Bloom Energy Corporation: 2018 Form 10-K Summary
Reporting period: Year ended December 31, 2018. The filing also presents unaudited quarterly results, including Q4 2018. Amounts below are U.S. dollars unless stated otherwise.
Business context
Bloom designs, manufactures and sells on-site solid-oxide fuel cell systems (“Energy Servers”), primarily powered by natural gas or biogas. Customers can buy systems or obtain power through lease and power-purchase arrangements. The company consolidates its PPA entities, although their cash and assets are subject to project-level restrictions and debt arrangements.
Key financial results
| Metric | FY 2018 | FY 2017 |
|---|---|---|
| Total revenue | $742.0 million | $376.0 million |
| Gross profit (loss) | $117.1 million | $(18.0) million |
| Gross margin | 16% | (5)% |
| Operating loss | $(153.9) million | $(157.3) million |
| Net loss attributable to common stockholders | $(241.8) million | $(262.6) million |
| Basic and diluted loss per share | $(4.54) | $(25.62) |
| Cash used in operating activities | $(58.4) million | $(67.2) million |
FY 2018 revenue was up 97.4%. Product revenue rose 185.0% to $512.3 million; installation revenue increased 44.6% to $91.4 million; service revenue rose 7.1% to $82.4 million; electricity revenue was broadly flat at $55.9 million. Product gross margin improved to 27%, while installation and service remained loss-making at (31)% and (15)%, respectively; electricity gross margin was 35%.
Q4 2018, unaudited: Revenue was $213.6 million versus $123.3 million in Q4 2017; gross profit was $17.2 million versus $12.1 million; operating loss was $88.2 million versus $27.3 million; and net loss attributable to common stockholders was $99.8 million versus $67.8 million. Q4 loss per share was $0.91 versus $6.56, with the comparison affected by the post-IPO share count.
Liquidity, debt and cash flow
At December 31, 2018, cash and cash equivalents were $220.7 million and short-term investments were $104.4 million, totaling $325.1 million; working capital was $392.9 million. Management said these resources should cover operating, capital and other cash needs for at least the next 12 months, while noting that future requirements may vary and additional financing could be needed.
Consolidated debt carrying value was $741.3 million: $396.8 million recourse to Bloom and $344.5 million non-recourse debt at PPA entities. Current debt was $29.8 million and long-term debt $711.4 million. Cash, cash equivalents and restricted cash increased by $99.9 million during the year, principally reflecting $253.1 million of financing cash flow, including IPO proceeds; operating and investing activities used $58.4 million and $94.8 million, respectively. The company reported compliance with financial covenants at year-end.
Material changes versus prior year
- Product acceptances increased 30.1% to 809 systems (measured in 100-kilowatt equivalents), while product backlog was $772.8 million, down from $803.9 million, but represented more systems: 1,384 versus 1,187.
- Revenue and billings benefited from the federal investment tax credit (ITC), reinstated in February 2018 retroactively to 2017. The filing attributes $171.1 million of FY 2018 revenue to ITC, including $45.5 million related to 2017 acceptances.
- More orders were recognized at acceptance, and customer-specific applications, including batteries and grid-independent solutions, contributed to higher average billings and revenue.
- Operating expenses increased 94.6% to $270.9 million. Stock-based compensation rose to $180.3 million, including approximately $139.1 million related to IPO-time RSU grants and vesting.
- Despite higher deployment volume, product cost per kilowatt increased 2.4% to $3,372, partly because ITC reinstatement required a one-time $9.4 million supplier payment. Installation losses widened, partly due to initial deployments of more complex personalized applications.
Outlook, risks and unusual items
- No specific quantified forward guidance is provided. Management expects continued losses for the foreseeable future and expects investment in R&D, sales and marketing, and public-company infrastructure.
- Demand and deployment depend on financing availability, customer acceptance, installation timing, permits and utility interconnection. The sales cycle is typically 12–18 months; management said at least 50% of backlog is generally expected to deploy within 12 months, not a guarantee.
- Revenue is concentrated: Southern Company and AT&T represented 43% and 11% of FY 2018 revenue, respectively. One customer accounted for 66.8% of year-end accounts receivable.
- Government incentives are material to customer economics. The ITC is scheduled to phase out after December 31, 2022; California’s SGIP rules tighten biogas requirements, and the program is scheduled to expire in January 2021 absent extension.
- Warranty, maintenance and performance exposure merits attention. The company reported 58 MW of early-generation systems within a 372 MW installed base. Remaining potential liability under capped PPA performance guarantees was approximately $41.8 million; direct-purchase project guarantees had a separate remaining cap of approximately $2.9 million.
- Debt, covenants and project-company structures may constrain available cash or additional borrowing. Management does not expect significant cash distributions from PPA entities; their lenders and investors have priority rights and distributions are conditional.
- Environmental and regulatory uncertainties include an EPA request to show cause concerning approximately $1.0 million in disputed fines related to historical handling of gas-cleaning units, and possible California air-quality requirements affecting hexavalent chromium emissions. The company said it is contesting the EPA matter and believes it complies with applicable California rules, but acknowledged potential fines or operational restrictions.
- The company recorded $10.5 million of potential Delaware grant recapture liability after missing stated employment and compensation milestones; further repayment exposure may depend on meeting later milestones.
- A securities class action relating to the July 2018 IPO was filed on March 20, 2019, after year-end. A separate amended claim by former executives was disclosed; the company said it believed the claims were without merit and recorded no loss contingency.
Important facts for investors to verify
- How much of revenue growth and backlog conversion is sustainable without the ITC catch-up benefit and other incentives, and how the scheduled incentive phase-outs affect pricing and demand.
- Whether product, installation and service economics improve as volume grows, including warranty, module replacement and early-generation fleet costs.
- Whether backlog converts on schedule, given customer concentration, financing availability, permitting and installation dependencies.
- Cash available to the parent after restricted cash and PPA-entity obligations, and the company’s ability to service or refinance recourse debt.
- Potential outcomes and financial effects of the EPA matter, grant recapture, performance guarantees and disclosed litigation.