second quarter and in the first half of the year. We are very confident in our future. We are gaining momentum in our commercial operations and we are seeing opportunities with new customers and new geographies.
We are investing in technology manufacturing and front end origination teams continue to expand our platform and meet our customers' needs.
Our service business is improving as demonstrated in profitable results.
We feel bloom energy is well positioned and has the platform products team to be a leader in distributed generation.
Simply put we believe there is no other companies in our sector with platform like products that offer the fuel flexibility and de carbonization, that's driving robust high quality pipeline of deals and real revenue.
We're doing this with a 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 Sir you on.
I will begin our question and answer session.
To ask the question you will need to press star 1 on your telephone to the Guy Your question press the pound key.
Please standby, while we compile the Q&A roster.
Yeah.
And speakers our first question from Stephen Byrd of Morgan Stanley. Please go ahead.
Hi, Good afternoon Hope you all are doing well.
Yes, Stephen how are you.
I'm doing well thank you.
Thanks for the thorough update on the lot of topics I wanted to talk first on carbon capture you you gave us an.
An update during your prepared remarks.
And I'm thinking about sort of the next steps for you all on carbon capture is it. Thank you mentioned the pilot is it likely you would start by kind of showing the capability of this technology on kind of a small scale pilot before broad deployment or is there any chance of.
Customers wanting to begin the kind of roll this out more broadly how should we think about kind of of the cadence of that development.
So the sort of the cadence that you would see would be as you said a pilot.
That would be would be would start with the.
The clear intent of it being in the scale again, Steven as Youll know anything and everything we are doing bloom.
About <unk> move the needle.
Both on the commercial strength in terms of it being meaningful as.
As well as on the carbon footprint for the world.
The make a big dent on it so obviously carbon capture.
Hundreds of megawatts in every single place is the way to be thinking about this.
That is the scale at which it has to work not on the laboratory not on the desk to the entire.
Has to be working on these large scale so but.
With our utility partners.
We will see the bottom.
As well as.
Some of our commercial book.
And the engagement.
Do you want to start of the megawatt scale.
But clearly it's going to day.
Slash settled support.
And I've been very encouraged by what we of skiing in the infrastructure of any conciliation builds.
Think 1 of the common areas the Democrats.
On the publicans bolted on.
The figure it out carbon capture of the cash flow paths. So we see this is of great sweet spot.
DS.
On a proclamation solar bid these things looking more and more likely to be enacted into law.
You should clearly expect.
But the large utilities, 1 solutions like what we have in vivo stock with the pilot with the goal of getting faster.
Faster.
The SDK.
Okay.
That's really helpful. On you mentioned the federal support.
Thought I'd touch on that as well I'm curious your thought on I'm thinking about the broader reconciliation package frankly, the perhaps on I'm, not giving you enough credit to the to the to the smaller bipartisan package, but the broader package may include some fairly large elements of support for per hydrogen.
And as for Green hydrogen as well I was curious you know your your.
Your view on on what that might do in terms of your rate.
<unk> rate of growth the deployment of Electrolyzed, there's really any other business impacts you use you see to the extent that debt.
That became law.
So at least in Wuxi of finding out from the early days.
Once again, the eating and what kind of gearing on the hill.
Is there is a clear understanding and.
And in this area of hydrogen.
It is of the national importance of national importance not only for us in the.
In dose of climate change on decarbonization, but as the company the advantage for all of our industries.
It is also viewed at the technology in which we need to gain leadership.
To be of either in this country and therefore American companies with the American technology, but the American manufacturing jobs hitting the guidance at Haynes to get.
So if you look at the box in play to check it out.
Bloom as an American innovative technology.
Bloom is at the American manufacturing technology.
And what we do at Bloom with heightened vitriolic the license.
The Holy enabled the integrated and commercial scale the VA.
Have a leg up on everybody else.
So you put those things together and then take into account.
Hi to Decarbonize industries like steel.
On chemicals.
Many of the able to combine that.
Advantage our U S industries can have because they have of green product to sell to the world.
These are the reasons.
The extremely bullish.
About what those policies will mean for our future growth.
It is necessary.
The right thing to do.
I think it is an investment of the country is maintained and it's the right investments of the country to make.
Understood and then maybe lastly from me just going to the financial results the the.
ASP number Greg gave some some color around that I wonder just I'm trying to think through that in terms of mix and you had mentioned the impact of that I guess I think of it as the legacy or an older contract impacting that could you just touch on that a little bit when I'm thinking about is the ASP did did fall meaningfully youre keeping product cost.
Flat, but you are not in this environment able to to reduce the costs, which is understandable, but I'm just trying to decompose that that ASP impact and thinking about what that might look like going forward.
Yes, Steve I'll give you a little a little context on that.
Year over year, our product costs are down 8% for the first half so we.
We're proud of the <unk>.
Address of the team has made we are on versus our expectations, we always like to be down double digits.
But we were down significantly in the first quarter and down in.
In the second quarter of year over year and to your point, we're flat the last couple of quarters.
On the 1 deal in particular and it did impact margins and it did impact sales price. It was an outlier deal that was in the it was in the was in the bag.
Backlog previously it's part of our it's part of our backlog and financial framework for the year. So I tried to give you guys. Some sense of that on last quarter's call that we were going to do it because we got some pretty important.
Relationship with that transaction with somebody that we think we can grow with going forward and we've learned a lot around the project development flow, but as I take a back of look back through the through the backlog. We've got no. Other deals that look like it's sort of truly was an outlier and is and as part of the <unk> was part of the framework for.
Of the whole year, it's just a little bit.
It has impacted us this quarter come through both in Asps as well as in as well as in margin.
Very good I'll pass it on thank you.
Thanks Steven.
Our next question from Mark Strouse of Jpmorgan. Please go ahead.
Yeah. Good afternoon. Thank you very much for taking our questions.
I wanted to go back to the comments around <unk>.
Finding EPC partners for installations can you just give us a bit more color there of how those.
All of those conversations are evolving and what your current expectations are for when we could start seeing some of that.
Start to occur and maybe some some less variability in your margins.
As a result.
Yeah, Thanks, Mark and again, Craig Congratulations on on your promotion. So it's good to hear your voice.
As of now.
On the EPC stuff, we've made a lot of progress Joe turbine the team who runs our runs are installation group has done a lot of the legwork that we're going to need in order to engage with third parties and make sure that we're able to provide to them.
Level of standards that theyre going to need to be able to do the installations outside of our business. The other place where we've made a tremendous amount of progress is through the front end with Cheryl and Morris team on the marketing side and really looking for partners that can bring in not only the expertise around EPC, but broaden the relationship as well think of them as channel partners.
The financing partner or is the technology integration partner somebody that can they can really do it if it's just somebody who's trying to replicate what it is that we can do the are probably not going to be able to do it at a cost lower than weekend.
So we really need to find somebody that's going to create a lot of value.
Think about timing and this is 1 of the things Thats a little bit frustrating as you look at some of the things that are coming through the business now we need to 1 secure those relationships, but to us given our installation cycle it'll be another 6 or 12 months from the point from which we awarded a project to a third party until they're able to go do that.
We do use EPC partners today, and some of our larger projects.
Net or contracted by our customer, but it will be of different from us I think you'll probably see if we're on track you'll see 1 large project on with a partner this year and then as you start to move into next year, you'll begin to see probably some of them are more standard smaller size smaller kilowatt.
The installations get done through a partnership with somebody who can do it in a region or per specific customer and then I think as you get through the course of next year I'm hopeful that day there'll be able to take a larger percentage, but for about everything, but maybe a deal or to maintain our current.
Project pipeline for installation. This year those were primarily going to be started buying finished by the buyer bloom.
Okay excellent and then.
The Grand scheme of things.
It really doesn't matter if a project comes in late December early January but just thinking about your guidance.
Kind of the risks to the.
The to the upside or the downside can you talk about the the magnitude of some of these larger projects that you are calling out I mean, if worst case scenario of none of them come in is there risk below your guidance or vice versa. If they all come in is there risk above your guidance range.
So.
There's a couple of 2 or 3 deals I would say that makeup the difference between the 915.1 billion.
As I look through those is the risk that each of those deals.
And what happened there is always a risk of it any project doesn't happen, but given where they are from a timing standpoint, and as I look at it versus the late December early January that would truly would be the would be the difference around loans and from an upside standpoint listen we are sold out on the amount of systems that we can manufacture and get installed over the course of the year. So.
I still think as you think about upside to the $1 billion, it's going to be really as we get into next year and have the opportunity with more capacity on line to really help facilitate the number for growth next year about where we are this year.
Okay very helpful. Thank you very much thanks.
Thanks, Brian.
And speakers. Our next question from the heap Malloy of Credit Suisse. You May ask your question.
Hey, good afternoon, and thanks for taking my question.
Maybe if you can just from me Greg talk about the Electrolyze of opportunity.
The <unk> did announce the new product launch on the pilots.
South Korea and the 1 later this year in the U S seems on track.
Wanted to really understand what feedback you're getting from initial discussions with customers on the neutralized on opportunity.
How should we think about the the.
Revenue recognition maybe.
The 22 or in 'twenty trends for you today.
Many of this chaos and again I think congratulations are due on your promotion can do in the second.
<unk>.
Thanks for the year from you.
Okay.
With respect the hydrogen yes.
Super excited about the things.
Things that we're doing today right.
Look at look at the announcements that they made.
This quarter would be of shipping a Q&A at the date of a national laboratory.
This is Paul.
From a.
Speed to market on <unk>.
As well as the lifeline for the zero carbon nuclear power to be more economical for the entire nuclear industry.
The Big step. This is the way of the U S Department of Energy is Idaho National Laboratory and the department of.
Energy is thinking about it.
God the heightened <unk> laser.
This theme.
The potential possibility of integration of the future of on the daytime and nighttime.
Arbitrage.
Yes.
Of nuclear power plants.
Not running at full capacity during the day would be a huge economic dreamed of that.
That is that they can make hydrogen during that time when the sun is shining on the solar is providing the electricity.
It's a huge way and.
And he does kind of a nitrogen.
And it can be made in large quantities.
And it can be these hydrogen.
<unk> can go on in the.
The industrial sites that are already cited for nuclear power plants and things like that so if you just look at it practically end to end.
System you can appreciate the importance of assets so at Bloom the of very deliberate of.
The many opportunities that come knocking at our door every single day the 1.
On the pick and choose the ones.
That we have conviction on.
It is not the amount of opportunities that come to US is the ones. We chose to stay of so thats the hard part.
The second announcement that we made as video channel.
And again.
You can use heat.
And the electricity.
To make hydrogen.
You can only use heat and electricity in significant quantities of the heat Buck in high temperature of it for license, which is the bloom on the lifestyle.
Any place that is custom built to.
The build of large solar array flow.
Hydrogen production and Thats, the only way of you're going to make any dent in diabetes in market.
Yes.
Millions of acres.
Of the Newbuild projects.
Trying to offset the hundreds of million barrels a day worth of volume the global okay.
These are not small numbers of scale numbers.
It'll happen in aerie, sunny areas and contemplating that heat.
And using that heat as the substitute for electricity.
For the significant material of course of.
The energy needed.
The game changer, because 80% of the hydrogen production costs energy costs.
That's why.
And about that opportunity.
Working with Baker Hughes on working with.
<unk> steel other other manufacturer instead of getting like.
Talks with.
The use of <unk> coming out of that process and decarbonize that hard to decarbonize the industry.
So our focus right now is going after those segments.
The economically.
From a dollar of invested to the decarbonization impacted as the.
The maximum impact hydrogen can add in.
That is just helpful. That's what we are focused on getting this for the long game.
On a clear strategy.
But what we are doing today.
Even at the early prototypes.
Slot of ahead of anybody else on the field.
Got it on the sort of health.
Click here.
Maybe 1 small 1.
On the housekeeping.
If you could just talk about the sort of financing in Q2 could you just remind us of.
What that was related to the tax equity or something else on how should we think about the.
Financing arrangements for the second half or going forward.
The 22.
Yes. So so if you remember last quarter when we went through it we raised the risk for our second quarter acceptance is making sure that we had our financing vehicles on PPA type of structures in place in order to facilitate those acceptance.
Coming out of coming out of 2000.22020 and into this year, our traditional provider had decided not to participate going forward, which was okay. We had already begun the process to work with other other providers.
But the team did in the absolute amazing job not only not only our team, but our customer of what the facing.
Facing teams off to us to our providers on the teams were incredibly engaged through the course of the quarter. We worked through a series of just.
Negotiation issues and other things and secured the tax equity that we needed.
And what we said at the time was strength, we saw the quarter, we basically got the the year solved and so for US we look forward for the second half.
Nearly half of that effort in front of us and we're really happy with the.
With the providers that we've made relationships with on the second quarter. Some were folks that we'd work with on previous transactions others were new of that we brought we bought the bloom and we see them as resilient.
Our sources of capital as we go forward. So we're very excited about the progress that our team made in the relationships we built there.
That's kind of alright, thanks, a lot.
Thanks.
Our next question from Michael Bloom of Wells Fargo, You May ask your question.
Thank you good afternoon everybody.
Michael I wanted to talk about.
Your announcement you made at the end of July on the Marine space with Samsung.
I just wanted to think about your progress in that in that arena does that announcement the signal that you're ahead of schedule with commercialization of you're on schedule I'm, just basically looking for an update on your commercialization efforts in that arena in light of announcements. Thanks, Yeah. This is Kent.
Okay.
Let me answer the question Michael the so when you look at.
And we started.
At some time.
And even looking at trying to get at least 1 approval and this was the approval in principle the dnb.
Which is the international Maritime classification society highly prestigious.
It came sooner than.
What we had originally had in all of our timeline.
And that is kudos to the game and what the weren't able to accomplish what came with the partners.
And that's a big step forward I wouldn't say that it's a very mixed.
On that.
But in.
When we put that announcement out.
The farmed out.
The significant interest from.
Other shipbuilders in different classes right. So if you look at it.
If you look at our announcement of.
Samsung.
That is for cargo ships.
The big deal because 80% of all of the economy most on ships.
Right.
You bet that the country in terms of emissions that will be 6 of 7 from that.
On the stuff too.
So that in terms of the big opportunity, but outside of cargo ships the amount of time and it seems very big and we started getting inquiries from other ships on Torrance and other continents.
And.
The including.
<unk>.
Passenger ships.
And.
Other kinds of shifts in the U S.
Yes.
So the cruise liners.
So what's the had then was the American girl of shipping.
The very important entity.
Which is a gain of global certification.
Technology in place of the services.
And of B E.
Even to them and trying to simultaneously get an approval and what we got from them. The ABS, which is the American Bureau of shipping.
As the newer technology qualification and that's what we got so again it speaks to.
So the final approval will be expected in the scale of ABS.
2022.
Which will be much sooner than we had originally planned.
We think this industry is primed.
And the benefit of a tremendous push from the consumers of all of this that's by less than <unk>.
Cash from Maritime augmentation.
On top of that.
Our solution future proof of that.
It can go from the really dirty heavy oil that they're using today.
To a much cleaner natural gas, which can be even used form side.
But in the future whether it's hydrogen on ammonia you are future proofing the.
Not too many technologies can do that we believe again on the best options of this this is the reason why youre seeing that.
Great. Thank you for all of that that's all I had.
Thanks, Matt.
Yeah.
And our next question from Noah <unk> of Tuohy Brothers, you May go ahead.
Hi, good afternoon.
No.
Just a couple of things.
I was wondering if you could talk in general terms about the the biogas projects Youre working on just a little bit about what those applications are like and I'm curious in particular about the sources and whether they are you of for instance, like well establish the sources like.
Landfill for example, or or something something new or like a new important completion specifically the.
The take advantage of some of your.
Sales.
No the belief that the hole then you will have natural gas.
Biogas as part of the right.
It's probably.
The fastest quickest way.
To get to zero carbon Baseload power.
The scale.
Especially for mission critical applications.
So the important 3 different categories.
Think of solid base coming from landfills.
Think of wastewater treatment plants and water treatment plants without seller and cash.
And think of dairy.
And.
Adam on waste right.
So you can take those each 1 assets characteristics.
But what is common to all of the.
In the absence of there being a commercial opportunity for them.
Lot of methane.
Which is significantly more harmful to the atmosphere.
<unk> is going to go into the atmosphere. So.
So if you want to Decarbonize finding of age of trapped that is probably the most important thing.
And then the next thing you do is what if you can use that.
Highly efficient way.
No air pollution.
No water use and.
And create reliable lower.
So we are excited about the opportunities together.
We are as we said the large silicon Valley company and we'd be talking about it so in the months.
Doing a project.
It's just the operational.
Taking landfill gas and producing power Corp.
We see an enormous opportunity in phase 1 of the big complex.
Because the amount of gas that comes out is sufficient to operate the baseload plant and all of its electricity needs and thereby bringing the resiliency is not only of decarbonization play.
Not only of biogas play, but it's essentially sort of everyday life.
And there is no power.
You can drop.
Bottles of water from people to drink you can drop fluid from helicopters.
The other doesn't flush there's not a whole bunch of options.
Okay.
Sales for everyday life and Thats, what we can think of the table.
<unk>.
We will very soon be talking about some.
Dairy projects, they're being able to use the animal waste.
And use that cash to be able to do our systems and the beauty of our modular system.
As you don't need any large scale facilities to make this operational and economically buy of beacon.
You can go on small and medium scale, the areas and be able to implement this and get that far out.
I think there is.
Huge opportunity of and excited about that you'll see on trying to grow the scale in the future.
Yes.
Great. Thanks for thanks for that update and.
I was interested in.
The discussion about the the pipeline.
And the backlog.
You mentioned that you were seeing an increase from commercial momentum, which sounds great and I'm just curious at the stage.
In general terms.
The sales and marketing cost.
Per per deal size or given the pre deal signed or given the size of a deal.
I assume we're in a in a trend where that probably would be heading higher as you sort of walk through the you know the horizons on the on the backlog and then maybe hitting a point where it trends lower.
Can you give any any insight on just you know what it's what it's costing to a sort.
The sort of source on close the deal these days.
Hey, it's Greg so so as we think about it right and we look at the pipeline and we're really happy with the progress that the team is making and expanding in the U S. As well as diseases team is expanding internationally in.
The cost that drove this quarter.
Really was around making sure those teams had the analysis that they need in the materials that they needed the coaching that they needed all of those things when we that we think that converts from.
From in the pipeline and what's in the pipeline into bookings over the course of the next 612 months as we go forward through it. So I don't think of this nachos as like I wouldn't of consumer model, where you've got acquisition costs tied to tied to each of the amount of advertising you put in place and what dailies secure this is really about making sure we were in.
Celebrating the progress that we see and the opportunities that we see and we're getting more and more confident in how that how that looks.
Every day.
So thanks know so so I think we've just we've run out of time, we still had a couple more questions. We wanted to get to I apologize for not getting to not getting to everybody who is looking to ask the question.
I'd say a couple of comments here interest clothing.
We had very strong performance this quarter in this first half of this year, we're happy on how we are executing and putting the backlog into revenue, we're gaining confidence as I was just talking to the knoll about on in our pipeline and what we're seeing there and it's giving them the confidence for us to invest in our technology in our manufacturing.
Capabilities as well as continuing to hone out of our front end.
In commercial resources, we're reaffirming our guidance for this year.
We are confident that we can offset any cost pressures that we're seeing and deliver on the gross margin. So we've had we're going to continue to invest in those opportunities and are still targeting of 3% operating margin and I'm getting more confident based on the second quarter performance that we had around our cash flows around how we're expecting those for the year of.
So I'm still holding I'm still have of holding of protein positive as is our target and look to update as we go forward. So I want to thank everybody for their interest in bloom. Thank everybody for their time, and we'll look forward to getting back together in 90 days and talking about third quarter performance. Thank you.
This concludes today's conference call. Thank you all for joining you may now disconnect.
Goodbye.
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