Bloom Energy Corporation — Q1 2020 Form 10-Q
Reporting period: Three months ended March 31, 2020. Comparisons are to Q1 2019, which was restated. Bloom designs, manufactures, sells and services on-site solid-oxide fuel-cell power systems.
Financial performance and position
| Metric | Q1 2020 | Q1 2019, restated |
|---|---|---|
| Revenue | $156.7 million | $147.0 million |
| Gross profit; gross margin | $19.9 million; 12.7% | $1.6 million; 1.1% |
| Operating loss | $(46.4) million | $(86.7) million |
| Net loss | $(81.6) million | $(108.8) million |
| Net loss attributable to common stockholders; loss per share | $(75.9) million; $(0.61) | $(104.9) million; $(0.94) |
| Cash used in operating activities | $(27.9) million | $(9.8) million |
| Capital expenditures | $12.4 million | $11.9 million |
- Revenue increased 6.6%. Product revenue rose 9.5%, installation 36.0% and service 7.2%; electricity revenue fell 24.6%, primarily following the PPA II upgrade and deconsolidation.
- Product acceptance volume increased 8.9% to 256 units measured in 100-kilowatt systems. Product cost per kilowatt declined 21.6% to $2,514; installation cost per kilowatt increased 16.0% to $784.
- Gross profit improved, led by product economics and lower stock-based compensation in cost of revenue. Installation and service remained loss-making: gross losses were $4.2 million and $5.8 million, respectively.
- Operating expenses fell 24.9% to $66.3 million, largely because stock-based compensation declined $44.8 million. Excluding stock-based compensation, operating expenses increased, reflecting hiring, development and restatement-related costs.
- Net loss included a $14.1 million loss on extinguishment of debt related to amendments and repricing of convertible notes.
Liquidity, debt and cash flow
- At March 31, cash and cash equivalents were $180.3 million; restricted cash was $173.6 million. Combined cash, cash equivalents and restricted cash totaled $353.9 million. Restricted funds, including PPA-related balances, are not equivalent to unrestricted operating cash.
- Total debt carrying value was $696.0 million: $464.0 million recourse debt and $232.0 million non-recourse debt at PPA entities. Current debt was $26.2 million after maturity extensions; the company reported compliance with financial covenants at quarter-end.
- Operating cash use increased to $27.9 million, with a $19.5 million increase in deferred cost of revenue among the working-capital uses. Financing activities provided $16.8 million, including $30.0 million of related-party debt proceeds.
- On March 31, the company amended convertible notes, extending their maturities to December 2021 and increasing interest rates to 10%; conversion prices were reduced to $8 per share. The amendments substantially modified the debt and generated the $14.1 million extinguishment loss. A $70 million repayment required by the amendment was completed May 1, 2020.
- Also on May 1, Bloom issued $70 million of 10.25% senior secured notes due 2027 and used the proceeds to fund that repayment. Management said available cash, debt extensions, financing proceeds and operating cash flows were expected to cover operating and capital needs for the 12 months following the report’s issuance. This is management’s assessment, not a quantified forecast.
Material changes, outlook and risks
- Restatement: Bloom restated Q1 2019 and other prior periods after determining that Managed Services transactions should generally have been accounted for as financing transactions, with revenue recognized over the contract rather than upfront. It also corrected stock-based compensation capitalization and embedded-derivative accounting. Restated Q1 2019 revenue was $147.0 million and net loss was $108.8 million.
- COVID-19: Bloom reported longer sales cycles, installation delays and supplier disruption risks, while continuing essential manufacturing, installation and service work where permitted. It had not experienced COVID-related installation impacts in Q1, but described scheduled projects affected in subsequent quarters. It warned customer financing could become harder to obtain and that its financial impact remained uncertain.
- The company implemented cash-preservation measures, including a hiring freeze, reduced travel and capital spending, and delayed discretionary spending. It warned that more severe pandemic effects could require additional capital and that access to capital markets was uncertain.
- Bloom has a history of operating losses and negative operating cash flows, and reported an accumulated deficit of approximately $3.0 billion. It expects continued losses; the filing provides no numerical revenue or earnings guidance.
- Disclosure controls were ineffective at March 31 because of a material weakness in accounting for complex or non-routine transactions. Management was taking steps to remediate it, including adding qualified internal or external technical accounting resources.
- Other notable risks include reliance on customer financing and a concentrated customer base (two customers represented approximately 67% of Q1 revenue), installation and acceptance timing, service and warranty costs, supply-chain constraints, government incentives and regulation, substantial debt and restrictive covenants, and pending securities-related litigation. Bloom also disclosed a potential Delaware grant recapture of up to $5.6 million at specified future dates if milestones are not met.
Important facts for investors to verify
- Whether the restated revenue and cost treatment for Managed Services is consistently applied in later filings, and whether the material weakness is remediated.
- Actual unrestricted liquidity and cash needs, including the availability and use restrictions on PPA-related cash and the effect of the May 2020 financing and note repayment.
- Debt maturities, interest burden, conversion dilution and cash-settlement exposure; verify required stockholder approvals and any consequences if conditions are unmet.
- Whether COVID-related financing, supplier, customer-access and installation delays affect acceptances, revenue, cash flow or customer demand.
- Whether product-cost reductions persist while installation and service losses, power-module replacement needs and warranty obligations remain manageable.
- Developments in the disclosed legal matters, regulatory and incentive exposure, and Delaware grant milestones.