Yahoo Finance Bloom Energy Corporation (NYSE:BE) Q1 2024 Earnings Call Transcript
Bloom Energy Corporation (NYSE:BE) Q1 2024 Earnings Call Transcript May 9, 2024
Bloom Energy Corporation misses on earnings expectations. Reported EPS is $-0.255 EPS, expectations were $-0.1. Bloom Energy Corporation isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).
Operator: Thank you for standing by. My name is Krista, and I will be your conference operator today. At this time, I would like to welcome everyone to Bloom Energy First Quarter 2024 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. [Operator Instructions] Thank you. I will now turn the conference over to Ed Vallejo, Head of Investor Relations. Ed, you may begin your conference.
Ed Vallejo: Thank you, and good afternoon, everybody. Thank you for joining us for Bloom Energy's first quarter 2024 earnings conference call. To supplement this conference call, we furnished our first quarter 2024 earnings press release with the SEC on Form 8-K and have posted it along with supplemental financial information that we will reference throughout this call to our Investor Relations website. During this conference call, both in our prepared remarks and in answers to your questions, we may make forward-looking statements that represent our expectations regarding future events and our future financial performance. These include statements about the company's business results, products, new markets, strategy, financial position, liquidity and full year outlook for 2024.
These statements are predictions based upon our expectations, estimates and assumptions. However, as these statements deal with future events, they are subject to numerous known and unknown risks and uncertainties as discussed in detail in our documents filed with the SEC, including our most recently filed Forms 10-K and 10-Q. We assume no obligation to revise any forward-looking statements made on today's call. During this call and in our first quarter 2024 earnings press release, we refer to GAAP and non-GAAP financial measures. The non-GAAP financial measures are not prepared in accordance with U.S. Generally Accepted Accounting Principles, and are in addition to, and not a substitute for, or superior to, measures of financial performance prepared in accordance with GAAP.
A reconciliation between the GAAP and non-GAAP financial measures is included in our first quarter 2024 earnings press release available on our Investor Relations website. Joining me on the call today are KR Sridhar, Founder, Chairman and Chief Executive Officer; Greg Cameron, our outgoing President and Chief Financial Officer; and Dan Berenbaum, our Incoming Chief Financial Officer. KR will begin with an overview of our business, then Greg will review the operating and financial highlights of the quarter, and Dan will review outlook for the year. And after our prepared remarks, we will have time to take your questions. I will now turn the call over to KR.
KR Sridhar: Hello, everyone, and thanks for joining us today. We had a good start to the year and we are seeing strong market interest, increasing momentum, and robust commercial activity across diverse end markets. Q1 results are as I expected. Importantly, our strong operational performance and commercial activity augurs well for the next three quarters. As I see it, our business is tracking to the plan we laid out for the year. Business leaders are increasingly recognizing the severity and circularity of the power challenges we face. They now understand that time to power is a business imperative and grid cannot meet the growing power demands. They need to turn to distributed on site power. There is increased recognition that natural gas is the only bridge fuel at scale and affordability for a decarbonized world.
And for companies looking to reduce their carbon footprint and meet their emissions targets, Bloom offers the least carbon intensive way of converting natural gas to electricity with virtually zero air pollution. As grid prices keep rising steadily in the U.S., Bloom's value proposition is becoming attractive, even on a pure cost basis alone in more new markets. Such markets include regions of Ohio, Illinois and Indiana that demand for power is growing, natural gas is available and a well accepted fuel of choice and our solutions are highly compelling for all electric and combined heat and power or CHP applications. The grid challenges and inadequacies are aggravated by a level of AI-related growth in data centers that is far beyond what anyone anticipated pre- ChatGPT.
Bloom has a long track record of success in supporting data centers power needs, with over 200 megawatts of contracted and deployed orders. In the earnings call last quarter, I talked about our healthy commercial pipeline for datacenter power. I also talked about our opportunities falling in two categories: power needs arising from expansion of existing data centers and power for Greenfield data centers that are being built for future needs, primarily AI. From a deal flow perspective, the existing data centers can often be contracted and deployed relatively quickly as the supporting infrastructure is in place and generally has minor permitting and permission hurdles. Contrast that, the Greenfield data center opportunities with much bigger stamp sizes, permitting requirements, tenant and finance securement, grid interconnection queues, all leading to longer sales cycles, but much higher revenue potential.
In this regard, Bloom's Be Flexible islanded more power solution offers a greenfield data center customer, the ability to commence operation of their facilities without worrying about need or delays of grid interconnection. Let me give you an example of a deal where we were able to get the contract closed faster because it's an expansion of an existing facility. We are thrilled to announce today a major win on an expansion data center opportunity. Intel has been a customer of Bloom since 2014 and we have been powering their data center in Santa Clara, California and their mission-critical labs in Bangalore, India. In Santa Clara, California, Intel is adding to their existing Bloom server capacity significantly to make that location, Silicon Valley's largest fuel cell powered, high performance computing data center.
On the larger stamp, green field data center deals, we still expect conversion of some of these opportunities in the second half of the year. The sales pipeline is robust and growing. Bloom's opportunities from the AI revolution extend beyond the data centers. We can rapidly provide power to the AI supply chain, which has surging and growing energy needs. Since 2018, Bloom Energy has been providing clean reliable power to Supermicro, a leading supplier of AI hardware for their rack integration facility in San Jose. Last year, Bloom Energy installed the first phase of a 10 megawatt contract for Unimicron of Taiwan, a leading developer of hardware solutions for the AI industry. We alleviated their time to power problem and enable them to meet the rapidly growing AI-related demands.
Just last month, we announced that we would power Quanta's new multi megawatt manufacturing facility in Fremont, California. Quanta is a leading global supplier of high powered compute servers for AI data centers. The local power utility could not meet its power needs in a timely manner. Bloom's power solution is an fully islanded micro grid, which will power Quanta Computers operations around the clock 24/7 365 days a year. By leveraging Bloom Energy's innovative and modular micro grid solution, Quanta is eliminating utility dependent delays and taking control of its destiny and maintain its competitive edge in the fast paced AI market. The AI revolution creates one more tailwind for Bloom. As AI-related players are able and prepared to pay a premium and use their leverage to procure and lock up merchant and utility power and solve their time to power issues, other industries are finding it harder and harder to get power for their growth needs.
We have started seeing more customers inquiring about our products and solutions for this reason. As we look at international growth, our approach has been to find the right markets, the right partners, and then scaling up with them. In Korea, we are seeing strength again after a temporary slowdown last year related to new policies being introduced. Our partner SK is confident about our future in Korea. We saw strong demand from SK in the first quarter. In Italy, we are very encouraged by the momentum we are building with Cefla, our partner for biogas based CHP solutions. We are continuing to develop other opportunities in Europe and Asia. On the personal side, in April, we were very pleased to announce the appointment of Dan Berenbaum as Bloom's new Chief Financial Officer.
Dan's financial and operational career spans more than three decades. A Naval Academy graduate, Dan held executive level positions at publicly traded companies, including National Instruments, Micron and Ever Spent, and before that, he spent 10 years on Wall Street as an analyst covering technology stocks. We are excited to have Dan on the team and know that he's the right person to help guide us in this next stage of our journey. With that, I'd also like to thank Greg Cameron for his service as Bloom's CFO. He has enabled a smooth transition as he promised, and all of us wish him great success in this new chapter, that he'll come in soon. And now I'll turn the call over to both Greg and Dan.
Greg Cameron: Thanks, KR. As this will be my final earnings call with Bloom Energy, I'd like to say how much I appreciate KR, the Board and the entire Bloom team for allowing me to be part of this amazing journey over the past 4 years. While we've accomplished a lot over that time, the remains more to do. While I will no longer be part of this journey, I remain excited for the opportunities for Bloom Energy and know the best days lie ahead. Now I'd like to talk about the first quarter financial performance. As we discussed in the last call, we had said that the timing of acceptances could impact our first quarter revenue. At the time, I said revenue for the quarter to be flat to down 20% on a tough comparable as we were up 40% in the first quarter of 2023.
Our first quarter 2024 revenues were $235 million, down 14.5% versus the first quarter of 2023. As a few acceptances that we thought could happen in the first quarter are now likely to occur in future quarters. The timing of these acceptances does not change our outlook for the full year. The product volume and the mix of acceptances impacted our gross margins. The first quarter non-GAAP gross margins of 17.5% was down 370 basis points versus the first quarter last year. The lower volumes in the first quarter versus the prior quarter, reduced manufacturing absorptions, which increased our product costs by over $160 a kilowatt, negatively impacting product margins by 500 basis points. If volumes had been similar to the fourth quarter 2023, adjusted first quarter product costs would have been roughly the same per kilowatt as the prior quarter.
As volumes grow throughout the year, and we continue to drive down material costs and increased power density, I would expect product costs to be reduced the targeted 10% plus down. Also in the quarter, the majority of our acceptances were to Korea. While our volume and pricing to create in the first quarter were similar to the prior two quarters, the percentage of the total increase as we had less shipments elsewhere. Over the past several quarters, the projects in Korea are becoming more price sensitive, resulting in a lower average selling price. Through our work on reducing product costs, we have maintained attractive product margins averaging about 30% in Korea, but the mix in the first quarter negatively affected our average selling price.
I would expect an improvement in product margins as acceptances in the United States, the rest of our international business increase throughout the year. An area that improved our margins in the first quarter was our service business. As we continue to grow our revenues, reduce performance payments, and reduce our replacement power module costs. I would expect this trend to continue throughout the year, and we expect our service business to be profitable on a non-GAAP gross margin basis this year. And as we've previously said, we are targeting a 20% on the same basis in 2025. We maintained our strong diligence on cost control, as our operating expenses decreased approximately $21 million in the first quarter versus the same period last year.
While we continue to invest in our future, we are very focused on improving our profitability. Even on lower revenue and margins, our operating costs allowed us to improve non-GAAP operating loss by $3 million versus the first quarter 2023. We also significantly reduced our cash usage by over half versus the first quarter last year. We're holding working capital levels roughly flat to year end. This allowed us to end the first quarter with $583 million in total cash. Now I’m going to turn the call over to Dan, who share with you a few thoughts and discuss guidance. Before I do that, I’m very glad, Dan and I had time over the past few weeks for transition. I believe he's a great add to the team and he's already building meaningful connections with his experience and energy.
He's joining Bloom in an exciting time with his partnership, I expect Bloom to continue to grow to meet the demands. I'm an evolving energy market. With that, welcome, Dan, and over to you.
Daniel Berenbaum: Thanks, Greg, and thank you KR for your earlier comments as well. I'm excited to be here and I appreciate the warm welcome I've received from across the company. I've been impressed with what I've seen so far at Bloom, the technology, the people and the drive to succeed in our mission of making clean, reliable and resilient energy available for everyone. As Greg mentioned, I've been working closely together over the last couple of weeks, and I appreciate his time and the attention of the entire team in getting the [indiscernible] speed on the financial and operating performance in the business. It's obvious to me what an important part of the Bloom story Greg has been. I want to thank him for that, and for leaving a mature, confident team in place.
As we move past earnings, I plan to spend time digging more deeply into the business. I'm also looking forward to meeting all of you. I'm committed to continuing to enhance our communications and our relationships with the entire financial community. I want to touch briefly on two things, our relationship with AWS and our outlook. As many of you know, in 2022, AWS entered into a power purchase agreement with Bloom to deploy 73 megawatts of capacity. We sold the energy servers for that project in 2022 and 2023 through our EPC partners. For state specific reasons, AWS has decided not to proceed with the original deployment location. That said, we are pleased to share that Bloom and [indiscernible] are working to deploy the Bloom servers in other AWS locations under the terms of the agreement.
Consistent with the PTA, AWS is commencing payments in the current quarter. We value our partnership with AWS and we look forward to serving them well on this and other potential future transactions. As it relates to our outlook, we are reaffirming our 2024 annual guidance for revenue, margins and profitability. With our backlog, convertible pipeline and product supply, we remain confident that we can deliver $1.4 billion to $1.6 billion of annual revenue at approximately 28% non-GAAP gross margin. Where we end up within the revenue range will be primarily dependent on timing of project approvals and completion. As the year progresses, we will have greater clarity on these opportunities. Consistent with prior years, second half revenue is expected to be greater than first half revenue.
Gross margins could improve each quarter as we move through the remainder of the year on lower product costs and improving service performance. At this revenue and gross margin profile for the year, we should be well-positioned to achieve non-GAAP operating profit of $75 million to $100 million. With that operator, please open the line for questions.
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