Ladies and gentlemen, thank you for standing by, and welcome to the Bloom Energy Third Quarter 2020 Earnings Call. At this time, all participants' lines are in a listen only mode. After the speakers' presentation, there will be a question and answer Please be advised that today's conference is being recorded. Are 0. I would now like to hand the conference over to your speaker today, Mr.
Mark Nestler, VP of Finance and Investor Relations. Thank you. Please go ahead, sir.
Thank you, operator. Good afternoon, all. We appreciate you joining us Bloom Energy's Q3 2020 earnings conference call. To supplement this conference call, we have furnished our Q3 2020 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. 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 ks and 10 Q, which identify important risk factors, including those related to the COVID-nineteen pandemic that could cause actual results to differ materially from those contained in the forward looking statements. These include statements about the company's business results, financial position, liquidity, demand for our energy server and new applications, timing of new applications and the supporting market ecosystem and outlook. We assume no obligation to revise any forward looking statements made on today's call. During this call and in our Q3 2020 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 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 Q3 2020 shareholder letter, which has been furnished on Form 8 ks posted on the company's Investor Relations website. Joining me on the call today are KR Sridhar, Principal Co Founder and Chief Executive sir, and Greg Cameron, Bloom's Chief Financial Officer. KR and Greg will review the operating and financial highlights of the quarter, and then we will take questions.
I would also like to note that we are all dialed into this call remotely, so we apologize in advance for any audio issues that may occur. I will now turn the call over to KR.
Good day, and thank you for joining us. Bloom Energy has made substantial progress in the 3rd quarter as we continue to bring operational discipline and agility to drive our innovation and industry leadership. Reflecting upon 3rd quarter results, I was reminded that we announced our 4th quarter year end 2019 earnings on March 16, The first day of Bay Area's shelter in place order. It was impossible to know at that time how the unfolding situation would affect our business and our lives. Since March, we have made great progress across the key pillars that are fundamental to our long term future.
We have significantly enhanced our balance sheet and liquidity, added Proven leaders to our executive team and have pursued a number of additional initiatives that we believe will drive more predictability into The role we intend to play in hydrogen and something that is Personally very important to me, even in times of great turmoil, is that we remain true to our culture and core values in serving our communities, Whether it was redeploying manufacturing resources to address an immediate need for ventilators or our rapid response to power up pop up field hospitals in response to COVID Or in a hurricane devastated area, I am confident We met the need of serving our community. I want to thank our resilient and motivated employees, including our exceptional leadership team for their outstanding collaboration to grow our business and drive innovation. I'm exceptionally proud of how team Bloom responded to the challenge. In a nutshell, Bloom Energy is stronger today than it was in March. We are performing well and our outlook is brighter.
This year, we have embarked on numerous initiatives to enter large new markets. Now let me share with you some of the highlights of this period. First, our financial health is greatly enhanced. We have reduced debt, extended maturities, reduced our interest expense and added cash to our balance sheet. Greg, who led the successful effort, will provide more details shortly.
The reduced debt service is allowing us to prudently invest in Bloom's expansion. We are accelerating our research and development and investing in top line growth and manufacturing capacity. 2nd, Increasingly, markets are valuing the core attributes of our technology platform. Power disruptions have grown more frequent and prolonged as hurricanes, storms and wildfires have ravaged many parts of the country. Businesses are increasingly seeking resilient, Cost effective, always on power solution.
Manufacturing, warehousing, healthcare and retail businesses Recognize that now is the time to take action to improve energy security. The 103 always on microgrid that we have deployed have allowed our customers to rise to 139 hour disruption during Q3. Severe natural disasters are also providing clear evidence of the acceleration of climate change. Companies, In addition to wanting to protect their businesses, also want to be responsible stewards of the environment and are increasingly seeking more sustainable solutions like Bloom Energy's biogas and forthcoming hydrogen products. In the Q3, we have strengthened relationships with our public utility partners who are increasingly encouraging and embracing technology transformation in the energy industry.
In Louisiana, we are partnering with mission critical energy in the face of severe weather. Together with energy, we see opportunities To be facilitators in a new energy landscape, creating local microgrid, investing in a decentralized future and providing the tools and services to achieve decarbonization. 3rd, We are advancing our technology road map, which will accelerate our growth by capitalizing on emerging market opportunities. Our growth initiatives include developing a hydrogen fuel cell and a hydrogen electrolyzer, Sustainably Powering the Maritime Industry, implementing cost effective carbon capture solutions and Enabling Widespread Adoption of Biogas Based Power Generation. We are excited to share our progress in greater detail during our forthcoming Investor Day in December.
4th, our innovation extends beyond our products and into our installation group. In the area of deploying our systems, we are continuously improving upon the ease and predictability of our installation process as part of our broader effort to simplify our business. This is necessary given the exogenous impediments that our installation team encounters in a world dealing with climate change. An example is Bloom Energy's Nu Skin product. Recently, we shipped our first systems preassembled for rapid installation On a skid ready to deploy out of our factory in Delaware, a skid essentially creates a prepackaged environment There are a lot of the wiring and construction is eliminated, allowing us to drop in the system and be ready to hook it up, eliminating pouring concrete and elongating the construction process.
We have included a picture of the Bloom Energy skid in our It is our expectation that a dedicated Bloom manufacturing team that is well trained in the final assembly offers simple standardized procedures to outsourced installation partners, thereby enabling Bloom to scale up its operations, both geographically and in volume. It will also enable us to power customers on a short term or emergency basis. 1st, our products performance is unparalleled in the industry. Our 8.35 Megawatt Power Tower Installation in Korea It's a week away from its 2 year anniversary. Here are the highlights.
Not one of the 167 power modules have required a field replacement unit. The capacity factor of our system, in other words, the amount of megawatt hours delivered as a fraction of the nameplate is 98.7
percent.
According to the Department of Energy's EIA, combined cycle gas turbines have a capacity factor of about 50%. Wind turbines have a capacity factor of around 30%. Solar panels have a capacity factor of only 20%. Other than a 16 hour period, then our Systems had to stand down for a customer initiated maintenance project unrelated to our servers. Our installation provided power 20 fourseven, 365 at 100% availability.
Let me repeat, 100% availability. Compare this to traditional baseload power plants that have availability between 70 and 90% and solar, which has less than 20% availability. The lifetime efficiency of this installation is 57.4%. The capacity factor and performance efficiency far exceed are contractual commitments. In summary, the Bloom Energy servers that we continuously improved over the years are now showing a performance level and reliability that have never been demonstrated by fuel costs.
6th, I am delighted by the level of talent we've been able to attract to the company, especially in senior leadership position. Since the March call, we have hired Greg Cameron as our CFO, Cherilyn Moore as our CMO and Carl Duardino as our EVP of Government Affairs and Policy. Shortly, we will announce a new EVP of International Business Development. This person is exceptionally qualified and will be responsible for pursuing regional relationships similar to our Win win partnership with SK in South Korea. By leveraging trusted partners to grow its market footprint, Bloom can focus on what it does best, innovating and delivering best in class products and services to its customers.
We are very Pleased with the progress we have made in 2020. This has certainly been a year that has tested management teams and their ability to lead. In our case, we have overcome formidable challenges and forged ahead Stronger. We are executing at a high level and are coming out in a better position than the company has ever been in. We are excited about our future and believe there has never been a better time for Bloom Energy.
With that, I will turn it over to Craig.
Thanks, KR. As you said, we accomplished a great deal in the Q3. Was to simplify our business, improve our liquidity and address our debt. During the Q3, we successfully raised 230,000,000 and new financing through a convertible green bond offering at an attractive rate term. We completed the conversion of 10% convertible promissory notes, June 2021, retiring the entire June 30 balance of 249,000,000 The majority of these converted shares have now been traded by the former debt holders and are part of our public float.
Additionally, we have called the outstanding balance of $79,000,000 of the 10% senior secured notes due 2024 and will pay off the entire balance on November 9. In our supplemental financial information slide deck that Mark referenced, We've included a pro form a capital structure that details our post retirement outstanding debt, cash balances and leverages.
A few highlights. Since the end of
the Q1, we have reduced our Recourse outstanding debt by 143,000,000 Eliminated any debt maturities prior to 2025, improved our available cash over $60,000,000 and reduced our annualized debt service by $44,000,000 Today, our recourse debt Less unrestricted cash or net debt is only $57,700,000 These actions, which have improved our balance sheet, provide Bloom with the additional capital and the flexibility to pursue our technology roadmap and further advance our manufacturing capacity. With an improved capital structure, we are clearly well positioned for growth, but I want to be clear that we will continue to be disciplined around those investments to ensure that the applications we develop and have market demand, meaningful scale and real opportunity for attractive return on our Capital. Now let's turn to the Q3 financial performance. For your reference in the supplemental financial information slides, We've also provided a summary of key financials along with a summary P and L and balance sheet. I want to highlight some of the key financial metrics provide some additional context around our results.
A couple items of note in our comparisons. Similar to last quarter, In 2019, we benefited from a large repowering that did not repeat this year, making comparisons versus prior year less relevant. Also, this quarter's results include a release of $14,200,000 in previously deferred Revenue relating to sales completed in 2014 2015. This is an unusual item related to prior year sales. So for transparency and to provide a benchmark for future operating performance, we reference some metrics excluding this item.
On 314 acceptances, revenue for the 3rd quarter was 200,300,000 up 6.6% from prior quarter as reported and roughly flat when adjusting for the revenue deferral. We experienced some delays in installations that impacted revenue timing, mostly related to storm activity in the Northeast where utilities rightly prioritized reestablishing power service. These sites are being recognized in the 4th quarter with 41 systems being accepted in the 1st 2 weeks of October. Reported non GAAP gross margin is 29.7%. When adjusted for the revenue deferral release, the business achieved 24.5%, up significantly from the first half.
Our product and installed unit economic profit, excluding the revenue deferral release, was very strong this quarter at $16.21 per kilowatt, up $6.79 per kilowatt from prior quarter, driven primarily by lower product costs and a more profitable mix of acceptances. Our product margin remains strong at 40%. On installations, we continue to look to simplify to partners and adapt our approach, like in the skid design KR rep highlighted. We are committed to reducing operational complexity and improving the profitability in this component of our business. Our service business recorded a $6,600,000 loss on a non GAAP basis in the 3rd quarter as we made additional investments into our installed base to accelerate an increase in fleet output.
Our focus is to make this business profitable by achieving our targeted output, increasing our fuel cell life and reducing costs. Through improved performance and fleet management, We have reduced the number of replacement units required to support an installation by 45% since 2015. During the same time period, we reduced our replacement cost per unit by 59%. These improvements will continue to expand the time between service events and reduce the cost per event, ultimately resulting in improved financial results. We expect a profitable service business by 2022 with expanding margins and revenue growth in line with the installed base into the future.
Reported non GAAP operating income was $15,400,000 and adjusted EBITDA was 27,700,000 When adjusted for the revenue deferral, non GAAP op income was $1,200,000 and adjusted EBITDA was 13,500,000 Last quarter, we were extremely pleased with the positive adjusted EBITDA. In this quarter, we're even more pleased to have a positive We ended the quarter with $504,000,000 in consolidated cash. Our cash balance, Excluding restricted cash is $325,000,000 raised partially offset by debt service and working capital usage. This balance will decrease $82,000,000 in November when we pay off the 10% senior secured notes due 2024. I mentioned the continued reductions to our product costs, down 19% over the last year through enhancements to our manufacturing processes And our supply chain management.
Based upon the commercial pipeline, we need additional capacity in the near term to meet demand We have begun to secure the long lead items such as equipment and facilities. The relative investment is manageable in both size and payback. We expect to invest $50,000,000 to $75,000,000 over the next 2 to 3 years to double our manufacturing capacity. While this may put some short term pressure on cost absorption, we believe this investment to be critical to facilitate the rollout of Bloom 7.5 and our technology roadmap. We expect to fund these investments within our current capital structure framework, Utilizing equipment and real estate financing where appropriate.
As expected, we plan to install our first Bloom 7.5 server into the customer site in the Q4. During 2021, we will operationalize production as we build our manufacturing capacity. Our production will shift from primarily Bloom 5.0 to Bloom 7.5 in 2022. As we shift, we expect to continue on the path as progressive cost reduction. In 2020, we suspended forward estimates based upon the potential risks From COVID, like most other businesses, the pandemic continues to challenge our supply chain, manufacturing capability, and in our case, the completion of In the United States, we have seen an increase in climate driven weather events with fires on the Coast, storms in the Northeast and increased hurricanes in the Southeast.
While these events further support the resiliency benefits of our product And coupled with the stress of the pandemic, they have caused understandable delays in our installations. We are adapting to this reality and structuring our operations to manage these risks, we believe we have an opportunity to simplify through the partner relationships we are building. It is worth reiterating that despite the macro environment, no customers canceled their contract. Additionally, We continue to have a strong pipeline and are making progress with several partners to secure customer product financing in 2021. This demonstrates the importance of our products and the quality of our backlog.
We are seeing comparable cadence in our revenue and profitability as 2019 with the second half being stronger than the first. For the Q4, we expect revenue to be slightly better than the Q4 of last year, coupled with the strong operating margins and income performance we reported in the Q3 of this year. In closing, I'd like to share a few additional updates. When I became CFO, I committed to provide greater transparency in the Bloom Energy. Earlier this month, we held a teach in on our marine solution and discussed that in the future, we would have similar events on other initiatives.
Next month, on November 18, we will hold an event to discuss our hydrogen plants. We've made progress on the hydrogen energy server with the first being shipped this quarter as well as advancement on our electrolyzer. During the hydrogen discussion, we will share our technical roadmap, Commercialization plans demonstrate the advantages of the solid oxide technology. You can expect similar presentations on technologies such as carbon capture and biogas in the coming months. In addition, please plan to attend our very 1st Investor Day presentation in December, where we will discuss our technology roadmap, commercialization strategy, Product cost approach and financial framework for 2021 and beyond.
We will share the details and logistics for that over the coming weeks. I look forward to discussing our plans and hope to gather feedback in advance to ensure we address your questions. With that, operator, you can open up the line for
Your first question comes from the line of Steven Byrd with Morgan Stanley.
Hi, good afternoon and thanks for taking my questions.
Hi, Stephen.
I wanted to just talk about the Q4. Greg, I think you had mentioned that you expect Q4 revenue to be similar to The Q4 of 2019, but margins, I just want to make sure I understood what you were messaging there in terms of the margin similar to sort of the
average for this year that we've seen, similar to this quarter.
I just want to make sure I'm For this year that we've seen similar to this quarter, I just want to make sure I'm understanding kind of the margin outlook in the 4th quarter.
Yes. So when we think about the 4th Quarter in where we are, revenue should be a little better than we were a year ago. And when I talk about margins, we've made a We've made a tremendous amount of progress on our margins over this year. I think on our first call, we were in the mid teens, reported 29, but really when you Strip out the revenue deferral, we're in the mid-twenty 4 percent, twenty 5 percent range, as well as positive on our operating income and EBITDA. So as I look forward at the quarter, we should be a little bit better, revenue year over year.
And my expectation is that we will Our profitability metrics, so margin as well as the other metrics very similar to what they were on an operating basis In the Q3, we are very focused on maintaining the improvements that we've made on profitability.
Understood. And when you think about that, the performance, you also talked about the some of the delays of installations. And I think you mentioned 41 accepted in the 1st couple of weeks of October. When you think about performance for the Q4, are you sort of baking in some degree of conservatism on The risk for potential additional delays, storms, you know or Yes, yes.
When we look, right, so those To your point, those 41 acceptances from a timing basis could have fallen on either side of the reporting date. It gets more interesting as you think about the 4th quarter Because not only do you have the normal cutoffs, but you've got the holidays there as well. And history has told us that alone could put some pressure on it. So as KR and I built the Operating plan for the Q4, we were very focused on anything that had a December date on it, Seeing if we could get that earlier into the quarter or make sure that we weren't it wasn't necessarily within the low up As we thought about the quarter. So we tried to take the learnings we've had from the Q3 and roll them through as we think about from the Q4.
I'd say as we think about the process right, the real end game here is to think about how we take some of that volatility out of our business. I mentioned in the script around working with partners. I think as we think about our installations, we've talked in the past around our ability to continue to simplify Leverage partners that do that work, as a lot of OEMs do. And I think as we find partners like that, I'm hopeful to find ones that have the ability to own the equipment through that process and take that volatility out of our operations and move it And where their core competencies are.
Got you. And last one for me here. Just as you think about growth overall, What are the biggest limiting factors to growth? Is it the issues around installation? Is it permitting?
Is it appetite for natural gas usage? What would you characterize as the sort of biggest limiting factors on growth?
Okay. Let me start and then I'll hand it over to KR. So I think we have made a tremendous progress this year on really growing our relationships, not only in South Korea, which KR talked about, within the U. S. As well.
And I think in our shareholder letter, I know in our shareholder letter, we broke out some of the Distribution on where our revenues are to really show when you adjust out for the repowering last year, How much growth we've had just within our U. S. Business. So I think over the long term, right, the growth is Really to continue to expand with their current customers as well as find additional markets within the U. S.
Where they value the resiliency of our product. I also think so we can expand the map within the U. S. And where we distribute. I also think there is a larger play internationally.
I couldn't tell you how pleased I am with BSK relationship, Not only from its operating mechanisms, just but from our alignment, from an operating view in the process standpoint. As we look to expand internationally and we'll announce our new international business development leader who I'm very excited about. Our hope is to find partners similar to SK where we can expand in additional markets that will value our product. So I look at it and say there's opportunity within the markets we that we're in today and there's an opportunity to play in some other markets as well.
And to add to what Greg had to say out here, Stephen, if you just look at Korea that Greg talked about in numbers. Since the beginning of this year, our partner SK in Korea has installed 58.8 Megawatts. Okay. That's 588 systems that we've installed. And so while in the past, we would have seen installation as Potentially a gating item for what we need to do.
What this is showing is when we find the right partners And when we are able to leverage it, that bottleneck can be significantly overcome, Right. And so that's part of what we are planning to do is to find partnerships like that. Europe, for Sure. Should be a great opportunity for us going forward, given the emphasis that they are putting on both decarbonization as well as resiliency, especially with hydrogen, and we're super excited about that. So those are the opportunities.
In terms of limitations otherwise, We just all that we need to do is to look across our country, whether it's flooding, vents, wildfires, hurricanes, Right. Resiliency is becoming extremely important. And we don't see our ability To put out the best available product today when it comes to balancing the attributes of reliability, resiliency, Christina, but everything together, we see that we are in the right place. So Look, we will we are very enthusiastic about what the future can hold
Very good. Thank you very much.
Your next question comes from the line of Michael Weinstein Tim with Credit Suisse.
Hi, guys. Hi, Michael. Hey.
Could you talk a little bit about the some of the drivers behind the total installed system cost I think it's about your cost of goods sold roughly down 10% sequentially. Seems like a pretty good direction to be in. And maybe you could More about some of those factors that are driving that.
Yes. No, we were very pleased on our unit Economics, when we pulled them all together, especially after the Q2. So from 942 in the second quarter to $16.21 in the Q3. As you start pulling that apart, there's a couple of things that are happening within there. One is just a very favorable mix The deals that we were able to do within the quarter and the profitability related to them, our pricing That was in that number had improved significantly, would help that margin in that that was accelerated by a reduction in product cost at the same So those two things added to a lot more profitability.
We also had some legacy issues, I'd say, in the Q2 as we work through Some of our older installs that came through, they were very valuable projects to get done. We completed them. We were excited to get them done, They didn't have the profitability that we would have going forward. So a big change quarter over quarter driven Both by margin on the product as well as a reduction on installation. Did we give it to you guys on a fully loaded basis?
But as I look at it on an operating basis, we're about breakeven on our installation this quarter versus a small loss on that last quarter. As I think about that going forward, we will continue to take cost out of our products, as you continue to see that come down. But the favorability on the mix that we had is I'd take a peek forward into the deals that are in our next short term installation process. My expectation is that number may not be as high when we get into the Q4. It probably drift down more towards not quite to an average over it's been over the last quarter, But we definitely benefited from a favorable mix and it can these are they can move slightly each quarter.
So as I think forward on it, 16/21 was a Great accomplishment. I don't look at it as a high watermark, but I think in the short term, you'll see it drift down a few dollars as we move forward.
Got you. Yes. So what you're saying is that you won't see the same kind of decline going forward, but you don't expect it to Brief off or anything like that?
Yes. I mean, over time it should, right? I mean, you're talking about product cost coming out 19 percent, yes, or 19% and we're doing a really good job on our Discipline on price, I'm really comfortable with what we have there. I would just look at $16.21 being a very favorable mix on this quarter versus what you may see In kind of the next quarter or the following quarter.
Right. And I think, Greg, you mentioned that replacement costs are also down on the servicing side. Is that And then you expect to be able to do less replacements per cycle or per?
Yes, it's a combination. So there's a couple of things One is we've just continued to improve on the stack life within the fuel cell and it's continued to improve. And we've written about that in technical papers and you can see that on the blog. The other thing that the team has done really well is been managing the entire fleet in managing to make sure that we're achieving the outputs that we want and being while optimizing the units that are there. Those things, two things combined.
So having a longer life and doing a more optimization around where we put our fruits Has DRAST has reduced the amount of field replacement units that we've had to put out into individual sites. We did ship a few extra this quarter for the team. One is it helps them on managing what the total output is and they can think about that there's some good economic trades there. We also did it as a way to when you look forward, you can just see this business gaining profitability and then growing margins as well as revenue in the near future. So we're through a process of that of trying to accelerate.
The other place similar to where you see it on total product Costs with new units, you see a very similar cost profile with the replacement units and the team has done a very good job of driving cost out. So we think as you go forward, you need less of them and each one you need is less cost and we see a very good trajectory out there. I think we talked about 2022 being the crossover point where that business is profitable and we expect it to gain from that as well and you get the very valuable service business that every OEM wants.
Is that because that by 2022 basically all your is it only even the Generation 5 units will be You said all of the working pits from Generation 5 at that point?
Yes, that is correct. We would have lost our legacy units. Michael, Pierre speaking. And we would have replaced them with our Gen 5 units. And again, the reason we talked about our Korea installation, the The 8.35 Megawatt system is because that performance is publicly reported.
And with our certain other systems, we have to be Careful about contractually speaking. Here, it is something that's publicly reported. And look at it statistically, Even though you have we have been saying what we are shipping has close to a 5 year life and showing average data. That doesn't mean specifically everything lasts But if you just look at this installation, it gives you a sense of the kind of quality, reliability and life That we are continuously improving upon, right, on those metrics. 167 little Power plants, each putting out 50 kilowatts.
Not one of them had to be like replaced Right. And continue to operate and I gave you all the metrics that said in the script. I don't want to repeat it here. But that performance is pretty astounding and it shows you how far we have come in making this technology robust. And the most important thing is, isn't it great to from people Speculating wrongly about how much of a liability that we will have going forward to our CFO now telling you in 2022, so it will be a profitable business.
All right. I'll get
Your next question comes from the line of Colin Rusch with Oppenheimer.
Thanks so much, guys. As you think about these cost reductions on the service side, rolling through And scaling, how should we think about that flowing through into your bidding process and the sales pipeline and how you think about pricing?
So for us, when we look at it Colin, the way to think about It is really at the end of the day, the customer, what is the value proposition for them? For them, it's not breaking it into fuel cost, product cost, service cost. For them, it is What is the quality of electricity with what attributes do they get at what price and what is their alternative? So for us, pricing will always be dictated by market conditions on pricing it to make it An attractive value proposition for the customer and for us. So we would We would see our costs coming down as either our ability to attract margin in certain places It will get more attractive going forward with that lower cost structure that we have for the same margins that we want to come in.
That's the way we would see it. Greg, would you add anything to that?
No, I think that's exactly right. I think as we look at What our value prop to our customers are, where we've been able to reduce our costs, whether it's on our product costs or on our service costs or our installation costs, Those are all opportunities where we can create value for our customer as well as for ourselves. So we want to make sure we're maintaining some of that, But using it as well to help us open up new markets where we can be competitive as well.
Okay. And then on Yes, the manufacturing side and the evolution of the technology. Can you talk about the cadence of improvements? It sounded like there's a number of areas Working on and being able to move to different materials and some factors, can you talk about how that is progressing and how we should think about that Into the product margin as we think about the balance of this year and into next year?
Yes. We've talked about this in the past. As we think about Our cost out is part of our DNA. It's part of how our operating teams think about it. And in Any particular quarter, our targets are anywhere from 10% to 12%, as high as 15% cost out year over year on our product.
I'll tell you, we get it through a number of different ways. Our supply chain is fairly sophisticated in working with our vendors to improve Their manufacturing processes as well as simplify our product through engineering to make it cheaper for our Supply chain to manufacture it, so it can be assembled within our product. I'm very impressed with the manufacturing processes and our engineers working with our team there And coming up with additional ways in which to improve, whether it be yields, take steps out of the process, All those things help take the cost out. And as we project going out forward, we give the team fairly aggressive Cost targets that we expect them to achieve and to give them the tools and resources to do that, but it's part of our kind of core operating DNA and how we move forward. In any particular quarter, it may come from a different variable that they optimize, but quarter in and quarter out, That team has been able to deliver on that product cost.
And as you start to look back at it year over year, quarter over quarter, it really demonstrates it Self out. So we count on that as we think about how we grow the business. When you add some capacity, we are going to have a little bit of challenge here on the absorption. So the team is ahead of that and thinking about how they bring those capital investments on and they have increased scale as they increase The number of units going through the volume will recapture some of that. But our product cost is not an output metric.
It is very much a metric. It is very much a target that we use to run the company around. Great. Thanks so much.
Your next question comes from the line of Benjamin Caylow with Baird.
Hey, guys. Good evening. Hey, Amanda. You guys have a couple of good announcements It's about new product lines with the hydrogen project, electrolyzer and the marine project. And could you just tell us talk to us about when those products were initially developed or started Coming from the lab to announcing that, just some history there.
And then I think, Greg, you talked about having a new Head of Europe. Can you talk about just the management team and where you guys are and if there are holes or anything that could change? Thanks.
Yes. Sure. Ben, I'll get started and then I'll pass it on to Greg because you asked history. So look, the company's history started with This particular technology used as an electrolyzer. That's my work that I did for Mars.
Even in the very early days of the company, we were thinking about, is our product Going to be a single generation of electricity, generation of electricity and heat, generation of electricity, heat and hydrogen. So we have thought about it. And very uniquely, the solid oxide process It's the only electrochemical process that you can effectively and practically run-in a reversible manner. The same device Can be run-in one direction as a fuel cell and another direction as an electrolyzer. That is called a solid oxide regenerated fuel cell or SORSC.
And I have some of the early papers and patents from that. And as a company, we have over 19 patents on this Yes. And we have been doing a lot of research. But why have we not spoken about HypoGen so far and why are we speaking about it now? It is because of market timing.
It is the world wanting decarbonization in a very And putting policy in place to enable this and automotive makers coming up with a need for it in the transportation sector and regulation coming along in the hard to decarbonize areas saying that they would rather go to hydrogen than use other form other carbon intensive form for generating industrial heat It is that combination and so it's a matter of timing. So if you look in the literature Purely based on technology, there is consensus that the solid oxide electrolyzer is far superior To the low temperature electrolyzers. This is academic research. This is DOE research. You can just look at that.
This is not just company research. So we feel very confident that we will play an important contributing role in this hydrogen And the timing is right. And Yin, in terms of rolling out our first product And also addressing the international market development. Greg, I'll pass it on to you.
Yes. Thanks, KR. So Ben, when I first I started looking at Bloom. What attracted me to the company was not only the product that we had today And it's applicability and it's resiliency. But really what I got excited about was I spent time with the team around that technology roadmap.
We have we call them 5 pillars internally that we are growing the company with. So it's both forms of our hydrogen play, whether it be the fuel cell or the Marine, we've talked about biogas, which I think is a really exciting opportunity and then carbon capture that can be Part of our server process from there and just some of the unique ability to do that with solid oxide fuel cell and a fuel cell makes that really attractive. So I think not only has the market opportunity come into play, But I feel now that we've got to the other side of what we needed to do with making sure that we fortified the balance sheet, Hey, Garrett, some of our short term issues. We have a lot more flexibility to go invest In those pillars than we may have had 6 or 12 months ago. And the nice thing we've talked about it before, The server is a platform.
It can do all of those things without requiring a lot of investment to go do that. We do have an operating process set up internally with the engineers to make sure that they are moving through the process of doing the design. We've got Cheryl Lemore came in as our marketing leader, has a great product management background and really putting into place and how you commercialize these products. So it feels like everything is coming together quite nicely all at the same time for the company. It will be some time until we see major revenue contributions from these particular items, but I'm glad to know that it's out there at the same time when we're expanding on the current product.
So I don't think it'll help. You asked about the team. I was real impressed also with the team here at Bloom and their operations. I talked about the Product cost management before, but there's a lot of good operating rigor. I think as the conversations with the Board Around the leadership team going forward, for me, it's really around scalability.
And hopefully, that's what you're seeing on the leaders that we're bringing in. It's how do you take a company that is $200,000,000 a quarter and grow it to the size that you need it to grow? And how do you take that complexity that exists as the business grows and operationalize it in a way to make it scalable so it's simpler? And you'll see the backgrounds whether from the people that have joined, they've been in different organizations. We had a call come From the power with the power background, but we all come from organizations in which Working together as a leadership team and making sure we're building resilient teams that can scale is really what we need.
I think With the last add here on our international business lead and it's just not in Europe, When you see the background, you're going to see that this person can play in a lot of different ways. And we're really excited to have them come in and Wake up in a different time zone and think about parts of the world that we may not be able to get to from our desks or homes now in California. So I'm really excited about the team we have here. I feel like we're at an inflection point. And I feel like we are really pulling together nicely as a team and as a company.
Great. Thanks, guys.
Thanks, Scott.
Thank you.
Your next question comes from the line of Jeff Osborne with Cowen and Company.
Hey, good afternoon. A couple of quick ones on my end. I know you don't discuss bookings or backlog, but I was wondering if you could just qualitatively talk about the fire season and then coupling that with COVID and the lack of being able to meet face to face, is that virtual sales or
Digital sales, is
that working for you? I know the solar industry has transitioned well to that, but I wasn't sure about you folks.
So Jeff, as you know, yes, very clearly, we don't give you forward guidance on sales And how we're doing, it's only once a year. But look, our sales team is doing very well reaching out to customers. I would say Getting those virtual meetings is probably a little bit easier than trying to go and have a face to face. And they are able to get a lot more of those calls in because they're not spending their time traveling. And I think it's pretty remarkable.
I don't know what you're seeing everywhere else, but it's pretty remarkable how Our ecosystem, we see people have adapted extremely well to this online Digital, virtual process for everything other than the essential production processes and The one news and you heard us talk about Entergy during the script. There are parts of the country where The hurricanes are making people really want to think about resiliency in a very different way. This is no It is not a new normal. It is the beginning of a trend that's getting worse by the day. And so people are seeing that Whether it's our Wafi, whether it's the wildfires here in California or the hurricanes.
And on top of that, Grid prices are going up, not only the quality of the service, not where it needs to be, But the prices are going up. And Greg talked to you about how we are able to get our unit economics to a place Where we can play in certain some of these markets effectively that we could not in the past. So it's all
Got it. And my follow-up was actually on Entergy. A couple of multi parter. Is it similar to Southern and Duke, where they'll be providing financing or are they just selling and you're owning? Who actually would own Or is it a cash sale?
Can you just talk about, A, when you would anticipate bookings? And then, B, what they're actually doing? Is it owned and operated or the customer will own and operate the micro grids that you referenced?
No, this is a new relationship. Here are the common interests that we have. Their interest in resiliency is extremely high. Just think about Parts of Louisiana within the last 60 days, 3 different hurricanes, Category 2 or higher, Having impacted, it has been devastating. Mother Nature has been devastating.
So like resiliency is in the top of their mind. And For a certain fraction of their customer base, distributed power is something that they're very interested in. And their leadership team is thinking It is very forward leaning on decarbonization. These are common interests. We are exploring these opportunities together.
Because it is a mutual interest, we will find a win win. We are just discussing that and we'll share with you as
There are no other questions at this time. This concludes today's conference call. Thank you for participating. Yes, sir.
I was going to just give a concluding remark.
Okay, no problem. Everyone is still connected.
Thank you so much. So I want to take this opportunity Yes. To thank Mark Messler, this is his last meeting as our VP of Finance and Investor Relations. Mark has forged strong connections with the investor base and the analyst community and really adeptly guided Bloom in his 1st year as a public company. He's leaving to join a promising Silicon Valley startup as a CFO.
Mark, we thank you for all your services, And we wish you a very good future, and we're excited for you. The Bloom team is proud of the work have done over the last year. We have showed up our financial position. Our business operations are more nimble, Efficient and effective. Customers are increasingly valuing our solutions That we are powered through wildfires, hurricanes and public safety power shutoffs.
Our collaborations with public utilities and commercial partners are robust, And we are actively engaging with new partners. And we are developing trailblazing low and 0 Power generation solutions are scalable, affordable and integral to our planet's fight against climate change. Bloom's future is very bright. Team Bloom joins me in expressing our gratitude To the investors for being stakeholders with us in our journey. Thank you very much.
Have a good evening.
Ladies and gentlemen, you may disconnect.