Bloom Energy Corporation — Q2 2019 Form 10-Q
Reporting period: Three and six months ended June 30, 2019. Amounts are in U.S. dollars; financial statement amounts are in millions unless stated otherwise. Bloom designs, manufactures, sells and services solid-oxide fuel-cell Energy Servers for on-site power generation.
Financial performance
| Metric | Q2 2019 | Q2 2018 | Six months 2019 | Six months 2018 |
|---|---|---|---|---|
| Revenue | $233.8 | $168.9 | $434.5 | $338.2 |
| Gross profit | $41.7 | $32.8 | $57.4 | $76.4 |
| Gross margin | 17.8% | 19.4% | 13.2% | 22.6% |
| Operating loss | $(50.1) | $(5.3) | $(122.8) | $0.4 |
| Net loss attributable to common stockholders | $(62.2) | $(45.7) | $(146.7) | $(63.4) |
| Net loss per share, basic and diluted | $(0.55) | $(4.34) | $(1.30) | $(6.05) |
- Q2 revenue grew 38.4%, primarily on higher product acceptances: 271 100-kW-equivalent systems versus 181 a year earlier. Product revenue increased 65.6%; installation revenue fell 34.1%, partly reflecting more international deployments where partners install the systems.
- First-half revenue rose 28.5% as reported. Management said growth was 48.4% excluding the $45.5 million one-time retroactive investment tax credit benefit included in first-half 2018 revenue.
- Q2 gross profit improved year over year, but gross margin declined. First-half gross profit and margin were lower year over year; the comparison included a $36.1 million retroactive ITC benefit in 2018. Management cited increased acceptances, improved selling prices and lower unit product costs, partly offset by higher stock compensation and PPA II charges.
- Operating expenses were $91.8 million in Q2 and $180.2 million for the half, up 141% and 137%, respectively. Stock-based compensation was $51.2 million in Q2 and $115.1 million for the half, compared with $7.8 million and $15.8 million. The increase largely reflected IPO-related employee RSU awards and vesting.
- Product cost per accepted kilowatt declined 12.6% in Q2 and 14.8% for the half. Installation cost per accepted kilowatt also declined, but management cautioned that installation costs vary with geography, site complexity and upgrade mix.
Cash, liquidity and debt
- At June 30, cash and cash equivalents were $308.0 million, versus $220.7 million at December 31, 2018; restricted cash was $63.1 million. Short-term investments were nil, compared with $104.4 million at year-end. Cash, cash equivalents and restricted cash totaled $371.1 million.
- For the first half, operating cash flow was positive $115.2 million, investing cash flow was positive $84.6 million and financing cash flow was negative $109.3 million. Operating cash flow benefited from working-capital reductions and substantial noncash items, including $115.1 million of stock compensation; it should not be read as equivalent to recurring operating profitability. Consolidated PPA entities contributed $139.4 million of operating cash flow.
- Total debt carrying value was $668.2 million ($405.8 million recourse and $262.4 million non-recourse); unpaid principal was $701.3 million. The company reported compliance with financial covenants at June 30. The debt schedule shows $379.2 million of principal payments due in 2020, including substantial convertible-note maturities.
- Management believed cash and cash equivalents would be sufficient for operating, capital and other cash needs for at least 12 months from the filing date, but noted that future capital needs could vary and additional financing might be required. PPA II’s planned remaining upgrade requires an estimated additional $92 million of funding, subject to securing commitments.
Material changes, outlook and risks
- PPA II restructuring: In June, Bloom sold 9.7 MW of new Energy Servers to the project for about $87.8 million of product revenue and recognized $3.9 million of installation revenue, while repurchasing and writing off 10 MW of older servers. The transaction caused Bloom to deconsolidate PPA II and account for its remaining interest as an equity investment. Related charges included $25.6 million for older-server write-offs, $8.1 million for decommissioning and a $5.9 million debt make-whole penalty. PPA II’s existing debt was repaid.
- SPDS committed capital to support purchases of up to approximately 18 MW of new servers, subject to conditions. A further potential 9 MW replacement depends on additional financing. Bloom also agreed to purchase Mehetia’s PPA II equity interests for an estimated $57.5 million, with final payment due no later than March 31, 2020.
- Bloom agreed to indemnities for SPDS, including up to $97.2 million for specified regulatory, legal or legislative developments and up to $7.5 million for certain tax-benefit losses. A $20 million cash-collateralized letter of credit was in place at June 30, with another $20 million commitment after quarter-end; an additional potential collateral or payment commitment of up to $57.2 million was described in specified circumstances.
- On June 28, Bloom sold its interest in a third-party PPA project to a Duke Energy subsidiary. The project committed, subject to conditions, to purchase approximately 36.8 MW of Energy Servers for no more than $249 million. The filing does not provide a clear schedule for when all purchases will be completed.
- No quantified full-year 2019 revenue or earnings guidance is provided in the supplied filing text. Management’s stated liquidity view and PPA II financing requirement are not earnings guidance.
- Risks highlighted include persistent losses, customer and financing concentration, dependence on tax incentives and third-party financing, long sales and installation cycles, product performance and warranty exposure, supplier constraints, utility and environmental regulation, and substantial indebtedness. Three customers represented about 72% of first-half revenue; one customer represented 52% of Q2 revenue.
- Contingencies include securities class actions relating to the IPO and claims by former executives, for which the company recorded no loss contingency, stating it believed the claims lacked merit. Bloom also disclosed an EPA request concerning approximately $1.0 million in potential environmental fines, which it is contesting. The Delaware manufacturing grant carries recapture risk: Bloom had 317 Delaware employees against a 900-employee milestone and recorded $10.5 million for potential recapture.
Most important facts for investors to verify
- Whether revenue growth and higher acceptances translate into sustained gross-margin improvement, especially after excluding one-time items and IPO-related stock compensation.
- Whether Bloom secures the additional estimated $92 million needed for the remaining PPA II upgrade, and the timing and cash impact of the Mehetia purchase and SPDS-related collateral and indemnities.
- The ability to refinance or repay significant 2020 maturities, and the availability of unrestricted liquidity after considering restricted cash, debt covenants and project financing needs.
- Customer and financing concentration, including the disclosed customer revenue shares and the financing required to convert backlog into deployments.
- Developments in the IPO-related lawsuits, environmental matters and Delaware grant milestones, as well as actual warranty, service and performance costs.