Bloom Energy Q3 2023 Earnings Call Transcript

Quartr
Provided by Quartr
November 8, 2023

There are 14 speakers on the call.

Operator

Evening, ladies and gentlemen. Thank you for attending Bloom Energy's Q3 2023 Earnings Conference Call. My name is Adam, and I'll be your moderator for today's call. All lines will be muted during the presentation portion of the call with an opportunity for questions and answers at the end. Once you ask A question, please mute your line.

Operator

If you have a follow-up question, please queue up again. I will now pass the conference over to your host, Ed Vallejo, Vice President of Investor Relations. Please proceed.

Speaker 1

Thank you, and good afternoon, everybody. Thank you for joining us for Bloom Energy's Q3 2023 earnings conference call. To supplement this conference call, we furnished our Q3 2023 earnings press release with the SEC on Form 8 ks 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. These include statements about the company's business, product, New markets, strategy, financial position, liquidity and full year outlook for 2023.

Speaker 1

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 ks and 10 Q. We assume no obligation to revise any forward looking statements made on today's call. During this call and in our Q3 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.

Speaker 1

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 Q3 2023 earnings press release available on our Investor Relations website. Joining me on the call today are KR Schwitter, Founder, Chairman and Chief Executive Officer And Greg Cameron, our President and Chief Financial Officer. KR 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 the year.

Speaker 1

After our prepared remarks, we will have time to take your questions. I will now turn the call over to KR.

Speaker 2

Hello, everyone, and thanks for joining us today. We are continuing to execute on growing our business in the U. S. And around the world. We remain heads down and focused on performing and innovating at a high level.

Speaker 2

We continue to increase revenue And expand our gross and operating margins. We do this by selling value to our customers, Maintaining price discipline and reducing costs. In fact, we have lowered costs 6 quarters in a row, Just as we said, we would do. We are achieving new levels of success. The strong numbers we report today is a proof point that our business model is working and can be profitable.

Speaker 2

We are well capitalized to continue innovating and handle the cyclical and lumpy nature of our business. The rise in power demand continues to be both steep and sustained. Record high temperatures, adoption of EVs, Electrification, data center growth, AI and reassuring of industries Have all been strong drivers of electricity demand. The antiquated and sluggish electric grid If unable to keep up with this rapid demand spike. A case in point, 66 gigawatts of greenfield projects are delayed in the U.

Speaker 2

S. And only 14% of capacity requesting interconnection from years 2000 to 2017 reached commercial operations By the end of 2022 according to a Department of Energy Lab report, Bloom Energy's products And architecture are uniquely suited to these times for both behind and in front of the meter. Where necessary, we can operate in an islanded mode without grid interconnection and offer our customers Quick, reliable and clean power. As an example, we installed 7.8 megawatts of Bloom Servers at Coherent's Pennsylvania factory, allowing for significant electrical load to be supplied to that site Independently from the grid, the Bloom servers provide clean and reliable power That fortifies the factory's critical infrastructure and helps Coherent meet both customer demand and revenue growth. While the issue of rising interest rates and global conflicts create some headwinds, There is no question that demand for clean power and the need for availability and reliability We'll create definite and sustained tailwinds for our business.

Speaker 2

Looking at our sales inquiry pipeline, The impact of AI to our business cannot be overstated. AI Clearly has the potential of expanding the adoption of our products in the data center market. AI powered search on a GPU will take 5 to 20 times more power 1st search compared to a regular search on a CPU and the use of AI It's growing rapidly across all segments of our society. This will exponentially increase energy demand In data centers over the next decade, if we look at the projections of future growth from the chip companies And cloud service providers, the imbalance in grid availability and the accelerating demand for compute power It's expanding the case for Bloom in this sector from resilience to one of timely primary power availability. For example, we powered our first customer in Taiwan and signed our first customer in Singapore recently.

Speaker 2

In Taiwan, we installed the first phase of a 10 Megawatt Solid Oxide Fuel Cell contract With Uni Micron Technology Corporation, a chip substrate and printed circuit board maker, Our energy servers went from contract to power on in less than 6 months, which shows how quickly we can move to solve power availability problems. That success Helped us land our first deal in Singapore. Working with our partner SK Ecoplant, we will deploy our Bloom Energy Servers With GDS, a leading developer of high performance data centers. This is exciting as it is illustrative of the strength of our servers as a solution for data centers. In addition, Singapore is a market where 90 plus percent of power is natural gas based today.

Speaker 2

While we will start with natural gas, our systems are future proofed. Our customers can switch to carbon capture, To hydrogen or to green ammonia, once the regional infrastructure, supply chain And regulatory frameworks are established for those cleaner options. We think This is a model for future projects and it demonstrates the competitive advantage of our fuel flexible platform. Let me spend just a moment on hydrogen. We have long been focused on hydrogen And its many benefits, particularly given the flexibility of our platform technology to operate as fuel cells to provide power For us, Electrolyzers to produce hydrogen.

Speaker 2

As many of you know, the Department of Energy Announced just a few weeks ago, a $7,000,000,000 nationwide investment designed to launch 7 regional Clean hydrogen hubs across the country. Bloom Energy electrolyzers were included in 4 of the 7 winning hydrogen hubs. This should come as no surprise. Bloom Energy is unique in the electrolyzer industry In being able to offer both the highest electrical efficiency products and deliver them at scale today From our fully operational Gigafactories in Fremont, California and Newark, Delaware. It is early days for what will be a huge market, but we are clearly pleased about our wins and what it means for Bloom and the world in the future.

Speaker 2

So to close, growing demand for power solutions Driven by data centers and AI, a relentless focus on cost discipline and efficiency, A deep commitment to innovation and fuel flexibility, all make us excited about Bloom Energy's future. I'll be back with you to answer questions. For now, let me hand it over to Greg Cameron. Greg?

Speaker 3

Thanks, KR. Let me begin with a few highlights about our strong execution in the Q3. We had a record 3rd quarter revenue of $400,000,000 up 37% versus last year. Our margins improved. 3rd quarter non GAAP gross margins were roughly 32%, bringing our year to date margins to 25%, up 6.80 basis points versus prior year.

Speaker 3

We continue to execute on cost reductions, Product costs are down 18% versus last year, and our operating expenses are down approximately 20% from the Q1. Our service margins improved versus the prior quarter, and we expect this quarterly trend in service to continue. We ended the quarter with a total cash balance of roughly $638,000,000 We are reaffirming our 2023 framework for revenues, margins and profitability. With those as highlights, let me provide some additional context to our performance. As the need for additional electricity grows, our customers recognize the value of affordable, reliable and flexible power solutions.

Speaker 3

Our ability to bring fuel flexible power on-site quickly with our energy server, coupled with combined heat and power and carbon capture solutions, Provides a competitive advantage versus alternatives. We remain focused on both large scale projects such as data centers, where the energy project dynamics are complex, requiring longer sales cycles as well as shorter term projects where the customer needs solutions until the power is available from a local utility. As you heard from KR, our electrolyzer has been selected for several hydrogen hubs. These project sponsors, like many large scale project developers, clearly value our efficiency advantage and manufacturing readiness. As these projects move through their investment decisions, we expect to make announcements on our technology deployments.

Speaker 3

Historically, most of our bookings closed in the Q4. This year is no different as we are very focused on converting our commercial pipeline to orders over the next couple of months. Each opportunity has its own unique challenges, such as permitting, interconnection timing, Complexity, IRA incentives, etcetera. Although these challenges have added to our sales cycle times, Our sales team is committed to delivering a robust backlog to grow our future revenues. We look forward to sharing our results in our year end earnings call in February.

Speaker 3

This past quarter, SK Eagle Plant converted 13,500,000 redeemable convertible preferred shares to common equity. We are grateful for their trust and are excited to continue our partnership. As part of this conversion, we eliminated $311,000,000 in liabilities And recorded a non cash interest charge of $53,000,000 When SK Eco Plant made their investment in the Q1, They have the option to convert the RCPS to either debt or equity by the end of the Q3. As they have elected equity, We are expensing the loan commitment asset established in the Q1 to interest expense. This expense is being removed as a pro form a adjustment To our non GAAP reporting, our 3rd quarter non GAAP gross margins of 32% improved 12.4 points Versus the Q3 2022.

Speaker 3

The margin increase was driven by maintaining pricing and acceptances, while reducing unit costs. Both price and costs were positively impacted by the repowering of PPA5. The PPA V repowering is similar to the 2022 PPA repowering. We executed the sale of a previously consolidated PPA entity. And by doing so, we paid off $119,000,000 of non recourse debt, enhanced current margins and simplified our financial reporting.

Speaker 3

As part of this transaction, we recorded 133,000,000 of charges through our electricity segment, operating expenses and other expense that were removed as a pro form a adjustment From our non GAAP reporting. This was our last remaining consolidated TPA entity. I want to spend a minute on the impact from rising interest rates on securing project financing. As rates have increased over the past 2 years, Investor cost of capital expectations have also increased. Over this period, we have obtained Project financing at attractive rates, allowing us to maintain our product margins.

Speaker 3

Early in the cycle, we offset much of the pressure through an improving Bloom Energy credit profile. Over the last 12 months, as benchmark rates have continued to rise, We've been able to offset additional pressure through ITC benefits for Energy Communities and Domestic Content. Going forward, we will endeavor to offset additional pressure through reducing product cost, Maintaining pricing discipline as the cost of alternatives continues to increase, competitively bidding new financings and a possible extension of ITC Benefits post 2024. Our product margin benefited from nearly 18% reduction in product costs Year over year, lower material costs coupled with automation and increased power output are driving down product costs. Every quarter this year, we've achieved double digit cost reductions, and we are confident we will achieve our 2023 target of 12% Product costs down as we position ourselves for a strong 2024.

Speaker 3

In the Q4, we are consolidating our California stack manufacturing Into our state of the art Fremont facility, consolidating our legacy Sunnyvale activities in Fremont will reduce headcount And expenses as we maintain our capacity. As expected, our Q3 results in service improved versus the 2nd quarter, And we expect them to continue to improve as revenues grow, performance payments reduce and replacement power module costs reduce. We remain committed to our service business achieving a 20% non GAAP gross margin by 2025. In the 3rd Q4, we have executed a few targeted restructurings to reduce costs. We are committed to delivering profitable growth as we continue to invest in our future.

Speaker 3

We targeted areas that can be reduced without impacting our technical These actions have resulted in reducing our operating headcount about 10%. A restructuring charge of roughly $2,000,000 was recorded in the 3rd quarter with an additional $6,000,000 to be recorded in the 4th quarter. Both will be pro form a adjustments to our non GAAP reporting. We are reaffirming our 2023 annual guidance for revenue, Margins and Profitability. Based on anticipated 4th quarter acceptances, we expect to deliver 1,400,000,000 to 1,500,000,000 Annual revenue at our targeted 25% non GAAP gross margin.

Speaker 3

At this revenue and gross margin profile, We should achieve a positive non GAAP operating margin for the year. As we've previously discussed, Bloom is committed to becoming profitable this year, And we are well positioned given our performance year to date. I no longer expect to be CFOA positive for the full year. We are holding additional inventories to support our previously announced time to power value proposition that elevated our working capital levels. We will continue to be diligent with our investments in working capital, ensuring that we are balancing growth, profitability and liquidity.

Speaker 3

In summary, we had a strong operational quarter. As we move forward, we were operating with discipline and focus, And we have compelling product solutions for a net zero carbon future. We're excited about our future. With that, operator, please open the line for questions.

Operator

Your first question comes from the line of Andrew Percoco with Morgan Stanley. Your line is open.

Speaker 4

Great. Thanks so much. Good evening, everyone. I just want to start with South Korea. I think They recently switched to an auction process for fuel cell purchases over the last few months.

Speaker 4

Can you maybe just discuss how this is impacting timing of deliveries to SK? And if they are delayed, do you have the ability to backfill those orders with other projects outside of South Korea? Thank you.

Speaker 5

Hey, Andrew. It's Greg. Thanks for the question. Listen, with SK, huge partner for us and we're very appreciative that they showed more confidence in us and as they on the conversion equity this quarter. I've spent a lot of time in Korea over the course of this year and really excited about the market opportunity.

Speaker 5

To your point, the CHPS standards, the clean hydrogen portfolio standard to come in this year and there's been 2 bidding processes. There was one in the summer and then there's one currently going on right now. It looks to be as though as we've lined up with our partner, we're really excited about that we've seen and we're going through that process now with bidding, with conclusion on the bidding and we'll know more in the next few weeks there. But I would tell you Really tight alignment between the two teams and understanding how to add value and continue to win in that market. So we're really encouraged about the near term in that space and as well as the long term In Korea.

Operator

Your next question comes from the line of Julien Dumoulin Smith at Bank of America, your line is open.

Speaker 6

Hey, good afternoon, Tim. Thank you guys very much. Just first off, can you elaborate a little bit more on the Inventory, I mean what's going on in terms of CFOA and just to what end the buildup in working capital there, I mean What is that saying about 24 really is I think what is an interesting nugget or clue there? And then related, can you just elaborate a little bit on where you stand on some of these data center deals Like Amazon, what's included this year or next year? And what are you seeing just on the data center activity front, whether that's with Amazon Or in Ireland or frankly, some of these other opportunities, how much of the overall build could you be seeing in 2024 derived from those as you think about your backlog or guidance composition?

Speaker 5

Yes. Thanks, Julian. I'll start and it's Greg and then I'll pass it over to KR specifically on the data centers. Look, on the working capital, you see the inventory increase so far this year. We are up, call it, dollars 250,000,000 As we've built inventories, we're prepared to really reduce the cycle time for our customers on a need for power.

Speaker 5

So that's what's negatively impacting our CFOA. I'd point you to EBITDA, just EBITDA is positive so far this year. So it wasn't a cash burn that's coming through operations. It's more of an investment that we've purposely made In order to make sure that we can continue to respond quickly and a lot of that is given our confidence in what we're seeing in the commercial pipeline And knowing that our customers have a time to power issue and yet we still need to get through permitting and everything else, but once that's cleared, They very quickly want that power and they do not want to wait for long lead items to come in. So we've purposely built up some of that inventory based on our Confidence in our pipeline and that converting into orders that we'll need to convert to deliveries very quickly.

Speaker 5

And that's the reason that those inventories are up. And then We were very prudent around our working capital, but as I look through it for the rest of the year, KR and I sat back and said to make the CFOA target, there is no reason for us to drive our inventory levels Down below a level that's going to put us in the spot where we're not going to be able to meet need next year. So we purposely kept those up and Thought it was prudent for the company as a way to help respond to the customers. I'll let Tayar talk about data centers.

Speaker 2

Hey, Julian. So look, data centers was red hot prior to Checkgpt. I don't even know how to describe the color of where those data centers are going post JetGPT, right? The AI searches on average will be significantly greater In the power hungry need of those chips, the GPU chips compared to the CPU chips. So whether it's an existing data center that's converting from CPU to GPU For a new data center that's needed because almost all of society is beginning to use AI right now.

Speaker 2

What part of the society do we know That is not going to embrace it. The shortage of power that existed prior to GPT It's only getting significantly greater. So whether it's Virginia For the San Jose, Santa Clara area between those two centers, roughly 70%, 80% of the data centers in the country exist in They both have severe shortage of power for what the needs are. That story, I was in Taiwan, I was in Singapore, Whether it's the chip makers and whether it's the ecosystem in the semiconductor industry supplying these parts or whether it's the data centers themselves in Singapore, You're seeing exactly the same story. That story plays over again in Ireland.

Speaker 2

So we think that this is a real opportunity That's going to be sustained for a long period of time. And Bloom with its modular reliable infrastructure, The ability to switch to a cleaner fuel as they come along, the pay as you grow modular nature of what we do, Our established presence in the data center industry already as a reliable provider of power. You put all that together, we think it's a phenomenal opportunity for us going forward. These are complex big deals. They take time to come together, but it is our single largest inquiry.

Speaker 2

Thank you.

Operator

Your next question comes from the line of Chris Dendronos with RBC Capital Markets. Your line is open.

Speaker 4

Yes. Thank you. I wanted to shift the conversation a little bit to the hydrogen topic here. The project Nujara quick, it looks like the EIS was submitted a couple of months back and then still waiting for a response there. Is there anything more to say on that program right now and when we could maybe hear an announcement on the award, I guess, of the demands To Bloom, I'll leave it there.

Speaker 4

Thanks.

Speaker 2

So To the extent that our customer speaks about it or our partners speak about it, we let them do that. But until A deal is finalized. It's normally not our habit to talk about it. So I'm not going to Give you any more color other than we are very engaged in that project, I can confirm that. And then In terms of the hydrogen larger story, I think the big news really is the $7,000,000,000 hydrogen hubs And how we have been selected in 4 of the hubs.

Speaker 2

And we have invested and we are continuing to invest In a big way Ian Hydrogen because we believe we have the world's most efficient electrolyzer that can be deployed at scale And we see this is a huge opportunity.

Operator

Your next Question comes from the line of Ben Kallo with Baird. Your line is open.

Speaker 7

Hey, thanks guys and good evening. Just on the movement over to Fremont, how do we think about any impacts into Q4? I think it's You're probably seamless, but just wanted to get your thoughts on that. And then just on repower, is there any way you can quantify The impact on margin there. Thank you.

Speaker 5

Hey, Ben, it's Greg. So on Fremont, It is going very smoothly. So we are moving what tooling needs to get moved out of Sunnyvale and over to Fremont, and we do not Expected to have any impact on our capacity this quarter or next quarter. We've prebuilt where we needed to, And it's moving quite seamlessly. As you know, those are those two facilities are quick drive apart and bringing that tooling offline for a short period of time Isn't going to impact it.

Speaker 5

So we're excited to get that all together. That lease was ending in Sunnyvale anyways, and we'll just have everything together in a much More efficient place and pay one rent versus 2 and have a consolidated inventory and indirect labor force in that. So really excited about it. On the repowering, the PPA5 is very similar to the repowering that we did last year with 3a and 4. So From a structure standpoint, you remember we spent a lot of time talking about how we bought back in those VIEs and then went through a purpose and sold those VIEs to a financial Sure.

Speaker 5

And then that financial investor bought units from us that we delivered against within the quarter. The particular numbers of it, Ben, I'm going to point you to the queue. I think the The team did an amazing job of breaking out the individual components of it. So look on pages 28 through 30, they describe each of the steps And what the financial numbers are and from there you should be able to pull apart what was the revenue associated with each of those transactions.

Operator

Next question comes from the line of Manav Gupta with UBS. Your line is open.

Speaker 8

Congrats on a very strong quarter. Good to see a hydrogen company not cut guidance and go towards the top end of the guidance. My question here is, last quarter you talked about the new Series 10 solution and some combined heat and power solutions. Can you give us an update on those two offerings? Thank you.

Speaker 2

Manav, thank you. And so the first question on Series 10. Look, Series 10 is one of many opportunities that we are offering our customers. And what is really interesting about that opportunity Yes, it's a 5 year commitment for people who believe that the grid problem is going to get solved in 5 years. We don't want to pass judgment.

Speaker 2

We just want to give them a 5 year solution and that's a fantastic solution. So for people who are in that category who believe that, it's an opportunity that works very well and obviously we do that At a certain size and scale, there is lot of early funnel moment in that, but these are long cycles like I said. So We are seeing interest in that area like we would expect to, but we wouldn't expect to close anything in a month or 2. These are Tens of 1,000,000 of dollars deals and they take time. So we would expect to see results coming out of that Next year and that was our projection.

Speaker 2

So that's on track. CHP. Your second question on CHP, I think it's extremely important. CHP is not just for the steam and the heat and the process industry. I just talked about data centers to you and AI data centers.

Speaker 2

The AI data centers not only consume Lot more electricity, guess what, the cooling load goes up enormously proportionally because these chips Put out a lot of heat inside the data center. So more than 20% of the cooling of that data center has to happen and that's where the electricity is going to go. Here is the good news. When Bloom powers that data center, we can use that excess heat and create cooling With the heat, that's called a vapor absorption system. Unlike the vapor absorption system, this is a heat driven cooling system, Absorption Chilling.

Speaker 2

And we are able to provide that cooling and it is net zero cooling for them because they're putting no additional fuel. We are seeing tremendous interest from the data center industry on this particular offering.

Operator

Your next question comes from the line of Deshamps Alani with Jefferies. Your line is open.

Speaker 9

Hi. Just one quick question on the Prairie Island test, any kind of updates there?

Speaker 2

It is still in the early stages with our XL customer. And so, no, we don't have anything as of now, but Expect something in the next few months as the steps go on.

Operator

Your next question comes from the line of Jordan Levy with Trist Securities. Your line is open.

Speaker 10

Good afternoon all. Appreciate all the comments. Maybe if you can just talk to and remind us kind of what remains to be done on sort of the restructuring and the OpEx cost downs And where you're at on that?

Speaker 5

Yes. Thanks, Randy. It's Greg. So this quarter being the 3rd and the 4th quarter, We took actions both in our manufacturing facilities. We consolidated the teams together.

Speaker 5

Those have all been completed. And then on the OpEx side, we went through a process here very targeted to make sure that given the investments and the growth that we had Over the last couple of years, that's still where we prioritize those dollars and took some small targeted actions over the last few weeks in different areas. As of right now, we've completed all the plans that we have in front of us. We'll always continue to make sure That we're getting the highest return on your investment dollars. But right now, we're really comfortable with the team that we've had and the actions we've taken and think it positions us very well to be down Into next year on a cost year over year basis, which was really excited about that as we drive towards profitability.

Operator

Your next question comes from the line of Colin Rusch with Oppenheimer and Company. Your line is open.

Speaker 9

Thanks so much, guys.

Speaker 5

Hey, Colin, we lost you.

Operator

This line appears to have dropped. Your next question comes from the line of Jeff Osborne with TD Cowen. Your line is open.

Speaker 9

Good evening. A couple of questions on my side. I was wondering if we can just address the PPA V. I think it was about 150,000,000 And revenue in the quarter. And so I'm just curious, Greg, what visibility do you have into Q4?

Speaker 9

I guess, originally maybe steer me in the right direction. Originally, I was thinking the Amazon PDX 109 site in Oregon would be coming online here late in the second half as well as South Korea would be ramping up and it It doesn't look like either of those have to happen with the Oregon side. So I'm just curious, can you just better question the visibility for Q4 would be helpful?

Speaker 5

Yes. Thanks, Jeff. So when we went and looked at the year and we looked at the sites that we expected to get over the course of the year, That's still consistent with how we came in the year. I would say we did really well in the Q3 and making sure that we got everything closed And accepted, which gave us a nice lift even off of where I thought we'd be this time 3 months ago when we had this call, and I kind of gave a soft guidance for the quarter, but it doesn't change. Based on the list of acceptances that we have planned in the U.

Speaker 5

S, in Korea and a few internationally, We see a path here to get to stay consistent with the guidance we've given you based on what we anticipate to accept here over the next couple of months.

Operator

And we have the line of Colin Rusch with Oppenheimer and Company back again. Your line is open.

Speaker 9

Thanks so much, guys. I'm not sure what happened there. Can you talk about the potential for pricing power given what we're seeing in terms of interconnection delays, Some of the rate increases that we're seeing at the utilities and the level of demand that you're talking about with some of these remote locations?

Speaker 5

Yes, I'll start and then I'll give it to KR. Listen, on a pricing basis, right, if you look at what we've been able to report over the past several quarters, Even with some increases on IRRs and other things from the financier, our pricing is flat to slightly up in certain places in market. That's driven not only by an increase in the ITC, but how we are positioning ourselves versus the grid And where they see prices increasing versus decreasing, so we're holding on to that pricing power so far and we've been able To hold back, in each of the quarters over the last couple of last 2 years and that's contributed a lot to our margin expansion that we've had. Going forward, I would say that trend will only continue, and we continue to prioritize our units In markets based on where we can get the best opportunity for growth and margins, we're executing a lot of discipline to make sure we stay At these pricings, even as we continue to grow at the levels we are. Carey, from a strategic standpoint, how you think about

Speaker 11

Yes.

Speaker 2

From a strategic point, Colin, I think you've been with us since IPO. The big question back then used to be, Are we going to have pricing discipline or is pricing going to have to shrink pretty significantly as we scale up in volume? If you just look at the supply demand mismatch, if you just look at the price of utility electricity going up the way it is, There is no reason for us to not have pricing discipline. At the same time, We are not an instantaneous commodity. We are building these relationships over 15 years, 20 years with Solid C and I customers who are going to be with us for a long time.

Speaker 2

So we clearly exercise Our pricing in such a way that this is be fairly priced for them, for us and from a market perspective. That's how we think about it.

Operator

Your next question comes from the line of Michael Blum with Wells Fargo. Your line is open.

Speaker 12

Thanks. Good evening, everyone. I wonder if we just go back to the hydrogen hubs for a minute. Just want to get a better sense of Just any way you can size the opportunity and then the timeline where you would actually start to see shipments that would start to hit the P and L?

Speaker 2

So of the 4 hydrogen hubs out of the 7 that we were participating in that actually 1, the DOE selection. What has come out so far is the DOE announcement, Right. What needs to come out in addition to this is where PTC is and things like that, because that's a very big part For the developers doing these hubs to figure out who the off takers of their electricity are going to be and what the rules are. Then it's about selecting and negotiating with the DOE and getting to where it needs to go. Most people would tell us today when we talk to the principals who are running these hubs, it's in the 2025, twenty This timeframe is when we should see these projects going on.

Speaker 2

So the impact of this on our revenue, That's the timeframe we think about. But there's a very important Case to be made out here. The DOE going through a very rigorous process and selecting these winners and the criteria for these winners It sends a huge market signal not just in the U. S, but in Europe, in Asia, in Australia where people are thinking about big projects. So we think of this signal as a huge market signal and an affirmative market signal for Blue.

Speaker 5

Yes. I'd say I'd just add to that, KR. And Michael, I think our view on electrolyzer revenue remains intact. We always thought 'twenty four, We didn't expect much material as we move into 2025. You'll begin to see some electrolyzer shipments that will impact revenue, and we expect this market to Scale very quickly.

Speaker 5

It's going to look very different to how we entered the fuel cell market and grew that over a consistent period of time at double digits. This is going to scale very quickly, Consistent with the 10 year guidance we put out 2 years ago, we still have confidence

Speaker 2

that's the way this market is going to develop. And if you look at the policies Whether it's local, state, federal or global, all those policy incentives coming together is going to be a huge catalyst And that's the reason why Greg is saying you should expect the off take once it takes off to be a pretty steep ramp And not the normal adoption of a new technology.

Operator

Your next question comes from the line of Amit Tucker with BMO Capital Markets. Your line is open.

Speaker 11

Good afternoon. Thanks for taking my question. Hey, Greg, I just wanted to come back to the, I guess, the area of the 10 Q you pointed out On the TPA V restructuring. First question, was that always kind of embedded in your guidance for the year? I know you guys have talked about it for a while, but I just wanted to Clarify that.

Speaker 11

Yes. Okay. And then

Speaker 2

Yes. Go ahead.

Operator

No, just yes.

Speaker 11

Okay. And then, so if I like it looked like it was $162,000,000 of kind of revenue impact and then The COGS is around like $196,000,000 If I like back all that out, again based on the disclosure on Page 27, I'm coming up with a gross margin of closer to 12%. Is that right?

Speaker 5

No. The $162,000,000 would be for the 31 megawatts that we sold completed in the Q3. To get to a margin number, then take the COGS number because the COGS number you're pulling has both has the impairments that we removed for the non GAAP, pro form a adjustments. So the best way to do it is go to the supplemental and look at what the cost per kilowatt was on an average basis and that will get you to the margin on these. So pretty healthy margin, which is why we've liked these

Speaker 11

and have

Speaker 2

done them a few times over.

Speaker 5

But that's the best way to get to a margin calculation for this.

Speaker 11

All right. Thank you.

Operator

Your next question comes from the line of Abhishek Sinha with Northland Capital Markets. Your line is open.

Speaker 13

Hey, just wanted to get an update on the electrolyzers in Korea For the nuclear power plant, any updates on that?

Speaker 5

Not in Korea. We've got A lot of work going on here in the U. S. On the nuclear power side. There are some industrial applications that we're working with our partner on That we're proceeding, that won't there'll be larger than pilots, but not at scale and we expect to make some announcements on those over the next 6 to 12 months And they'll deploy very quickly.

Speaker 5

But hydrogen as a market, as you know, if you spend time in Korea, it's in Every billboard as you go through the airport, they're very committed to hydrogen market over time. And we think that fits in very well, not only for our electrolyzer, But for our fuel cell, because that continues to run on a mix and then ultimately move into hydrogen. It's one of the reasons we're so excited about that Korean market.

Speaker 13

And just as a follow-up, out of all the potential international projects, which one seems the most imminent and promising? Thanks.

Speaker 2

Again, we as a rule don't speak about projects that we have not And so we are working on several projects. I can tell you markets, right, just think about this. In the last 18 months, We have entered 5 markets, Italy, UK, Belgium, Germany, Taiwan. Very soon because our customers spoke about it and our partners spoke about it, we will be entering Singapore, right. You're like seeing that.

Speaker 2

And we just demonstrated our first units using CHP in Italy with Cefla. And for Northern Europe, CHP is super important. And with cooling coming off from what we do for Southern Europe, CHP becomes very important. So we think all these markets have great potential. Taiwan, Singapore, we think Our amazing markets for us because there's shortage of power.

Speaker 2

So if you look at Singapore, short term, mid term, long term, It's a country that just cannot has no land to put renewables, solar or wind. 95% plus Of the power being produced for them is being produced using natural gas. So we can go in right now and give them a lower carbon footprint Along with the CHP. Then they are big into both carbon capture as well as bringing in green hydrogen and green ammonia. We are future proofing their systems when we put them unlike other technologies that cannot do that.

Speaker 2

And we are offering them Quick time to power at a time when their data centers are starving for power. So we think we have a great play short term, mid term, long term. This is how we evaluate the markets and we enter those markets. How it plays out and what big projects we're working on, we'll tell you about them once we close.

Operator

Your next question comes from the line of Noelle Parks with Tuohy Brothers. Your line is open.

Speaker 2

Good afternoon. Hi.

Speaker 12

So one thing I wanted to ask about, Just trying

Speaker 5

to

Speaker 12

sort of broaden my imagination a bit. Is, for example, you talk about data centers, obvious You have expansion opportunities of firms pre existing in that business. And I'm just wondering When you're looking at projects or potential projects that are more like rebuild commercial or industrial Seitz, I'm just curious, is there a role or are you seeing sort of in effect distribution channels through The EPC vendors, the guys who are planning out sort of longer term, larger scale projects, I just wonder as those are thinking of We have Bloom Technology coming in either as an add in or to solve the immediate pain point in existing or like a microgrid application. So any thoughts you have on that would be great.

Speaker 2

Noel, that's a very good question. Look, the CV stand And even how it's structured from a financial perspective should make it easier and Offerings like that, that's prepackaged, easy to understand with very few Contractual details, make it easier for an EPC to put that in their catalog and offer it to their customers, number 1. The fact that we have made installations so simple with our skid that Very soon, we are almost there. It's almost like a plug and play appliance, like an HVAC appliance. We over the last 3 years, we have made that progression.

Speaker 2

That's all positioned, so we can exactly do what you're saying. And as we scale, that's clearly the model that we would want to see, there a builder, a developer, AEPC buys our device, use it like a HVAC appliance, puts it for their customer As they do it, offers that in the early planning stages for any remodel, anything they need to do, whether it's Brownfield or even architects start looking at this and electrical and mechanical consultants Start offering it to their customers as an option. So that's how we think about it.

Operator

Your last question comes from the line of Martin Malloy with Johnson Rice. Your line is open.

Speaker 9

Thank you for taking my question. Wanted to find out if you could maybe give us an update on Your carbon capture technology and the development of that?

Speaker 2

So, we are making extremely good Extremely good progress on that. So our carbon capture technology It's going to be helpful in 2 different ways, right. First is for large scale applications There's a sequestration available close by. It's an ability to produce 0 carbon power and using our technology. There we are making good progress early stages with a lot of potential customers On how we can find an off taker who wants that 0 carbon electricity and these will be the 5,000,000 megawatt scale.

Speaker 2

That's right. It makes sense. Secondly, the serious excitement today about direct air capture Because of the incentives that are being given on the per ton Incentive of CO2, if you do direct air capture, those big projects require a lot of electricity and they have to be clean. So using our technology and our carbon capture, they can get that clean electricity and be able to include the carbon dioxide going from us on the 45Q Into the sequestration. They both are serious opportunities and paying that on the larger frame For us to get to whether it's 1.5 degrees, 2 degrees, you name the number for us to get to any of those numbers, The world is going to need carbon capture and sequestration.

Speaker 2

There is no other way, including everything else. That is one piece of the puzzle And we are uniquely suited to do that. We are excited about it. Okay. With that, thank you again for all of you for participating in the call, Whether it is our core technology, the business model with which hopefully you're looking at the numbers And agreeing with us that this is a model that leads to a very profitable business.

Speaker 2

If you look at Our capability with hydrogen, 2 ways, producing the hydrogen with our electrolyzer, Using hydrogen as a fuel cell, whether it's hydrogen, natural gas, being able to do cooling with our CHP And being able to offer carbon capture whether it's straight natural gas to carbon capture All carbon capture for direct air capture, Bloom has it all. So we are excited about where the future is And look forward to updating you in 3 months. Great. Thank you. Thank

Operator

you. Ladies and gentlemen, that concludes today's call. Thank you all for joining. You may now disconnect.

Powered by Quartr

Key Takeaways

  • Bloom Energy delivered record Q3 revenue of $400 million (up 37% year-over-year) with non-GAAP gross margins of ~32%, driven by an 18% reduction in product costs and a 20% cut in operating expenses since Q1.
  • The company reaffirmed its 2023 outlook of $1.4–1.5 billion in revenue at a 25% non-GAAP gross margin, expecting to achieve a positive non-GAAP operating margin while strategically building inventory—resulting in lower-than-expected CFOA—to support rapid “time-to-power” deployments.
  • Strong tailwinds from high temperatures, EV adoption, electrification and AI-driven data center growth fueled first deployments in Taiwan and Singapore (10 MW in under six months), underscoring Bloom’s fast, modular installations and fuel flexibility for future hydrogen or carbon capture.
  • Bloom’s fuel-flexible platform was selected for 4 of the 7 DOE regional clean hydrogen hubs, leveraging its world-class electrolyzers and fuel cells to address a rapidly expanding hydrogen market expected to scale steeply in 2025 and beyond.
  • Operational discipline continues with six consecutive quarters of cost reductions, consolidation of California stack manufacturing into Fremont, a 10% headcount reduction, and a commitment to reach a 20% non-GAAP service gross margin by 2025.
AI Generated. May Contain Errors.
Earnings Conference Call
Bloom Energy Q3 2023
00:00 / 00:00