Q4 2023 Bloom Energy Corp Earnings Call
Yeah.
Speaker Change: Ladies and gentlemen, thank you for standing by and I would like to welcome everyone to the Bloom Energy Q4, 2023 earnings conference call. At this time all lines have been placed on mute to prevent any background noise.
After the Speakers' remarks, there will be a question and answer session.
Not to ask a question during this time simply press the star followed by the number one on your telephone keypad, if he'd like to withdraw your question. Please press the star followed by the one once again.
Thank you I will now hand, the call over to Ed Vallejo, Vice President of Investor Relations you May begin your conference.
Thank you and good afternoon, everybody. Thank you for joining us for Bloom Energy's fourth quarter 2023 earnings conference call.
To supplement this conference call, we furnished our fourth quarter 2023 earnings press release with the SEC on form 8-K and have 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.
Speaker Change: These include statements about the company's business results products, new market strategy financial position liquidity and full year outlook for 2024.
Speaker Change: 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.
<unk> 10-Q.
We assume no obligation to revise any forward looking statements made on today's call.
During this conference call and in our fourth quarter 2023 earnings press release, we refer to GAAP and non-GAAP financial measures. The non-GAAP financial measures are not prepared in accordance with U S. Generally accepted accounting principles and are in addition to and not a substitute for or superior to.
Speaker Change: To measures of financial performance prepared in accordance with GAAP.
A reconciliation between the GAAP and non-GAAP financial measures is included in our fourth quarter 2023 earnings press release available on our Investor Relations website.
Speaker Change: Joining me on the call today are KR, Schrader, founder Chairman and Chief Executive Officer, Greg Cameron, Our President and Chief Financial Officer, and Oman Joshi, Our Chief Commercial officer, Keith I will begin with an overview of our business then Greg will review, the operating and financial highlights of the quarter as well.
As the outlook for 2024 and after our prepared remarks, we will have time to take your questions.
I will now to turn the call over to KR.
Hello, everyone and thanks for joining us today.
Let me start by thanking the Bloom energy team for relentlessly working on our top objectives of 2023.
Making the company profitable.
KR: Together, we achieved profitability by maintaining price discipline, reducing product costs, improving service margins and reducing operating costs.
What a huge milestone for our company.
Now our goals for 2024 is to increase the profitability on a year over year basis.
In addition to record revenue significantly improved margins and record annual operating income, we introduced innovative products and offerings, including one just this week.
KR: More on that later.
Now let.
Let me address the macros in the energy market.
Digital transformation.
Electric vehicles onshoring of manufacturing and electrification of everything.
All increasing demand for electricity.
<unk> never ever seen before.
KR: All of these factors can drive demand for electricity up to 10 times more than the 0.5% average demand growth rate they get live.
The industry is accustomed to for the last four decades.
Can a slow moving industry.
Failing grid meet this unprecedented demand challenge.
Let's start with electricity generation.
Even breakneck speeds of renewable expansion.
Ken had best address a very small fraction of this demand growth.
In the last 10 years.
All of the new renewable capacity installed in the U S produces less electrical energy than the deficit created by retired coal and nuclear power plants.
New nuclear power.
It will not be online during the next decade in a meaningful way.
We have to rely on more natural gas to meet the electricity demand.
Once pilot has generated inside of relocations. It has to be transported to the demand centers by high voltage transmission lines.
90000 miles.
We have built less than 700 miles in 2022.
All of this suggests that as a nation.
Immediately faced severe and huge power shortage that last a couple of decades.
This situation will be the same in many of the population centers and economic hubs around the world.
KR: In the past few months as I speak to Ceos and business leaders.
Energy security.
And pilot availability our.
Top of mind issues for them and their boards.
Most management teams today view of the future supply and availability of electricity as a key enterprise risk.
Unlike even five years ago.
And most of the conversations around cost of power.
KR: Today.
It is about the opportunity cost and business risk of not having power.
So how will these macros played out for Bloom energy on a commercial side.
Let me start with data centers.
Particularly AI data centers.
For the last few months my team and I have been engaged deeply with several leading companies in the AI space.
From Ceos, all the way to working levels technical teams.
The sales funnel for this sector alone is massive.
Not in the megawatts, but in the Gigawatts.
The funnel.
As comfortable as to several a list of companies.
KR: With credible growth projections cooler totaled by their utility companies do not rely on them for additional power.
They love blooms technology.
Rapid deployment capability and.
And the flexibility and optionality of our solution.
They are actively working with us on design configuration.
And implementation scenarios.
In these interactions are prospective customers tell us that in the absence of reliable and timely power from the grid.
Bloom energy solution would be the best alternative.
Unlike our sales funnels in other sectors in the past that had mostly single digit megawatt opportunities this sector offer tens and hundreds of megawatts per opportunity.
Most of the opportunities we are pursuing today are for Greenfield data centers.
In contrast to the past when we offered a cleaner and more reliable power upgrade to an existing data center facility.
Greenfield opportunities inherently have elongated sales and implementation cycles.
KR: Market in this sector is rapidly evolving and we will have better visibility on timing.
As the year progresses.
KR: Over the coming years I am very excited about the Bloom solution for data center power and particularly AI data centers as I see it has the single biggest segment for our growth in the next decade.
This opportunity.
I highlighted four data centers.
So there are two other energy intensive industries and service operations, that's quite reliable power.
Such as semiconductor manufacturing electric.
Electric charging of bus fan and car fleet and environmentally controlled warehouses.
We are in various stages of commercial engagement with prospective customers and I see great potential to convert some of this interest two bookings this coming year.
Let me now comment on our innovative product offerings in.
In the second half of last year, we announced a combined heat and power CHP offering.
This product offering can provide net zero steam to process industries looking to lower their carbon intensity.
Alternatively.
Using this team to create mid theater cooling it will be a huge economic and environmental benefit to data centers.
KR: We are also seeing a strong interest for our CHP offering in Europe.
Earlier this week, we announced the be flexible offering.
This offering has taken our baseload solution offering and transformed it to meet a customer's varying load.
For utilities that need reserve power, our four data centers power usage varies the be flexible offering provides up to 50% cost savings, 50% carbon reduction introduced slowed and more than five times faster power ramp than legacy.
Actions, such as diesel generators and gas turbines.
My team is working with several power companies to use the be flexible solution in front of the meter.
On the international side, let.
Let me take a moment to talk about Korea.
Five years ago, we started in Korea, with our partners SK Eco plant and SK D&B.
We had a shared sense of purpose and goals.
We knew that together.
Could grow and build a great business in Korea.
In the last five years <unk> sold over $4 billion of product and service due to the Korea market and established Bloom SK as the market leader in fuel cell power generation.
We are positioning ourselves to sell over $4 billion of product and service in the coming four years.
We are engaged with partners in the demonstration and deployment of hydrogen based energy servers.
And hydrogen electrolyzed.
In Korea.
KR: They are also.
Partnering with us to open up new markets and other countries.
In 2020.
KR: We had to hit a pause in the deployments to adapt to.
The new policy and procurement rules that the Korean government enforced in the middle of the year.
While that created a lowering of our sales to Korea in second half of 2023 and a slow start in.
In first half of 2024.
Back on track and we expect a strong business in Korea in the second half of 2024 and in the future.
For us.
Korea is a model and global leader of energy policy progress and commercial adoption.
We are bullish about our future in the Korea market.
We hope to replicate it in other markets around the world.
Outside of Korea.
Tim Strikers leadership, we have opened five international markets and how our pilot programs going.
He and his team are building a strong pipeline in those countries and confident of opening at least two new global markets.
Based on the quality and quantity of the pipeline, we expect our international market to have a strong bookings growth in 2024.
KR: At the core of everything we do is our people.
We're constantly working to develop our existing talent.
<unk> upgraded by adding new talent.
Just last week, our CTO Dr. Ravi pressure was elected to the prestigious National Academy of Engineering.
It's a huge honour and well deserved recognition.
Congratulations Ravi.
In January we were thrilled to welcome him on.
<unk> Joshi as part of our Bloom leadership team.
He joined as our Chief commercial officer after a long career in power generation sales.
<unk> will be responsible to grow a robust sales pipeline with a special focus on converting the opportunities to orders with urgency.
KR: Amen.
Welcome and over to you for a few remarks.
Thank you Pierre it's great to be speaking with you all today.
I just want to say a few words.
First I could not be more excited to join bloom and be part of all the amazing things happening in this company.
The pace of innovation and the confidence in our company's future is palpable among the employees as they walk the floors.
In my prior role I spent over 20 years at General electric most recently focusing on gas turbines and power generation.
In the past two years.
More than five gigawatts of generation capacity.
At GE, our focus was doing large scale projects that were complex and incredibly important.
As we advance along the energy transition it started becoming clear that natural gas and hydrogen going to play a big role in helping decarbonize the world both in energy and industrial sectors in the coming decade.
Gas turbines and recipe, creating engines are far less episodic when burning 100% hydrogen.
KR: In addition, when they combust hydrogen there are challenges around Nox emissions.
<unk> solid oxide fuel cells can solve the hydro didn't challenge today and generate zero carbon zero Sox and Nox.
<unk> is a game changer.
Sided to come to Bloom after seeing the product and realizing that it had arrived at an inflection.
<unk> to function at scale and be a solution for large complicated important and timely projects Bloom is no longer just about potential but its real now and at scale.
Bloom energy server.
KR: That address the most pressing needs of customers across industries, including data centers utilities and industrial processes.
Im excited about the pace of innovation here and the flexibility of the product suite.
KR: <unk> is the kind of company that can move quickly to develop an application and delivered to the market.
Think about what <unk> said on CSP and BB flexible load following product.
Speed from idea to concept to product at Bloom is remarkable.
It's product lead the industry, just look at the Bloom Electrolyze, it which test.
KR: Have proven is the best and the most efficient in the market.
Speaker Change: Bloom can solve the big problems that exist in the market and I'm very pleased to now have an opportunity to sell these solutions to the customers that need them.
Look forward to speaking with you all further in the Q&A.
For now ill turn it over to our CFO, Greg Cameron, Thanks, KR and welcome Omar Let me begin with a few highlights about our strong execution in 2023.
In the fourth quarter, we achieved revenue of $357 million.
non-GAAP gross margins of 27, 4%.
non-GAAP operating income of $27 4 million and positive CFO of $122 million.
These quarterly results accumulated in a strong performance for the full year 2023.
We had record revenue of just over 133 billion up 11% versus last year.
Our non-GAAP gross margin for roughly 26% up 280 basis points versus 2022.
We delivered on our milestone of positive non-GAAP operating income of $19 million up nearly $53 million from the prior year.
Our backlog for product and service is now over 12 billion up 21% versus year end 2022.
We enter 2024 with over $745 million in total cash.
With those highlights let me provide some additional context for our performance.
In the fourth quarter, we signed a 500 megawatt volume agreement with SK Eagle plant.
This is a recommitment of 250 megawatt under our 2021 agreement.
A commitment for an incremental 250 megawatts.
Under the new agreement the 500 megawatt will be accepted through 2027, providing visibility for nearly $1 5 billion and product revenue over the next four years.
And $3 billion and service revenue over the next 20 years.
The prior agreement was amended to reflect the implementation of the clean hydrogen portfolio standards in Korea.
The new agreement adjusted the timing of deliveries, which reduced 2023 revenue by roughly $160 million versus the prior agreement 2023 volume commitment.
These deliveries and revenue are incorporated into the $1 5 billion that is expected to be recognized through 2027.
As <unk> shared global power demand is being driven by electrification Evs and AI data centers.
The world's current generation transmission and distribution capacity will be in capable of meeting the additional electricity needs.
Our fuel flexible energy server with enhanced capability, a combined heat and power carbon capture and load following is uniquely positioned to meet the needs today, while providing optionality through the energy transition.
Clearly the macro trends are in bloom favor.
I am very encouraged by them in addition to the team.
He brings a wealth of experience in the distributed power generation market and rigorous commercial process mindset.
Even after just a few weeks in the role he is already making significant impacts.
Bloom remains committed to the 2025 targets for product margin service margin and profitability.
As well as our long term revenue growth rates.
As we move through the decade, most of the long term growth will be driven by our power generation solutions.
Our electrolyze, our marine products will contribute as those markets evolve.
Our 2023 non-GAAP gross margins of 25, 8% improved 280 basis points versus 2022.
The margin improvement was driven by a 13% reduction in our unit product cost.
Offsetting a small reduction from pricing mix, resulting in over a 10% increase in our unit product profit.
Clearly our effort to lower material costs, coupled with automation and increased power output are driving down product costs.
And every quarter in 2023, we have achieved double digit cost reductions versus prior year.
Speaker Change: And we exceeded our 2023 product costs down target.
As we move into 2024, we expect to maintain our double digit cost reductions.
As expected our fourth quarter results in service improve versus prior quarters.
Revenues grew performance payments declined and replacement power module costs reduced.
We remain committed to our service business, achieving 20% non-GAAP gross margins by 2025.
We expect our service non-GAAP gross margins to continue to improve and it will be a key driver to increasing our overall non-GAAP gross margins in 2024 and beyond.
In the fourth quarter, we had positive CFO way of roughly $122 million.
Speaker Change: Building, our total cash balance to over $745 million.
In 2023, we made investments in increasing inventory that I would not expect to repeat in 2024.
Additionally, I would expect our accounts receivable aging to reduce as we collect from our partner on a large project that has experienced delays.
In the fourth quarter, we completed our targeted proactive restructurings.
These were focused on managing costs, driving efficiencies and optimizing our performance to ensure that as we grow revenue our margins can improve and we can generate free cash flow and profitability.
As we move into 2024, we've consolidated our California stack manufacturing and.
And reduced our operating expenses, 19% versus the first half of 2023.
A restructuring charge of roughly $7 million was recorded in the fourth quarter that has a pro forma adjustment to our non-GAAP reporting.
As we look forward to 2024, we expect to continue to grow our revenues and expand our margins.
Based upon our backlog and pipeline, we are targeting revenue of one four to $1 6 billion.
We expect additional 200 basis points improvement in our non-GAAP gross margins to about 28%.
Based on these targeted revenue and margin performance I would expect our non-GAAP operating profit to be between $75 million to $100 million.
Consistent with prior year's second half revenue should be greater than first half driven by timing of Korea shipments and some large acceptances.
For the first half I would expect revenue to be up mid single digits with improving profitability versus last year.
For the first quarter the range is a bit broad as we have projects that can be accepted in either the first or.
Our second quarter.
First quarter revenue could be flat to down 20% on a tough comparison as the first quarter 2023 was up nearly 40%.
Finally, let me spend a few minutes on my departure from Bloom energy.
The last four years, it's been an amazing professional journey.
I want to thank KR, the board and the entire Bloom family for their support and allowing me to contribute to Bloom success.
I am proud of how we've worked together to position <unk> for the future.
We've doubled revenues improved margins strengthened our balance sheet doubled manufacturing capacity and assembled a strong operating team.
The world needs blooms solutions and I'm confident the Bloom team is poised to continue to deliver.
This has been a very hard decision for me, but I look forward to enjoying more time closer to my family.
So while theres rarely a perfect time for a transition.
Waiting for one often comes with a personal cost.
In the near term I'll be focused on ensuring a smooth CFO transition.
I am confident in case.
Find the right person to enable blooms continued success.
I remain very excited for <unk> future.
With that operator please.
These open the line for questions.
Thank you at this time I would like to remind us on the conference participants in order to ask a question. Please press the star followed by the number one on your telephone keypad.
In the interest of time, we cant everquest analyst limit their questions to one and as consequence, you might pull for follow up questions.
We will pull us for just a moment to compile the Q&A roster.
Our first question comes from the line of Andrew <unk>.
Morgan Stanley. Please go ahead.
Alright. Thanks, so much for taking the question Greg first off best of luck in your next endeavor and thank you for your partnership over the last few years, it's been great.
Speaker Change: And I guess, maybe just to start out.
On the AI data center theme.
I think the idea around power shortages and bottlenecks is definitely gaining some momentum and you guys have talked about.
<unk> as a key solution for that end market KR.
It sounds like you're having a lot of conversations with these tech companies that are pursuing AI and I guess just given some of these power constraints I would've thought that there would be a faster pace of development on somebody's agreement. So can you maybe just give me a sense for or give us a sense for.
We're in the process you are in these conversations and maybe some of the remaining items that need to be negotiated or work through to get these across the finish line and then maybe as a separate follow up you did allude to some delays in the South Korea market as a driver to downside in your 2023 revenue target can you just give us a sense of what's included in 2010.
For as it relates to South Korea, and how you get comfortable with some of those regulatory changes. Thank you.
Andrew. Thank you so much I will speak to the data centers and I'll have Greg talk to the Caribbean markets do so and we can both add color to that so look.
If I were to just tell you my last three days.
Having two days of board meetings and today of earnings calls.
In addition to that if I just look at.
For meetings I've had that large data center players and this is leadership C suite CEO levels.
And add Bloom.
These meetings are about greenfield data centers and collectively these.
These four opportunities that.
I met would add up.
In terms of our pipeline interest more than half a gigawatt.
Speaker Change: So that's what we're looking at in terms of what we are being told by these customers and if you just look at.
So whether it is the big chip companies and what their predictions are if you look at DSM.
TSMC in the Fabs and what their predictions are and then multiply that by the amount of power. They need. These these numbers are very real numbers, but unlike what we talked about earlier. These are greenfield data centers. So as we are speaking to these customers. They are securing the land they're securing their financing they are securing their offtake.
Trying to get their permits so it is taking.
It's an elongated cycle.
We expect.
The second half to be lot more robust than the first half based on everything we're seeing.
And we could have continued to focus on.
Had a huge opportunity cost.
On the other traditional sectors through which we build our pipeline and gotten into a good first half.
We are very deliberate on choosing out opportunities.
And we see this as an extremely real opportunity with great focus and therefore via a VR honed in on it.
Im very optimistic about where our future is going to be in this area.
Speaker Change: Do you want to talk about Korea, yes sure.
Andrew Thank you for your kind words I've enjoyed the partnership as well.
Korea.
Is the change came in with a clean hydrogen portfolio standards. It was known all the way back to 2021 that this change was coming and we didn't know exactly how it's going to impact the market.
Speaker Change: But at the time, we even as partner said if this does impact timing then we're going to have to come back to the table, which which we did.
I think going forward looking at where the market is and looking at the bidding process is there.
As we go into this year being 24 and into next year I think our partners there have a pretty good understanding of how the market is going to play out and one of the changes that we made to the agreement that we didn't have before as we now have quarterly minimums in place before we had annual minimums.
Speaker Change: It left us with some uncertainties uncertainties, we went through the year. We now have quarterly minimums, where we can look at to make sure. We are on track for the year. So I think that was a good change if I look forward in the market out 23456 years that market is going to continue to expand and the technologies are actually going to come together. So you won't have separate.
Swim lanes for fuel cells versus combustion versus other things that market is going to continue to grow both for natural gas as it transitions to hydrogen and I feel very good about blooms products. Both on the fuel cell side as well as the electrolyze or to do really well in Korea. So I'm really encouraged with that market I've enjoyed my partnership.
With both eco plant in <unk> very much and I have had the pleasure of spending some time with them over the last the last few years and they've just been nothing but great partner. So we're really excited about our partnerships there and we're excited about the market.
Okay.
Speaker Change: Thank you. Our next question comes from the line of Manav Gupta of UBS. Please go ahead.
Good morning, guys. My quick question here is the 2024 is it range help us understand what could push you towards the top end of the range of 1.6 syndrome venue and also just a quick clarification.
You have any capital discipline, so with 75 200 million in operating profit.
That implies minimum cash burn and very small needs if any bought any external financing if you could address those issues. Thank you.
Speaker Change: Yes, sure Matt its Greg so listen when we pulled the plan together for this year and.
And we looked at it and this is why a little bit in my script I talked about being up kind of mid single digits is where I think the company will be at the midpoint in the year and that gives us kind of the way we've looked at it before which is a 35% to 40% of our revenue is going to be earned in the first half versus the second half what's going to drive us from the lower into the guide to the <unk>.
Higher end of the guide is really on a list of projects that we see both in the U S broadly international and in Korea, and my expectation is as we go through the year, we're going to get more and more clarity around the timing of those projects.
Im very bullish that we're going to win our fair share of those projects and they're either going to fall in late 2020 for early 'twenty five so my expectation as we go through the year, it's not so much where we have the projects it will be the timing of those projects, but our full expectation my full expectation for bloom is that it will leave 2024.
For with a bunch of commercial momentum both in winning deals as well as delivering delivering on systems and that would drive us to the higher end of the range.
Speaker Change: On the question around cash burn listen the metric that I look at right is the EBITDA metric and that says is the company burning cash on running itself and we've been positive on an EBITDA in the last couple of years. So our CFO way usage has been more around investing in inventories and other things preparing for the growth in.
And those systems and I don't expect to change the to change the view on the inventory levels year over year, where we grew them significantly.
Speaker Change: From 22 to 23, I would not expect a similar level of growth next year. It was really a way to make sure that we had the business position going forward that was the case that would say you have more opportunity to generate cash and that CFO bucket than not because you're not investing investing in the working capital as I think about the capital needs for the.
Speaker Change: Any one thing that's going to be out there that we're going to need to think about is the 2025.
$220 million convert will come current in August is not coming due until 'twenty August of 2025, but that will be something that the company can be opportunistic around when it chooses to address that and with our cash balances and that value of $220 million, we could easily pay that off if we chose so I think the company has a lot of options on win.
When and how it addresses those capital needs.
Yes.
Yes.
Thank you. Our next question comes from the line of Vishal <unk> of Jefferies. Please go ahead.
Alright, Thank you for taking my questions.
Wanted to quickly just.
Talk about.
Thoughts on Electrolyze sales going into 2025, I know that you guys mentioned you're.
<unk>.
Optimistic on that but I think just given.
Some delays in <unk> analysis, but I just wanted to get your thoughts there.
So.
This is KR and that'll have Greg add some.
Additional comments to that if you look.
We have shown 2006 and beyond is there that is.
Going to be meaningful Electra laser revenue, we think that's still a possibility. Let me walk you through a few things that we're looking at right now.
As we have still with you.
Via publicly mentioned in Florida, the seven hubs, we are working with some other hubs do but let's just talk about those four hubs.
These projects are in the pre feed engineering right now as we speak and Bloom is supporting those projects as an OEM.
But.
As you very well know vending the money for the hub on.
An 80 20 rule is the <unk> side, the 80% of these go to feed and beyond is going to depend on the regulations that come on the production tax credit from the daily that's what's going to drive it.
So as we.
Sit here, we are supporting those.
And but the delays in the PTC is going to delay those implementations as we see it.
Speaker Change: But VR ready able and willing to support those things number one.
Speaker Change: If you look outside of the U S. Right now we are in pre feed studies in multiple geographies, including Europe Middle East and Australia.
And we are we are like working on those.
Speaker Change: XL Prairie Island, we have already shipped our unit now it's the customer who is going to integrate it and start running it.
If you look at our <unk> project with Idaho National Lab.
They can stop seeing enough good things about us that unit, we shipped out that is working extremely well not just performing but exceeding expectations. So far.
That's a summary of <unk> progress.
Yes.
I think here's what I would add is in addition to that our technology is the most efficient on the market today and we have over two gigawatts of capacity would you get with Bloom is optionality.
So we see in the near term and we've always talked about this with our long term growth rates. The majority of the short term growth is going to be driven by our core power generation project product now what's great about that is we are building out all of the manufacturing capacity to supply chain, the automated automation driving down the cost around our stacks and columns.
And it's the same product, whether we put it in as a fuel cell or isn't electrolyze. It. So we are learning every day and how to drive that cost curve down and we're not waiting for that as well as every day, we get a 1 billion data points coming in and how those stacks and columns are performing in the field. So while we wait for the.
Market to evolve and it will evolve and when it does we think we have a great product that's going to have really high efficiencies and we will be ready to manufacture it for our customers, but in the meantime, with Bloom what you get is amazing optionality, because we're not waiting on that market to develop we still have a company last year, they generated 133 billion.
And revenue.
As it built out of the business.
Okay.
Okay.
Speaker Change: Yes.
Thank you and our next question comes from the line of Pavel <unk> of Raymond James. Please go ahead.
Thanks for.
Pavel: Taking the question.
I guess it was about a year ago, you entered the European market for the first time.
And.
Pavel: Europe, where some of the green hydrogen projects are moving forward. So I know you.
And fuel cells in the UK and elsewhere are you, making any progress with the Electrolyze our product in Europe.
So we are and we are in pre feed studies with a few few potential customers in Europe as we speak.
But let's let's dial in for a second on the Green hydrogen story too right.
Andrew started off by talking about the power shortage and what we do.
Power is electricity and instead electricity that makes the molecule.
So the fact that there is a shortage of that electricity, even when it's being made is going to stress, making a molecule with that electricity.
That's the macro that we need to understand and then say if you are going to make that molecule with that precious electricity.
The technology that uses less of that electricity is what's kind of event. So we're very confident in Europe to be able to get there.
And we are talking to several customers right now but.
It seems to us.
But the pace of implementation is going to be slower than what all of US want however, as Greg correctly alluded and I want to underline that.
For us that's an optionality and.
Pavel: Not being a pure play just on Electrolyze us.
He has an amazing competitive advantage for us and I can't over emphasize that.
Okay.
Thanks very much.
Thank you and our next question comes from the line of Bank of Baird. Please go ahead.
Yes.
Hey, Thank you guys.
Greg.
Sorry.
Sure.
Just thinking about.
This year or two could we talked a little bit CRA review.
Well the <unk> factory.
I hope so.
If we should see a large impact.
For Toyota because of the ramp up.
There is some confusion about the different servers.
So could you update us on what servers.
Right.
How that impacts sales.
And a follow up.
Sure.
Ben It's Greg I'll take the question on Fremont. So at the end of last year, we had a major milestone in the company in that we exited our previous factory in Sunnyvale and we've now consolidated all of our manufacturing capacity in Fremont Theyre. All the tooling is moved over and we've kept it just shy of that 700.
<unk> megawatt of capacity when you have all that tooling.
Greg Cameron: There I think we can still at least double if not more based on the size and commitments and our ability to drive more automation and density in that space from a cost standpoint, there is dollars that we're going to save between rent and utilities in indirect labor being over.
Both both operating factories, that's going to have an improvement in our product cost year over year.
I would also say that we're going to find by running two factories within driving distance of each other we're going to find some hidden factories in that process. That's going to continue to take cost out we set a target for the team at <unk>.
Greg Cameron: <unk> double digits, 10% down, but they know very well that their target is is higher internally than the one I'm going to give externally and I think that they've got ample room to continue to drive not only material costs down, but increased automation and to make sure that they are contributing to our margin.
Improvement this year as they did last year. They overachieve by 100 basis points, we got 13 versus our target of 12, so full confidence that they'll overachieve again.
Thank you and our next question comes from the line of Colin Rusch of Oppenheimer. Please go ahead.
Thanks, so much.
You gave us some color a little bit on some of the customers on the backlog for the year, but could you talk a little bit about the sales cycle, and whether thats accelerating or decelerating at all with some of these bigger projects and with the mix and the incremental backlog.
And of the service revenue.
Understanding what the dynamic is there.
Sure, let me start with the service because mathematically remember that each year in our backlog, we absorb into revenue out of the backlog only one year of the service and then you add to that all of the additional service revenue on the deals that you booked.
And then when <unk> got something like we like Korea that has a 20 year high performance commitment the service payments there are high and Thats what drove the differences on the volumes between you looked at mid single digits on product and over 20% percent on service and that's how that mathematically takes together.
I think on the sales cycle I'll start with that I am very encouraged.
With with demand coming in I made it in I made it in my comment in my in my prepared comments, what I like about demand coming in as a couple of things. One is he sold in this space before and and although we didn't overlap directly I was a GE capital Guy He was an industrial guy, but we both have the same training with corporate audit staff in other places and <unk>.
An incredible hopeful might bring that GE mindset around process, but but as well as he knows this space very well. So I think the combination of process as well as his commercial acumen is going to continue to make sure that we're accelerating some of these larger transactions in because there is an overlap on how he saw the.
Before and how we see the world and I think it's a really good fit.
Speaker Change: Got it and I would add to that the flowing things right number one.
I said these are much bigger projects.
Which means you would expect at a slightly more elongated cycle, the more greenfield projects and not brownfield projects you would expect it in an elongated cycle, having said that.
The macro of lack of power is going to make people take decisions faster because they don't have a choice theres, a forcing function not coming from us on the selling side, but from the customer meeting that solution. We added solution that the customer needs now.
Coming and joining us like Greg correctly pointed out has sold five gigawatts worth of power globally in the last two years. So he knows a thing or two about taking complex deals and shrinking the cycle. That's what we expect him to do out here.
Okay.
Thank you. Our next question comes from the line of Michael Blum of Wells Fargo. Please go ahead.
Thanks.
Gregg Thanks for your help.
And wish you the best of luck.
One is that you know in your prepared remarks.
Reiterated the long term targets driven mostly by the power the core power generation business.
You've kind of addressed the Elektra allows us to some degree with you you're.
It seemed at least to me a little less optimistic on the Marine segment. So I just wanted to get a sense of maybe for both of those but specifically the marine.
Progress and what's your kind of latest outlook there yeah I'll start because I'll just address it and then KR has been really close to that market as of late so so listen for me as we built out our long range targets over the decade, we always planned on marine really beginning to contribute in the back half of the decade, and I'd say that as we continue to look.
At our overall framework, we see that timing is probably still about where we are I would expect it to be so as I think about contributors to 2020 for 2025 for the business, it's really focused on delivering our power generation equipment with all its enhancements and I think that is a wise way in which we built our long term frame.
Mark was that we were building it based off the market. We saw and then as other markets evolved it would enhance and increase our growth rates. So that so everything is still there it's still about where I thought it would be.
And our full expectation that it'll be an enhancement to our power generation business as we move out later in this decade, Gary you've been close to this market sure. So let me take marine and expand that the shipping as a like as.
Okay. So the reason to do that is when we talked to you first we talked about cargo ships.
The container ships not D opportunity.
The cruise ships in yards.
Is very interesting and we have several customers extremely interested in this you heard about our MSC Europa and we're working with the likes of Royal Caribbean on this.
And so what we are doing is we are forming a consortium of these people.
The key players in this field.
Just give us a common set.
Of requirements. So we can develop a product that spans across the entire industry. That's one but the second part where they're seeing their pain points is when they get to port.
Having enough power at the Port.
And this is our bread and butter business.
That we need to be able to customize using a be flexible platform to be able to provide fluid power.
So this is again something we're working on so like Greg said expect this to be the 26 plus revenue, but we think this is a very important area for us and we are continuing to work.
Okay.
Thank you. Our next question comes from Julien Dumoulin Smith of Bank of America. Please go ahead.
Yeah.
This is actually Cameron Lochridge Allen.
Bofa on drilling team.
I just wanted to come back in real quick ask about the backlog and just the comp composition there.
If you can give a little bit more color around bifurcated between SK and what else is included there specifically.
If there are any.
If theres any orders related to data centers or hydrogen just kind of if you could give a little more color around the composition of the backlog right now.
Yes.
It's Greg so listen on our backlog I would tell you. Its still is the vast majority of it is around our natural gas.
<unk> power.
Fuel cell leases they start that customer obviously has optionality to move that to a hydrogen fuel cell in the future, but the primary product <unk>, which we're selling there is today there as we move forward I would expect that backlog to expand to electrolyze it and other things and that's why we've killed the megawatt metric and just focused on dollars because thats most important.
As you think about Korea, we talked about that in the call for both product and service and that's out there and as you do the variances year over year, you can see that we've incorporated the entire Korea opportunity that we have with eco plant.
In that backlog so.
It's pretty healthy at the size given the overall volume of it at $12 billion on it.
<unk>.
Any sort of shy of $2 billion.
And we're really really excited about to continue to grow that and provide the revenue for the business going forward.
Thank you.
Our next question comes along with Chris <unk> of RBC capital markets. Please go ahead.
Yes. Thank you.
Yeah.
But I wanted to hone in a bit more on the singles the doubles or the bunch of the company and.
What's the demand environment for that right now how much is it being impacted by interest rates and maybe just.
Overall kind of perception of that market, how are things kind of looking right now thanks.
Yes, let me start with the interest rates and we talked about this 90 days ago on the last call. When you think about other companies that are in this space right and the impact of interest rates on their pricing as well as their competitiveness to the customer. The one thing that's different about the Bloom solution is if you break it down into how much is capex versus few.
<unk> versus service roughly say its a third a third a third thats not perfect, but think about it that way so the interest rates or a higher basis, a benchmark rate that they deal with kind of you're priced on it's really going to be only impactful on the capex portion, while the fuel would not in service would not so as.
Rule, we are probably impacted call it a 3rd% to 40% of what other companies are in this space you think when think solar so that's so that's different.
From us the other thing that's been happening is we've gone through our PPA financing is just frankly, the bloom credit quality has gotten better as we've strengthened the balance sheet here. So.
The component around the Bloom specific credit has gone down so while maybe over the last 12 months, we've seen some slight increase in the benchmark rates up and the IRR is that come out of our PPA, but for the most part we've been able to offset that through the cycle by just are improving and finding more and more competitive bidding.
Around the around the around the customers.
Thank you. Our next question comes along with Jordan Levy of <unk> Securities. Please go ahead.
Jordan Levy: Thanks, all for all the comments and Greg. Thank you for everything you want to Echo what everyone else is fundamental.
No I don't want to belabor anything on Asps.
Jordan Levy: Good notice of quick comments for Q, I know that can bounce around from quarter to quarter. So maybe if I can just get some color on that.
Yes.
It is simple mostly mix.
About a third quarter versus fourth quarter, we had the repowering in the third quarter as you move into the fourth quarter to there and remember we just take the ASB I don't separate it out for mix around micro grids versus grid parallel or other things so.
It's more than outpaced our costs down which is really where you want to see the difference on those numbers they've got a 10 point expansion last year on ASP versus cost down and just based on where utility costs are going and given the shortage of power, we don't see a pricing pressure as you look forward.
Thank you. Our next question comes a lot of Noel parks of Thule <unk>. Please go ahead.
Hi, good afternoon.
I just wanted to.
The data Center example is such a compelling one as far as.
Your outlook for demand growth.
Under <unk>.
Could you maybe talk about what number two number three number four.
Business lines or vertical.
What you see being.
Most affected.
Grid insufficiency and and.
Jordan Levy: And as a result.
Perhaps having them.
Most motivated talks with you as far as.
Coming newer expanded customers that.
It's a great question. So let me try and answer that very quickly. The first one that I would think as continuous manufacturing we are bringing a lot of manufacturing back into this country.
These are fabs semiconductor chips things like that.
Large power intensive.
Is that not only require large amounts of power, but also wanted to reliably and wanted with a cleaner footprint. We are able to offer all of those things. The second place that I would immediately thing could be huge would be EV charging because as fleets need to get charged whether it's delivery trucks full warehouses.
<unk> buses for Metro as auditors.
<unk> cars.
Thank the ability for adjust if you believe in even half the predictions of EV uptake in the next five years the amount of power that's needed and video are going to get that last mile power.
That becomes a very attractive option for us the third one and with that I'll stop and the interest of time would be.
In front of the meter for utilities.
Jordan Levy: That has a congested distribution spot and are not able to take care of their customers and several utilities are talking to us. This is something new for US we have not done this before but that is a healthy part of our pipeline.
Thank you. Our next question comes from Manav fishing apparent Sherry <unk>. Please go ahead.
Yes.
Yes. Thanks.
Hey, My question.
Two questions on data centers.
<unk>.
How this data center operators are looking at fuel cell power, there, but theyre looking at silicon power that entire facility or.
Small portions some critical parcel of those facilities and then related to that how challenging is getting natural gas to.
This facility is that something that <unk> is going to be doing.
Right.
Someone can do that.
So.
Blood questions. So most data centers that are talking to us today are asking us to beat the standalone solution.
We are able to provide the complete power for them. This is that it is and the reason is not because they don't want their utility with them.
<unk>, saying they cannot provide them power.
Unlike that.
The gas pipeline and the medium pressure pipelines.
Is.
He is very available and we don't have to do anything specific other than how our customer.
Tap into those lines and work with the gas companies to get that we don't take the fuel risk as you know, but we facilitate bringing the fuel to the customer.
Okay.
Thank you. Our next question comes from the line of choice on the graph.
<unk> of <unk>. Please go ahead.
Hi, Thanks for taking my question.
You mentioned ILUVIEN power shortage, which points to higher electricity prices over the medium term do you see because of that do you see potential to push pricing. This year to help reach the higher end of the guide or is that really we're thinking it just comes from growing acceptances.
And on a related note what sort of uptake are you seeing from the series 10 offering.
Okay.
On the guide it's volume driven really the value that we sell to the customer will always make sure we're value pricing it against other alternatives, but if youre thinking short term its really going to be at the volumetric with regard drivers at different parts of the guide.
Thank you. Our next question comes from the line of Jeff Osborne.
Colin Please go ahead.
Jeff Osborne: Yes, I think the prior person asking series tenant I'd be curious to get an answer on that one as well, but the tier one I had was on the backlog coverage.
Can you talk about the visibility to the low end of the guide are you fully booked for that or do you need the pipeline to convert and I was curious Greg if you can discuss the carbon intensity score for the ITC. In 2025 is that starts do you anticipate a wave of bookings and 24 ahead of that.
Then I believe you have a year to complete the project.
Yes.
So I'll, let KR talk about the series 10 listen on the ITC right, we're coming up at a period of time here.
They're based on current legislation what we've seen in the past is it has driven some commercial activity around that to make sure people are getting.
Those orders in so they can safe harbor and they can continue to enjoy that to 2025 based on everything that I'm hearing from our team in D. C. I think they are making a tremendous amount of progress around making the case that the bloom technology is required and should be part of the solution going forward and we should we should enjoy a we should.
We should enjoy the benefits of the ITC being extended its not new even though I've just been here four years I think this is the third time that I've seen this process go through so it's just part of our usual business process to be aware of it.
And if it drive some volume in the near term that's great, but obviously over the long term I do not think that balloon should be disadvantaged given its technologies and efficiencies versus versus others. So on on X series Sten if it does.
Just look at what I said about as going from the single megawatts to tens of megawatts in hundreds and hundreds of megawatts you can call. It the <unk> stent and the <unk> hundred is pretty much what we are dealing with in our entire pipeline and that's the kind of stuff, we're dealing with it and the fact that we created that nicely packaged solution for somebody to understand and <unk>.
Going to work with us is going to help us with the commercial momentum. So that's a great step forward for us.
And it is an integral part of what is in our pipeline and how we are prosecuting future orders.
Thanks, Jeff.
Thank you. Our next question comes from the line of Kashi Harrison of Piper Sandler. Please go ahead.
Good afternoon, and thank you for taking the questions maybe.
Kashi Harrison: Maybe just a follow up to <unk>.
Last one can you give us a sense of how much of guidance is locked via the backlog.
Kashi Harrison: And then what needs to be booked and shipped.
And what incremental might be needed to be booked and shipped during the year and then just looking through the K in the factors affecting your performance section there was a comment about the Amazon deal, presumably it was the Amazon deal, suggesting the project was delayed I think you said due to a permit.
Do you expect to receive the permits and how should we think about the risk of cancellations outlined within the K like how high.
<unk> is the probability.
So I'll, let the K speak for itself on that project I think we outlined it pretty well, where we're ready to deliver on that project to Amazon and we're working with them on the next steps and the path forward.
As we go forward, especially on the backlog right you see the product backlog is significantly bigger than where the guide would be for the year now some of that is more in the out years as we look at it for the course of the year. We obviously have a series of transactions some that arent even in the backlog right. If you think about it versus prior years, we had repowering.
And other things that Werent part of that so there's a lot of optionality within Bloom as we go through the year and making sure that the things that we deliver on for the year. Some of those are known some of those arent known so we may have an example, where a project.
<unk> is planned for the year in during the course of the year. The customer has some issues or itself on an interconnection agreement or a permitting and that leaves us to go pull a different one in for the year or to find an additional one and that could either create.
Movement within the guide or could create movement above the guide, which you saw I think in 2022 was where it where we happened late in the year and we over we overachieve given some of the opportunities that we found in the back half of the year that the customer needed equipment sooner.
So with that I think we are running fast time, a greatly appreciate determined as interest great questions from all of you and I want to take this opportunity to thank Greg for his partnership.
And his invaluable hub in driving better financial and operating performance at the company.
We will miss him here and I wish him the best of luck going forward.
He will help us make an orderly transition to our next CFO.
I wanted to close now by saying we are in a great position to continue our growth and success.
We are excited about the quality and quantity of our sales funnel.
We are confident about our long term growth rates and predictive target.
We are focused on operating the business in a financially responsible way being very delicately managing costs and driving cash flow and profitability there.
We are confident about our bright future for us and thank you all for being part of this journey.
Thank you. Thank you thanks care.
Thank you. This concludes today's conference call. Thank you for participating and you may now disconnect.
Please wait the conference will begin shortly.
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Okay.
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Kashi Harrison: Yes.
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Thanks.