Bloom Energy Corporation (NYSE: BE) — Q3 2023 Form 10-Q
Reporting period: Three and nine months ended September 30, 2023; unaudited. Comparisons are with the same 2022 periods. Amounts below are in U.S. dollars.
Business context
Bloom sells solid-oxide fuel-cell systems, installation and maintenance services, and electricity. It also develops hydrogen and electrolyzer products. Revenue is affected by customer demand, product acceptances, project timing, financing availability, permitting, and fuel and grid conditions.
Financial results and liquidity
| Metric | Q3 2023 | Q3 2022 | 9M 2023 | 9M 2022 |
|---|---|---|---|---|
| Revenue | $400.3 million | $292.3 million | $976.6 million | $736.5 million |
| Gross profit (loss) | ($5.2) million | $50.9 million | $105.4 million | $76.9 million |
| Gross margin | (1)% | 17% | 11% | 10% |
| Operating loss | ($103.7) million | ($52.6) million | ($221.8) million | ($220.4) million |
| Net loss | ($168.1) million | ($60.4) million | ($312.1) million | ($264.3) million |
| Net loss per share, basic and diluted | ($0.80) | ($0.31) | ($1.47) | ($1.41) |
- Q3 product revenue rose 43% to $305.0 million; service revenue rose 27% to $47.5 million. Nine-month revenue increased 32.6%, led by product revenue, up 37.1%.
- Product gross margin improved to 40% in Q3 and 36% for nine months, compared with 26% and 24%. Service and installation remained loss-making; their nine-month gross margins were (27)% and (17)%, respectively.
- Q3 gross loss was primarily driven by a $123.7 million impairment of older Energy Servers related to the PPA V upgrade. The nine-month gross profit improvement reflects stronger product margins and volume, partly offset by that impairment and higher service costs.
- Interest expense was $68.0 million in Q3 and $93.7 million for nine months. Q3 included a $52.8 million charge from expensing the SK ecoplant loan commitment asset upon conversion of preferred shares to common stock.
- At September 30, cash and cash equivalents were $557.4 million; restricted cash was $80.3 million. Current assets were $1.68 billion and current liabilities $461.7 million. Recourse debt was $840.5 million and non-recourse debt $1.5 million; all debt was classified as long-term. The company reported compliance with financial covenants.
- Operating cash use was $494.4 million for nine months, versus $168.5 million in 2022. Investing cash use was $67.5 million; financing provided $682.2 million. Cash use from operations reflected working-capital investment, including inventory growth of $206.3 million, contract assets growth of $97.1 million, and receivables growth of $83.9 million.
Material changes and notable transactions
- Bloom issued $632.5 million of 3% convertible senior notes due 2028, generating approximately $613 million net proceeds, and used proceeds in part to redeem higher-cost 10.25% notes and purchase $54.5 million of capped calls. The notes have an initial conversion price of approximately $18.85 per share; up to about 47.8 million shares could be issuable if conversion conditions are met.
- SK ecoplant invested $311.0 million in Series B redeemable convertible preferred stock, which converted into 13.5 million Class A shares on September 23. The filing recognized a $52.8 million noncash interest expense when the related loan commitment asset was expensed. SK ecoplant held approximately 10.5% of outstanding Class A shares at quarter-end and became a related party.
- The PPA V repowering involved repayment of approximately $119.0 million of project debt, sale of the project company, and replacement of 37.1 MW of older Energy Servers. The upgrade drove the impairment charge and contributed to higher product revenue and contract assets.
- Product acceptances increased 39.9% in Q3 and 35.3% for nine months year over year. Nine-month acceptances totaled 193 MW.
- In September, Bloom approved a restructuring covering workforce changes, relocation of repair and overhaul work from Delaware to Mexico, and closure of its Sunnyvale facility. It recorded $2.2 million in Q3 costs and expects approximately $16.4 million of additional costs, with completion expected in the first half of fiscal 2024.
Outlook, risks and contingencies
- Management said existing cash and expected operating cash flows should meet operational, capital, and other cash needs for at least 12 months from issuance of the report. This is an expectation, not a guarantee; the company may need additional financing.
- No numerical revenue or earnings guidance is provided in the supplied filing text. Management noted that bookings historically skew toward the second half, especially Q4, and warned that delayed 2023 bookings could materially affect 2024 revenue, margins, and cash flow.
- Risks include rising interest rates and customer financing costs, natural-gas availability and price, limited economic availability of zero-carbon fuels, longer permitting and grid-interconnection timelines, shifting regulation, supply-chain inflation and geopolitical uncertainty, and the possibility that anticipated demand does not materialize after inventory build-up.
- Two customers accounted for approximately 71% of Q3 revenue; two accounted for approximately 60% for nine months. Two customers represented approximately 90% of accounts receivable at September 30. Related-party revenue was $125.7 million in Q3 and $361.0 million for nine months; related-party receivables were $247.9 million at quarter-end.
- Performance guarantees are a material exposure: aggregate caps were approximately $552.0 million and remaining potential payments approximately $481.4 million at September 30. Bloom paid $24.4 million under guarantees during the first nine months.
- Legal matters include a proposed $3 million IPO-related class-action settlement expected to be funded by insurers, subject to court approval, and an ongoing confidential arbitration with former supplier Plansee/GTP; the company said it could not predict the arbitration outcome.
Important facts for investors to verify
- Whether fourth-quarter bookings, customer acceptances, collections, and installations convert the large inventory and contract-asset balances into revenue and cash.
- Underlying margins excluding the PPA V impairment, SK ecoplant commitment-asset charge, and other unusual items; also monitor service costs, warranty performance, and guarantee payments.
- Cash burn, working-capital requirements, access to additional financing, debt service, and potential dilution from convertible notes and equity awards.
- Customer and related-party concentration, collection of the substantial SK ecoplant-related receivable balance, and the execution and cost of the restructuring and PPA V upgrade.
- Progress on permitting, grid interconnection, fuel availability, regulatory changes, and resolution of material legal matters.