Bloom Energy Corporation — Q3 2019 Form 10-Q
Reporting period: Three and nine months ended September 30, 2019. Figures are in millions of dollars unless otherwise stated. The filing is unaudited.
Business context
Bloom designs, manufactures, sells and services solid-oxide fuel-cell systems for on-site power generation. Sales include direct purchases, leases and power purchase agreement (PPA) arrangements. The company reported one operating segment. Product acceptances rose 46.6% to 302 systems in Q3 and 46.4% to 808 systems in the first nine months, year over year.
Key financial metrics
| Metric | Q3 2019 | Q3 2018 | Nine months 2019 | Nine months 2018 |
|---|---|---|---|---|
| Revenue | $233.5 | $190.2 | $668.0 | $528.4 |
| Gross profit / margin | $53.5 / 22.9% | $23.4 / 12.3% | $110.9 / 16.6% | $99.8 / 18.9% |
| Operating loss | $(24.6) | $(66.1) | $(147.4) | $(65.7) |
| Net loss | $(39.9) | $(82.5) | $(195.4) | $(155.0) |
| Net loss attributable to common stockholders | $(34.9) | $(78.6) | $(181.6) | $(142.0) |
| Basic and diluted loss per share | $(0.30) | $(0.97) | $(1.59) | $(4.13) |
Q3 product revenue increased 45.3% to $182.6 million; installation revenue fell 36.0% to $19.0 million, largely reflecting more international acceptances where Bloom does not perform installation. Service revenue rose 13.7% to $23.6 million, while electricity revenue declined 41.3% to $8.2 million. Q3 product gross margin improved to 48.5%, but service and electricity remained loss-making, with gross margins of (54.8)% and (181.9)%, respectively.
For the nine months, revenue growth was 26.4% reported and 38.3% excluding the $45.5 million retroactive investment tax credit (ITC) benefit included in 2018 revenue. The 2018 comparison also included a $36.1 million ITC-related gross-profit benefit. Nine-month operating expenses rose 56.1% to $258.3 million, including $155.0 million of stock-based compensation versus $87.5 million a year earlier.
Cash, liquidity and debt
- At September 30, cash and cash equivalents were $226.5 million; restricted cash was $131.4 million, for combined cash, cash equivalents and restricted cash of $357.9 million. Restricted cash includes $97.2 million supporting a letter of credit for PPA II-related indemnification.
- For the first nine months, operating cash flow was positive $139.2 million, compared with negative $13.6 million in 2018. Management attributed 2019 operating cash generation to noncash adjustments and a $71.6 million net working-capital benefit; notably, deferred revenue and customer deposits fell $68.2 million.
- Investing cash flow was positive $79.5 million, including $104.5 million of proceeds from maturing marketable securities; capital expenditure on property, plant and equipment was $23.5 million. Financing cash flow was negative $141.3 million, including debt repayments, PPA II-related payments and distributions.
- Total debt carrying value was $664.0 million: $403.4 million recourse and $260.6 million non-recourse. Total unpaid principal was $691.5 million. The debt schedule shows $379.7 million of principal due in 2020; management separately identifies $312.3 million of long-term debt due December 1, 2020 and says it is evaluating refinancing or restructuring options. Bloom was in compliance with financial covenants at quarter-end.
- Management believed cash and cash equivalents would cover operating, capital and other cash needs for at least 12 months from the filing date, but cautioned that refinancing or future financing is not assured. The company had an accumulated deficit of approximately $2.8 billion and stated it expected continued losses.
Material changes and unusual items
- Bloom deconsolidated PPA II after a June transaction gave Southern Power’s subsidiary a majority interest. The transaction supported an upgrade of 19.0 MW of older systems to 17.7 MW of new systems. Bloom recognized $159.3 million of product revenue and $7.1 million of installation revenue from PPA II sales during the first nine months.
- PPA II-related charges included $22.7 million for decommissioning in cost of electricity revenue, a $25.6 million write-off of decommissioned assets in cost of product revenue, and a $5.9 million debt make-whole penalty in general and administrative expense. PPA II debt was repaid; Bloom also made $43.7 million of payments related to redeemable noncontrolling interests.
- Completion of the remaining PPA II upgrade may require approximately $92 million of additional financing. Bloom also agreed to purchase Mehetia’s equity interests for an estimated $57.5 million, with final payment due no later than March 31, 2020. The filing describes further indemnity and performance obligations under the transaction.
- Service costs increased as the installed fleet grew and more power modules required replacement. Nine-month service gross loss widened to $13.1 million from $5.5 million.
- Revenue concentration was significant: Customer B represented 52% of Q3 revenue and 44% of nine-month revenue; Customer A represented 15% and 18%, respectively. Customer C represented 8% of nine-month revenue.
- After quarter-end, Bloom reported that CFO Randy Furr planned to retire at year-end 2019 and that two directors were appointed effective November 12, 2019.
Outlook, risks and contingencies
The filing provides no specific revenue, earnings or margin guidance. Management emphasized that results depend on continued sales growth, cost reductions, customer acceptance, financing availability and successful deployment. The company cited risks from its sustained losses, substantial debt and 2020 maturities, customer and financing concentration, long sales and installation cycles, warranty and service costs, supply-chain constraints, changing incentives and regulation, and competition. It also noted that federal ITC benefits are scheduled to phase down for installations commencing in 2020 and 2021.
Bloom disclosed securities class actions alleging misleading IPO-related statements and a separate arbitration and related lawsuit; it considers the claims without merit and recorded no loss contingency. Other matters include a contested EPA request for approximately $1.0 million in fines concerning historical handling of fuel-cell components, and possible repayment of Delaware manufacturing grants if employment and compensation milestones are not met. The company had recorded $10.5 million for potential grant recapture. Bloom also said potential PPA II regulatory, legal or legislative indemnification events were considered remote at September 30 and no liability was recorded.
Important facts for investors to verify
- Whether Bloom can refinance, restructure or otherwise meet the 2020 debt maturities, and the availability of financing for the remaining PPA II upgrade.
- How much of reported operating cash generation is repeatable, given noncash adjustments, working-capital movements and restricted cash.
- Whether product margin gains can offset persistent service, installation and electricity losses, including power-module replacement and warranty costs.
- How revenue concentration and dependence on customer financing partners affect future acceptances, revenue timing and liquidity.
- Potential cash exposure from PPA II commitments and indemnities, litigation, environmental matters and Delaware grant milestones.