Good afternoon and welcome to the Bloom Energy Second Quarter 2020 1 Earnings Conference 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. 1.
I would now like to turn the conference over to Investor Relations. Please go ahead.
1. Thank you, operator. Good afternoon, everyone, and thank you for joining us on Bloom Energy's Q2 2021 earnings conference 1. To supplement this conference call, we furnished our Q2 2021 earnings press release with the SEC on Form 8 ks and have posted it 1, along with supplemental financial information that we will periodically reference throughout this call to our Investor Relations website. 1.
The matters that we will be discussing today include forward looking statements regarding future events and our future financial performance. One. These include statements about the company's business results, products, new markets, strategy, financial position, liquidity and full year outlook for 2021. These statements are subject to risks and uncertainties as discussed 1,000,000 in detail in our documents filed with the SEC from time to time, including our most recently filed Forms 10 ks and 10 Q. 1.
These documents identify important risk factors that could cause actual results to differ materially from those contained in the forward looking statements. 1. We assume no obligation to revise any forward looking statements made on today's call. During this call and in our Q2 2021 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 1, 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 Q2 2021 earnings press release available on our Investor Relations website. 1. On the call today are KR Sudar, Founder, Chairman and Chief Executive Officer and Greg Cameron, Chief Financial Officer.
1. KR will begin with an overview of business highlights from the quarter. Greg will review the operating and financial highlights of the quarter. 1, and after the prepared remarks, they will take questions. I will now turn the call over to KR.
Good day, 1. And thank you very much for joining us on the call. I'll share my thoughts on the state of the energy market and our company progress before turning it over to Greg. 1. From a big picture perspective, the 3 key attributes that matter when it comes to energy 1 and electricity are resiliency, sustainability and cost predictability.
1. Here are the trends that we see in the marketplace with respect to these value propositions. 1st, on resiliency, 1. We're all experiencing and witnessing the increased frequency with which natural disasters are impacting our everyday life. 1.
These events around the world caused major disruptions to energy supply and availability. 1. Their adverse impact on businesses ability to operate lingers for a prolonged period of time 1 after the disaster strikes. In the United States, a 2021 report on commercial and industrial power reliability states 1. That 44% of companies reported that they lost power at least once a month.
1. This is double the number of outages from just 2 years ago. 1. The situation worldwide is even worse. The World Bank's research shows that on a global basis, 1, companies experienced 2.42
power outages in
a typical month in 2019 and that number ballooned to 1,000,000,000,000,000,000,000, which is a 155% increase 1 in just one year. Contrast this to the 117 microgrids Bloom Energy had operational in 2020. 1. Our microgrid site locations experienced several 100 utility grid power outages during 2020 1. And Bloom Microgrids protected our customers from business disruption over 99% of the time.
1. Now to the 2nd value proposition, sustainability. The World Wildlife Federation's 1. Our Forward 4.0 report has tracked the commitments of companies to sustainability and decarbonization. 1.
We are seeing a dramatic shift in the efforts businesses are making to decarbonize their footprint. In 2020, 1, 60% of Fortune 500 companies set a climate or energy related commitment. 1. Of that nearly 300 companies, 83 are setting net 0 carbon emission goals with aggressive timelines. Businesses are leading the way and not waiting for regulation to kick in.
1. As companies look for ways to meet their science based targets, the Bloom Energy platform with its flexible fuel approach 1. Of low leakage natural gas, biogas or hydrogen can offer a practical solution that works now and and a future proof pathway to satisfy their sustainability commitments for years to come while simultaneously enhancing their one. Now let's turn to cost predictability. 1.
Here are a few facts about the rate structure for electricity. Policy 1, a regulatory framework mandate that costs associated with building, reconstructing, operating 1 and upgrading the grid are shouldered by power consumers. In the future, our nation's aging grid 1. We'll need expensive updates to be resilient to climate related disasters. More generation assets will need to come online to enable electrification of transportation and stranded assets 1, like coal and aging nuclear will be decommissioned and replaced by newer and cleaner alternatives.
1. All of these developments will come with big price tags and lead to steep and unpredictable escalations 1,000,000 of utility prices for consumers. Again, contrast back to Bloom, 1. Over the years, we have demonstrated our ability to reduce our costs and offer lower electricity prices 1 to our customers. We are committed to and confident of continuing this trend.
1. Our behind the meter always on Bloom solution offers cost predictability. Our customers and lock in their electricity tolling rates with us for up to 20 years. So as cost of grid based electricity increases, 1. Our costs are coming down.
While the cost of grid based electricity is unpredictable, we offer firm and predictable tolling rates. 1. I believe these facts underscore Bloom's core value as a solution provider in this transforming energy space. 1. I see this as a perfect opportunity for Bloom Energy and we are well positioned to seize it and grow.
1. We executed well in the first half of the year and delivered on our promise of resiliency, cost predictability and sustainability. 1. Now I want to talk about our year to date progress and key investments. We are We're confident in our solutions and the value they offer our customers.
That is why we are putting our capital to work and investing 1. We are now ready to continue to invest in our technology leadership. 1. These investments will create long term value for our shareholders. The 2 important investment areas 1, I want to focus on our technology leadership and people and infrastructure.
1. Let me start with technology leadership. In our hydrogen product development, just a few weeks ago, we unveiled 1. The Bloom electrolyzer, the most energy efficient electrolyzer to produce clean hydrogen to date 1 that is up to 45% more efficient than any other product on the market today. This is not a concept, 1.
But a reality, it is a functioning electrolyzer and a major leap forward 1 for our company and the hydrogen economy. It relies on the same commercially proven 1, and proprietary solid oxide technology platform used by Bloom Energy Servers to provide on-site electricity 1 at high fuel efficiency. It offers unique advantages for deployment across a broad variety of hydrogen applications 1, using multiple energy sources including intermittent renewable energy and excess or waste heat. 1. Given its efficiency and input options to make hydrogen, Bloom Energy's electrolyzer 1 is expected to produce hydrogen through electrolysis at a lower price than any alternative on the market today.
1. Our efforts in hydrogen also include a partnership with Heliogen to produce green hydrogen from water 1 using only solar based heat and electricity. In keeping with our sustainability values, 1. Last week, we announced that we will convert our entire global natural gas fleet 1, the certified low leak natural gas to prevent the release of harmful methane emissions 1, stemming from upstream gas production. Bloom Energy, beginning with this initiative, 1 hopes to catalyze a robust certified gas marketplace that is primed for widespread adoption.
1. The goal of this program is to make it easy for consumers to procure lowly natural gas in the market. 1. Bloom Energy will launch a campaign to urge all large users of natural gas to demand and purchase 1, this is an environmentally responsible option from their suppliers, thereby sending a market signal to the gas supply chain to avoid methane leaks. 1.
We think of this as the equivalent of fair trade coffee and conflict free minerals 1, and it is critically important to our commitment to being a sustainable company. Our progress in the marine marketplace 1 also continues as we announced the achievement of 2 key milestones on our path to decarbonize a centuries old maritime industry. Our initial design with Samsung Heavy Industries 1, for an engine less fuel cell powered liquefied natural gas carrier has received approval in principle from DNB, 1, a premier international maritime classification society. We were also verified as an alternative power source 1,000,000 for vessels as part of the American Bureau of Shipping, new technology qualification service. 1.
We are committed to the marine sector and are investing today to be the market leader 1 in this segment. In biogas, we have deployed Bloom Energy servers that use landfill biogas 1. It's a major Silicon Valley based technology company. The system is operational and we will share more about our biogas development in the months ahead. And we announced a first combined heat and power project in collaboration with SK Echoplanet.
1. This is a new 4.2 Megawatt installation and marks South Korea's 1st ever utility scale solid oxide fuel cell CHP initiative and construction will begin this year on this project. Now let me turn briefly to our investments in people and our infrastructure. 1. Since the start of the pandemic, Bloom has increased its total number of jobs by more than 20%.
1. Additional hires in sales and marketing will create more demand. The hires in operations will fulfill this demand and our increased R and D headcount will accelerate our innovations. 1. We have expanded our headquarters in San Jose and opened offices in Dubai and Japan, adding critical sales and support staff 1 to extend our international reach and presence.
One hire in particular that I'm excited and want to welcome to the company is Billy Brooks, who is our new Executive Vice President Sales for the Americas. 1. Prior to joining Bloom Energy, Billy served as the Executive Director 1. At NextEra Energy Inc, a provider of clean energy solutions and services, where he oversaw the development of utility
1,000,000 scale solar generation assets.
And he was key energy executive with General Electric in the United States and abroad, 1, including CEO of Latin America, Head of Global Sales and Chief Commercial Officer. Welcome, Billy. 1. Also, I want to emphasize that we are making progress on our over 3 football field sites manufacturing facility in 1. Fremont, California, which will enhance our production capability and be the factory where our 7.5 fuel cell columns 1 are made.
These developments and investments reflect our confidence in our future 1 and our focus on growth. With that, let me turn it over to Greg, who will go through the financials.
1. Thanks, KR. Yes, we had a busy quarter and we've accomplished a great deal in the first half of twenty twenty one. I'll go through each of these in more detail, but I wanted to give some highlights. We achieved record acceptances in revenue through the first half of the year.
We made progress on our 1. Technology roadmap to deliver our new products to market. We continue to invest in our commercial capability, both in the U. S. 1.
And internationally, we commenced the build out of the manufacturing capacity needed to meet future demand. As we emerge from the pandemic, 1. Like other global manufacturing businesses, we've experienced some supply chain pressures. The team's relentless focus 1. The cost reduction has enabled us to offset these pressures to roughly hold our product costs flat over the last few quarters.
Given the strength we're seeing across our business, 1, we are reaffirming all of our 2021 targets. First, let me go through our financial 1. We are proud of how the business is performing and that the progress we've made relative to the milestones that we laid out for you at Analyst Day 1, and the foundation that this creates for us for 2022 and beyond. Please note, we've kept the format of the earnings release and the supplemental information like 1. Previous quarters, and I'll be referring to the slide presentation posted to our website.
Building off last quarter's momentum, we continue to have 1, strong growth versus the prior year. Although as expected, our mix of accepted deals this quarter impacted margins. This is one of the reasons why I've encouraged you all to look at our business on an annual basis, not simply quarter to quarter. 1. We achieved record 2nd quarter acceptances in revenue.
Acceptances of 433 were up 41% versus the Q2 2020. Revenue totaled 228.5 $5,000,000 up 22% versus the Q2 2020. On last quarter's call, 1. I spoke of the challenges of the tax equity market and the revenue timing risks of having financings to support our 2nd quarter acceptances. 1.
I'm pleased to report the team worked with our financing partners to provide financings for 23 megawatts in the 2nd quarter. 1. The completion of these financings is a testament to our partners' relationship and our attractiveness of our offerings. 1. In the Q2, our non GAAP gross margins were 18%, increasing 1.5 points versus the 2nd quarter 20 20, but down roughly 12 points versus the prior quarter.
As I outlined on last quarter's earnings call, 1. The reduction in margin was expected with the mix as the primary driver. In the Q1, we had very few U. S. Installations.
1. In the Q2, we returned to our historical level of installations, negatively impacting our non GAAP gross margins. 1. These results reinforce our efforts to find U. S.
EPC partners to perform future installations. Also within the quarter, we had a 10 Megawatt legacy development project secured in 2018 at a lower initial margin. The project will earn 20% service margin over the next 20 years, 1, ensuring that the overall project is profitable. This project is an outlier and not indicative of the project profile of the rest of our backlog. 1.
Also, as I mentioned at the opening, we are experiencing some product cost pressures tied largely to the realities of global manufacturing business 1, emerging from the pandemic lockdowns. While overall product costs were down 5% versus the Q2 2020, they're relatively flat to the last two quarters. 1. We are being impacted by increases in freight and pressures on our component manufacturing costs. 1.
While we expect most of these pressures to be temporary, they are likely to persist through the remainder of the year, creating 2 to 3 points of non GAAP gross margin pressure. 1. We've implemented initiatives to offset these cost pressures. As examples, we've consolidated our shipments from Asia. We've priced 1.
Hedge or commodity purchases for the remainder of the year, partnered with our supply chain to reduce material costs and form cross functional teams to lean manufacturing 1. So far, we've been successful in offsetting increases and keeping our product costs roughly flat. 1. A fundamental tenet of our business model is to reduce our cost. And as we exit the post pandemic environment, we remain committed to reducing product costs
1 to support our growth strategy.
Non GAAP operating expenses increased in the second quarter to $87,500,000 from the Q2 2020. The primary drivers of the increase are our continued commitment 1 to expand our commercial capability, invest more aggressively in our technology and ensure our control environment is ready to scale as we grow. 1. We have significant confidence in our ability to grow our business across geographies and product lines, and we've made several investments this quarter to accelerate our strategy. Commercially, these include strengthening our go to market sales strategy, processes and talent in the U.
S. And international markets, 1, conducting a detailed analysis of tariffs in new U. S. Markets and adding international commercial resources to support our expansion and growth. 1.
Within technology, we're adding engineers and investing in product materials needed to support innovation for our growth levers. For example, we are building and deploying demonstration units. Within our investments in our control environment, we've added technical expertise in our accounting, one compliance and regulatory functions and are leveraging external resources to meet the current operational needs. 1. While the increases in headcount are now within our expense base, many of our external investments are project based and will not repeat.
1. As such, we expect operating expenses to decrease in subsequent quarters. For the year, I expect 2021 1, non GAAP operating expense as a percentage of revenue to be comparable to the prior year. In the Q2, we had a non GAAP operating loss of $23,600,000 adjusted EBITDA loss 1,000,000 and adjusted EPS loss of $0.23 These losses were the result of lower non GAAP gross margins with an increased investment in our non GAAP operating expenses. 1.
With respect to cash flow and debt analysis, Slide 5, CFOA was a positive $53,700,000 for the 2nd quarter 1 as we executed the customer financing vehicles to fuel top line growth and improved our working capital. Our total cash balances improved $34,800,000 versus the Q1 2021 to 400,500,000 1. While recourse debt remained relatively flat versus the Q1 at $300,000,000 versus the Q2, last year our recourse debt has been reduced $106,000,000 reflecting our last deleveraging accomplishments. We've had several technology efforts for our 2021 milestones that position us well for 2022 and beyond. We continue to make progress 1.
Operationalizing the 5th generation of our energy server, Bloom 7.5. The servers are performing according to specifications, and we continue to put more units in the demonstration service to gather performance data. As we've previously discussed, we make our stacks in Sunnyvale, California 1, and perform our final manufacturing assembly in our Newark, Delaware facility. To meet future demand, we need to add additional stack manufacturing. 1.
Bloom 7.5 is being operationalized in our new facility in Fremont, California. This facility is large enough to add several stack manufacturing lines 1, we expect to build over 1 gigawatt of fuel cell stack capacity in the facility in the coming years. While we expect to operationalize our new manufacturing through 2022, it's become apparent that we will require additional capacity to meet 2022 demand. Beginning next year, we can leverage a portion of our Bloom 7.5 investment to manufacture roughly 25% more Bloom 5.0 stacks. Once we've created enough Bloom 7.5 capacity, we'll allocate back this tool.
This short term shift will allow us to meet demand while providing the time we need 1 to operationalize Bloom 7.5. A few weeks ago, as KR highlighted, we unveiled the Bloom Electrolyzer, 1, the most energy efficient electrolyzer to produce clean hydrogen to date, with commercial shipments expected in the fall of 2022. 1. We are also excited that we'll be shipping our first electrolyzers to the U. S.
Department of Energy's Idaho National Laboratory in the Q3 1 to test the use of nuclear energy to create clean hydrogen through the Bloom electrolyzer. 1. And reflecting our commitment to move quickly from innovation in the lab to capitalize on commercial opportunities, we're working with several customers on renewable natural gas 1 for biogas and should have our first and second on-site installations commissioned and announced in the coming months. 1. Our carbon capture technology is performing as expected in the lab and we are working to secure a demonstration this year.
As I previously noted, 1. Our platform approach provides us with a clear competitive advantage due to Bloom's unique technology and its flexibility to address multiple market opportunities by leveraging the same platform for different end customers' needs. As we previously discussed, we do not expect the new products contribute to 2022 revenue, but they are imperative as we expand our product offerings to meet our customers' needs. 1. Importantly, this approach enables us to expand the base of clients across multiple products, industries and geographies, which are key to our growth and ensuring that we have diversified revenue stream to drive profits and create value for our shareholders.
1. While we only provide bookings and backlog annually, in our pipeline, we continue to see increases in commercial momentum 1 for our current product offering, our always on energy server with a greater percentage of large megawatt opportunities in that pipeline. 1. The pipeline reflects the changes we've made to include new states, international opportunities and focus on larger transactions. 1.
As KR discussed, we are very excited to have Billy Brooks join the team as our U. S. C and I sales leader and are already seeing the benefits of his leadership. 1. Internationally, Aziz Mohamad's team is gaining traction in finding partners and identifying potential customer needs.
1. We are encouraged by this progress and look forward to moving these and additional opportunities through the pipeline and into bookings. 1. On Slide 7, we highlight our 2021 outlook and we are reaffirming all of our 2021 targets. 1.
For revenue, we expect between $950,000,000 to $1,000,000,000 depending on the timing of a few late year projects. 1. We are managing through our supply chain pressures and I believe we will achieve our total year non GAAP gross margins of 25%. 1. We will continue to invest in our capability while targeting our non GAAP operating income of roughly 3% of revenue.
1. We are encouraged by our cash flow performance in 2Q and maintain our outlook on CFOA as approaching positive. 1. While we do not provide quarterly guidance and I stress our business should be looked at on an annual basis,
1. There are a few aspects of
the Q3 that I wanted to highlight. These are accounted for in our 2021 framework and do not change our yearly targets. Based on likely project completions, I would expect 3rd quarter revenue to be similar to 2nd quarter. 1, I'm expecting a slight improvement in non GAAP gross margins that should result in similar improvements in op margin and EBITDA. 1.
Our business is always more weighted to the second half, particularly the Q4. Given the expected timing of project completions, I'd expect this year to be no different. 1. In summary, we had a very strong operating performance in the second quarter and in the first half of the year, and we are very confident in our future. 1.
We are gaining momentum in our commercial operations and we are seeing opportunities with new customers in new geographies. We are investing in technology, manufacturing and front end origination teams to continue to expand our platform and meet our customers' needs. 1. Our service business is improving as demonstrated and profitable results. We feel Bloom Energy is well positioned and has 1.
Platform products team to be a leader in distributed generation. Simply put, we believe there is no other companies in our sector 1, platform like products that offer the fuel flexibility and decarbonization that's driving robust, high quality pipeline of deals and real revenue. 1. We're doing this with a real focus on disciplined financial management and operational excellence, which creates value for our shareholders. 1.
With that, operator, let's open up the line for questions.
Thank you, sir. We will now begin our question and answer session.
1.
1. 1. And speakers, our first question is from Stephen Byrd of Morgan Stanley. Please go ahead. 1.
Hi, good afternoon.
Hope you
all are doing well.
Hi, Stephen. How are you?
I'm doing well. Thank you. 1. Thanks for the thorough update on a lot of topics. I wanted to talk first on carbon capture.
You gave 1. And I'm thinking about sort of the next steps for you all on carbon capture. Is it, I I think you mentioned a pilot. Is it likely you would start by kind of showing the capability of this technology on 1. Kind of a small scale pilot before broad deployment?
Or is there any chance of customers wanting to begin to kind of roll this out More broadly, how should we think about kind of the cadence of that development?
So the cadence that you would see would be, as you said, a pilot 1? That we would start with, with the clear intent of it being in scale. Again, 1? Steven, as you know, anything and everything we do in Bloom is about can we really move the needle, 1? Both on the commercial front in terms of it being meaningful, as well as on the carbon footprint for the world where we are able to make a big dent on it.
1. So obviously, carbon capture in 100 of megawatts in every single place is the way to be thinking about this. 1? That is the scale at which it has to work, not in a laboratory, not in a test tube. It has to be working in these large scales.
So but 1? With our utility partners that we will partner with as well as with 1. Some of our commercial partners that we are in engagement with now, we want to start it at the megawatt scale, but clearly it is going to take 1? StateFederal Support. And I'd be very encouraged by what we're seeing 1?
In the infrastructure and the reconciliation bills, I think one of the common areas that Democrats and Republicans Both agree upon is ways to figure out carbon capture with natural gas. So we see this as a great sweet spot and with these 1. Proclamations are with these things looking more and more likely to be enacted into law, we should clearly expect 1? The large utilities want solutions like what we have and we will start with the pilot with a goal of getting 1? Faster, as quickly as we can.
That's really helpful. And you mentioned federal support. I 1. Thought I'd touch on that as well. I'm curious your thought on I'm thinking about the broader reconciliation package frankly, though perhaps 1.
I'm not giving enough credit to the smaller bipartisan package, but the broader package may include some fairly large 1. Elements of support for hydrogen for green hydrogen as well. I was curious 1. Your view on what that might do in terms of your rate of growth, the deployment of electrolyzers, really any other business impacts 1? You see to the extent that that became law?
So at least 1. Ian, what we are finding out from the early days of what we are reading and what we are hearing on the Hill is 1? There is a clear understanding that in this area of hydrogen, it is Of national importance, not only for us in terms of climate change and decarbonization, 1. But it's a competitive advantage for all our industries. It is also viewed as a technology in which We need to gain leadership to be a leader in this country and therefore American companies with American technology with American manufacturing jobs hitting the credit it needs to get.
So if you look at the box and try to check it off, 1? Bloom is an American Innovative Technology. Bloom is an American manufactured technology. 1. And what we do at Bloom with high temperature electrolyzers and how we are able to integrate it at commercial scale, 1?
We have a leg up on everybody else. So you put those things together and then take into account 1. Hard to decarbonize industries like steel, like chemicals. And we are able to combine that 1. The advantage our U.
S. Industries can have because they have a green product to sell to the world. 1? These are the reasons we are extremely bullish about what those policies will mean for our future growth. It is necessary.
It's the right thing to do. I think it is an investment that the country 1 is making and it's the right investment for the country to make.
Understood. And then maybe lastly for me, just 1. Going to the financial results, the ASP number, Greg, you gave some color around that. I wondered Just I'm trying to think through that in terms of mix and you had mentioned the impact of that, I guess I think of it as a legacy or an older contract impacting that.
Can you just Touch on that
a little bit. What I'm thinking about is the ASP did fall meaningfully. You're keeping product costs flat, but you're not 1. In this environment, able to reduce the cost, which is understandable. But I'm just trying to decompose that ASB impact and think about what that might look like going forward.
1? Yes, yes, Steve. I'll give you a little context
on that. Year over year, our product costs are down 8% for the first half. So We're proud of the progress the team has made. We are on versus our expectations. We always like to be down double digits.
But we were down Significantly in the Q1 and down in the 2nd quarter year over year and to your point we were flat the last couple of quarters. On the one deal in particular and it did impact Margins and it did impact sales price. It was an outlier deal that was in the backlog previously. 1? It's part of our backlog and financial framework for the year.
So I tried to give you guys a sense of that on last quarter's call that we were going to do it. 1? We got some pretty important relationship with that transaction with somebody that we think
we can grow with going forward.
And we've learned a lot 1. Around the project development flow. But as I take a look back through the backlog, we've got Northern deals one. So it truly was an outlier and is part of the framework for the whole year. It's just a little bit 1.
And its impact this quarter comes through both in ASP as well as in margin.
1. Very good. I'll pass it on. Thank you.
Thanks, Steven.
Our next question from Mark Strauss of JPMorgan. Please go ahead.
Yes, good afternoon. Thank you very much for taking our questions. Just I wanted to go back to the comments around finding EPC partners for installations. Can
you just give us
a bit more color there How those conversations are evolving and what your current expectations are for when we could start seeing 1? Some of that start to occur and maybe some less variability in your margins
as a result.
1. Yes. Thanks, Mark. And again, Craig, congratulations on your promotion. So it's good to hear your voice.
Thank you.
1? On the EPC stuff, we've made a lot of progress. Joe Tebbie and the team who runs our installation group 1 has done a lot of the legwork that we're going to need in order to engage with third parties and make sure that we're able to provide 1. To them a level of standards that they're going to need to be able to do the installations outside of our business. The other place where we've made a tremendous amount of progress is through the front end with Cherilyn Moore's team on the marketing side and really looking for partners that can bring in not only the expertise 1.
Around EPC, but broaden the relationship as well. Think of them as channel partners or as a financing partner or as a technology integration partner, Somebody that can really do it. If it's just somebody who's trying to replicate what it is that we can do, they're probably not going to be able to do it at a cost lower than we can. 1. So we really need to find something that's going to create
a lot of value for us.
If you think about timing and this is one of the things that's a little bit frustrating As you look at some of the things that are coming through the business now, we need to 1, secure those relationships. But 2 is given our installation cycle, It'll be another 6 or 12 months from the point in which we award a project to a third party until they're able to go do that. 1? We do use EPC partners today in some of our larger projects that are contracted by our customer, but it will be different from us. I think you'll probably see 1?
If we're on track, you'll see one large project done with a partner this year. And then as you start to move into next year, you'll begin to see probably some of our 1. More standard, smaller size, smaller kilowatt installations get done through a partnership with somebody who can do it in a region or for specific customer. And then I think as you get through the course of next year, I'm hopeful that they'll be able to take a larger percentage. But for about everything but maybe a deal or 2 1?
It's in our current project pipeline for installation this year. Those were primarily going to be started by and finished by our Bloom team.
Okay.
Excellent. And then grand scheme of things, it really doesn't matter if a project comes in late December, early January. But Just thinking about your guidance and kind of the risks to the upside or the downside, can you talk about The magnitude of some of these larger projects that you're calling out. I mean, if worst case scenario, if none of them come in, is there risk below your guidance or vice 1? Versus if they all come in, is there risk above your guidance range?
Yes. So, Vivek, there's a couple 2, 3 deals, I would say, that make up the difference Between the $9,000,000,000 $15,000,000,000 And as I look through those, is there a risk that each of those deals don't happen? There's always a risk that Any project doesn't happen. But given where they are from a timing standpoint and as I look at it versus a late December, early January, that truly 1? Would be the difference around loans.
And from an upside standpoint, listen, we are sold out on the amount of systems that we can manufacture and get installed over the course 1 year. So I still think as you think about upside to that $1,000,000,000 it's going to be really as we get into next year and have the opportunity with more capacity online to really help Facilitating number for growth next year above where we are this year.
Okay, very helpful. Thank you very much.
Thanks, Mike.
1. And speakers, our next question is from Maheep Molloy of Credit Suisse. You may ask your question.
1. Hey, good afternoon and thanks for taking the question. Maybe if you can just probably, Greg, talk about the electrolyzer 1. Opportunity and did announce the new product launch and the 1. Pilots in South Korea and the one later this year in the U.
S. Teams on track. So, I wanted to really understand what feedback you're getting from 1. Initial discussions with customers on the electrolyzer opportunity and how should we think about the revenue recognition 1. Maybe in 2022 or in 2023 today?
Mahesh, this is KR. And again, I think congratulations, Sergio, on your promotion too and congratulations. Nice to hear from you. Look, 9? With respect to hydrogen, we are super excited about the things that we're doing today, right?
1? Look at the announcements that we made. This quarter, we are shipping a unit to the Idaho National Laboratory. 1. This is both from a speed to market on hydrogen as well as 1.
The lifeline for 0 carbon nuclear power to be more economical for the entire nuclear industry.
1? It's a big step. This is
the way the U. S. Department of Energy side of a national laboratory and the Department of Energy is thinking about it 1, because our high temperature electrolyzer with this team and the potential possible integration in the future and the daytime nighttime 1? Arbitrage, if you fully understand, of nuclear power plants not running at full capacity during the day 1, would be a huge economic drain to them. Whereas if they can make hydrogen during that time, when the sun is shining and the solar is providing the electricity, 1.
It's a huge win and it is 0 carbon hydrogen and it can be made in large quantities 1. And it can be these hydrogen projects can go on in industrial sites that are already cited for nuclear power 1. So if you just look at it practically end to end, the entire system, you can appreciate the importance of this. 1. So at Bloom, we are very deliberate of the many opportunities that come knocking at our door every single day 1?
To only pick and choose the ones that we have commission on. So it is not the amount of opportunities that come to us. 1? It's the ones we choose to say as to. That's the hard part, okay?
The second announcement that we made is Heliochem. 1. And again, you can use heat and electricity to make hydrogen. 1. You can only use heat and electricity in significant quantity in the heat part in high temperature electrolysis, which is the boom electrolyzer.
1? Any place that is custom built to build a large solar array for hydrogen production. 1. And that's the only way we are going to make any denserization market is millions of acres 1. Of renewable projects trying to offset the 100,000,000 barrels a day worth of oil equivalent, 1?
Right. These are not small numbers, these are scale numbers. They will happen in very sunny areas and concentrating that heat 1. And using that heat as a substitute for electricity for a significant material portion of the energy needed is a game changer 1? Because 80% of the hydrogen production costs are energy costs.
That's why we are excited about that opportunity. 1. Working with Baker Hughes and working with potentially steel, other manufacturers that we are in like talks with To use the waste heat coming out of that process and decarbonize that hard to decarbonize industry. 1? So our focus right now is going after those segments that 1?
Economically and from a dollar invested to the decarbonization impact it has, the maximum impact hydrogen can have 1? And that is just our focus. That's what we are focused on. We are in this for the long game. We have a clear strategy.
1. But what we're doing today, even with our priority prototypes, is far ahead of anybody else in the field.
1. Got it. That's really helpful, KR. And maybe for one small one, 1. Housekeeping, if you could just talk about the concern of financing in Q2, could you just remind us of what that was related 1?
Was it tax equity or something else? And how should we think about those financing arrangements for the second half or 1? Going forward in 2020, Tim?
Yes. So if you remember last quarter when we went through it, we raised the risk 1. For our Q2 acceptances, making sure that we had our financing vehicles, our PPA type structures in place in order to facilitate those acceptances. 1. Coming out of 2020 and into this year, our traditional provider had decided not 1 to participate going forward, which was okay.
We had already begun the process to work with others other providers. 1. But the team did an absolute amazing job, not only our team, but our customer like the Staging teams off to us to our provider side. The teams were incredibly engaged through the course of the quarter. We worked through a series of 1.
Just negotiation issues and other things and secured the tax equity that we needed. And what we said at the time was if we solved the quarter, we basically got 1. The year solved. So as we look forward for the second half, we don't nearly have that effort in 1. And we're really happy with the providers that we've made relationships with in the Q2.
Some are folks that we work with on previous transactions, others 1. We're new that we brought to Bloom and we see them as resilient sources of capital as we go forward. We're very excited about the progress that our team made and the relationships we built there.
Got it. All right. Thanks a lot.
1. Thanks, Steve.
Our next question is from Michael Blom of Wells Fargo. You may ask your question.
1. Thank you. Good afternoon, everybody. Hi, Michael. I wanted to talk about your announcement you made at the end of July 1.
The marine space with Samsung. Just want to think about your progress in that arena. Does that announcement signal that you're ahead of 1? Schedule with commercialization? Are you on schedule?
I'm just basically looking for an update on your commercialization efforts in that arena in light of the announcement. 1?
Yes, this is KR. Let me answer that question, Michael. So when you look at 1? When we started with Samsung and we were looking at trying to get 1? At least one approval and this was the approval in principle with PNB, which is an international maritime
1. It came sooner
than what we had originally had in our timeline. 1. And that is kudos to our engineering team and what they were able to accomplish working with our partners. And that's a big step forward. I would say that's a very big step forward.
But when we put that announcement out, what we found out is there was significant interest 1 from other shipbuilders in different classes, right. So if you look at our announcement with our partner 1? Samsung, that is for cargo ships. And that's a big deal because 80% of world's economy moves on ships, 1. Right.
And if we're a country in terms of emissions, it will be 6 or 7th in that trade, August, as we 1. So that itself is a big opportunity. But outside of cargo ships, the maritime industry is very big. 1. And we started getting inquiries from other shipbuilders in other continents and including 1?
Passenger ships and other kinds of ships here in the U. S. 1? So cruise liners. So what we had then was the American Bureau of Shipping 1?
It's a very important entity, which is again a global certification and technology advisory one? We services and we went to them and tried to simultaneously get 1. And what we got from them, ABS, which is the American Bureau of Shipping, is a new technology qualification and that's what we got. 1. So again, it speaks to so the final approval will be expected in this case of ABS 1?
Yes, 2022, which will be much sooner than we had originally planned. We think this industry is primed 1. And there is a tremendous push from the consumers for this as well as the International Maritime Organization. 1. But on top of that, our solution future proves that.
They can go from the really dirty 1. Heavy oil that we're using today to a much cleaner natural gas, which can be even used for the side. But in the future, whether it's hydrogen or ammonia, We are future proofing them. And not too many technologies can do that. We believe we are the best option for this.
This is the reason why we are seeing that heavy fall. 1. 1.
And our next question from Noel Sparks of Tuohy Brothers. You may go ahead.
Hi, good afternoon. Just a couple of things. I 1.
I was wondering if you could
talk in general terms about the biogas projects you're working on, just a little bit of what those one? And I'm curious in particular about the sources and whether they are, for instance, like well established sources 1. Like land fill, for example, or something new or like a new implantation specifically that Take advantage of fuel cells?
No, we believe that the whole renewable natural gas, 1? Biogas is part of this right. It's probably the fastest, quickest way 1. To get to geocarbon baseboard power in scale, especially for mission critical applications. 1?
So they fall in 3 different categories. Think of solid waste coming from landfills, 1? Think of wastewater treatment plants and water treatment plants that put out sour gas and think of dairy and And always, right? So if you take those, each one has its characteristics. But what is common to all of them 1?
Yes. In the absence of there being a commercial opportunity for them, a lot of methane, 1, which is significantly more harmful to the atmosphere than CO2 is going to go into the atmosphere. 1. So if you want to decarbonize, finding a way to track that is probably the most important thing. And then the next thing you do is, 1.
What if you can use that in a highly efficient way with no air pollution, 1. Low water use and create reliable power. So we are excited about 3 opportunities here. 1? We are, as we said, with a large Silicon Valley company and we'll be talking about it soon in the months to come,
1, doing a
project, which is operational of taking landfill gas and producing power, plus tax. 1? We see an enormous opportunity in waste water treatment plants because the heart of gas that comes out is sufficient to operate that waste water 1. With all its electricity needs and thereby bring in resiliency. It's not only a decarbonization play, It's not only a biogas play, but it's essential for our everyday life.
When there is no power, you can drop one. Bottles of water for people to drink. You can drop food from helicopters. If your toilet doesn't flush, there's not a whole bunch of options you have. 1.
Okay. It's essential for everyday life and that's what people bring to the table. And we will very soon be talking about some Terry projects where we are able to use the ammo waste and use that gas to be able to do 1? Our systems and the beauty of our modular system is we don't need very large scale facilities to make this operational and Economically wise, we can go with small and medium scale there and be able to implement this and get that power up. I think there is a huge opportunity.
We are excited about it. You will see us trying to grow this field in the future.
Great. Thanks for that update. And I was interested in your discussion about the pipeline 1. And the backlog, you mentioned that you were seeing an increase in commercial momentum, which sounds great. And I'm just curious at this stage, 1.
In general terms, your sales and marketing costs per deal size or given the per deal signed or given 1. The size of a deal. I assume we're in a trend where that probably would be heading higher as you 1. Sort of walk through the horizons on the backlog and then maybe hitting a point where it trends lower. 1.
Can you give any insight on just what it's costing to sort of source and close a deal these days?
1. Yes. It's Greg. So as we think about it, right, and we look at the pipeline, and we're really happy with the progress that the team is making and expanding 1? In the U.
S. As well as the thesis team is expanding internationally. And the cost that drove 1. This quarter really was around making sure those teams had the analysis that they needed, the Materials that they needed,
the coaching that they needed, all those things. And we
think that converts in from 1? In the pipeline and what's in pipeline in
the bookings over the course of the next 6 to 12 months
as we go forward. So I don't think it is not just like I would in a consumer model where you've got acquisition costs tied to each amount of advertising you put in place in what you lease. This is really about making sure we were accelerating the progress that we see and the opportunities that we see. And we're getting more and more confident 1. And how that looks every day.
1. So thanks, Noel. So I think we just we've run out of time. We still had a couple more questions we wanted to get to. I apologize 1?
For not getting to everybody who is looking to ask a question. I'll say a couple of comments here in just closing. We had very strong performance this quarter and this first half of this year. We're happy in how we are executing and putting the backlog into revenue. We are gaining confidence as I was just talking to Noel about on in our pipeline and what we're seeing there and it's giving them confidence for us to invest 1.
In our technology, in our manufacturing capabilities as well as continuing to hone out our front end in commercial resources. We're reaffirming our guidance for this year. We are confident that we can offset any cost pressures that we're seeing and deliver on the gross margins that we've had. We're going to continue to invest in those opportunities and are still targeting a 3% operating margin and are getting more confidence based on the The Q2 performance that we had around our cash flows, around how we're expecting those for the year, although I'm still holding approaching positive is our target and look to update as we go forward. So I want to thank everybody for their interest in Bloom, thank everybody for their time and we'll look forward to getting back together in
1. In 90 days, I'm talking about Q3 performance. Thank you.
1. This concludes today's conference call. Thank you all for joining. You may now disconnect.