This conference call transcript was computer generated and almost certianly contains errors. This transcript is provided for information purposes only.EarningsCall, LLC makes no representation about the accuracy of the aforementioned transcript, and you are cautioned not to place undue reliance on the information provided by the transcript.
spk03: and quickly to get our operating capacity online in our plant in Fremont. We see the demand coming that we have to meet not only this year but into the future. We are investing and you're starting to see some of those investment dollars, whether they be costs in the near term, coming through on our product costs. And that's driving things up in the near term. That will get better and abate as we go in the second half of the year. So it's both a numerator and a denominator issue in the first half that gets better in the second half of the year. I think as we get through this and get to our exit point at the end of the year, we're still targeting 24% for the year. So that gives you a sense of where we believe exits will be towards the end of the year. And we think we'll go into 23, 24 and beyond with that momentum.
spk05: Got it. Excellent. Just can you define how much more, you know, kind of cost there is weighted in the first half, if you think about it, just to get that ramp going, et cetera, that you alluded to more in the numerator kind of side of things?
spk03: I mean, you can see it, right? If you take in and look at our margins this quarter versus where they expect to be, it's in the kind of low single digits, mid-single digits on a dollar range. So we only had $200 million of total revenue. So you can see three or four points there, what it would equate to in dollars. It's not a lot, given the first quarter revenue number.
spk05: All right. I just didn't want to assume all of it there. All right. Excellent. Thank you, guys. Appreciate it. I'll leave it there.
spk03: See you soon. Thanks, Julian. See you soon. Yeah.
spk04: Our next question is from Leo Mariani from KeyBank. Leo, you may proceed.
spk01: Hey, guys. Just wanted to get a little better sense on electrolyzer sales. Obviously, you have that successful demonstration that you had in South Korea. Wanted to get a sense of, you know, whether or not you think there's going to be some sales here, you know, in 22, and maybe you can just talk about, you know, broad market acceptance of your product there, given that's the most efficient one on the marketplace.
spk02: That's a great question, Leo. For us, when we look at hydrogen, the only way we think about hydrogen is scale. Without scale, hydrogen doesn't hunt. Look at what we are focused on in the projects we have. We have partnered with SoCalGas to produce hydrogen and inject that into the pipeline. We see that, and they have announced the Angelus Link, right? It is 4,700 standard cubic feet per day of hydrogen is what they're looking for. That's larger than any project announced. We're like partnered there. Why? We want to prove it out now with them. We want to grow with them. We believe in this. Huge market. Look at what we are doing on the nuclear side, working with the Idaho National Laboratory, and demonstrating the ability to do what we need to do. Because again, if you just look at the renewable penetration, the nuclear industry today has gigawatts and gigawatts of curtailed power. And they have the heat. Being able to combine those two and get hydrogen in, it's going to happen faster than any renewable excess capacity being available for hydrogen. after taking care of the needs of everything you need to do when we look at scale, right? So we are focused on the areas and the partnerships where we can make impact on scale. That's all we are focused on. As you know, and as you should know, we have the most efficient electrolyzer on the planet. You put that together with the scale that we are going after, As is our tradition, we'll announce about sales orders when we close them.
spk01: Okay. And I guess, could you maybe just talk about any progress in the European markets? Obviously, as a result of the Ukraine tragedy, Europe is certainly taking some aggressive moves on the energy side, including some specific hydrogen mandates that they've got over there. Can you maybe just talk about how the sales pipeline in Europe has evolved, and do you see the situation in Ukraine leading to, say, maybe a lot more significant orders in, say, 2023 and 2024?
spk02: Yeah, you know, great question again. Look, you know, there are two different things happening, right? Number one, the insecurity that this entire invasion has caused in the minds of corporates of having energy security and wanting to take control of their energy destiny in their own hands. We play right into that. If there's a cyber attack on the grid, again, a distributed system is going to help. it plays very well at the tail end for us. You look at European Union saying natural gas-based investments can be clean investments. That plays right into our sweet spot. We would definitely expect in that timeframe that you're talking about for us to be very engaged. And I can tell you that our European team right now feels like they have very strong momentum with customer inquiries and the funnel.
spk01: Okay. Thank you, guys.
spk04: Thanks, Bill. Question is from Colin Rouge from Oppenheimer. Colin, your line is open.
spk09: Yeah, guys, can you talk a little bit about the efforts that you've made so far in terms of procuring renewable natural gas? There's certainly a lot of market pieces in that market. Just curious about the opportunity you have to lock in some of that supply for your customers.
spk02: Colin, that's, again, a big area for us. What we can tell you is that entire industry plays for us in two different ways. The first way it plays for us is our customers more and more are asking us, even if they start with natural gas today, RSC today, where will they go? uh in terms of that next step many of them are looking for rng as a fuel source so they can get to net zero carbon as opposed to the credits which more and more people believe are not going to be sufficient for them to meet their goals and targets the second place that it plays in for us is the producers of rng use a lot of electricity and when they use bloom instead of a much higher carbon footprint utility electricity, their carbon intensity score lowers, and the value of the Bloom system powering those RNG plants is significantly greater than if they just use the utility. So we see the RNG producers as a customer, and we feel that the RNG they produced will be used by our customers. So it plays in both sides. And our biogas team will tell you, again, they're seeing a very robust funnel and interest in this sector.
spk09: All right. Thanks so much. And in terms of the dynamics you're talking about in terms of migrating towards the deployments for higher price systems relative to some of these costs and some of the things that you guys have done a lot of work on in terms of moving the sales funnel towards some larger customers, I guess I'm trying to to kind of square some of the commentary around those larger installations and pricing relative to the dynamics you're talking about of higher costs or higher than planned costs. Yeah, no, yeah.
spk03: Yeah, sorry, Colin, it's Greg. So the way to think about it is we're blessed by having a $2 billion backlog here, right? So as we looked at the year and looked at where we were with cost and where we wanted to be on our targets earlier, both at the gross margin line and at the operating income line, we saw it was clear that we were going to prioritize some of the higher margin things. I think we're probably going to do a few more repowerings than we would have done before. We're going to prioritize them in the middle part of the year. And we are going to take a few of the deals where we were A little bit more strategic, maybe on the little bit larger side, we were pulling those in for the year and wanted to secure that commercial relationship with the customer. We're going to delay those a quarter or two. It's not going to impact the strategic relationship at all. Doing that gets me the mix I need to cover off this little bit of headwind I have on the cost here in the near term as we build out capacity. So we're blessed by having optionality here. I think it's a more short-term move than a long-term move.
spk09: Okay.
spk03: Thanks so much, guys.
spk04: Yep. Our next question is from Alex Kania from Wolf Research. Alex, your line is open.
spk08: Great. Thanks very much. Two questions. Maybe the first one is could you talk a little bit about, you know, with your new customer discussions just in terms of kind of economics in the current natural gas price environment and, you know, kind of what does that mean for your discussions there? And then also, you know, is that – Is that kind of affecting any kind of sense about, you know, customers really trying to accelerate towards, you know, kind of like hydrogen solution or something like that sooner rather than later?
spk03: Yeah. Yeah. Hey, Alex, it's Greg. So on the natural gas side, right, we use it, obviously, in generating electricity here, but so doesn't the grid in producing the electricity. So when we talk to a customer, you've almost got that inherent natural hedge, right, where the best alternative on a cost basis is, would be them versus us. So our expectation is those two things offset each other, and you still get the benefits of the sustainability, the predictability, and the resiliency on it. So it hasn't really changed a lot of the discussions. The other thing I'd point to is the time-to-power discussion is becoming more and more relevant for our customers, meaning it's less about, and I think I said this in the script, but a lot less discussions around can you save me a penny or two. It's more around, hey, how do you get your product here quickly so I can operationalize, because we can save a lot more money by creating product in revenue in dollars for the company than they would save a little bit on the electric bill. So in some ways it's just – I'm not saying that you still have a commercial relationship there, but it is definitely a different dynamic than we've had before.
spk08: Great. And then a couple of them maybe just in terms of kind of customer interest on the hydrogen side. If there's any right now, or is it more still theoretical? And then, you know, kind of on a related question, I guess, related to hydrogen and electrolyzers, you know, what sort of kind of, you mentioned nuclear, but are there any other kind of interesting industrial customers that would really kind of be most interested in this from a scale perspective?
spk02: Yeah. So, you know, it is our strong belief based on our conversations that we are having is the hard to decarbonize industry such as steel, such as chemical refining, ammonia production becomes extremely, extremely interesting. And, you know, they are talking to us, but at the same time, I think it is going to take a little bit of market, them knowing the pricing of carbon and the market acceptance, but very strong interest. You know, that's where the interest is. those will most probably be the first places that you're going to see the adoption of these technologies.
spk08: Great. Thanks very much, and see you in a couple weeks. Great. Looking forward to it, Alex.
spk04: Our next question is from Mahit Mondoy from Credit Suisse. Mahit, your line is open.
spk00: Hey, thanks for taking your questions. Just on the previous question around natural gas, Could you talk about how your customers generally either hedge gas prices or look at gas prices, especially with gas going to $9? I understand it's probably a natural hedge against utilities, but also in terms of the uncertainty in gas prices, how do they deal with that? Thanks.
spk03: Yeah, Mahita, it's Greg. So each customer has a little bit different view on what risk they want to take. I would say some of our customers, you know, the gas risk is all within the customer. We don't take that risk. But as we look at it with them, there are some that really don't want to take much risk at all, and they will lock in either through pre-purchase or a hedge to make sure that they don't have price volatility. Other ones, especially large purchasers, will use spot markets more because they can get some benefits on that price or a combination thereof. So it's really around how that customer decides how they want to procure that.
spk00: Gotcha. And can you check the new tower design? I think we saw some news around you're getting some patent approvals around it. Is that like something for just the Korean market or U.S. market? So how do you think about that product and its ability to recover heat?
spk02: Yeah. You know, the power tower market is extremely interesting to us, okay? And the reason it's extremely interesting to us is as electrification happens of like vehicles, of automotive, as more energy is needed when we go to this digital transformation. Large concentrated cities where real estate is very expensive, putting that last mile of grid upgrade is going to be difficult. Bringing that resilience is going to be difficult. So just like we see in Seoul, and we have done it, we have done a similar tower in Long Island. And we think that in major cities where land is of premium, It will be a bloom tower, and an additional benefit of the bloom tower in addition to saving space and location is that now we can even concentrate some of the heat and provide hot water to the customers, thereby giving an additional benefit and further decarbonization. So we are fairly bullish about that concept, but it is more applicable to places where space is a premium.
spk00: Gotcha. I'm looking forward to hearing more on the analysis. Thanks.
spk03: Great. We'll see you. Look forward to seeing you.
spk04: Our next question is from Graham Price of Raymond James. Graham, your line is open.
spk06: Hi. Good afternoon. Thanks for taking the question. Just following up quickly on green hydrogen in Europe. Really appreciate the comments there in Just wanted to see, is there any opportunity to kind of accelerate the timetable for starting that production, given all the detailed ones that we've seen, or is that pretty much that?
spk03: Yeah. I think, you know, when we look at the market, Europe is interesting for sure. There's some incentives there that make the market attractive. There's a lot of interest in that space. And given that what's happening with Ukraine is bringing a lot more interest into it, These are projects that are going to take time in order to build out and deliver, and we are in conversations with folks to use our technology to help them build out their space. But you're definitely seeing the continued tailwinds and movement based on what's happening here today.
spk06: Got it. Understood. And then for my second one, thinking about the infrastructure bill, we set aside – funds for the DOE to create hydrogen hubs across the U.S.? Just wanted to see kind of what progress there has been from what you've seen.
spk02: Our teams are engaged in hubs, you know, no matter where it is in the country. And clearly there are integrators. And those integrators, ultimately, for them to be competitive, have to pick the most competitive technology. So you shouldn't be surprised that they're all coming to us for the electrolyzer. And so we are engaged with many of these teams, and we'll be happy to support any and all of the ones that win.
spk06: Got it. Good to hear. Thank you very much.
spk04: Our next question is from Jeff Osborne of Cohen & Company. Jeff, your line is open.
spk10: Good afternoon. Two quick ones and a housekeeping question. On the quick ones, when will the Idaho National Lab report the third-party validation of the electrolyzer?
spk02: Again, those units are with the lab, and they will conduct the tests. And we like to give them the independence, and when they say they're ready, we will do it. We know our systems will work. It's them auditing, validating, and feeling comfortable with it. and we don't like to rush them. But sometime in the near future, you should be expecting that. Everything is going well.
spk10: Great to hear. And then, Kara, can you just touch on the China situation and any supply chain for membranes, stacks, plates, anything else that you need in the event that the Shanghai port and other areas of China are shut down? How should we think about risk to production?
spk02: Yeah, unlike those other technologies, we don't use membranes, but... No. Look, China as a rule, by the time you get to Tier 2, Tier 3, Tier 4 suppliers, the entire planet, I don't care where you live, is dependent one way or another on China. So China doing well is important for all of the world, and we hope those situations, for the sake of the Chinese people as well as the global economy, improve very fast. Our teams are extremely resilient. They have managed through everything. And, you know, the good news that you need to know is, knock on wood, we have met every single customer shipment and expectation on schedule. And that speaks volumes to our teams.
spk10: Absolutely. Great to hear. And, Greg, just a quick housekeeping one. You mentioned repowering a couple times. The 240 to 250 acceptance is relative to your capacity. Can you just touch on how many megawatts will be repowered this year?
spk03: It'll be in the single digits. It won't be large. It won't be a big number, but they're enough that they can help balance out the little bit of cost we're seeing.
spk10: Makes sense. Thank you. That's all I had. All right. See you soon, Jeff.
spk04: Our next question is from Noel Parks of Toy Brothers. Noel, your line is open.
spk07: Hi. Good afternoon. Hello. You know, I really wanted to pivot back to the EQT transaction. And at the time it was announced, I remember thinking to myself, aha, at last. It seems kind of obvious to me that an agreement like this is exactly where gas producers should be heading. But it's sort of striking to me that I'm pretty familiar with EQT transactions, that it seems that there hasn't been much initiative, even from those who've put together good volumes of certified gas, to look for applications like fuel cells. So I wondered if you could just talk a little bit about how that came together. And I was wondering, is there anything analogous, maybe as far as your Baker Hughes relationship? as maybe somewhat coming together of legacy energy generation and transportation and what fuel cells can enable.
spk02: Look, that's a good question. You're asking for the roots of how this happened, right? At Bloom, we are always asking, what is the most responsible right thing to do? And for us, it seemed very obvious that methane emissions is something we should not accept, then it is very easily possible to prevent those emissions. Look, the history of this company comes from us putting rovers on Mars and making them do what they need to do. For heaven's sake, we should know how to stop a molecule of methane from coming off a pipe, right? And so In Toby Rice and in EQT, we found a great partner who said we are willing to do this. In MIQ, we found a great partner that said we are willing to independently audit it. And then we found this report that said 75% of methane leak from oil and gas, which is technology exists today to prevent it. You're talking about pennies. on a gallon or a pennies on a MMBTO to be able to provide the premium to do this. That would be the equivalent of retiring 60% of global coal power plants and replacing them with renewable. Can you imagine how long that's going to take? We can do this today. When we saw that, we said we have to be the leader and we have to do it. And similar to the first person buying you know, fair trade coffee or organic vegetables. Somebody has to start the movement, and everybody will follow. So we wanted to be the leaders, and EQT and MIQ wanted to be leaders with us. And we found a tremendous partner in T-Mobile that came and said, can we be the first corporate customer that can do this? So that's how it happened. And now we have placed our entire fleet, Bloom's entire fleet, in the US will run only on responsibly sourced gas, whether our customer pays for it or not.
spk07: That's terrific. My next thought goes to, having been the first to achieve an agreement like this, Can you talk at all about how it's helpful for your sales effort? Because I imagine it gives another whole dimension to the story you can tell when your salespeople are pitching the value proposition overall.
spk02: It is definitely of great interest because today when we sell to any of our corporate customers, there is definitely a sustainability and ESG discussion that goes on along with it. And the fact that we are able to tell them that you will be able to take the best available technology today with the lowest carbon footprint while at the same time protecting and securing your business 24-7, that's a very compelling argument, and it is definitely helping. This is one great case of do good and make good.
spk07: It's very helpful because it does just illustrate how, in a way, this is such a low-hanging fruit, what you're talking about with methane emissions being so easily mitigated. Thank you. Thanks a lot.
spk04: That concludes our question and answer session. So I will hand the conference back to the management team for any final remarks.
spk02: Thank you, operator. Again, everyone, this is KR. I want to thank you all for your questions and interest in Bloom. Let me leave you now with these three fundamental thoughts about Bloom Energy and our position as a leader in this energy transformation. The first thing is our business has really matured over the last several years, and you can see how we are executing on our business plan, how we are resilient in managing through this global turmoil that you're seeing around us. I'm exceptionally proud of our team that has handled all these broader global supply chain challenges and macros and continued to execute, execute, execute so well. Second, of all the trends that we've been talking about for years, whether it's resiliency, whether it's decarbonization, whether it is the predictability of price of power, whether companies needing to take control. Which one of those have become less relevant today? Which ones have become more relevant? They've all become more relevant. This digital transformation is making companies understand that if they don't take care of their own energy, they are putting their business at risk. Legacy solutions like the grid are not able to meet this goal. And we, on the other hand, have solutions, and the C-suite, and the boards, and the governments are finally beginning to listen to us. The third part is we have a platform, an energy platform with fuel flexibility, incredibly high efficiency, and adaptability to a variety of applications in the marketplace. It provides our company, Bloom Energy, with a degree of optionality that no other company in this area can claim. So all these combined, you can very clearly tell, makes me very excited, optimistic, and enthusiastic. I look forward to seeing many of you in the coming weeks during our investor day and look forward to showing and discussing with you in a lot greater detail. Thank you for your time today.
spk04: Thank you for your participation. You may now disconnect your lines.
Disclaimer