Bloom Energy Corporation (NYSE: BE) — Q2 2020 Form 10-Q
Reporting period: Three and six months ended June 30, 2020. Bloom designs, manufactures, sells and installs on-site solid-oxide fuel-cell power systems. The 2019 comparative interim financial statements were restated; comparisons below use the restated figures.
Financial performance
| Metric | Q2 2020 | Q2 2019 | First half 2020 | First half 2019 |
|---|---|---|---|---|
| Revenue | $187.9m | $200.3m | $344.6m | $347.3m |
| Gross profit | $26.2m | $28.4m | $46.2m | $29.9m |
| Gross margin | 14% | 14% | 13% | 9% |
| Operating loss | $(29.5)m | $(63.3)m | $(75.9)m | $(150.0)m |
| Net loss | $(48.0)m | $(86.9)m | $(129.6)m | $(195.7)m |
| Net loss per share attributable to common stockholders | $(0.34) | $(0.72) | $(0.95) | $(1.66) |
Q2 revenue fell 6.2%; first-half revenue was down 0.8%. Product revenue declined, partly offset by higher installation and service revenue. Product acceptances increased 12.9% in Q2 and 11.1% for the half, while product costs per accepted kilowatt fell 20.9% and 21.3%, respectively. Installation revenue rose, but installation remained loss-making; service gross profit turned to a loss as power-module replacement costs increased. Lower stock-based compensation and lower 2019 PPA II upgrade expenses contributed to reduced operating losses.
Cash flow, liquidity and debt
- First-half operating cash flow was negative $40.2m, versus positive $103.6m in restated first-half 2019. Investing cash flow was negative $19.6m; financing cash flow was positive $6.5m.
- At June 30, cash and cash equivalents were $144.1m, down from $202.8m at year-end; restricted cash was $180.1m. Cash, cash equivalents and restricted cash totaled $324.1m, versus $377.4m at December 31, 2019.
- Total debt had $640.6m of unpaid principal and a $645.7m net carrying value: $416.0m recourse and $229.7m non-recourse. Current debt was $26.1m. Financing obligations, reported separately from debt, totaled about $452.0m.
- The debt repayment schedule lists $395.2m of principal due in 2021. Management said it expects available cash and operating cash flows to cover operating and capital needs for the next 12 months, but expects it may need capital-market access to address December 2021 maturities. Debt covenants restrict financing and other actions; Bloom reported covenant compliance at quarter-end.
Material changes, outlook and risks
- Debt restructuring: Bloom extended convertible-note maturities to December 2021, increased the relevant interest rates to 10%, and reduced conversion prices to $8 per share. It repaid $70m of convertible notes using proceeds from issuing $70m of 10.25% senior secured notes due 2027. Constellation converted its note into 4.7m Class A shares. First-half results include a $14.1m debt-extinguishment loss.
- Restatement and controls: Managed Services transactions previously treated as sales were restated as financing transactions, changing revenue timing and balance-sheet classification; other corrections included stock-compensation capitalization and embedded derivatives. Management identified a material weakness in controls over complex or non-routine accounting and concluded disclosure controls were not effective as of June 30. Remediation was ongoing.
- COVID-19: Bloom reported installation delays, longer customer decision cycles, reduced manufacturing productivity and supplier disruptions, though it had qualified alternative suppliers and reported no production impact to date. Delays can defer revenue and cash receipts. Demand increased in some healthcare and other essential-business markets. Financing availability had not yet significantly affected business, but tax-credit monetization and financing for future projects were more challenging.
- Other unusual items and exposures: Q2 other expense included a $4.2m impairment of the Bloom Energy Japan investment. The company recorded $10.5m for potential repayment of a Delaware manufacturing grant; up to $2.6m may be due in 2021 and a further $2.5m in 2023 if milestones are missed. It also disclosed securities litigation, other legal proceedings, and an EPA consent order concerning prior handling of certain materials.
- Business risks: Sustained losses, negative operating cash flow, concentrated customer revenue, dependence on external project financing and tax incentives, installation and warranty costs, regulatory changes affecting natural-gas technology, and the ability to refinance debt could materially affect results. No numerical revenue or earnings guidance was provided.
Important facts for investors to verify
- Whether operating cash flow improves and whether Bloom can fund 2021 maturities without costly refinancing or equity dilution.
- Progress in remediating the material weakness and the reliability of subsequent financial reporting.
- Whether COVID-related installation delays, customer concentration and project financing constraints persist or worsen.
- Whether product-cost reductions can offset installation losses and rising service costs, including power-module replacements.
- Developments in the disclosed legal matters, Delaware grant milestones and regulatory requirements affecting incentives and fuel-cell deployments.