Bloom Energy Corporation

Good afternoon, and welcome to the Bloom Energy Fourth Quarter 2019 Earnings Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question and answer session, and instructions will follow at that time. As a reminder, this conference call is being recorded. I would now like to turn the conference over to Mark Messler, Vice President of Finance and Investor Relations at Bloom Energy. Please go ahead.

Thank you. Good afternoon, all, and thank you for joining us on Bloom Energy's Fourth Quarter 2019 Earnings Conference Call. To supplement this conference call, we have filed our Q4 2019 shareholder letter and earnings release with the SEC and have posted it along with supplemental financial information that we will periodically reference throughout this call to our investor relations website. Today, we also filed Form 12B25 with the SEC, indicating that we would file our Form 10-K no later than March 31, 2020. The matters we will be discussing today include forward-looking statements regarding future events and the future financial performance of the company. These statements are subject to risks and uncertainties that we discuss in detail in our documents filed with the SEC, specifically the most recent reports on Forms 10-K and 10-Q, which identify important risk factors that could cause actual results to differ materially from those contained in the forward-looking statements. We assume no obligation to revise any forward-looking statements made on today's call. During this call and in our Q4 2019 shareholder letter, we refer to GAAP and non-GAAP financial measures. These 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 Q4 2019 shareholder letter. Joining me on the call today are K.R. Sridhar, Principal Co-Founder and Chief Executive Officer, and Randy Furr, Chief Financial Officer. K.R. and Randy will review the operating and financial highlights of the quarter, and then we will take questions. I will now turn the call over to K.R.

Thank you, Mark. Good day. and thank you for joining the call. Let's start with the topic that's top of mind for all of us, COVID-19. Given what's happening, it's impossible to not feel vulnerable and somewhat helpless. This is a natural reaction to a human issue. At Bloom Energy, we are placing the health and safety of our extended workforce and that of our customers and community as our highest priority. Today, Like with most other businesses, our normal operations are impacted by the coronavirus. In the short term, we are committed to doing everything possible to mitigate its impact on our people, business, and customers without compromising safety. I also want to take this moment to address the restatement we announced a few weeks ago. What happened was unfortunate. Following the announcement, I was able to speak with many of you to make sure you had the facts. I appreciate the time that all of you took to look at and study the issue and understand what it is and what it is not. The restatement is solely driven by an accounting adjustment for the capital equipment and install portion of our managed services agreement. less than 10% of the total revenue over the affected period. This is unrelated, unrelated to our service business, the life of our servers, or our service contracts. These accounting adjustments have no impact on cash and no revenue is lost. What we are doing at Bloom is innovative, groundbreaking, and critically important for the world. I want to acknowledge that the path hasn't always been a straight line and there have been hurdles along the way. Humbling as those hurdles are, thanks to an amazing team that is dedicated to the mission, we have overcome obstacles and made progress. We went from zero to where we are today, a nearly billion-dollar-a-year publicly traded company. Let me now discuss the momentum we saw coming out of 2019. We report our sales backlog once a year. During 2019, we expanded our system sales backlog to 1,983 systems, a 43% increase from 2018. We had reported a very sluggish first half 2019 order book. we witnessed very strong business momentum in the second half of the year. So what changed? As I see it, there were four major reasons for this very positive turn. Number one, customers are realizing that the electric grid is not able to offer reliability and resiliency when faced with frequent natural disasters, and they are increasingly recognizing and valuing the reliability and resiliency of our Bloom Energy Server deployments. Number two, several utilities in our sales territories have requested significant multi-year rate increases, making Bloom's value proposition of cost and cost predictability more attractive to customers. Number three, customers are now focusing on their need to adapt to climate change and make their businesses resilient. They're asking, What do I need to do to keep my lights on securely? Number four, while remote renewable projects may offer carbon credit benefits to a customer, they do not provide energy security and business continuity benefits to keep its business operating during a power outage. The dual need of sustainability and resiliency has gained traction with our customers, and we provide a unique solution in the marketplace that addresses them with equal force. The summary of those four points, the Bloom Energy solution and its value proposition are resonating strongly with our customers. Let me elaborate on the dynamics in our top two markets, the U.S. and South Korea. In the U.S. market, we deployed our always-on microgrid solutions at two stop-and-shop stores in New York. These pilot projects are meeting the customers' economic, reliability, and resiliency expectations for several quarters now. Stop-and-shop placed a repeat order for 40 of their grocery stores in Massachusetts and New York. These resilient deployments will allow Stop and Shop to better serve the local community at a time of need, even when severe weather events, such as winter storms and extreme heat, disrupt the power grid. We witness the increasing customer awareness for resiliency on both coasts now. Here are a couple of metrics. Traditionally, in the past years, The percentage of the total business that was microgrids was in the low teens. Our 2019 ending backlog had that number at over 25%. Also, the microgrid contribution mix in our sales pipeline had more than doubled. Whereas in 2018, the contribution mix was 21%, it grew to 45% ending 2019. we see microgrids as a significant growth opportunity for Bloom. Manufacturing industries have become very sensitive to the price of not having power. Manufacturers cannot afford power outages because they lose in-process inventory, labor and overhead, and capacity. Power outages also imperil safety and undermine a company's ability to fulfill customer commitments. Because of all of these factors, we are experiencing a healthy demand for our products from the manufacturing sector. Now let me address the Korean market. Bloom's sales volume has increased significantly in Korea since we entered that marketplace. Customers recognize that our fuel cells are a preferred solution for reducing emissions, and providing high-quality power to the grid. We ended 2018 with two major Korean generation companies as our customers. We have won contracts with four out of six major Gencos exiting 2019. Here are a few other highlights for 2019. For clarity and ease of comparison with the estimates that we provided on our Q3 earnings call, When I reference revenue and non-GAAP gross margin metrics in my comments, I will be removing the impact of ASC 606 adoption and accounting adjustments due to the restatement. We provide detailed reconciliations of these adjusted financial metrics to the GAAP metrics in our shareholder letter. So the highlights. we had a year-over-year revenue growth of 25.2%. Number two, for the second half of 2019, we achieved a non-GAAP gross margin of 25.8%. Number three, we got a 17.7% reduction in our average product cost year-over-year from $3,672 per kilowatt in 2018 to $3,021 in 2019. Number four, our prototype units of system 7.5 is performing to design goals and the program is on track. Number five, we entered into a collaboration with CalBio to deploy our energy servers for the conversion of dairy waste into renewable electricity here in the U.S. as well as a joint effort with Energy Power in India to deploy Bloom's first commercial-scale on-site biogas solution from agricultural waste to municipal waste. Number six, we powered 55 microgrids to 679 grid outages, resulting in over 1,350 total hours of saved productivity for businesses. We as a team are very proud of this. And now I will turn over to Randy.