Q2 2023 Bloom Energy Corporation Earnings Call
All lines will be muted during the presentation portion of the call and opportunity for questions and answers at the end.
When you asked the question. Please mute your line did you have a follow up question. Please.
Please queue up again I will now pass the conference over to your host <unk>, Vice President of Investor Relations Chris.
Thank you and good afternoon, everybody. Thank you for joining us for Bloom Energy's second quarter 2023 earnings Conference call.
Supplement this conference call, we furnished our second quarter 2023 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.
During this conference call both in our prepared remarks and in answers to your questions. We 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 market strategy financial position liquidity and full year outlook for 2023.
These statements are predictions based upon our expectations estimates and assumptions. However, as these statements deal with future events. They are subject to numerous known and unknown risks and uncertainties as discussed in detail in our documents filed with the SEC, including our most recently filed forms 10.
K and 10-Q.
We assume no obligation to revise any forward looking statements made on today's call.
During this call and in our second quarter 2023 earnings press release.
We refer to GAAP and non-GAAP financial measures.
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 second quarter 2023 earnings press release available on our Investor Relations website.
Joining me on the call today are KR, Schrader, founder Chairman and Chief Executive Officer, and Greg <unk>, Our President and Chief Financial Officer.
Hey, I will begin with an overview on our business then Greg will review, the operating and financial highlights of the quarter as well as the outlook for the year and after our prepared remarks, we will have time to take your questions.
I'll now turn the call over to cure.
Hello, everyone.
He was so great to see so many of you in person at the New York Stock exchange for our Investor Day.
And again, we really appreciate you all joining us today for this call.
At Bloom, we are continuing to make great progress and we grew our revenues radios sarkar.
And strengthened our balance sheet in the second quarter.
We are dedicated as ever.
We're trying to build a great company that can meet the energy needs not just today, but for the future also.
Okay.
Like me, probably all of you who are watching the news in reading the headlines the messages on energy and climate.
Are extremely clear.
Pete just exited the month of July .
And it was the hottest month on the planet in recorded history.
And we are looking at deadly heat waves.
Electrification of everything digital transformation all of them raising the demand for electricity.
And the growing demand for power.
It's far outstripping.
The growth in supply in most places and what is that doing it's just creating the power shortages.
And for people that want to grow their business. It is creating a time top holiday issue for them.
The electric grid.
It's just stretched to the limit and it's being run to fail.
And we believe it or not in this century living that the constant threat of power outages.
And to add insult to injury the power prices are rising really steeply.
Business leaders really are taking note of all of this.
And they are becoming anxious.
The becoming anxious about energy security and the spiking energy cost.
And.
In addition to that they are getting very concerned.
About their decarbonization goals and how they're going to meet it.
So energy strategy now has become a real boardroom issue.
Of great concern for companies.
And many Ceos and boardrooms are finally realizing.
That this is not a short term crisis, they can somehow ignore and expect it to go away very soon.
Good to be with us for a while.
And they have to look for alternative solutions.
Solutions for the energy that actually are more predictable and reliable.
In other words.
They're asking for.
Proven and reliable alternatives to the grid.
And there is simply.
To be able to find that solution.
That is easy to transact with no hidden cost hassles and they don't have to be a rocket scientist to figure out what that alternate Atlas.
Listen.
Our message to the market is very clear.
The Bloom energy servers.
You can say two things about them their resilience testers and their market through it.
It'll allow you the businesses to take control of your power.
And protect your companies as a viable alternative and.
And a real enhancement to the grid.
And this solution we have for you.
It is.
We have scaled it heaters scalable we have proven that is affordable.
And most importantly, it's available today, it's not some future technology.
So not only can you operate destock CIS will ship now.
With net zero hydrogen.
Right away.
If it is available to you.
But until it's available to you you can use natural gas.
And when.
When we listen to the customers you.
What we heard is you want an alternative and you want control.
You tell us that you're worried about switching to a solution that doesn't have a track record that's not a problem at bloom.
You say that you do not want to make.
Big capital investments.
Our lock yourself up in long term contracts.
Because while you won the reliability you also want the flexibility.
You want the flexibility five years from now if there's a better solution you want to switch to that.
And if five years from now the location, where you're operating is not where you want to continue operating you wanna be able to treat them all.
In other words, you're asking for a proven option that's reliable and flexible at the same time, it's very simple to transact and it doesn't have hidden costs our hassles.
We responded to these customer concerns and needs by launching a brand new offering last week the series 10.
Each of power buying model, that's a first of its kind in the U S power industry.
What did we tried to do with this offering.
To make it extremely simple for companies to keep to take control of their power needs.
Is that a substantial user of electricity 10 megawatts and higher.
Let me just explain how simple this is by addressing six.
Salient points.
How about the series Sten and how the needs and concerns of the customers have met by the series 10 offering.
Number one.
This concern about unpredictable and rising PARP cost right.
<unk> will give you a flat.
Power price for five years fixed flat right.
In many places it can be as little as $9.09 a kilowatt hour.
Yeah.
So.
Cost concern.
Checked.
Number two.
Worried about growing your business because of power availability or time to power. The issues you talked about about supply demand mismatch.
We guarantee to ship our units within 50 days from the signing of a contract.
How does that proceed.
Number three.
Capital investments.
Long term contracts at a deal breaker for you right.
There is no upfront investments with our series Sten offer.
And we offer the shortest contract in the market.
For Baseload always on power.
Five years, Yeah, you heard me right five years.
That cancer.
Number four.
Worried about installing and maintaining our operating the energy servers.
It's all handled by Bloom for you at no additional cost.
Number five.
Cannot run on hydrogen biogas.
When they become available.
It could be anytime soon on a little bit later, depending on where you live.
But in the meantime, you need to keep your business operating and you wanted to run on natural gas until that hydrogen becomes available.
Yes, yes, and yes.
We can meet how's your sustainability goals.
You can find it on hydrogen today you can run. It later you can run it on biogas today, you can run it later, but until all of those things come you can run on natural gas today.
Number six Ken customers ask for a solution.
Through their power company.
And can they not get it.
Directly from us.
Absolutely yes.
We would love to partner with independently owned utilities munis.
Municipal utilities.
And community co ops to provide the solution to them and they in turn can serve you the customer.
And we really want to hear from them.
And this offering makes it easy for everybody and amendment.
In other words C. DS 10 is both in front of the meter at a behind the meter solution.
Okay, then all six consensus addressed.
Now let me highlight similarly, another launch.
We just had and it's also very reflective of our innovative products and offerings.
But before I do that.
Let me take a minute to ask.
Blaine.
Why this is significant and just use three points to be able to explain to you.
Number one about half of all the energy that.
Industrial customers use it globally.
His first steam generation.
Yes, 50%.
Our steam generation.
This is a sector of the economy. That's currently the most challenging to Decarbonize and Theyre struggling the most with rising.
Energy prices.
Number two.
Our digital transformation.
Heavily on these big data centers and network operating centers that.
Just send information traffic back and forth between all our devices.
And there where that information needs to go there very large consumers of power and up to 40% of that power, sometimes goes towards providing cooling for those data centers. So the computers can operate.
Number three.
Conventionally.
All that cooling is provided by.
Electricity.
As a source of energy that is how we do air conditioning and refrigeration today.
And that air conditioning and refrigeration.
Predominantly uses hydrofluorocarbons or hfcs as a refrigerant.
The cooling medium.
And Hfc's are hundreds of times more harp harmful to the environment than C O two ish.
At Bloom.
We look at this scenario.
So what do we see we see an opportunity to innovate.
Two days ago Bill.
We launched an enhanced combined heat and power solution.
Let me let me explain what this is steel.
Our bloom energy servers.
Operator at high temperature.
And that high temperature operation is the secret sauce that enables us to provide.
The highest electrical efficiencies in the industry to our customers when it comes to the electricity we provide them.
Here's another thing when those servers.
Our operating at that.
Operating and producing that electricity. They also produce high temperature heat.
Our enhanced CH b offering.
Simply taps into that high temperature heat as a byproduct.
And it delivers it to our customers.
Our customers can use it for steam generation.
His team.
Is widely use paint Israel customers' full process heat F. A said and it's about 50% of their energy needs, if you're an industrial customer.
The steam generator has another major use heat.
It can be used for cooling.
The air conditioning, and refrigeration that we talked about two absorption chillers.
That don't use hydro fluoro carbon sorry hfc's.
These value streams are significant to our customers because they get this added benefit without incurring any additional fuel our operating costs zero.
They save money and they lower their carbon emissions.
It's a win for the company and it's a win for the environment.
This solution will impact industries from chemicals to petroleum to refining pulp and paper food processing primary metals.
You have it.
We look forward to working with industrial customers and partnering with them.
As well as people that are in the business today of providing H P. A C solutions to these industrial customers.
It has global application in global markets.
Historically Europe has had create incentives for people to do a C. S P and it's very prevalent and now <unk>.
Thanks to the I R E D.
Yeah, Bill that you.
U S past.
U S customers, how attractive a T C benefits if they do these CHP projects.
And if they come into construction before January of 2025.
I expect the industrial segment to react very favorably to this new product offering.
With those two examples I'll pause here and I'll be back with you to answer questions for now let me hand, it over to Greg Cameron.
Greg.
Thanks, K R. Let me begin with a few highlights about our strong second quarter performance.
We had record second quarter total revenue of $301 million up nearly 24% versus last year.
Over last year, our product costs are down 13%, improving our product margin 670 basis points.
As planned this quarter, we continued to accelerate shipments of replacement units, which negatively impacted our service margin.
Going forward, we expect quarterly results to improve in service.
We are in a strong liquidity position with total cash balance of $923 million, which will enable us to grow our global business.
We are reaffirming our 2023 framework for revenues and profitability.
With those highlights let me begin with some additional context for our performance I'll keep my comments brief as we just held our Investor conference in May.
During the Investor Conference you heard from experts and customers about the market need for our products.
Customers are recognizing that they need affordable reliable flexible solutions, our ability to bring fuel flexible power on site quickly coupled with combined heat and power and carbon capture provides a competitive advantage versus alternatives.
We are focused on both large scale projects such as data centers, where their needs are complex requiring a longer sales cycle and as KR described our series 10, five year offering which is designed to meet the needs of customers looking for a shorter term solution and coal power is available from their local utility.
<unk>.
We are encouraged by our recent announced technology advancements and international commercial wins.
And our Electrolyze are offering we remain engaged with large scale project developers, who clearly value our efficiency advantages and manufacturing readiness.
As you heard in May as these projects move through their investment decisions, we expect to make announcements on our technology deployment.
In the past quarter, we executed a convertible green bond offering for net proceeds of $560 million and ended the second quarter with a $923 million in total cash.
Cash used in operating activities in the second quarter was $46 million down significantly versus the first quarter. When we were building inventories to meet second half acceptances.
We expect to recapture the first half cash usage over the coming quarters to generate positive cash flow from operations for the year.
With a much improved liquidity position our continued focus on reducing costs, we are well positioned to execute on our growth opportunities.
Our product margin benefited from nearly 13% reduction in product costs.
Our efforts on lowering material costs, coupled with automation and increased power output are driving down product costs.
We are very pleased that we achieved two quarters of double digit cost reductions and we are confident we will achieve our 12% cost down target for 2023.
With these cost downs, coupled with strong pricing our unit economics have improved 20% versus the second quarter 2022.
Our second quarter non-GAAP gross margin of 24% benefited from the strong product margin.
Excluding the impact of our service business, our non-GAAP gross margin would have been nearly 30%.
Giving us confidence that as service improves and product costs continued to decline we will achieve our 2025 company margin guidance.
We're taking swift actions and service that you position this business for long term profitability.
As we've discussed previously some of these actions will accelerate service costs, but they are incorporated into our 2023 company guidance.
We expect second quarter to be our largest service loss in financial performance should improve each quarter as revenues grow performance payments reduce and replacement power module costs normalize.
We remain committed to our service business, achieving a 20% non-GAAP gross margin by 2025.
We are reaffirming our 2023 annual guidance for revenue margins and cash flows.
Given our current backlog, we remain confident that we can deliver one four to $1 5 billion of annual revenue at our targeted 25% non-GAAP gross margin.
At this annual revenue and gross margin profile for the year, we should achieve a positive non-GAAP operating margin and cash flow from operations.
For the third quarter of 2023 based on planned acceptances I would expect our revenue growth to be similar to the second quarter and margins to improve slightly on continued cost downs and improving service performance.
In summary, we had a strong operational quarter as we move forward, we are well capitalized operating with discipline and focus and have a compelling product solutions for a net zero carbon future.
All of which will enable bloom to execute on our growth roadmap.
We are excited about our future.
With that operator, please open up the line for questions.
Okay.
As a reminder, if you will like to ask a question. Please.
Please press star followed by the number one on your telephone keypad and when you ask a question. Please mute. Your line. If you have a follow up question you will need to queue up again.
Now the first question comes from the line of <unk>.
Andrew could cocoa.
Morgan Stanley Your line is open.
Great. Thanks, so much for taking my question here.
Just had a follow up question around the series 10 products, obviously, a very interesting product just given where we are in the market and I'm just wondering when we should start expecting to see that hit.
Our P&L I'm trying to get at with.
With a 50 day lead time could that drive upside to this year's revenue expectations or should we think of that as more of a driver for 2024 and 2025.
Think of that as a driver to 'twenty four 'twenty five mainly but I think we will start transacting with our customers as we as we speak right now of initial engagement and again the sense of urgency with which people are going to come to us would suggest as you would imagine that each.
Should be shorter sales cycles compared to the long lead sales cycles, because we are solving an immediate pain right. So for those reasons.
It is very foreseeable that you can start talking to our customer book, an order ship, an order and recognize revenue all in the same year. Unlike in the past that it's been a long cycle. So expect this segment of the business and again, we think of this as multiple opportunities right.
Bag sales in data centers something slightly different.
Hi.
A quick wins out here, both for us and the customer with a serious and so as we grow as a business we want to see our topline and our final components of.
A portfolio.
And this is wonderful for us.
Portfolio.
But it's also able to meet the needs that we need.
For for our for our customer.
And it's all about here, we think that'll be a big segment and drove that.
Going to focus on time to Power's, saying can I get something yesterday right.
Vivo deal will react as fast as we can.
And one thing I can assure you it would be faster than anybody else on the market.
Okay can we go to the next question.
Okay.
Okay.
Thanks.
The next question.
Okay.
I'm, sorry, I wasn't yet I apologize. Your next question comes from the line of Julien Dumoulin Smith from Bank of America. Your line is open.
Hey, guys, it's actually Alex variable on for Julian here today, maybe one for you Greg just relative to your comments there on sort of the shaping that we can think about into Q3 as.
As well as it sounds like some performance payments and servicer still rolling off a little bit.
I mean, what does that sort of point to if you will as far as <unk>.
<unk> cadence I know you guys have the kind of the back half loading with S. K. This year as well is that as long as a perspective repowering bit, but just curious if you can kind of unpack that the margin trajectory could you using the word slightly in <unk>.
And then also if any you could start any comments on sort of the operating margin and your confidence around reaching positive this year relative to the first half being in the books.
Yeah, Alex. Thanks, So we do expect second quarter to be the high watermark for service both for performance payments as well as our fruit costs as we move forward our replacement power module costs as we move through the second half of the year, we expect those costs to go down as well as revenues to grow in that portfolio and each quarter, we should get.
We should get better as we move through the course of the year around that service loss that give you took service out completely for the quarter, we would've been 30% gross margin business. If you put.
Service to a zero loss kind of where it's been traditionally we were right at that 25, we have some work to do to get back to that but we definitely made a ton of progress on it as we move into the second half specifically around the third quarter and you look at the revenue growth. We had a really strong 2022 three Q. So.
When you look at the lift of likely acceptance is for this quarter and you roll them up and you look at it versus last year. It gets you to a growth rate similar to what we've experienced this quarter and the margins that we see both on an operating income side as well as on a gross margin side, we see improvement from where we are in the second quarter.
Obviously as you move into the fourth quarter.
We have traditionally had that to be our largest acceptance quarter. So you tend to get our most accretive part of our P&L, which is product as an outsized piece of the overall portfolio and that generally is our largest gross margin quarter within the year generally not always but generally is so is.
We move forward through the rest of the year I see the fourth quarter being a contributor to get us to a 25% non.
non-GAAP gross margin total for the year. So I think that trajectory should look very familiar as it has in prior years, especially versus last year as we move through that process and you've got you've got the revenue range that we're at and you've got those gross margin percentages that we've been talking about you compare those to where we expect to be in.
Our Opex, which is really what comes out just between what that gross margin and operating income as the opex number and that should be stable about where it is you begin to see that operating income go positive for the year, which is still the guide so that's kind of the shape. It as we look at it today, how do we think the second half of the year plays out.
Thanks, Alex.
Okay.
Your next question comes from the line of Manav Gupta from UBS. Your line is open.
Thanks, guys.
Straight to the department is in the process of developing final guidance as it is.
<unk> two <unk> to production tax credit.
Favorable ruling would be a tailwind for your electrolyze their business help us understand how youre thinking about additionality and temporary matching and what would you consider to be a favorable outcome here on your business. Thank you.
Thank you so much for that question.
Again to put this context for everybody to understand the template of matching.
There is a lot of debate going on right now in the policymaking load.
What is considered green electricity is a clean electricity when it's produced by solar event right at that point in time.
As long as it's produced in someplace and you use it a little bit later can you shift it and take it from the greater than call. It Green electricity Waterford clock. So this is a temporal matching this data and the question here is the wonderful thing about that.
Bloom select Elisa technology compared to everybody else.
We honestly are agnostic to gear. It anyway, you want and we will give you the best outcome in terms of hydrogen production hydrogen price hydrogen efficiency from an environmental perspective.
Matching it time, four times space or space as the only race here. The reduction is going to happen significantly that is science nobody can deny that so that's the best outcome. If that's what the government wants.
More than happy to comply.
Our technology will be a great solution, but if they choose to use.
Some kind of lever as they transition so it can help the other technologies get there also.
We are fine with that too.
So we are agnostic to it. Thank you for your question.
Okay.
From the line of Chris then join Us from RBS capital markets.
Your line is open.
Hi, yes. Thank you.
I just wanted to follow up on that CHP system announcements you commented that there was some additional cost savings potential there for customers and then lower carbon emissions can.
Can you just I guess, maybe wrap some numbers around that or help us kind of.
Think about how you would quantify.
Yes.
What kind of savings that a customer can see from the system and what the financial benefits are thanks.
Yeah.
Thank you this is gaye ARCUS and welcome to our coverage team we welcome your and your question on CHP.
Let me take an example of a data center.
A good example.
In this case of the <unk> application.
What are the data center will do today will use anywhere from 30% to 40% of the electricity that they use.
To drive.
Electrically driven.
Cooling.
System.
And that's what we'll keep the computers at the temperatures they did that they need to remain to be able to operate.
Now.
Yes.
70% that they use electricity instead of getting from the grid.
If they get it from our systems, which is right on site.
We can tap in that heat.
Use absorption chillers.
And be able to provide the same cooling.
At no additional cost to them in terms of the energy.
Using additional fuel.
They are not using additional electricity.
They are using a different kind of a cooling.
Technology than the electrical cooling technology. This is a heat drilling technology called absorption chillers.
In that case for them.
Can amount to up to 30% cost savings.
And a 30% reduction in carbon footprint.
Okay.
Okay. So that is the advantage. Thank you.
Thanks, Chris. Your next question comes from the line of Sam Burwell from Jefferies. Your line is helping.
Hey, guys.
Wanted to switch gears back over to Electrolyze theirs.
Well I guess it was about a year ago that you announced the plans with XL to install units at Prairie Island nuclear plant in Minnesota. So I was just confirming whether the timeline for that to be installed late this year is still online and whether you think that is like the biggest catalyst or a driver to unlock.
Electrolyse their orders and really accelerate the commercialization process around that.
Yes that particular project Sam it's Greg So that particular project is going through all the regulatory approvals and we still expect it to be on track from it.
Timing of getting that going and we see that as a as a really good project contractually to continue to showcase our technology.
With nuclear in that in that space.
Not an electrolyzed, there's and we've talked about this a little bit when we're all together in May right. These are large scale projects theyre going through their pre feed process, they're going through their process Theyre, making sure that they have source the sources of green energy in whether that is.
New store, our new wind or existing hydro and how theyre going to nuclear as well how are they going to bring that source of electricity into it and then they're looking on their offtake right where is that going to go is that going to go to an existing ammonia facility our existing fertilize for fertilizer or is that going to go for transportation to a different mark.
How does that all work and making sure that they have the both bookends of that pulled together. So they can ultimately make their project financeable.
We are working with a number of different projects going through there. They are very excited about our technology the efficiency benefit of it for sure its ability to use heat as part of the process.
And and our recent.
Demonstration that we did out here in California, where we very quickly brought for almost five megawatts of Electrolyze, our online within two months and gather the data for that is really giving giving us some strength that we've been not been operating these are expectation and it's been our expectation.
As we entered the year as we move through the year and these projects reach of RFID they'll make their technology choices in the announcements we expect that over the course of 'twenty three into 'twenty four youre going to begin to hear about different projects, where we've been selected to.
B technology as part of that project and our expectation is as you move later into 'twenty four you should begin to see some shipments.
But it really won't be until 'twenty five that you begin to see it impact the overall financials on it. So we feel like we're still we're still on track and we are executing against the roadmap that we laid out as we came into the year.
Okay.
Your next question comes from the line of Jordan Levy from Choice Securities. Your line is open.
Afternoon on I appreciate all the details I know, we're just coming off the analyst day. When you gave a lot of color here, but just wanted to get any updated thoughts on international markets.
Told us before.
Markets like Taiwan and.
Italy, and that sort of things I wanted to see if theres any update on momentum there the sales pipeline.
Yes.
Thanks, Jordan your language was really poor, but we've put our ears to the phone here and we think your question is around our progress around around international So hopefully thats. Your question because that's the one we're going to answer that.
We were we were.
In Europe .
Europe . This time last year. It was June of last year. So just a month back and we were really excited at the time that we had our first units landing there right with Ferrari.
Megawatt that we were able to land and we thought for sure.
That was going to open up that market for us as people could see our technology, and especially with our premier partner like Ferrari and it's worked as though we've thought right. You saw some of the deals that we've been able to announce whether it's chaplin and Italy are perenco and the U K or Ian BW in Germany that we just.
So it was a deal in Benelux that we announced so we're really excited about our opportunities.
And in broadly within Europe , and we feel like we've got a lot of good partnerships that were in process is not only building relationship with the building of commercial relationship within transacting, which is always getting that first contract getting that first transaction done it.
As always the hardest as you know and then as you think about Asia. We've always had a real strong relationship in South Korea, with our partners SK Eagle plant, but.
But you saw the announcements with Union micron.
Taiwan that we have unit ship there in fact I'm looking at KAR he'll be it'll be on its way over to to both Singapore and two.
Taiwan here in the near future as part of Tim sales team and going through the process, but we're very excited about that market and we think you need micron is a premier customer that that we can help open up that market and show that our time to power our speed the power and the economics of our solution makes sense.
Let me add to what Greg just said I will be going to Taiwan, not just to be on the sales side, but very proudly inaugurating.
Our Union Micron systems that will start producing far out there and so for us to be able to do that.
Sign a deal in a new country in Asia.
Towards the end of last year and by now have it up and running for that customer speaks to the ease with which customers can deploy our systems and get value and that really is what the customer.
Should focus on and be happy about picking us in it because our ability to deliver to their needs.
Okay.
Yeah sure good question.
Your next question comes from the line of Colin Rusch from Oppenheimer. Your line is open.
Thanks, so much guys.
The prospects for the hydrogen economy start to take shape and folks get a sense of the scope and scale of what can happen here. What are you seeing on the supplier side I suspect that there's going to be more folks I wanted to call out here and I want to understand how you guys are managing that sort of opportunity in terms of the maturing some of the suppliers and starting to drive costs out.
Cherilyn so failures.
So kind of I think about the question a couple of ways.
Not be exactly how youre asking it but let me just go through a couple of parts. One is if we think about our individual supply chain for our product. It's exactly as you know it's exactly the same supply chain. So as we think about how we build fuel cells versus electrolyze. There's we're leveraging all of those same vendor same partners.
Supply chain that we've executed that we've we've partnered with overtime. So that hasnt changed if I think about the broader balance of plant that customers and <unk> and other folks are going to have to work with we have made our stated goal very much to be that we're going to be the electrolyze our supplier into that process.
Meaning that a couple of things one is we don't want to own the plants that create the hydrogen we want to be able to sell.
Our electrolyze or to enter that space and we found some really good relationships.
And we've done this whether it's on the input side around inverters and boilers and things that bring the processes.
The electricity and steam into our systems or when it comes out and you think about the drying and the compressing and the other part those relationships are forming they will be built over individual projects as they get taken out as they get pulled together.
In the purchase orders issued around that so I think youll see some development over that as we go forward and then from a supply standpoint, we're building some really good relationships with players that want to either be a been a traditional provider of hydrogen and may want to look to our technology as part of.
<unk> solution and then how they create hydropac clean hydrogen and sell it into the space or users of hydrogen before they like the distributed nature of our product that they can bring it right on site and perhaps use it.
As part of their overall process think steel thank glass.
<unk> got a a thermo process that links in very well with ours. So it's a to your point, it's an economy, that's evolving and a lot of relationships are going to be formed but we're really excited that we've already built out that supply chain that manufacturing processes and we can focus on the value add partnerships moving forward.
So it's a problem.
One more thing too.
Anything that Gregg said.
Yes.
If you think of the Electrolyze. There if you think of the various discipline and offerings that we have today in our solid oxide fuel cells.
<unk> bye.
I assume that about 70% of that is common between electrolyze are sent our field sales and may be even larger okay.
For us to grow from the $1 billion to the $15 billion company that we want to be it's that debt.
All of that 80% needs to grow so the beauty is that people that started with us when we were less than $100 million in revenue are growing with us to bring to $1 billion and they want to grow with US director 15 billion, but along the way we are adding more people in more geographies also in order to vote.
With a robust supply chain.
All of these components.
Everything outside the system like Greg said, we are counting on partners.
Who have been in this business for a long time that it is a hydrogen compressor or as an example.
Electrical systems for rectification. These are all players will be in there and we are partnering with diverse in the industry to be able to do it.
Thanks, Jeff.
Thanks, guys.
Your next question comes from Kashi Harrison from Piper Sandler Your line is open.
Okay.
Good afternoon, and thank you for taking my question.
So.
Can you help us quantify be proportion of your backlog or business today, that's tied to the data center opportunity and then if you could just help us think through the energy demand implications for rack conversion to Gpus from Cpus to.
To your business, what that looks like whether that conversion.
That has accelerated recently and then how does this impact potentially impact your growth rate is it is it transformational or is it just or is it more incremental thank you.
All are very good questions and.
This the infrastructure part of the business moved as fast as the application parts of their business and how quickly <unk> DPT gets adopted versus how quickly infrastructure changes to keep up with that right. So that's where you're going to see that lag, but let me address all your questions qualitatively because of that number.
One.
Think of the balloon system wide, our datacenter customers love about our system is the modular nature of our power systems today is simply keep adding module.
<unk> when you need more power.
Number one and even in places that have a slightly smaller footprint just look at how our power density keeps going up every two years. So in the same amount of space that you have you are able to get more and more power.
So as you go through the Gpus and they do require more power. This is not a problem.
We offer a solution.
<unk> helps customers scale.
And wherever necessary they can drag it as a as a $1 even if they don't have a single.
And on a single level floor space. So they couldnt find a more adaptable power platform to be able to address what they need within the spaces that they already have they can stay within their white spaces and get a lot more power from us.
The first question. The second question you asked about is there is an opportunity heck yes.
Yes look yes, Nvidia is telling you.
They are going to grow exponentially because of Gpus.
The amount of Gpus Theres only one thing we all know for sure all those Gpus need Butler.
And those Gpus are going to go into data centers and in most places in the world where data centers operate today, they are not able to get extra dollar and weakened power very quick bottler.
We can we can offer very clean power you put those things together.
It stands to reason that we should benefit.
As this evolution takes us so.
Are the power engine.
That is best suited.
The power of the AI Revolution.
Thanks Kathy.
Yes.
Yes.
Your next question comes from the line of Michael Blum from Wells Fargo. Your line is open.
Thanks, Good afternoon everybody.
Wanted to go back to series 10 are really interesting announcement on that.
Wanted to understand the contract dynamics, a little better so if you're offering a flat rate electricity pricing.
His bloom responsible for procuring the feedstock fuel and if so how do you mitigate.
And margin risk over the term of that contract and then just how do we think about capital deployment and return from balloons perspective under these contracts.
Yeah, So Michael it's Greg so.
Similar to our existing PPA offering the series 10, offering the customer will be responsible for the fuel. So bloom is not going to be a position, where we're buying that fuel and selling it to the customer taking that commodity risk the customer is going to be there repriced. It based on a average U S. A.
Average use.
Delivered price of natural gas, depending upon where the customer resides there could be be slightly more if they have a higher delivered cost.
Cost of gas.
From a.
From a from a.
Use of balloons capital similar to what we do with the PPA, we are going to be able to sell this into a structure that allows a financier to provide this five year term to the customers. So bloom will not be taking this onto our balance sheet will look very similar to a product sale that you see today within the U S through the PPA structure, but we're able to deliver that.
To the customer what the customer will get is.
We've sized it to a 10 megawatt they will get a fixed price I think of it as a monthly bill that they will pay.
They will be able to procure their electricity as low as $9 nine slightly.
Slightly higher based on gas prices, if they exist in that and they'll have that electricity that there'll be able to use the other thing thats really interesting as you think about it we've constructed the we've constructed the delivery to be always at.
At 10 megawatts. So for US. It is it is a constant delivery to the customer that 10 megawatts for them to draw that and take it for their customer. So it's a shorter term.
More predictable for the customer and.
If they have an opportunity at the end of five years for a different solution, we will be able to sell them that however that is wherever that is for them. So it gives them a lot of flexibility. So we're really excited about our ability to deliver this product and we can do is move as quick as the customer can and in their local.
Their local perimeter on getting it to them. So we're really excited about it.
Your next question comes from the line of Amit <unk> from BMO capital markets. Your line is open.
Hi, good afternoon, Thanks for taking my question.
It looks like your installed base now roughly kind of 1100 1200 megawatts I was just wondering if you could give us a sense for.
Kind of how much output.
Empower and megawatts that you are producing.
Kind of like last quarter or just kind of.
Over the last year.
So on the great about our about our product right is if you've scaled it to its installed base we're always on.
So you're always just take the amount of.
The amount of installed base that we have times the number of hours and that gets the amount of power that that were providing into our into our customer base.
Since we're not backup power or peak power, we are the base load power for our customers. So as we ship more and that and that gets installed and that gives us a larger installed base, which helps grow our service offering to those customers and more customers get to <unk>.
Get to FID.
To use the get to enjoy the benefits of the Bloom machine.
And I ended the past if you look at our contracts. We would have we would have promised our customer what is called a total maximum output and.
That number will be let us say, if its a megawatt and we say it's a total maximum output of 90%.
900 megawatt hours is what youre going to get every hour.
Our nine megawatt hours is what you will get if you have nine hours of operation of a dent megawatt system Hello, Ed with the series Stan we are telling them, we will give them flat 10 megawatts to the entire five years.
All of them.
That's that's a significant difference.
Great.
Your next question comes from the line of Martin Malloy from Johnson Rice. Your line is open.
Good afternoon.
Could you comment on the progress in developing a server that offers the sidoti capture capability and maybe.
Any comments you have about.
Central customer interest in such an offering given given the tax credits that are out there.
Sure.
So so look here's what happens right.
Every three megawatts every three megawatt hours roughly.
That we produce with our system.
We can capture a very high concentration of one <unk>.
That is about $85 a ton in credit if you're sequestration.
The net benefit after the cost of sequestration and everything.
Can be.
Somewhere between 15, and 20% in terms of lowering the cost for the customer depending on what their costs are.
That's significant so not only do you get baseload power from.
From the most ubiquitous available feel today that screen.
Zero carbon.
You get to that 15% to 30% lower cost that's the value proposition of what we bring to the table.
So the obvious people that have significant interest to this our big oil and gas.
Customers.
That has the gas, but also has the ability to sequence.
The carbon the asset now.
Now the <unk> and from the IRS has significantly increased the interest.
The number of places in the country that have applied for permits for the wells to be able to sequestration out there as soon as these laws are permitted and they are able to do it is then that adoption will be and you are talking about very large scale hundreds of megawatts of opportunities.
Jimmy Let me tell you there are couple of things that really get me excited right one is yet.
We are able to take our Lego blocks and do hundreds of megawatts.
Small power plants.
That are reliable resilient clean no local air pollution to not use water and zero carbon using something like this that excites me.
Similarly, there is another segment that we were asked about Chad PPD, Gpus, and AI and stuff like that.
I'll tell you in the last Pvs.
<unk> had discussions at least with three different customers.
From the data center side and things like that asking for 100 megawatt solutions.
And that interest is very high because of the time to file our supply demand mismatch and need for the liability and the growth that rich.
These data centers.
Looking at what's what's what's coming to them and wanting that that power to be secured he just these are complex.
On sales cycles.
In that side of the business.
But just looking at the number of people approaching us in one and being very serious about it makes me feel very excited about what's to come.
Good morning.
Your next question comes from the line of Brett Castelli from mining Alright, Okay.
Quinn.
Okay.
Yes, hi, Thank you I just wanted to ask on the new products. So the series 10 in the CHP, what do you expect to see in terms of average order size.
For those maybe relative to your history.
Yes. So series 10 has offered it at 10 megawatts, we can scale it up from there.
Works very well it'll be a building block so slightly larger than what we've been our traditional sale, but the product overall product works really well at that 10 megawatts, we can adjust it slightly for a customer either slightly down or above so I would expect to see those in multiples of 10 of course to make that to make that solution work for them on CHP.
My guess would be that would be slightly larger just given the amount of industrial integration that would happen.
<unk> through <unk>.
Creation of steam.
Or through the ore through the Chillers so.
Definitely we continue to move up on the size and scale.
Our average order size.
Why don't we take operator, why don't we take one more question and then we'll have KR close after we answer that last question.
Sure. Your last question comes from the line of Kashi Harrison from Piper Sandler Your line is open.
Hey, just wanted to follow up on the advanced CHP solution can you help us quantify the annual revenue market opportunity just on a dollar basis and then when does the CHP solution begin to have a meaningful financial impact to your business is this a 2024 story 2025 2020.
Just trying to think about that.
Yes, I would tell you similar to most of the Tam that we have around here you measure them and truly is I think <unk> talked about that have the energy use being for the creation of industrial steam. So there is no limitation to the size of that market and in fact, you have some retirements and other things that are going to naturally happen here in the near future that.
That make that market quite attractive here in the near term my expectation is as we go through the process likely 'twenty four 'twenty five you begin to see the shipments over the next year or two on that so we're really excited about that project product in that application.
And we're really we're really pleased by the market response, we're getting on it. So that was our last question and I'll turn it over to you first closing comment.
Thank you Greg So thank you all for joining us today and.
As you have heard the highlight.
The first thing we are pleased with is our performance.
Ian.
During the quarter, we are continuing to grow our revenues, bringing our costs down as Greg said, we are reaffirming our guidance for the year. The second thing that should be very clear.
Customers really are looking for alternatives and solutions.
And it is really becoming a boardroom.
It is about protecting their businesses having business continuity.
Not putting their customers their employees and their neighborhood et cetera risk.
So for those reasons, we are focused on energy security and we bring to them and create solutions.
And as you have seen with what we just announced.
This last quarter, the two innovations <unk> Stan.
And the enhanced CSP.
We will continue to innovate as.
As the market develops.
Thanks to that amazingly flexible platform that we have grown the bloom energy server, we are able to adapt.
We will be nimble and we look forward to serving and VEBA.
We believe that we will be the go to partner.
That companies and utilities come to us.
As a long term strategic partner to not only go through the transition.
But take them to their destination and be with them.
Thank you all for attending.
This concludes today's conference call you may now disconnect. Thank you.
Please wait the conference will begin shortly.
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