Q3 2022 Bloom Energy Corp Earnings Call
[music].
Good afternoon, My name is Joel and I'll be your conference upgrade or today at this time I'd like to welcome everyone to the Bloom energy third quarter 20 twenty-two earnings conference call.
Since I've been placed on mute.
[noise] round noise.
The speaker's remarks, there will be a question and answer session.
You would like to ask a question. During this time simply press start followed by the number one on your telephone keypad.
You would like to withdraw your question presses Crestar followed by two.
Thank you now like to turn the conference over to <unk>, Vice President of Investor Relations. Sir you may be can you conference.
Thank you and good afternoon, everybody. Thank you for joining us for Bloom energy third quarter of 2022 earnings call.
The supplement this conference call, we furnished our third quarter 2022 earnings press release with the SEC on form 8-K.
Posted it along with supplemental financial information that we will reference throughout this call to our Investor Relations website.
Our third quarter 2022, 10-Q, it's also in the process of being submitted today as we speak.
During this conference call both in our prepared remarks Indian answers to your questions.
May make forward looking statements that represent our expectations regarding future events and our future financial performance.
These include statements about the company's business results products, new markets strategies financial sufficient liquidity and for your outlook for 2022.
<unk>, our predictions based upon our expectations estimates and assumptions.
However.
<unk> with few driven they are subject to numerous none none no risks and uncertainties.
Discussed in detail in our documents filed with the SEC, including our most recently filed forms 10-Q10-K, we've got some no obligation three by any forward looking statements made on today's call.
During this call and in our third quarter of 2022 earlier press release, we refer to gap and non-GAAP financial measures.
The non-GAAP financial measures are not prepared in accordance with U S. Generally accepted accounting principles in order in addition to.
That's subject would for or superior to measure as a financial performance prepared in accordance with gas.
A reconciliation between the gap and non-GAAP financial measures is included in our third quarter 2022 earnings press release available on our Investor Relations website.
Joining me on the call today, Okay, Xrayed or founder Chairman and Chief Executive Officer, and Greg Camry, Our Chief Financial Officer.
K R will begin with an overview of our business then Greg will review, the operating and financial highlights of the quarter.
After our prepared remarks, we will have time to take your questions I will now turn the call over to chaos.
Thank you Ed Hello, everyone and good day to you.
You're very pleased with our financial and operating themselves in the third quarter and the outlook for the fourth quarter and fiscal year 2022.
Great they'll go into details from the financial and operating performance and there's so much in a few minutes.
Before that let me see.
Share with you some observations on market dynamics.
And to accompany highlights.
On the market dynamics.
The world lacks energy security.
Disruption of oil and gas supplies to Europe .
The Russian attack on good infrastructure and power plants in Ukraine and.
And the long duration, followed advocates that affect it.
Large populations in the aftermath of hurricane Yeah in Florida.
Aw demonstrate the fragile and federal nature of our fuel and electricity infrastructure.
And it could have been worse.
Became perilously close to catastrophic power outages in Texas, and California during the summer months.
Now the northeast Pier six bar reliability over the winter.
Businesses and governments quickly realizing that absent significant changes.
Disruptions will increase in severity and frequency as extreme weather events become more frequent.
In addition to energy security.
The wallet and.
In price increase for both fuel and electricity.
Contributing heavily to economic insecurity.
But the seal and power industries are not responding to these challenges with alacrity instead.
<unk> for the perfect zero carbon solution off the future.
Yeah, the lesson to deploy anything that may become a standard asset you the policy and regulatory beds.
This white creates a large opportunity for a loan.
Receive it a commercial and industrial consumers, one pragmatic solutions that can power they'd grill today.
There's zero carbon needs in the future.
In Bloom.
Our customers.
Fearless platform.
That is purposeful and practical.
By following them with non combustion based all based on clean power today using natural gas.
And offering to translation them <unk>.
Net zero she was when they become viable.
Yeah, we're offering them.
Energy security.
Economic security and in mind mental security.
Yeah confident that a quick time to flower skid mounted energy, Sir where they'll become a solution of choice for commercial industrial and utility customers.
As a company.
V C. The market conditions, turning favorably for greater adoption off our server platform.
Yeah, they'll position to execute on the goals you have set and meet the moment.
No two highlights.
First we have invested in our capacity expansion by standing up a new factory in Freemont, California.
In 2021, we announced her decision to fund and build additional manufacturing capacity to support our grilled.
Many of you saw that factory under construction during out and rest of your day.
We told you that he would be just the execution by using copy exact manufacturing tools and processes in Delaware, a doubling of stack manufacturing capacity by end of 2022.
Yes on track to doing what we said we would do.
Last month before.
He was 40% more specs than we did in July .
Get on track to double our stack production by the end of the year or 2021 levels.
The factory also has functional flexibility and advantages we told you it would have.
The manufacturing lines is currently producing fuel cell stacks and electrolyzers.
Stacks using the same equipment.
And same team members on the same lines.
Commercial and operational advantages of this flexibility is huge.
And it is unique.
The Bloom energy service platform and architecture.
You will see the benefit of our on time execution off the factory so bedroom Mark Jameson Q4, I started walliams Samsung.
Second.
Our technology is flexible.
Different products that so disappointed customer needs.
On the same basic technology.
We have discussed the ease and speed with which we can adopt a platform.
Two new obligations.
Now I can point to our marine application.
The state these funds.
We signed our first.
Contract that shanty I D Atlantic in June of last year.
And at that time said, we plan to deploy on our first shift in Q3 of 2022.
I'm very pleased to say.
We did that with near perfect execution.
Ask a few weeks ago, yeah, providing hundred 50 kilowatts of power for M. S six new World Europa.
It was largest liquefied natural gas powered cruise ship.
And one of the first to incorporate fuel cell technology.
Honest <unk> glucose guess during the World Cup.
This is a sea change moment in this massive industry as it was two words N, Nancy, though and sustainable future.
The industry.
Once clean vessels and in many cases had been holding off ship purchases.
Wait for the perfect technologies, even though they may still be years away.
Blooms energy server offers them a better solution that.
They can dislike today.
And a clear pathway do a <unk>.
<unk> future.
As Lyndon Cop-out head of sustainability N E S. G at M S. The closest.
Said publicly loans.
<unk> slipped reduce emissions of greenhouse gases substantially compared to conventional LNG engine without producing emissions of nitrogen oxides sulfur oxides are particulates.
She also recognized that blooms technology, what's future proof.
It is compatible with the low and zero carbon fuels of the future such as Green methanol.
Rania synthetic LNG and hydrogen <unk>.
Dishes Y C D a and M. S C adopted blooms technology.
On the Marine front, we believe our execution in Texas is leading to real momentum.
And we will have more to say in the coming months.
Let me now turn it over to Greg.
Right on our financial and operational performance enjoying you after that to answer your questions.
Greg.
Thanks, K R. I agree with you we had a very strong operating and financial quarter and are well positioned for the future.
To begin let me point to a few key highlights.
We had a record third quarter total revenue of $292 million up 41% versus the third quarter 2021, an increase product except it.
We improved our liquidity tourist successful completion of a secondary equity offer.
We are on track for doubling our manufacturing capacity this year.
We continue to see strong customer interest across our energy server and electric wires.
We are reaffirming our 2022 guidance.
With those as highlight let me provide some additional context to our third quarter performance.
Or any cash balance for the third quarter was nearly $670 million up over 100% versus the same quarter last year and compares favorable.
To our recourse that $294 million.
In August we executed a secondary offering a 15 million class a shares.
The deal was oversubscribed at $26 a share you'll think 389 million gross proceeds.
We also received notice from SK Eco plan, if they were executing their second trash option to purchase an additional 13.5 million class a shares at $23.05 per share for gross proceeds at $311 million.
They also will be converting their 10 million redeemable convertible preferred shares to class a shares.
The share purchase is subject to the completion of regulatory reviews, and both conversion and the purchase are expected to close in the first quarter of 2023.
Our partnership with SK Eco plan is strong and continues to find new avenues for growth.
Our value proposition for the energy servers and Electrolyzers is robust.
The energy servers quickly bring additional resilient power to a client site, while providing a pathway to decarbonize.
Our customers need solutions today to reduce their carbon intensity, while providing future optionality to move to onsite net zero solutions like hydrogen.
And hydrogen production using our Electrolyze are we are engaging large scale developers of hydrogen and green ammonia projects.
As they build their project economics, they clearly value the demonstrated efficiency advantages of our high temperature solid oxide technology.
And our manufacturing readiness that aligns with their timelines.
The inflation reduction Act passed this summer continues to be a tailwind across our business.
Our third quarter total revenue of $292 million was driven by strong demand with an increase in our manufacturing capacity.
Product and service revenues were up nearly 50% versus the same quarter last year cause we delivered 65% more accepted.
Our third quarter non-GAAP gross margins of 19% were roughly in line with the third quarter of 2021.
Pricing continues to remain strong while our unit costs are temporarily elevated by the commissioning of our new Fremont manufacturing facility.
Our supply chain team is navigating the current pressured environment and continues to manage availability inflation and lead times for our critical items.
Like in the second quarter is a number of built increased versus the prior quarter. We saw a modest decrease in unit cost quarter over quarter.
We expect unit cost to decrease as we continue our manufacturing rap.
As a note roughly 40% of our 2022 system built are being completed in the fourth quarter.
We continue to invest in our manufacturing capacity research and development and our commercial resources.
Our engineering teams are developing our technology roadmap for Electrolyzers, microcredit and future generations of our servers.
Sales and marketing, we are adding resources to build our selling capability for electrolyzers waste energy data centers and broadening into international market.
Through the year, we've invested in inventories and capacity to meet demand we've.
We've doubled our manufacturing capacity this year as we exit 2022, we will have over 600 megawatts of fuel cell capacity.
Which when converted at the power at a higher power rating. That's over 1.3 Gigawatts of Electrolyzed capacity next year within our existing facilities, we plan to again double our capacity.
As planned we expect most fourth quarter acceptances and revenue to be domestic which will benefit from the increase in ITC as part of the inflation reduction Act.
During the fourth quarter, we plan to execute a repowerings PPA for.
The financial profile will be like the second quarter PPA three a repowering.
With a non-cash charge to accelerate amortization of the prior structure.
A reduction in non recourse debt.
And product sales and an attractive margin.
These repowerings of currently consolidated PPA structures are simplifying our financial reporting and strengthening our service platform.
We are reaffirming our 2022 guidance for revenue margins in cash flows.
With our strong backs.
Backlog in pipeline, we remain confident that we can deliver at least $1.1 billion of annual revenue.
To achieve our margin plan, we will need fourth quarter non-GAAP gross margins to be about 30 per cent we.
We have several past to deliver these margins as our product costs reduce with increased output.
Higher ITC Ah domestic acceptances and.
In a favorable price mix for our planned acceptances.
By achieving the roughly 24% non-GAAP gross margins for 2022, we would expect to deliver positive non-GAAP operating margin and cash flow from operations.
A note on CFO way.
Historically, we have factored some of our receivables to align revenue with cash collection more closely.
Given the rising interest rate environment, and our strong cash position, where reevaluating the economic value of this practice.
Our current casual guidance assumes we continue to factor and if we make a change it will impact the timing of cash receipt in our 2022 Cfos guidance.
In summary, we had a strong operational quarter in our building momentum into the fourth quarter in 2023.
We've had significant tailwinds with a push for abundant clean and resilient energy.
We believe the company isn't an inflection point to build upon our mature technology platform solid record of accomplishment and robust growth roadmap. We are extremely excited about our future.
With that operator, please open the line for questions.
Absolutely.
I would like to remind everyone in order to ask a question you can press start and the number one on your telephone keypad will pause for just a moment to compile a Q and a roster.
Yeah.
The first question is from the lineup Sam Burwell with Jeffries you May proceed.
Hi, there I was wondering if we could start off actually on the nuclear integration with a solid oxide electrolyzers and curious if there's anything on the horizon that we can expect to see you guys leverage out of the.
Westinghouse agreement.
So first and foremost Sam.
Welcome to the billing beam coverage, we're glad to have you on board and this is K R. So.
B.
Clearly I think the I am now.
Menstruation.
Which is what you're addressing do and do bring everybody up to speed.
We demonstrated using the department of energy.
Alright Electrolyze there.
Is significantly significantly.
You know you in our early iterations, 30% better in terms of energy efficiency made me to heat integration.
He needs to go with significant drilling devastated. So this is what god lifting up excited.
It is very from the relationships currently as we sit here we are jointly working with them on several opportunities and again as is tradition in bloom B will speak about it and something actually materializes in it and the and the customer it allows us to speak about it but we see this as a huge opportunity.
Yeah.
Thank you.
Next question is from the line of Michael Bun with Wells Fargo. You May proceed.
Thank you good afternoon, everybody why did I ask in terms of hitting the guidance.
[noise] service margins are still in negative territory. So I wonder if you could just speak to.
As.
Part of the plan to get to these numbers for the year include service margins, turning positive and and if so what's gonna drive that thanks, yeah.
Hey, Michael it's Greg So we put the construct together this year around service biggest component of that service is product costs related to replacement power modules that we put into the fleet. The the same issues that we've had making sure that we continue to drive the cost down of our new product.
Is the same thing that translate over into our service business. So as we've been building out the Fremont facility and carrying more capacity. Then we were currently out putting an absorbing that those unit costs for both the new product as well as for the replacement modules has been somewhat elevated our expectation as as we.
Move through the remainder of this year and into next year and we're building more units.
Better absorption lower product costs, you should see that in our new product business as well as our service business. If you look, particularly within the fourth quarter around how we're building that framework I would expect some improvement in our service margins given that but there is still about a breakeven assumption within the business that they were so.
Able to get to our full year guidance around gross margins.
And one more thing I'd I'd Sam than you would.
Thank God. This is K R is the following right.
Look at the fundamentals of the service business Gregg said.
We are seeing the lifetimes improve with time.
<unk> on our modules, which is key to the service.
Our thoughts, while COVID-19 related somebody saying related.
That in a sense Doe.
We are going to get back to that treadmill pulp, bringing the cost down quota that is going to happen. So you put those things in place.
If the life gets longer.
I got that replacement gifts keeps her.
Clearly the units were shipping needlessly the costs come down now there'll be other pressures that V. You'll be willingly, taking which is when we go into new territories.
That'll be in the early days with little Watermeal, you will see that service will vehicle et cetera, there, but that is necessary for growth and be able to do that so that's the balance you will see but fundamentally the thesis that'd be present at the U of service being a creative to the business as we go forward as solid and we stand by it.
Alright, Thanks Micheal.
Okay.
Thank you. The next question is from the line of the Heap Man ploy with credit Suisse. You May proceed.
Hey, good evening, thanks for taking questions on congratulations on the ramp.
The first just wanted to touch upon the.
D as Avenue.
Truth on the cruise much and you're expecting it to four.
Could I get off the boat favorable makes a fire easily projects could you provide some more context on those.
Specific got something in the U S.
P. P. Four P. P S five simplification.
Which is driving that and also I just wanted to understand and I think I'd be curious talked about.
<unk> the two tiers Avenue.
Hi, I'd like to see about that.
Do you think about <unk>.
Yeah. Thanks, a heap. So so a couple of things I'm packing. Their one is we've definitely seen an increase in our acceptance of each quarter and that's an increase in our revenues each quarters, we've gone through the year and we brought Fremont stacked manufacturing online stack manufacturing as you know has been our capacity constraints, we have more than enough capacity and.
Newark, Delaware facility around two assembly, it's really been about stack and we've built that out each quarter expectation I think I, even said it in the script was we would expect about 40 per cent of our annual bill to this year to be done within the fourth quarter. So that was really gonna help us as we continue to drive forward to get to to get to a revenue.
Guidance on the year listen on mix in I T C for the quarter as we look at the fourth quarter, we're very much focused on making sure that we can deliver the revenue against our backlog in pipeline to continue to grow our revenue to where our guidance as we do see a path to get two or 24% gross margin targets for the year really.
Driven by a couple of <unk>.
A few things one is unit costs should continue to come down like it's come down every quarter. So far this year is billed as an increased we would expect to see those unit cost to come down and that's a margin improvement.
Second thing is we we've been shipping we've been prioritising, our shipment to escape equal plan as part of their take or pay contract because we've been constrained. So we wanted to make sure we could meet our requirements them for the year, we've been shipping them through the course of the year and are nearly done Mac. So we've got a lot in the fourth quarter that is expected to get shipped to you <unk>.
<expletive> customers, including the P. P. A for be powering that we're gonna do within the fourth quarter.
Ultimately we've done that we've taken a look at our mix and make sure that we can get to our targets. This year, we have the flexibility and timing with a lot of our customers, where we can pick and choose within a 90 day period around how we want that mix of of acceptances to come. So you may see within the fourth quarter, a slightly above average.
Average selling price as we continue to make sure that we can meet our commitments that we've made to everybody and give to the margin numbers that we've had and that will regulate as we get into 2023 really encouraging thing about margins. This year was price has been <unk>.
Relatively flat over the last five or six quarters, and we've been able to hold price and as cost is beginning improve you begin to see a margin improvement on our product management.
In the third quarter.
One of the things that we were able to do when I T. C. For 2022 went from 26% to 30% we circle back with some of our finance ears that had U S. Domestic acceptances within within 2022 and part of our good relationships with them where that we.
We were able to make sure that that upside that was coming through with shared equally between where customers where are where are financier is worrying where we were so you saw about an 8 million dollar benefit I think as you read the Q, we talk about that we took within the third quarter given the domestic shipments within the fourth quarter I would expect to see a number larger than that as as we pull in in bill.
Our framework for Q4, so hopefully there's not too much detail in there, but gives you a sense of how we're thinking about our margins and how ITC benefits us for 2022.
Thank you. The next question is from the line of Julian Moulin Smith with Bank of America. You May proceed.
Hey, good afternoon. Thanks for taking the time I appreciate it so first off just keeping with desire right focus if I can you know what geographies and applications are seen greater attention you know I, clearly mercury utility rates and demand charges on higher I T. C should be invigorating can you talk a little bit more about the backlog in them related there.
You all I'd be able to stay and talk to them at about the you know interconnect opportunity utilities, obviously, having challenges data centers talking to add up of late are you still seeing an opportunity for novel load, which can't be met with utilities.
As you look at your backlog creation of the twenty-three.
Yeah, Hey, Julia Greg So let me, let me kick it off and and and what I Miss I'll ask <unk> to clean up for me. So there's another I R. A we are still really encouraged by everything that we're seeing in there were you know whether it is the I T C benefit on our core microgrid equipment or whether it's on the I T C benefit being extend.
It into our biogas waste to energy business and more of that product getting and we're really encourage you about that is that helps our projects become more attractive to our customers. The 45 Q credit around carbon capture were important to us we've talked before now I'll be going from $50 to $85, but the size of the projects.
Where before about 200 megawatts and now can get down in the signal megawatts, probably makes sense for us in the 20 to 30 megawatts, but but a lot more opportunity to play in there and then obviously with the hydrogen P. T C at $3 for our Electrolyze our business within the U S. Given given its performance for their were.
Really excited about that would I'd say generally about how we think about the the I R. A within our business across all those different applications product lines and geographies within the U S. I would say that our velocity within within the deals that we've seen is definitely increasing it is created some scarcity around.
Resources and other things that we can use to our advantage to make sure that we're moving these deals through the system quickly no big announcements to make for you or no no insight into where we think we would the backlog will be for the end of the year, but we're really excited.
About the about the activity or seeing you have specifically about the interconnection the time to power.
Whether it is in the data center space, the advanced manufacturing space, including semiconductors, there's a tremendous need for power right now whether it's from onshore onshoring back to the U S of those those activities or just the the needs within data centers and quite frankly as they go.
They're local utilities, and <unk>, which they shared with previously around this is gonna be there they're energy demand when they made the commitment to build in that location, they're being told that it is gonna take several several quarters, if not several years to get to the power that they needed we've engaged several customers in in that space were real.
We encouraged about the velocity of those deals and the focus really becomes around our manufacturing capability in that we have product that we can continue to break that we can bring another site quickly to with the performance of our equipment that it can operate in what we call in a free bird, which is simply just not in the interconnect into.
We can bring power in and we don't have to go through that application process and then ultimately all everything comes back to our core value proper on the quality of our product of sustainability of our electricity the predictability and the resilience of it and that all plays very well within the market. So we continue to see a lot of pick up there.
Still working through our normal fourth quarter that we have around here, but we're really encouraged about the velocity of deals that we're seeing.
Thanks, Julie Julie and I would add to that a couple of things right. The new look at.
<unk> onshoring us manufacturing and data centers.
And look at specific hot spots in the country.
Sure that gap between supply.
<unk> predicted demand.
It's in the hundreds of megawatts.
That could be a <unk> did you play is.
Greg mentioned it could be a free bird a self operating microgrid that lifestyle or sort of that so that customers. The other one could be in front of the meat or working with the utilities being being able to provide bagels Lady with the tools to inflict this power for their customers.
I'd say bring transmission distribution of NASA.
Alleviate it <unk>.
<unk> <unk>.
Platforms.
<unk>, there was an island, where they need to move it. So this must be super attractive 484.
What are you listening to be interested so not only are we talking to potential customers and our final Bill also engaged with utilities to say how can any partner and there should be a in for the utilities Nonetheless.
The other question you on us and I R. A and Greg alluded to this biogas in ways to flower right ways to power I'll tell Ya.
We have seen an order of magnitude.
Increase in the final that'd be interesting because of I R. A so I'll tell you read some there between two and 300 megawatts Lawrence of final and Bladdery that we have.
Ian the easy like based upon our market.
These are project developers.
You know many of these are brand new trying to like you know utilize all diarrhea benefits one will actually materialize, what's a lot time hotel, but we clearly see at 200 to 300 megawatt final lovely I didn't know the loan so super exciting.
Thanksgiving.
Mmm.
Thank you. The next question is from the line of Martin Malloy with Johnson Rice you May proceed.
Thank you for taking my question I wanted to.
Ask about.
The tailor farms.
Press release that you had during the quarter I thought that was particularly interesting and and maybe if you could just give any insight that you can choose the customers thought process and leaving the grid and go with Bloom servers, and if you're seeing similar kinds of inquiries from other industrial users.
Martin This is <unk> no. Thanks for asking the questions look the data farms.
Is a great example, flores of a repeat customer who started very small with us and good with us as we went along.
For people that are not familiar with the name a few.
If you go to a grocery store and buy a good.
Salad mix chances are.
The date of their phones package seven six.
Okay. They are the country's largest provider of this so very very large footprint, serving a very important need for the country now Derek Fantastic example of what again, we are seeing with our current electricity system.
These bombs and they're the packaging plans are typically at the very end of the line into little areas.
At the energy system is getting constrained electricity.
Someone's getting constrained.
Even on a good day.
Quality and reliability of the power that they have at the end of the line is terrible.
And God forbid things like V P as in PSP.
E S P as in happened, which they have experienced four days on it and they don't have power.
And the amount of.
Damage at dusk.
<unk> to do business.
Is performed.
And therefore they wanted.
A micro good <unk>.
That was completely independent of <unk> and they could just operated.
And this.
This was a requirement and what we have always said is when you combine our base load power.
With a little bit of energy storage.
With a little bit of Indians, if you need it with solar you've put all that together, you'll get the goldilocks with electricity.
Okay, and what you get is energy security economic security and in mind mental stewardship.
He put the three together that is Taylor farm.
As an example of where we believe and be a strong conviction the rest of the <unk> you.
You know the business World is gonna go when they realized what is needed.
Thank you.
The next question is from the line of Nobel Parks with two brothers you May proceed.
Yeah.
Hi, good afternoon.
I know I know.
Uhm I wanted touch a bit more back on on biogas you talked about the.
The funnel I've been crazy have and just how big it is and the and the waste of our space I I would call you having.
Optimism earlier in the year that it would be a big second half for that business line. So I'm wondering if you could just expand a little bit on that the drivers pretty much everything you anticipated of course Iras is helpful.
And.
<unk> do you have any sense about.
What trajectory the growth might take again, if you're crossing into next year.
That's a great question V. R. Yes, then we talked about the I R. A and the benefits that it had created for taking what would be a problem in that methane from the way, it's going into the atmosphere and kind of learning that into an opportunity everything with Linda.
There.
So that story.
Nichols.
Yeah seeing that more people are realizing.
That is not only a good thing to do for the environment. It's a good thing to do for their wallet.
Okay, and then then those two things combined market makes us.
So there are two aspects of this wasted energy that I wanted to focus one aspect of the ways to energy.
He is.
Landfill visited as you know like get you know like David Thomson like animal waste and all of that that you would see there you would see that.
Mmm.
Our system.
<unk> minimum cleanup our systems don't need to be very large.
And for the amount of.
Biomethane that you produce.
They will Delaware the maximum amount of electricity.
For those reasons via the preferred choice by more stable a person does feel that there's a wastewater treatment plant.
Dairy farm you know anybody that's right. So that's the value proposition there.
V C multiple opportunities that <unk> blazer like wastewater treatment. It's also the resiliency play <unk> should there be a big natural disaster in the grid knock operate.
They are eating their own dog food right, so they're able to make methane and then kind of worried that the electricity and operate their <unk> you know like waste water treatment plant in that city and see things a fantastic advantage, but then you go to the other side of the clean fuel credits with its citizens sales.
CSS, it's all of that there is a very strong formula on sea ice score and these are very large projects being developed in the mid West for example.
And even though they have to pay a slightly higher premium to use blooms electricity by using blooms electricity as opposed to the grade they lower their C. I score and the advantage they get on the biofuel is significantly greater than the premium database for the electricity. So we have eight to 10 fries.
<unk> between all the we are actively working on right now so while it's difficult for me to handicap for you and even you know even.
Even if I could I wouldn't give you a number of US you know.
From that 200, 300 megawatts B would expect it pretty reasonable chunk.
Actually go into contract next year.
[laughter].
Okay.
Thank you. The next plan is the next question is from the lineup Cassie Harrison with five per Sandler you May proceed.
Good afternoon, everyone and thank you for taking the questions. Just two quick ones for me I I was wondering if you guys could give us a sense of your current system contract value backlog I noticed the metric you typically provide annually, but I was wondering if maybe we could get a sneak peak of where it stands today and then also yeah. It looks like non-GAAP opex.
[noise] Cup quarter over quarter, because of investments and is maybe tracking up 25% year over year versus revenues about twentyish percent and so I'm. Just wondering how you guys were thinking about operating leverage uhm entering twenty-twenty three thank you.
Hey, Kashi thanks, none on gap.
X Ray so as we went through and looked at where we needed to make investments in the company clearly we are investing in R&D. That's both in engineers to develop projects, but materials that they can use in the laboratory and we are putting a foot to the accelerator to make sure that especially post iras that week.
Can bring these products to market resilient Lee in hard and quickly from the team. So we've definitely put an accelerator to our technical team to go do.
The commercial side listen, we're continuing to build out our capability, whether it is with resources in the sale of our hydrogen electrolyzers and the waste energy that K R was just speaking about two utilities or to building out our international platform. We are we are adding resources to there and then lastly.
Making sure that we are running this business in a controlled fashion as you would expect us to it make sure. We have the resources. We have in place we have that we've done that with each quarter. There's a few things that pop through on the Opex that were one time or is are things you hadn't planned on there was a couple that came through this quarter, but for.
I'm a discipline standpoint. This business is all about getting for them as you said the the low twenties as a person opex as a percentage of revenue to that 15% opex as a percentage of revenue by the middle part of this decade, and we're committed to do that there was a bit of ketchup well, we had made over the last couple of years and as we pull our plans to <unk>.
Whether this year KR my expectation is we won't continue to grow at that rate and you'll get to see some operating leverage out of it but clearly we've made we've made sure that we are we are if we're gonna era, we're going to err on the side of growth and being able to sell our project and control our product, but we ought to get some operating leverage to your point and especially as we move into and.
Next year, given given the revenue expectations that we see in regards to our bookings in a sneak peak I invite you back in 90 days when we do our urine call and we'll be happy to lay out then with a with a great success. The team has had an landing landing the the opportunities for this year.
And I'll I'll say no more of them then I'll see at 90 days on that one.
Thanks Kashi.
Thank you the.
The next question is from the line of Alex <unk> with Wolf Research you May proceed.
Great. Thanks for taking my question.
Just thinking about you know your cash balance.
You know turning to you know positive I guess plus or minus operating cash for like it's depending on the accounting towards the end of the era. Then also you know the additional cash sitting in the beginning part of next year, just kind of thinking about you know how are you looking at at at at kind of capital investment I'm kind of in this environment and can it be like us with us up if all.
[noise] backlog that you've got are you already thinking about the need to to add new new manufacturing capacity.
Yeah, Hey.
Thanks for call. It it's Greg so listen on the cash balance in part around the secondary.
Why did that was to make sure that we had properly capitalize to display not only to our supply chain, but to developers are projects, especially as we'd gotten into some more complicated that we had the the substantial financial resources to be able to participate at the level that we needed to and we wanted to signal to the supply chain.
That we are increasing our capacity significantly and we have the we have the financial wherewithal to encourage them to invest in that was the primary reason that we we we did the secondary over over over the summer in August .
And capital investment.
Very focused on bringing the Fremont facility. This year and next year, So where we were about 300 megawatts. A total staff capacity at the end of last year will be 600 megawatts of total staff capacity in a fuel cell basis, and that's over one over a gigawatt electrolyzer capacity that we have.
As of today based on the investments that we've been able been able to make so far this year will continue to bring those online next year and the investment for it is about $200 million and from that will be will be up we'll double our capacity again next year on that too.
<unk> 200 million that we've been investing this year and next year. So the payback on that is incredibly attractive at six to eight months and we'll go from there.
So far we think we think after we've gotten that that manufacturing capacity in freemont now we're encouraging the team that they can be able to get more capacity out of that same facility going forward. We don't think we stop at the gigawatt of fuel cell capacity or the two and a half gigawatts of electrolyze or capacity in Fremont, but to the extent we need to build another <unk>.
Factory down the road in a different location, we're glad to know that we have the financial wherewithal to make those investment decisions and once you've got the building it's fairly quick to make those investment decisions. So it's about six to eight months to bring it online and once you get it fully utilize it six to eight months to get it done.
Alex one more thing that I wanted to add to what Greg you know like filled U E. Like question was would be continue to invest two double the capacity next year. The answer is absolutely, yes, and while we understand the context of the economic environment that'd be at all seeing in the macro.
Just look at electricity and look at the drivers for the demand whether it is electrification of transportation visited Digitization and data center grilled Tomatoes at his face to energy and that being an opportunity that somebody being created their their eight is electrolyzers of the P. T C.
You know from their recent.
This is not going to slow down for us.
The astronomical basically needs to happen may come down a little bit down to it but you'll still be you'll still be huge growth opportunity and you know <unk>.
The previous question on or off excess of all of this question on our on our Capex.
We are going to meet the moment. That's the reason why we raised the money and we are sitting with a product and a platform that is relevant for today that I love and for tomorrow, rather than for the long term future, so, giving a and we see nothing but opportunity and we will continue to in.
<unk>.
And building the team as well as investing in the cafe.
Go you.
<unk> lead and be the lead later in this in this transition.
[noise]. Thank you.
Next question is from the line of Sangeeta Jane with Keybanc you May proceed.
Hi, Thanks for taking my question can you share with us how boom is participating in debates hey, they should have a proposal for that being prepared for submission to video a.
Via an active conversations with multiple hops and again. These are you know these are you know the <unk>.
Ski holiday talk about and which house, who will participate fairly competent at this stage. So I don't know that I'm at Liberty to talk about which jobs, but trust us there are multiple hubs competing.
And I think when it comes to hydrogen I have abused before I think of the last call visa jeans, and the plows to the people who want to go hunt for them go. Okay. So silvia are participating with anybody and everybody that wants are submitted and Electrolyzers duplin.
Together disobedient proposal demand.
Thanks <unk>.
Thank you.
The next question is from the lineup, calling rush with Oppenheimer you May proceed.
Thanks, So much fast could you speak to you know the improvement in yields that you're getting out of that California facility at this point.
The improvement in yields.
Yep out of the factory you know how that is <unk>.
Yeah.
It is it's a copy exact pace process right. So the same printer technology the same.
<unk> technologies, the same manufacturing processes. The same part go through both are Sunnyvale factory that go through our our Fremont facility and in some cases as we brought the Fremont facility on we were we were using both facilities to create stacks as we brought that process.
So it's not as if there's not a different manufacturing process, nor a different outcome between between what we get out of Fremont versus what we get out of Sonny Dale.
The capacity that we've been able to add is really been amazing over the course of the year in in this is really speaks to the ability of the team to bring this tooling on place very quickly kudos to the team that built the original manufacturing line that they've been able to bring these processes in and build out this manufacturing line and we've got it.
95 per cent up and we'll have the remainder up by this year and will add.
Two more two more lines next year, but our expectation is that the yield from it from a process standpoint.
Will be will be equivalent to where we had in in the first place while we always look to improve that with automation and improving our manufacturing processes. We spend a lotta time on that is way to help drive an improvement in quality as well as a reduction of course, but no real difference between the California facilities and one very important thing.
If you are thinking about it dissipate I.
R <unk>.
Copy exact but also our modern technology right <unk>.
Means that it is giving you not a on off functional starting a new factory.
You you you keep adding capacity every week every month asking you to comes on board. So would you be able to give you. The example tonight.
Three months actually yeah.
<unk> tools on every month means that in October .
We were able to produce 17% more fuel cells then in September .
25 per cent more than in August and 40% more than in July .
So every week every month as we go on we keep ramping up from that one.
You know one <unk>.
So by the end of the year, we will be at two extra capacity over <unk>. So this is a lotus approach to scaling up for that yeah.
Thanks for calling.
Yeah.
Thank you.
The next question is from the lineup are meets the car with BMO capital you May proceed.
Good evening guys. Thanks for squeezing it <unk>, maybe equipment for Greg but.
Like of the installation margins where.
And 40 basis point drag <unk>, that's been kind of you guys have said that that does this is kind of going away and it's you can kind of see that that it's kind of fading is that like another kind of potential cut out a tailwind for you guys. In the fourth quarter is is that kinda like basically kind of ceased.
How about a four quarter.
Yeah. It's a good question I mean, thanks. So so we are definitely engaging more and more with each P. C partners here in the U S. They're taking this this work away from us and they're bringing their expertise to help drive lead times with with the customers as well as to improve improved.
Profitability added given that it it's their core competency and not ours I think if you look at particularly at the fourth quarter, though the one thing I would caution you on as you're probably gonna see something very similar to what we saw in the third quarter, just given the amount of U S. Domestic installations that we're gonna do so while we may improve on each project in our.
Expectation with the Fig team is that they will but just your nominally have more deals in the U S. In the fourth quarter. So it'll be there over the longterm right. The way, we get to our margin levels at 30 per cent by the middle of this decade is we continue to make the product at the profitability. We are now we get service profitable and we may.
Install a smaller part of the overall P&L so even if it loses a few dollars it doesn't impact our our margins negatively going forward. So it remains a key part of our framework and on improving our margins.
Thank you <unk>.
The last question today is from the line of Jeff Osborne with Cowen and company you May proceed.
Yeah. Thanks for getting me in here I was just curious on two things one any commentary you have on on pricing in particular on Electrolyze. Your side I'm. Just curious what you are seeing as you're going out hitting projects.
What was your second one just so we can get them, both and get them answered.
Certainly on the and I have done a few minutes late so I don't know if you're in the prepared remarks of your address to ever source is comments earlier in the week on gas shortages.
We should think about that what's your exposure to the northeast. Thank you yeah.
Great.
On pricing I'm Electrolyzers I will tell you our view on this remained this is not a bomb plus times 1.4 targeting a 40 per cent margin business or technology. We think is a proven out to be second to none around efficiencies where somewhere between 15 to 30, maybe 40 per se.
And if we can find access sources heat to bring in displaced the need for electricity within their and since 80 to 70 to 80 per cent of the class of of breaking water, creating hydrogen is gonna be the input energy costs. We think we've got a competitive advantage as we look to build our pricing over the longterm, we're gonna value price.
Meaning as we pull together with project developers, whether they're doing ammonia weather green ammonia, whether they're doing clean hydrogen whether they are manufacturers that are decarbonising using our technology onsite, we're gonna look to create value for them and share value from them. So I do not.
I I don't generally get into the discussions of how many hundreds of dollars per kilowatt will our electrolyze would be and how do we compete a burst out coin versus pan toss. It it's not the right discussion to go have this is all about creating value for our customers and making sure that their projects get to their economic hurdles and we think we can do that while we meet we need.
Our economic hurdles on it so we're excited about it.
The gas I, clearly I didn't read it particularly around the ever source, but we spent a lot of time talking to the gas companies in the U S. And there was a process here that they are getting a lot of phone calls and a lot of demand. It's it's the second order question when first when the local utilities can't provide electricity.
People begin to say how do I, then do onsite generation, whether it with a fuel cell or some other type of technology that they're getting asked to do a lot going forward, we see it as a as a short term issue and we think we can work our way through it we found the community to be incredibly engaging and in problem solving and.
The projects are are not not how can I say this right or not L. T O. We'd driven in most cases, it's really about a time to power and the missed opportunity. So there is opportunity here in value of that creation that allows you maybe to spend a little bit of money in the short term to get power to them, while the overall deal here hurdles for everybody, but that's the focus.
Maybe not saving the last seven cents on a length of pipe. It's really about how quick can remove let me move that process forward. So I hope that answers your question, Jeff I'm Gonna turn it over to K R. We're right at the top of the hour and let your clothes out here for the team. Thank you Greg and thank you all for taking the time to join US today as you can tell.
We are super excited about the opportunity and in front of us and you'll see nuts.
You want to be <unk>, not just what the product can do <unk>.
Not in them. So the revenue they can generate but also in them off or.
The ability of our platform to be worse at all.
And be able to plug it into so many implications.
Marine application that we just talked about during the prepared remarks as an example of that but we see very similar stories in our other drivers.
Spoken to you about.
In terms of the overall demand in the marketplace.
V thing the electricity demand is going to continue to be robust and there is going to be.
In specific areas.
That are extremely well suited for bloom, there is a big supply demand mismatch and it's all about the time devour, we see that is a huge opportunity.
And the continued to be thankful.
I'm amazed at the execution of our theme in Delaware hang on time development projects.
Production capability.
<unk> G in readiness and being able to Delaware to the customer all just put together Ah via excited about the future and look forward to talking to you in 90 days to block how we finished it yet.
Thank you. Thank you.
This concludes today's conference call you may now disconnect your lines.