Bloom Energy Corporation (BE) Earnings Call Transcript & Summary

Good afternoon. My name is Paul Coster. I cover IT hardware and alternative energy for JPMorgan. On my team, is Mark Strouse and Paul Chung, who share the coverage with me. And this is the 45th JPMorgan TMC Conference, I believe. It's May 25, 2021. And just before we start, I want to remind the audience that you are welcome to submit questions into the session using the website, and I'll be monitoring the website for questions, which I'll read into the discussion. And the discussion is with the founder, Chairman, CEO of Bloom Energy, KR Sridhar who's joining us, I think, from California today. KR, welcome.

Paul, it's a pleasure to be with you, and thank you for inviting me. And look forward to this conversation.

No, I always enjoy having you on these sessions. So let's start by familiarizing the folks with what it is that Bloom Energy does.

So Bloom energy provides on-site electricity that is reliable, resilient, clean and cost predictable to customers on site. And what we do -- the way we do it is to use an advanced fuel cell technology, which makes it into our energy servers and either biogas, natural gas or hydrogen can go into our systems without combustion, without use of water during normal operation, without creating any sound pollution or noise pollution or air pollution. We're able to provide that electricity to the customer. This is what we do.

And who are the customers of this business? And why are they adopting it?

So our customers are in the U.S., predominantly commercial industrial customers, and I will walk you through a few of them. And abroad, especially in Korea, it's large utilities. Now in the U.S., our customers are either big box retail, for example, the Home Depots of the world, the Walmarts, the Stop & Shop. We have data centers, very large edge data centers that cannot afford to lose power, people like Equinix. We have very large hospital chains that cannot afford to lose power like Kaiser Permanente. These are examples. And then we have large campuses. These are big office campuses. These are college campuses that want to have reliable power. About 1/3 of the Caltech campus, for example, is powered by Bloom. So anybody that requires reliable power, cost predictable power, clean power and resilient power that can withstand hurricanes, storms, earthquakes, forest fires and provide that safety, use us.

Right. I mean I think the use case varies by customer and by industry. But I mean is this -- do they adopt Bloom Energy as the primary source of energy or is it back-up or does it depend?

So the primary source of power is what they use Bloom for. It is 24/7, always on. And Paul, I truly believe in a digital world, there -- our living our life, our safety, every aspect of what we do depends on electricity coming in. Digital runs on electricity. This concept of a backup band-aid, very soon, I hope, our children get to see it only in museums. And otherwise, how do you electrify everything? How do you depend on a transportation even for your security for you to be able to get out of the place when there's a crisis and that electricity not be reliable? So for us, it is primary power and backup power. It is not primary or backup power. That terminology should be just completely gotten rid of, and it is always on reliable power.

Got it. And so it's always on, it's on site, it's reliable, it's resilient, it's clean, it's cost predictable, meaning that the alternative is not those things. Not one of them. All of them, right?

Yes that's correct.

So you're essentially competing against the grid at the moment. And the grid is increasingly unreliable, vulnerable it still has some -- it's not as clean, and its costs are going up. I mean this is the fundamental thesis.

This is the fundamental thesis, and this is the core of our basic technology, which is a platform play, and that's how I designed it 20 years ago when I started the company, in that this platform, think of it as a Swiss army knife that has so many other applications, including producing hydrogen. But our core play, what we do today, using natural gas as a fuel, using biogas to 0 carbon, using hydrogen when we need to, producing hydrogen when there's excess electricity, being able to do all that, but not depending on the timing in the market of when that happens. We are a big believer that all these things will happen. But as we all know, none of us seem to get the market timing right in terms of market adoption. It's either too soon or too late. We have prepared for it with our platform. But the key thing for your audience to know is our core business as we practice it today, it's a very strong business with a very strong value proposition.

Right. And then the value proposition is very strong in specific regions as well. I mean, it's -- I mean, I'm sure in time, you hope it will be -- the value proposition would be [ Ubiquisys ]. But at the moment, in those regions where it's high cost electricity, I'm thinking some island nations, I'm thinking South Korea, California and the East Coast. In locations where there is unstable or vulnerable grid, these are the opportunities today. And then from there, as the cost comes down, it will just expand to more and more territories. Is that how we should think about it?

Let's just expand on that a little bit. Even 3 years ago when we went public, we were in the low teens in terms of electricity costs where we could hunt and offer a cost value proposition, at least in terms of cost parity with respect to the grid. That restricted us, if you take the United States, to about 4 or 5 states where we could practice very easily. Since then, we have shown our discipline, and I mention this again and again. Cost reduction is in our DNA. We have hundreds of projects going on all the time, bringing cost down. In that same platform, you've seen us year-over-year getting to the mid-teens to the high teens in terms of cost reduction year-over-year. What has that done? That today allows us to offer electricity at $0.09 a kilowatt hour, it opens up a lot more states. Now at $0.09, if you can get reliable, resilient power and don't require backup and you're willing to pay a premium, at least certain businesses that for whom the price of not having power is probably more expensive than the cost of power. Hospitals come to mind, certain data centers come to mind, security comes to mind, right? So in these places, we can compete. So we are rapidly expanding our addressable market. And there we can make this value proposition. So a few years ago, you could have said maybe it's expensive. Today, 2 things are happening. Our costs are coming down, the grid costs are going up. That combination allows us to open up enormously.

Moment to help people contextualize Bloom Energy a bit, because you are the largest pure-play fuel cell company in the world at the moment, I believe, and so that's kind of notable, right? Everyone else is talking about the game, but they're actually not the biggest yet. But you're also -- it's somewhat unique in that you're focused on solid fuel oxide technology, where most of the rest of the world is using maybe some alkaline or multi-carbonate or whatever. How does -- explain the virtues and the specific application of solid oxide fuel cell technology?

That's a great question, Paul. And part of the reason -- look, I can show you DOE documents from the 50s and 60s that said, when somebody can make solid oxide commercially viable, that's the best technology for power generation. And that story has not changed because the fundamentals of science don't change. Okay. What do I mean by that? Number one, you're converting chemical energy to electrical energy using a fuel cell. And there's an efficiency associated with that. No technology, no matter how much they try, the low temperature fuel cells, can violate the loss of physics and provide a higher efficiency than a solid oxide fuel cell, okay? That's a fact. And Bloom practices that. We are the highest efficiency of any technology to convert hydrogen, natural gas or methane to electricity because of the temperatures at which we operate, number one. Number two, those kind of systems don't require precious metals for their catalysts; number three, they're fuel flexible. You can use natural gas today as a transition fuel. You can blend in biogas, you can blend in any combination of hydrogen as hydrogen becomes available. I don't think we switch from 100 to 0 overnight, and we can talk about that numbers when we get to hydrogen. You need to blend that in. You can -- and you can build this in a modular fashion, and therefore, offer the resiliency that you need. And the most important thing about the solid oxide fuel cell technology, especially the way we configured it is the factory with which you can build them has such high capital efficiency, you can build a copy, exact factory of what we do today and recoup the money in less than a year. There are not too many manufacturing facilities that can think of doing that. And that's what we can do. And we have proven that right now. So these are the virtues: number one, very high efficiency; number two, fuel flexibility; number three, we are both the transition and the destination to 0 carbon; number four, resiliency, like you've never seen before. And I will state that, again, reliability and resiliency, like you've never seen before. Our overall fleet had 99.999% availability last year. There is no electricity, since Edison, no matter what technique, no matter what technology they use, that gives that level of availability.

No. So thank you for that. On the other hand, there are things that you don't do. I don't -- I think you're not pretending to be a participant in the mobility market. Well, let me qualify that. In the road mobility market anyway.

So we are not going to be in the vehicle that gives you mobility, at this point, unless you happen to be on board sea where the shipping is a mobility market, one of the largest mobility markets in the world. And we are -- we can capture that entire market because of what we bring to the table, okay? Number one. But for either short distance, road travel, like your passenger car or long-haul travel, like trucks, we are "the gas station", whether it is an electric charging of the vehicle or hydrogen being provided into a long-haul truck. Our hydrogen electrolyzers will be 15% to 30% more efficient than low temperature electrolyzers. And most studies, say, up to 80% of the cost of hydrogen is going to be the cost of energy. So if we are 15% to 35%, depending on when it is and how we integrate, more efficient in energy, we have a better play than anybody else has in that field.

The point, I guess, I'm also trying to make here is that PEM technology, for instance, is...

Then you want to start stop. No, when you want to start, stop and you want to do that, you should use a low-temperature PEM or alkaline technology and not our technology.

It's complementary. It's going to be a big...

It's complementary.

One of the things, though, that has frustrated the investors a little bit is that there's the sense that you're vertically integrated. Everything gets done by you, and there's no -- you almost invent your supply chain and go-to-market has been by you as well when it requires a skill set that's not obviously yours. Whereas others have entered into joint ventures and partnerships and kind of at least seems to have the sort of broader reach through the partnership ecosystem, and that's not been the case for you, until very recently, though.

So okay, you have a few points out there. Let's unpack this, okay? Let's unpack this. I think we have a very deliberate strategy out here, okay? And we're executing to that strategy. So let me just walk you through the parts that you said. No, we are not vertically integrated. And that should not surprise you, and that's not me speaking something different from what I said before. Our core platform technology of our hard box and what we do is something we completely control and maintain, like Intel completely controlled and maintained its microprocessor technology because of IP. That was a smart strategy for Intel. Time will tell that, that's an extremely smart strategy for Bloom, number one. We service those units because we believe that that's a huge annuity revenue, very similar to servicing aircraft engines and things like that, okay? You want to control that. However, when we started, yes, we had to do everything ourselves, not because we wanted to because nobody else will partner with us and do it because it was not a proven technology. So Paul, let me walk you through this. Our very first power purchase agreement was funded by Bloom. Did I believe that I can take private equity money and invest it in a project and get the kind of returns in a PPA? No. But we had to prove that the model worked. Today, we have project financing where it is completely not vertically integrated. Similarly, everything in install that we did, we had to do ourselves because it was brand new. We had to learn with the customer, we had to do it right. When you look at even our last quarter numbers, you can see the fraction of our total install that we do ourselves. This is our partners to it. So we are not a vertically integrated company, except for our core technology. Now let me -- since you brought up the issue of Baker Hughes, let me walk you through that. We have done microgrid projects some of this because of our customer sensitivity, we don't speak openly, where they have solar batteries, peaker generation, all that combined with Bloom, and Bloom provides that core platform always on. Everything else is integrated by somebody else. Now as we go to larger and larger microgrids, which we expect to do, Baker Hughes has phenomenal technology to take care of the peak loads, we take care of the baseloads. Integrating that and forming a partnership, ideally suited, number one. Number two, we see industrial use decarbonization becoming extremely important. And the integration of heat, both for electrolysis as well as with fuel cells and offering complete solutions to large industries like steelmaking, petrochemicals, fertilizers, extremely important. Baker Hughes has a very strong role to play. Will we do all those things? The answer is absolutely, no. But will we focus this -- so we have always said building that core technology, core platform, keeping that our intellectual property and developing that as our core business. That's where we have control. Everything else, as time goes on, we will form partnerships. So here is a simple number, Paul, to think about. If only -- forget firming up electricity with the like intermittence and all that, which is a big part of what hydrogen can play in. But just take replacing oil with hydrogen. 100 million barrels a day. What is the equivalent of that? The equivalent of that is 5 billion kilograms of hydrogen a day. That's $10 billion a day. When people tell me these other companies have first-mover advantage, look at everything that they're doing. In the last 20 years of their existence, they have struggled cumulatively to make $1 billion in revenue. Cumulatively in over 20 years, they have not done $1 billion in revenue. The hydrogen market will be, even at $2 a kilogram, $10 billion a day. These companies have done -- not done $1 billion in -- so if they are hurrying up and signing partnerships, and you all claim that they have first-mover advantage, come on, let's get real, okay? Come on. Let's get -- okay, let's get real. Okay. Let me tell you on the contrast what we do, right? You've seen our 20-megawatt power plant in like Korea, right? That's a 44-megawatt electrolyzer. That can do about 30 tonnes a day of like hydrogen, okay? And we can build a plant like that every month today with our existing capacity. Very soon, 2 plants a month, and by the end of next year, 1 plant a week like that. So it is about building the scale, building the muscle, building the team, building the supply chain, having the experience of having put these units in the field and showing that they actually work, learning the multiple ways it will fail and making it robust. We have done all that. Others are hoping to do all that. So we are focused on building that because this is not the fashion industry. It's not going to go out of business, okay? If we don't capture this window right now. We are deliberating our strategy. You will see our strategy coming up.

Very good. That was awesome. I totally take your point. But it's so early at the moment, the notion that anyone has [ stitched ] anything up is ridiculous. But you have a pretty aggressive technology road map or product road map ahead in the near term. You've got Gen 7.5 servers coming out. You've got your first hydrogen fuel cell coming to market, if not already out. You've got first hydrogen electrolyzer. The other thing which is coming clearer is, it's not just fuel flexible, it's sort of application flexible because you can also mix in the carbon sequestration option. Walk us through that sequentially. And then I've got the time to ask you here, which is harder, the solid oxide electrolyzer or the sort of oxide fuel cell with carbon capture?

Great question. So where do you want me to start? Let's break it up.

Start with the sequence.

Okay, start with the sequence. Okay. So look, if you take our core business, right, let me start with our core business. We believe that integrating our core platform with solar, where it's applicable, with some amount of storage, with very clean peaker ability and offering an isolated islanded option for multiple days for businesses is essential. Any business that does not understand the tail risk associated with this and does not take control of the -- in their own hands and expect somehow post Texas, post other things like that, believing that they are not going to be vulnerable to a large-scale outage, whether it is through natural disasters or through cyber attacks is crazy, okay? Just like Boards and investors do not tolerate companies not taking care of their cyber risk, IT risk, they are not going to tolerate them not taking care of their energy risk as long as solutions are available. And we have a solution today. So we think that's at the core and that business alone over the next few years, is going to give us enormous growth. So if your clients are asking how to think about Bloom, I would say, just investing on that one thesis alone, it's going to make a great investment for you. And by the way, everything else I'm going to speak after this are options that you're getting for free. Okay? That's the way to think about Bloom. Okay. So now let's get into the next things. We clearly see that it is 3 things that we want to bring to the table, Resilience, decarbonization and cost affordability and predictability. So I just spoke about resilience. Now let's get to decarbonization. We believe that it is a transition and a journey and not a flip of a switch. Natural gas being used in the most cleanest way is the first step, and we are already there. We see biogas as a large opportunity. We see -- because if you look at the IEA data, there's about 730 million tonnes of oil equivalent. That's a large number, tens of gigawatts to be had. We think time is right for that, and you will see us aggressively enter that market. And our systems are naturally suited for that. We are already doing, and we'll be announcing soon, a very significant demonstration with the landfill that we'll be announcing very soon. You'll see that with a large corporation. And we're going to be doing that. So biogas, we see is very important. And we see that as being very important for places like wastewater treatment and other things too, okay, because of resiliency and decarbonization. Then you go from there, to carbon capture. One of the things that we are excited with working with Baker Hughes is this collaboration that we can do where they take the CO2 that we produce. That's our core technology. They're not going to do anything with that. So this is not a change in strategy, Paul. It is that strategy. But we are never going to learn how to compress that CO2, how to get that to where it needs to go, whether it's utilization or sequestration and all that. And this is where Baker Hughes comes to help. And there's a combination of using their systems with our systems to be able to do it very efficiently. So carbon sequestration -- and again, I'm going to -- as I'm walking through this, answer the question of is it carbon capture or is it electrolyzer? The answer is it's both. And so the carbon capture is going to work well today for large-scale production and not for small-scale production. If you are a hospital doing this, you're not going to try to somehow capture that carbon dioxide, take it somewhere, sell it. Can you do that? You can do that in a boutique fashion. You're not going to move the needle on decarbonization. So we are looking at larger scale projects, and their carbon capture makes abundant sense. It is the fastest scale method to get to decarbonization immediately until the hydrogen economy comes along. So this we will be working with large oil, gas utility kind of providers to see how we can do this. Then you go into -- so that demonstration, that technology development is happening on our own and now along with partnership with Baker Hughes. Then you take that next step on decarbonization to hydrogen. And there, we believe -- and this is a point of view that grid electricity done that way and powering vehicles done that way economically for scale is not going to be as attractive if you're focused on decarbonization, amount of carbon reduction per dollars you spend compared to industrial decarbonization of the hard to decarbonize places like steelmaking and other places. We believe those are going to be your first applications where there's going to be tremendous value for the customer and tremendous scale that you can get to early on as you do it. If you just consider the logistics of everything and you look at where it falls, it is the industrial use application. So we are focused on that as where we're going to go next. Okay? That's one. And then there are other applications like the marine, which are just low-hanging fruit, in my opinion. It is a long pathway because of all the certifications and everything, and we are making very good progress on those things, but it takes time. But it is a low-hanging fruit because it is such an obvious thing to do.

Why have you been so successful in South Korea? And thus far, the rest of the world seems not so taken -- paid too much attention. What's going on and what will happen, do you think?

I think it's a good example of why policy matters and when a country adopts a strategy and sticks with it, you see the market automatically come and grow with it, right? So South Korea decided early on, they're an industrial economy. Think about why South Korea is where it is on the economic ladder. Huge heavy industries that are dependent on electricity and reliable, good electricity. They also found -- they also realized early that their customers are going to demand that they use clean electricity and that can be a competitive advantage for them. And it can also be an opportunity for them to be a leader in the rest of Asia to do what they need to do. And third, they decided, given their terrain, solar and wind can play in the margins and cannot be a source of large amount of power. So they put together a strategy where they gave enough carrot and stick to their utilities to go adopt fuel cell technologies. And when we entered that market, relatively late compared to the other fuel cell companies, but it came at a state where they had tried everybody else and realized how much better we were. And so they came to us really wanting us to come to that market. And our track record of success shows that we are 80% to 90%, when we bid for something, winning those proposals and installing them. So I would say it is their very good policies and need and our amazing technology put together that has made South Korea happen. But to answer your question, you have just seen about a month ago, our press release on the kind of teams that we are building now. And the caliber of the people we are building. That is key to Bloom, okay? This is not about an announcement. This is -- at the end of the day, people make things happen. We have an amazing team. We built amazing teams that think, are deliberate, are strategic and build something that can grow and sustainable -- in a sustainable way.

And those teams are obviously located -- addressing the most obvious near-term opportunity is Europe, little bit Middle East.

Europe, Middle East, parts of Asia. Yes.

Okay. So we should expect to see developments start to accelerate perhaps in a year or so now?

Yes. Yes. Yes, we should. We should. You're right, these are long transactions. But within a year or so, you should be seeing all those markets develop. And we are very excited for those markets.

If I remember correctly, you're now starting to invest in capacity so that you can double the size of this company pretty quickly. At least that's...

Yes. We have put together a plan where, very quickly, we can get to 1 gigawatt. We will be at 0.5 gigawatt by the end of this year. So when people talk about building gigawatt factories, we are already at 0.5 gigawatt factory. And by next year, we -- within a year from there, we can be a 1 gigawatt factory. And the reality is it's extremely capital light. Today, if you look at it, we are not spending capital on like electricity purchase agreements. We are not spending -- we're not -- our cost to expand is very low. So we have a very capital-light company. So our growth is going to come wonderfully well in terms of what we can do in terms of absorption costs and therefore, the gross margins. And you're already seeing how well we're doing in our gross margins.

And obviously...

And then, look, we expect to be a cash flow positive company very soon. And that, in this field, would be something remarkable and not just for a quarter, but to be able to do that sustainably and grow that number.

Indeed, that would be the first in the fuel cell space. And you are the largest in the space, and you put up 25% growth. And just to -- let's wrap with one last question, which is, it looks like your cadence is 25%, CAGR revenue growth right now. How long can this last?

We will get to 30%, and if we make a commitment to you to -- for 30% -- how long can it last? Paul, we just talked about $5 billion, $10 billion a day, if there's $5 billion -- God, you and I should not be alive even if we live past 100 years, and this company should still be able to do that if it can do what this technology is capable of doing.

Right. Yes, that's a good way to end, I think. Indefinite 25% growth, I love that. Thank you so much for participating in the JPMorgan TMC conference here. Again, we do appreciate your attendance, and we wish Bloom Energy the very best of luck for the year ahead.

Well, I appreciate you giving the time, and I always enjoy talking to you. Thank you.

Thank you so much. Bye-bye.

Bye-bye.