Q3 2021 Bloom Energy Corp Earnings Call
On today's call.
During this call and in our third quarter 2021 earnings press release, we've referred to gap and non-GAAP financial measures.
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 measure so financial performance prepared in accordance with GAAP.
A reconciliation between the gap and non-GAAP financial measures is included in our third quarter 2021 earnings press release available on our Investor Relations website.
Joining me on the call today are KR Street Art, founder, Chairman and Chief Executive Officer, and Greg Camryn, Our Chief Financial Officer K.
<unk> will begin with an overview of business highlights from the quarter.
Then Greg will review, the operating and financial highlights of the court and after the prepared remarks, we will take your questions.
I will now turn the call over to K R.
Good day, everyone. Thank you for joining us on the call.
Bloom energy.
Deeply saddened by the loss of a long serving board member General Colin Powell.
At every opportunity.
He proudly evangelize style admission.
And strongly supported our business.
This insight helped.
Helped us to build a strong values based culture.
And always gave us courage to do the right thing.
Alma.
Michael and Marie and Linda.
Heartfelt gratitude.
To you.
Graciously sharing him with us.
Our thoughts and prayers are with you.
This friendship and Mentorship.
Have made me a better person.
And as deep engagement with flown.
Has made us a better company.
If he was here with me today.
He would.
Ses on innumerable locations instantly officer and in the moment leadership lesson.
Hey, KR.
Mourned.
No get on with it and talks loud boom.
Copy of general.
Okay, then what.
What better way for me to start then with our recent announcement on expanding balloons partnership with FK equal plant.
Hey, I park, the CEO of SK Eco plant.
And I.
At full scale.
And as material impact on our business.
The firm off take of this magnitude.
Enables us to plan.
Invest and operate our business with far greater certainty.
But that's not all we did during the two years.
Also launched innovative products.
The first ever solid oxide fuel cell power tower.
The first utility scale solid oxide combined heat and power project.
And.
A demo unit of the first hydrogen feed solid oxide fuel cell power systems.
Again.
Based on the chemistry, we established as partners for the last three years to launch innovative new features and applications to our core <unk> platform.
Starting FY 2022.
And of course, we are very excited about.
About the Bloom Electrolyze.
The most energy efficient electrolyze to produce clean hydrogen to date.
And 15% to 45% more efficient than any other product on the market today.
Now.
If you look at the timing of our opening the hydrogen innovation centers in Korea, and the U S.
It coincides with the initiation of aggressive Roadmaps and policy and financial support by the two national governments.
South Korean government supported hydrogen economy roadmap.
Is the most ambitious in the world.
With the aim of ensuring 15000 megawatts of hydrogen fuel cell installations.
$6 2 million hydrogen vehicles.
And 200 hydrogen charging stations by 2040.
In the United States.
Both the infrastructure and the reconciliation bills have significant provisions for.
For accelerating the hydrogen economy.
As well as building resilience micro grids.
Also.
After three years of closely working with us.
SK equal plant investment.
Investor owned utility and contract operations companies in North America.
We will be sharing with you next month.
Leadership higher on the hydrogen side of the business that we are very excited about.
As well as some new developments.
On the hydrogen front.
As you heard today, we are on our way to building a strong global footprint with our partner SK equal plant and.
And also have an excellent international business development team that we have assembled.
The work we have done on our marine applications is growing really well under the leadership of demonstrated.
Who has been a senior consultant for Bloom.
Today I am happy to announce that Tim has joined US as a full time senior managing director and head of our international business and we will continue to head marine.
Tim was the CEO of GE global locomotive business.
And operated in Asia.
Europe and Africa, and we are excited for him to take disposition as of this moment is transitioning out of the company.
By reducing our installation process of our business we.
We were accelerating our use of EPC partners they'll purchase the equipment from Bloom and perform the server installations.
These partners will transact with the end customer for the sale of the equipment and installation work and earn the revenue from the end customer.
While this acceleration will negatively impact our revenue dollars as we no longer paid from the installation work. It has the benefit of reducing margin dilutive portion of our business.
This continues to be the right long term strategy for our business that comes with some near term revenue headwinds that we will manage.
Moving on to slide four in the deck in the third quarter, our non-GAAP gross margin was 19, 2%.
While gross margin improved slightly from the second quarter global supply chain issues and inflationary pressures are impacting them.
This is consistent with what other manufacturing businesses are also experiencing globally and is by no means unique to Bloom Lake.
Like others, we have been impacted by inflationary cost pressures in our logistics source components and direct labor.
That said, while we were unable to bring our costs down for our annual target of 10% to 15%.
Our strong supply chain and manufacturing model has been successful in keeping our product costs from rising over the past four quarters.
As we focus on execution, we have prior prioritize meeting our customer needs even that comes with some temporary increases in costs compared to our prior projections.
We are continuing to take actions that will offset cost increases and logistics components and manufacturing, but these increases have mostly offset the material deflation that we plan for the year.
While we continue to believe this is a temporary issue that will clear up in the coming year. We are taking actions to increase our automation drive efficiencies in our freight management and secure additional suppliers.
As these cost pressures subside in the months ahead.
These actions will continue to drive down the cost of making shipping and installing our product.
For the year, we expect the net impact to our margins is about 5% versus our total your expectations.
For the third quarter these impacts to gross margin translate into a non-GAAP operating loss of $22 9 million and a negative adjusted EBITDA of $9 8 million.
With respect to our cash flow and data analysis on slide five.
For the third quarter cash flow from operating activities equaled a usage of $72 6 million as we built up the working capital to support our fourth quarter acceptances.
Our total cash balances were $319 9 million versus the second quarter, 2021, or $400 5 million.
While our recourse debt balances of $300 million remain remained flat with the second quarter of 2021.
Versus the third quarter last year, our recourse debt has been reduced $175 5 million, reflecting last year's deleveraging accomplishment.
In the fourth quarter cash balances are expected to improve with the anticipated completion of the first tranche of the SK eco plant equity investment for $255 million.
As I noted on slide six we continue to invest in our technology originations and control environment.
We were building out our commercial capability, both in the U S and internationally.
Our originations teams have been highly focused on providing potential customers with the benefits of resiliency sustainability and predictability of our always on energy server.
As I mentioned at the opening our commercial pipeline has never been stronger and it reflects the efforts we've made to secure larger installations in terms of both contracted bookings as well as megawatts per site and in new geographies.
Our integrated Electrolyze to deployment continuing to focus on product costs down and in ensuring we have the manufacturing capacity to meet our customer needs.
As we engage with potential customers and partners, we are receiving positive feedback on our electrolyze. It.
Since we launched the product a few months ago, we've been able to show potential customers our efficiency superiority to meet our customers' timing needs. We've accelerated our investments in engineering product management and commercial leadership to deliver an integrated product that will supply the produced hydrogen ready for the customer use.
Beyond our hydrogen initiatives, we've made progress on biogas carbon capture in our marine initiatives and continue to seek additional partners to accelerate our technology development and product deployment.
As we look forward for the remainder of the year and beyond there are a couple of items to adjust to our 2021 framework deal detailed on slide seven.
We have successfully accelerated our initiative to leverage each PC partners to finance customer projects.
Our equipment and perform server installations, while this will be accretive to margins. It reduces our installation revenue for 2020 one it takes roughly $35 million from our total year projections were.
We are still on track for our customers accepting 170 to 180 megawatts, we plan for the year, but I would now expect our current year revenue to be closer to 935 $935 million to $965 million.
For future guidance, we will incorporate a smaller percentage of installations being performed by Bloom.
Additional perspective.
Over my year, and a half a bloom I spoke in many times about our special relationship with S. K a complaint.
Our two companies share many goals and then built an amazing partnership over the past three years the.
The recent agreements we've made with S. K equal plant create a foundation to build additional value for both companies.
For Bloom, we've contracted for a minimum of 500 megawatts of energy survey acceptances over the next three years.
These acceptances are in line with our expectations for growth in the South Korean market.
We have an agreement to work more closely together with E. P. C M financing partnerships in the U S market grew.
Greatly simplifying our business model, while leveraging their construction expertise.
We also plan to leverage their capability as we enter new international markets, which we anticipate will accelerate our growth about enabling us to scale more quickly.
Their equity investment is intended to provide the additional capital required to aggressively deploy or hydrogen energy server and Bloom electrolyzers.
Which have a higher efficiency than any other products being advertised.
Our goal is to leverage our production scale large project expertise and ability to create green hydrogen at less kilowatts per kilogram.
Steve It's David.
Right.
Thanks for the thorough update on our supply chain and in the growth outlook. I was curious how are you looking at the cost reduction potential going into 2022 proposed youre electrolyze room fuel cell product I know there you highlighted a number of supply chain.
Headwinds.
Asking in the context, mostly the electrolyzed here in terms of just you know there are quite a few companies that are looking.
Looking to scale up and reduce per unit costs and I'm, just curious sort of what sort of trajectory you see on the electoral attitude, but certainly also just on the fuel cell side as well.
The site, we see your volumes going going way up.
In terms of additional <unk>.
Sales in the FDA agreement was a was a great affirmation of that that growth on the other hand thinking about.
The selling price continuing to drop and just thinking about sort of about that.
The cost cutting or cost dropped as well and the commensurate basis or just sort of broadly are trying to get a better read for your sort of cost position in 'twenty two.
Thanks, Stephen that's a great question. So look we see the extreme that externalities the.
The cost pressures in terms of.
It's about affordable.
We are going to be the most affordable way to produce hydrogen and to produce electricity in the long run and that's our goal. That's our mission there heads down on it that's our DNA.
Understood [noise], an airplane you've had a long history of pretty significant annual cost reduction so the specter of point and.
Uhm shifting gears to the legislation great gave a good overview all the components of support that's in the draft legislation I was just curious if this legislation passes and certainly hope that it that it does you know.
In particular, the support for Green hydrogen is quite significant can you see the potential for that legislation to kickstart senior being proud again and electrolyzers sales in the adoption of green hydrogen maybe put more broadly if legislation were to work worth the password what do you see as kind of the most significant.
Impacts to your business, those kind of near and long term.
So that again is a great question blood, Greg and I will answer. This question Steven I'll get started and then I would pass it on to Greg. So you know the from the time he started selling our products as I sit here right. We have had the dagger of uncertainty hanging on our heads about.
This meant that the the policy how long will it last.
In terms of policies like that.
One year, plus one year, plus one year and one plus one plus one does not add up to three right having that five years certainty tenures certainty that is coming out there is going to be phenomenal that's number one.
Number two is going to be that that is V Fund Oblivion board disinvestment activated and production.
Mhm and what that does is it eliminates the uncertainty b as well as the complications that tactically that tax equity finding enough enough capacity all that goes away.
Put that in the context of the entire world of investing wants to invest in E. S T.
V C. This as an amazing day Lynn for being able to finance our projects going forward right. So that's a tremendous dale and for our core business as well as for as well as for electrolyte on the Electrolyze her side as it is written the $3.
Signaller Graham.
Hydrogen trade it.
I want to ask you. Another question on the S. K a S. K partnership here in terms of those the hydrogen innovation centres what are the milestones we should be looking for there are there certain product milestone deficiencies products I was just trying to put some tangible outcomes around those two centers.
Yeah, Hey, Michael It eats Greg and this was something as we Ah negotiated with SK talked about expanding this partnership. This was something both teams were really excited to make sure that was part of the overall agreement. So if you think about the hydrogen innovation centres and it's true for our Electrolyze or has the same is true for our fuel cell.
Well, we're really looking for is a place where we can collaborate together, where our core I P is protected and but at the same time, we can invite other folks in together and work on product integration and when I mean by that if you think about our electrolyze or in the work that we're doing within our labs and how we are optimized.
Thing our product within their if you think about what exists from a balance of plan on on the left and the right of that from the electricity through to what they use customer use of the hydrogen is gonna be having partners available that can come and see our product, whether it's here or in South Korea, and work to develop a and and and.
Okay, and listen we're gonna take that capital and look to be even more aggressive or on our investment not only in our technology with our R&d's R&D investment.
But we're going to continue to build out on our originations capability and we're going to build out our Fremont facility.
Early quickly as we look forward and see the amount of demand that's coming we need to get ahead of it our factories are extremely efficient to build meeting from start to finish once we want to put a line on it's about eight to nine months and then given the amount of profit that we make on each individual unit. The payback on those is less than a year. So we're gonna take that capital and make sure that we are.
As soon as we get one lined up and going within within the factory, we're moving on to the next 200 megawatt line.
Is the current products, we are shipping today.
With its performance and how we predict out the service to be will enable us to 20% margin. So this is not something in the future with new technology. This is how we are putting it today based on what we're shipping today.
Okay.
Maybe switching to the FDA announcement and CAD human you Dr. Dr. Curt you talked about 15 Gigawatts asked by the Korean policy, but my understanding is I think seven gigawatts is for their internal purposes, and eight gigawatt is far exporting to other countries with that wasn't more of an inch.
Trusting point for me and this Essakane argument that you guys can now target. This other countries can you help me how that could be done would you need to have a manufacturing plant in Korea, and how should we think about you guys.
Without getting those other the other countries from the escape announcement.
Simplify our simplify our business.
Model, where they can provide that construction and possibly even financing if it's required so they're.
We won't be repeating in installation business that we've built in the U S. In those countries and there's an added thing which is exciting is there.
They are heavily into wastewater treatment.
Other kinds of biogas related projects to be able to bolt on the most efficient devise that can take in a renewable natural gas and convert that to electricity and to be working with a partner like that that's an opportunity that's not in those numbers that you saw that we will be we hope to develop in.
Terms of building factories, you just heard what you said the core product. The IP, we can build those copy exact lines and will pay for itself in less than a year.
Wherever the market is similar to the JV that we announced with Korea, That's where we will do the final assembly. So it's accretive to jobs here in the U S and it will be accretive to jobs in the local economy. That's been absorbed the product it's a win win.
Okay and just for clarification have you guys broken out the 500 megawatts into fuel cells versus electrolyte test or is.
Is that something that you should expect it's all fuel cells. What we've what we've agreed to is the contract today exists around our core product and that's what we've got that as a minimum four which is in line with with with our expectations for the market and then the electrolyze or as we develop that out would be upside to that number.
It where really we really feel good about the commercial pipeline I tell Ya Sherwin more as our CMO has been doing a terrific job.
Billy Brooks is coming in as our sales leader is really doing a nice job and we have the whole team aligned to making sure that they're successful as we move into to the later part of this year.
And then some point fine could you just give us an update on on purpose and timeframe for implementation could start to see that I'd like to get an impact yeah. The the the Cox yeah yeah.
Yeah, a couple of points on seven dot five and five dot O. Because we think about it a lot you know as we look back on five Dot O and we look back at it where our cough expectations were by the time, we got to seven Doc five we've already achieved a lot of those costs down with our current product on five dot O and we think firmly.
There's more opportunity to take costs out of that product. It's gonna be here is not only for revenue today, but for our service fleet as well as some of our really applications are going to be built on that platform. So we're gonna be on five five dot O manufacturing that component.
On seven dot five as we bring that in our goal is to make that in our Fremont facility.
We are seeing the same supply chain issues in tooling and everything else that we're seeing in our components that we're building firm machines. So we're in a process as we operationalized seven dog five we're gonna rely heavily on five dot O as well to make sure. We can get to the volume numbers that we need to next year, you know, calling our customers are indifferent to whether it's seven.
Dot five or five that all the right. They don't they even won't know even with the server is to them. It. It's a lot about for us and as we look to leverage our costs down whether it's five dot over seven dot five we see the ability to drive down both of those will share best practices across those so I think we're we're pretty comfortable where we are we're trying to derisk our plan.
And for next year and at the same time introduced the new technology simultaneously.
Thanks, so much guys.
Hum.
Friday next question, we have P. S handmade from Piper Sandler P. A canine Timothy.
Yeah, good afternoon, and thanks for taking my questions. My first as I was curious with these higher natural gas prices.
Is that presented a headwind printing if your existing customers or is that a headwind for purdue sales and installations.
You know that's a great question look.
The first thing that you need to understand for Bloom, we never take the fuel.
On our side or the field benefit on our site. So V R.
You know you'd like does not impact us and our BPA pricing and anything we do that's the first thing to understand.
The second thing is.
For our customers.
Many of them. These are 1400 customers will very sophisticated.
They have that energy strategies some of them by in the spot market and feel like that's the right thing to do and they will incur some short term shocked him his shoes, but easily make up for that then when things go the other way some for other customers ask us to help them figure out options for hedging and things like that and we make that happen.
One two so far our customer if they wanted to hedge and have glass predictability, that's an option for them. The third point to understand about natural gas is there is a natural hedge build into our product why if the costs were to go up.
The large base load power and beaker powers that produce electricity at much lower efficiencies and then on top of that have transmission distribution.
Glasses will feel the impact of that a lot more.
Then the very efficient bloom servers that operate on site. If you put the two together since our customer has the choice.
Of buying baseload from the utility or buying Baseload from us.
Days that they look at the difference and nodded absolute numbers and they should be happier for having the balloon system because they're more efficient.
Thank you K R. That's a very detailed the answer I appreciate that and then my follow up question I know, it's still pretty new but I'm just curious if there's any update on the Idaho National lab.
And the reason I'm asking is you can hit those much higher efficiency rates with your electrolyzers when it's tied in with a nuclear plant and so just curious if there's any updates Sarah and maybe a quick reminder of of why that efficiency gain occurs with that high heat coming from the nuclear facility.
Excellent question again, because it's R. Because it's our customer and they have not released anything.
What I can tell you is that's on progress that is that is progressing well.
V R very bullish about their those are those will turn out for a very simple reason rite aid. The question you asked and I'm going to explain it for everybody. When you make hydrogen you declared a certain amount of energy.
That energy can be provided.
Only as electricity.
You have a low temperature electrolyzer.
However, with the Bloom Electrolyze, there that upgrade that higher temperature you can give part of that is heat and part of it is electricity.
He it will cost you one fifth what it'll cost electricity even in cheap renewable.
Source, so when you bring in heightened mature steam.
And use that for some of that energy and use electricity only for the rest.
Given that 80% of the hydrogen production costs will be energy input costs in large scale.
V stand to win.
We stand to win in terms of lower hydrogen costs. So this project is essential and it'll be it'll be a great showcase number one number two is all the nuclear power plants load to operate on base load.
I see bring in more renewables during the day that base load goes down and they have to curtail that power. So it is next to free.
Being able to produce hydrogen with that exist without electricity as well as the heat.
That's a triple win right. So get excited about the project. It as it is on track, we're hoping that our customer will report that.
In a report the results of that test very soon.
Thank you very much K R.
Thanks.
And for our next question, we have that down mulch has now from Raymond James Your lines, hoping.
Thanks for taking my question.
You talked a lot about belt that better and the new green hydrogen credit wanted to ask about what you're seeing on the other side of the Atlantic and demand for Ah locked her lies or is given the.
Hi, the E U targets. The fact that the new German correlation is increasingly pushing for it it seems like the addressable market for Electrolyzers in Europe is materializing a lot faster than it is here, even with the new subsidy.
Oh, well thank you for that question.
Look.
You're right, but I would add not only are we seeing this interest for electrolyze theirs, but also for our core fuel cell product.
Within like Europe, where clearly identifying opportunities.
I think it was two calls ago that we reported building an amazing theme and we put out a press release not too long ago.
Though of some very good well known names in the field joining the balloon theme in Germany, France UK.
All Italy, all those places.
We are seeing very strong interest.
Four.
Sure.
For our core product.
Given the sustainability and resiliency, but we would also seeing tremendous interest on the Electrolyze upfront.
Coming from countries.
We are evaluating it and E D subsidies, there in certain countries or even better than to $3 a kilogram that we're seeing here in the bill.
In like U S. So I think globally. It is going to be a competition of the various countries trying to be the first to try and adapt us and we don't see them just as a news opportunity.
Okay.
Also on name on.
And the Samsung Marine shipping.
Front.
Any updated timetable on.
When commercialization of that product is expected.
So let me say the following.
Stay tuned before we get on a call with you next time, you will see some exciting releases coming from us.
Fair enough for hold you to that alright. Thank you.
Forever last question really have attics, Kenya from Wolf Research, Alex your lines Hilton.
Hi, Thanks for taking my question one one just on the S. K announcement I was just wondering if you could talk a little bit about the split between on the four and a half million dollars split between let's say the equipment costs of installation of the next 2025 and what the <unk>.
Service service Cashflow stream looks like.
Yeah. Alex is it's simple it's about a third of it comes upfront and the equipment sale and we earn about two thirds of it over the surface life.
Great. Thanks, and then just as a follow up from the previous questions just on Electrolyze theirs.
Easily it's getting pretty interesting right now at least in the U S and abroad. Just on these on these potential supports.
Maybe even beyond just nuclear units what.
What type of other customers are you talking to you right now that that where the.
With a solid oxide electrolyzers would really work for them Oh, So I'm I'm glad you posed that question that I want to be very clear nuclear is just one application. So here's the beauty of the gloom electrolyse there.
If it is all electricity similar to how alkaline electrolyzers or Pamela lasers work.
The efficiency is still better so any application that you can use of Burma electrolyzer on a.
Alkaline electrolyzers.
We will offer better efficiency, so we apply across the board.
Yeah, especially better if we can generate some amount of steam coming as heat either from industrial applications nuclear applications are solar concentration.
Okay. So.
We are talking not just nuclear side of the story, we are talking to all the applications. We are looking at everything and that is the reason we had Greg.
Greg was saying how excited we are about the hydrogen information centers at the end of the day for transition to happen.
It is it is not a gizmo, it's not an electrolyze or that a customer is gonna buy they are going to need a solution.
We are going to validate that entire solution optimize that entire solution for cost predictability reliability very similar to what we do to the core product and that's what we want to offer to the customer.
Great. Thanks very much.
Okay. So let me. Thank all of you for these great questions and they were very thoughtful I would like to close with the following points for Ya.
At Blue meal, all of us being deliberate at every step.
Thinking through how to build a great company.
If you just look at our core business in terms of.
Resiliency cough predictably sustainability.
Look at where the world.
The world is heading.
It is heading in the direction that we told you 10 years ago, the world would be heading.
And we built the company for this moment.
Okay, and then finally.
Corporation.
Have the ability to see that energy is getting democratized.
And through their procurement practice.
They have control on that energy future.
He is giving them an opportunity to hasten the energy transition.
Enhance the operational capability.
And build that build brand value.
That's the promise, we are making to our customers.
This is the commitment we're making to the world.
And a fabulous place.
We really thank you for being part of this journey.
And for those of you sitting on the sidelines, we'd say what are you waiting for.
Thank you very much thank you.
Thank you ladies and gentlemen. This concludes today's conference call. Thank you all for participating you may now disconnect.
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