Good afternoon, and welcome to the Bloom Energy first quarter 2020 earnings call. At this time, all participants are on a listen only mode. Later, we will conduct a question and answer session, and instructions will follow at that time. As a reminder, this conference call is being recorded. I would now like to turn the conference over to Mark Mesler, Vice President of Finance and Investor Relations at Bloom Energy. Please go ahead.
Thank you, operator. Good afternoon, all, and thank you for joining us on Bloom Energy's first quarter 2020 earnings conference call. To supplement this conference call, we have filed our Q1 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-K and 10-Q, which identify important risk factors, including those related to the COVID-19 pandemic that could cause actual results to differ materially from those contained in the forward-looking statements.
These include statements about the effects of COVID-19 on the company's business results, financial position, liquidity, and outlook. We assume no obligation to revise any forward-looking statements made on today's call. During this call, and in our Q1 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, and not a substitute for, or superior to, measures of financial performance prepared in accordance with GAAP. A reconciliation between the GAAP and non-GAAP financial measures is included in our Q1 2020 shareholder letter. Joining me on the call today are KR Sridhar, Principal Co-founder and Chief Executive Officer, and Greg Cameron, Bloom's new 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. Thank you, Mark, and thanks to all of you for joining this call. These are unprecedented times, and on behalf of all of us at Bloom, I send our prayers to those gravely impacted by COVID-19. We sincerely thank the heroes on the frontline who have been relentlessly fighting the virus. I hope that those of you joining us today, and your loved ones, are staying safe. I want to start by talking about COVID-19 and its effect on our business and the marketplace. I'll talk about our results and accomplishments this quarter. I will then turn it over to Greg Cameron, our new CFO, to talk about the financial results, our balance sheet, steps we have been taking to de-risk our business, and our outlook. I'll close with a few summary comments. Bloom Energy has continued to operate an essential business throughout this crisis.
Our manufacturing operations, maintenance and service functions, and field installation teams have continued to work and sustained our core business. Above and beyond maintaining the continuity of our core business, the Bloom team answered a call to refurbish ventilators and delivered over 1,200 of them in working conditions to hospitals at a time of national need. As importantly, we powered two pop-up field hospitals during this crisis with clean, reliable electricity using Bloom servers. In one case, we went from a standing start to powering the hospital in five days, showcasing the time-to-power capability of our solution. In another example, we upgraded an existing grid parallel installation with our always-on microgrid option and routed the secure power to a field hospital in just three days, demonstrating the speed, flexibility, and adaptability of our solution to meet the changing needs of our customers.
I want to thank all of our Bloom employees for their passion, dedication, and perseverance, and for keeping our core business running, while at the same time stepping up to go above and beyond to help fight this battle. I'm immensely proud of the efforts and commitment, and my heartfelt gratitude goes out to them. I have four specific observations about COVID-19 and its effect on our business. First, this crisis has crystallized how globally interdependent we are and just how vulnerable society is to disruptions that affect our global supply chain and impact the production and distribution of goods and services. Communities now understand that they must be locally resilient to survive such crises. Reliable, localized power is at the core of such self-reliance. It will behoove local and state governments to enact policies that promote resiliency. Second, a significant number of our customers we serve are essential businesses.
These are hospitals, telecom providers, food service retailers, warehouses, data centers, and manufacturing facilities. As global as these businesses are, COVID-19 has made all of them acutely aware of the importance of power and the need for reliable, safe, clean, cost-effective, and localized energy solutions. In other words, we are an essential service to the essential businesses. Let me repeat. We are an essential service to essential businesses. Third, the shelter-in-place orders around the world presented stark satellite images of clean, smog-free urban areas around the globe. This has evolved the sustainability discussion from one that only focuses on carbon footprint to include the importance of air quality. Even after life returns to normal, clean air quality is achievable if we reduce smog-creating emissions. There is no doubt there will be millions of people around the world who will suffer from compromised respiratory systems as a result of the virus.
Cleaner air will be essential to their safety. We should expect there to be greater appreciation for and desire to have power sources that emit no SOx, NOx, or particulates. Bloom systems do just that, even when natural gas is used as a fuel. While our focus on resilience delivers safety and business continuity at lower costs for our customers and the communities we serve, our servers will also deliver better air quality, and that will be important. Fourth, we know that nature is going to do what nature is going to do, whether it's wildfires, hurricanes, earthquakes, heatwaves, or ice storms. We are not going to get a pass on a natural disaster because of the pandemic. If anything, we are worse prepared than previous years for the coming natural disaster season because of COVID-related constraints.
In light of this, it is particularly important that we secure our critical facilities with resilient infrastructure. Let me discuss some highlights for the year thus far. Our first quarter results were in line with our estimates. More on that soon from our CFO. In the U.S. commercial and industrial markets, in Q1, we powered 37 microgrids through 155 grid outages, resulting in hundreds of hours of saved productivity for businesses. We have seen a noticeable increase of interest in our sales pipeline for our always-on microgrid product offerings. Internationally, South Korea continues to be an important market for us. In the beginning of 2020, South Korea was one of the first countries heavily impacted by COVID. Since then, the country has been remarkably successful in combating the virus, business there is returning to a new normal. We have continued to install systems in South Korea.
In fact, a 198-system installation has been constructed this year and will go online imminently. A picture of that site is on slide one of the earnings deck. We and our partner, SK, are very optimistic about this market for the rest of the year and going forward. We have reimagined and retooled our factories to operate safely and reliably, even if the restricted workplace requirements were to stay in place for a long time. Our entire manufacturing process line now ensures social distancing at each station, and no two people have to be within less than six feet of each other. On-site nurses are monitoring employee health, and our new deep clean and wipe-down procedures are in place as additional precautions. We know these COVID-related work adjustments will add some expenses to our operations, but it is of utmost importance to ensure employee safety and business continuity.
Our service business is operating as normal. On the U.S. installation side, we were able to complete the projects we were planning to, except for Q1, as evidenced by our revenue. In Q2, we have had slight delay on a few construction projects because of local moratoriums on permits and construction. We are beginning to see construction resume and are hopeful this trend will continue. It is worth noting that we came into the year with a backlog of over $1 billion in contracted systems. We have not had one cancellation of this healthy backlog. There have been no requests to delay the installation of our systems.
In addition, our installed fleet has more than $2.1 billion of service revenue, and the contracted systems in backlog have the potential for an additional $1.1 billion in service revenue. The service revenue is paid by our customers, such as AT&T, Kaiser Permanente, Medtronic, Gilead, Walmart, Costco, Apple, and Intel. I want to introduce our new CFO, Greg Cameron, and welcome him to the Bloom team. Greg comes to us from GE and has a strong background in operations, financial services, and the capital markets. Greg will discuss our Q1 results and provide some highlights for the quarter. Many of you may have already met Greg virtually, and we are excited to have him with us. He hit the ground running and has already made a significant impact helping us secure our recent debt extension and raise at the end of quarter, which he will speak to in more detail.
Greg?
Thanks, KR. First, let me begin by saying I'm very excited to take on the CFO role at such a category-creating growth company. I'm here because I sincerely believe in this company's mission and the basic societal need for the power it provides. I recognize the ability of our technology to transform how power is produced, delivered, and consumed around the globe. No doubt, it's an interesting time to join a company, but what has really struck me is the deep belief of everyone in the mission of this organization and a desire to achieve real results for our partners, customers, and shareholders. I'm looking forward to bringing my experience in finance and operations, as well as GE rigor and best practices to bear on the behalf of Bloom. I officially became a Bloom employee on April 1st.
Prior to joining, I spent time learning about the business, industry, and customers. I was also involved, as KR mentioned, at the tail end of the debt refinancing and had the opportunity to work with our finance team and partners to reach an agreement. I am very impressed with our team. Over the past few weeks, I've also enjoyed meeting, either by phone or video, our sell-side analysts and connecting with some of our investors to hear their feedback. My guiding principle here at Bloom is to be open and transparent with the financial community, and over time, I look forward to simplifying our financial reporting and making it easier for you to understand and evaluate our financial health. Let's turn to the financials for the quarter. For your reference, we provided a summary of key financials along with a summary P&L and balance sheet.
I don't plan to walk through each slide, but I do want to emphasize that we delivered what we said we would for the quarter, just as Randy had projected in the last earnings call. We provided a range on revenue of $140 million-$160 million. We achieved $156.7 million, up 6.6% year-over-year on an increase of 8.9% in systems acceptances. On non-GAAP operating expenses, we provided a range of $48 million-$51 million. We came in at $48.8 million. We delivered an adjusted EBITDA loss of $9.8 million, which was better than our range of a loss of $25 million-$15 million. We ended the quarter with $353.9 million in consolidated cash and short-term investments. Our cash balance, excluding PPA and restricted cash, is $180.3 million.
This balance decreased $22.5 million over the quarter, driven primarily by pre-building systems that would be installed later in the year. We've discussed on previous calls, our business has some seasonality, and we plan for a surge in our systems acceptances in the second half of the year. To meet second half demand at our current manufacturing capacity, we would be building in advance. This is one of the reasons we raised an additional $30 million in capital in the first quarter. An added benefit of this approach, given the current operating environment, is that we have a buffer of finished goods that allow us to take care of customer obligations, even if there's a short-term disruption in our operations. We think this is prudent and reflects the concept of de-risking that I will touch on in more detail shortly.
At the end of the first quarter, we announced the extension of and the amendments to our debt. Specifically, we've refinanced and extended approximately $260 million, our outstanding 5% and 6% convertible notes. We also announced and have now closed an additional $100 million in new financing, using a majority of the proceeds to refinance the existing convertible notes. I want to sincerely thank our investors and note holders for their commitment to Bloom's future. Accomplishing this transaction during the peak of uncertainty in a major crisis speaks to the strength of Bloom Energy and our strong investor relationships. Now that we have the convertible notes extended, we have time to access the capital markets when conditions are more favorable.
While we've been encouraged by the trend in recent convertible debt deals, given the overall economic conditions, I do not want to set arbitrary expectations on the timing for us to access the capital markets. We have the time to be pragmatic in addressing our capital structure and find partners that can bring resources across our value chain. KR spoke of our relationships with SK in South Korea. We also have partnerships with large U.S. public utilities who have strong balance sheets and financing capability. Partnerships like these provide the opportunity for us to not only find the right investors, but also access global markets and distribution channels through them. We continue to expand our originations capability in the United States, as it is a large and important market, and when combined with global distribution, it provides the scale we need to drive significant growth.
As the coronavirus continues to create uncertainty around the world, like many businesses, we've taken steps to protect our business. We've implemented measures to preserve cash and streamline our operations by pausing some capital investments, reducing operating expenditures, and deferring planned increases in production. We outline those savings on slide seven in the deck. On server production, we will keep capacity roughly at our current levels and avoiding a $40 million ramp in material purchases, which will bring us to cash flow neutral sooner for the year. As KR referenced, we have been impacted by local building ordinances that have created timing risk on the completion of our server installation and acceptance. While we receive the majority of the cash as we build and ship the servers, we do not recognize revenue or receive final payment until they are accepted by the customer.
Once we have additional confidence on the abatement of installation risk, we can quickly flex up the production capability by over 50% with a 90-day lead time. To reiterate, we have ample backlog to absorb these units and customers waiting to be powered by us. We previously discussed that for 2020, we expected the cadence to be similar to 2019, and that we would be building momentum on acceptances and revenue throughout the year, thus, our second half would be stronger than our first. Our current server build plan and inventory levels support revenue similar to last year with an opportunity to flex up production in the second half as visibility improves. It's important to remember that in our long cycle business, 100% of 2020 projects have been identified and all of our U.S. C&I projects are currently in our backlog.
The impact of local building restrictions on the timing of installations in our U.S. C&I business is our largest risk, as the timing of revenue recognition may move between quarters. Again, to be clear, this is a timing-related matter on when the product revenue is recognized, but there's no lost revenue. It may get just pushed out to the next quarter. This risk creates enough uncertainty that we are unable to provide guidance for the second quarter or full year 2020. As we update through the year, we should have better clarity on our installations, and we'll adjust our production levels accordingly. Let me now turn it back over to KR for some closing comments.
Thank you, Greg. I'd like to close by emphasizing the following. One, amid the COVID-19 pandemic, we delivered on our financial and operational guidance for the first quarter, and we were able to successfully refinance our debt and strengthen our balance sheet. Number two, we entered the year with a backlog of over $1 billion worth of systems. That remains solid throughout this crisis. Those contracted systems have the potential for an additional $1.1 billion in service revenue from high-quality, established customers, and our installed fleet has more than $2.1 billion of service revenue to be recognized in the future. Number three, this stable backlog, combined with our demonstrated ability to operate as an essential business, the reopening in South Korea, signs of progress in California and the Northeast, give us optimism about our prospects for the rest of the year and beyond.
Number four, we have a leadership team and board that is seasoned in crisis management. We have taken steps to de-risk our business by managing our costs and preserving cash. We have done so while affording ourselves the flexibility and optionality to ramp up our business quickly as we emerge from this crisis. We are also ensuring that we are preserving and protecting our innovative edge. This will allow us to further cement our leadership position and emerge even stronger in the future. Number five, the situation around the world has underscored that reliable, clean, safe, cost-effective, localized power is a critical need for all people. As we emerge from this crisis, we expect air quality related to power generation to be an important topic as a result of COVID-19.
As we return to a more normalized operation post-COVID, we intend to work to help businesses and communities that are increasingly taking their energy needs into their own hands in order to deal with major disruptions and challenges. I could not be prouder of our team's efforts during this challenging time. Thank you again. With that, we will now take your questions.
At this time, I would like to inform everyone to ask a question, you will need to press star one on your telephone. To withdraw your question, press the pound or hash key. Please stand by while we compile the Q&A roster. Your first question comes from the line of Stephen Byrd from Morgan Stanley.
Hey, good afternoon. I hope you all are doing well.
Hey, Stephen. We're doing well. Thanks for asking, and I hope you and your family and all of Morgan Stanley staff are doing well too.
Thank you very much. Greg, congratulations on the new role. Look forward to working with you. I wanted to just touch first on the point about 2Q guidance and, Greg and KR, I think your commentary was clear, as I understand it. Just given the uncertainty of acceptances, given restrictions like building access restrictions driven by the shelter-in-place rules, it's challenging to be able to give second quarter guidance because acceptances, of course, are driven by installations. I think I understand that. As you think about states starting to gradually relax their shelter-in-place requirements, I'm just not familiar enough with how that would impact, specifically, customer acceptances on-site.
How quickly can that come back, or is that potentially going to be a little bit lagging because you need permitting offices to be re-staffed and other things that could take a little bit longer to actually get back in place? I'm just not familiar enough with how that sort of restarts.
That's a very good question, Stephen. If you remember our cycle, the first six months since we have an order to install an order is when we go through permits with the local cities. We go through with permissions with the utilities, and then we do the design, working with our customer and any upgrades that's needed at the customer site. The actual installation process itself can be a matter of weeks to two to three months, depending for most projects. There are some projects that fall on either side of the spectrum, but that's just a spectrum for you. It's very easy for us when things are moving forward, especially when you look at projects that have to be accepted this quarter.
If something is stalled, if you get a go-ahead order even a few weeks prior to the end of the quarter, you should be able to install and have it accepted. It is going to purely depend for this quarter, which is your question. We should be able to pull in some sites, many sites, if we are given access and permission in the next couple weeks, next few weeks, so to speak. We are seeing signs of that. We are optimistic, but as you very well know, it's extremely difficult to handicap that on a day-to-day basis sitting on a chair.
Understood. With that, it's just difficult because you just can't predict the behavior of customers in terms of their staffing of their facilities, their final sort of sign-off to accept and allow delivery. That's driven by sort of lack of availability of people on site and I guess other issues like that.
One thing we have seen, though, that I have to emphasize, is the customers realize the importance and need for our product, especially at this time. Many of them are essential businesses. The last thing they want is not have power. They clearly understand it. Places like hospitals understand the need for this clean power. They want to get it done sooner. We have not seen customers asking for us to delay the installation of their projects. As soon as we have local jurisdiction permissions to move forward in certain places, we should be able to move. We have seen in California, for example, we are being given permission to do those things. We are optimistic that'll happen in the Northeast, too.
Understood. Just as a follow-up, your system install costs went down quite a bit, which is very encouraging. I think from about $4,500 down to about a little over $3,500. Would you mind just talking to the outlook for product costs? I guess certainly COVID, I guess, can have some impact on cost, but just on a maybe a more normalized level, where do you see product cost trending? We're obviously seeing some improvement there, and I'm curious what the outlook is.
What we would tell you is look for the long-term trend, because when you include both the product cost and the install cost, it'll purely depend on the mix of the product, right? Depending on what kind of an install it is, you can have a spectrum of install costs. However, here is the most important thing, is Bloom's product cost per kW continues to drop even in our 5.0 platform at that roughly 20% a year numbers that you have seen before. We are continuing to bring down the cost of the current platform, which is doing extremely well for us. You're absolutely right to point that out, and we are, again, on the install side, looking at every best practice there is to bring those costs down.
Ultimately, A, we give our customers a great price on electricity, and B, we get a good margin outflow. We are continuing to do that. Greg, would you add anything to that?
Yeah, no, I would just emphasize the point around the mix of products of projects that we're doing. While overall, for sure, the long-term trend around product cost continues to decrease. On installation costs, a quarter-over-quarter change, either this quarter or in the future, could be more driven by the mix of projects that we have and the installation type that's there. Our focus is definitely to drive that down over time, but if you get a more complex, more difficult installation, it may drive up a cost on a particular project. On an average, it may increase, but overall, I believe the trend will continue to go down.
Stephen, I would summarize it as the following. Don't look at the weather, look at the climate. Quarter to quarter would be your weather pricing, but here's what the climate is. Since we introduced this 5.0 product , we have done amazing cost reductions over and over and over again, and the product is performing better in the field. We are working on install costs to come down and service costs to come down. That combination put together with the electricity prices going up in the utility creates a very good opportunity, both for customers to get a value proposition and for us to command a margin.
That's helpful and fair point. The selling price went down $500 per kW, and part of that, I presume, can be mixed, but the cost went down $1,000, so I guess the climate result is a higher profit per kW, which I guess is the ultimate goal. Thanks very much. I'm going to let others ask questions. Thank you very much.
Your next question comes from the line of Paul Coster from JP Morgan.
Yes, thanks very much for taking my questions. Greg, welcome to the fray. I've got a few quick ones. First up, if you look at the backlog and you look at accounts receivables and so on, do you see any credit risks or industry-specific risks? Hospitality springs to mind, some education facilities, where we should be focused. Thank you.
Yeah, I'll take that one, Paul, and thank you for the welcome. It's an interesting time, as I said, to join a company and to meet a new team. Listen, on the backlog as well as our installed base, we monitor that very closely, given the service component as well as our future installation. As KR went through the names, it is a very strong list of customers that are there. To date, we have not had any issues, and we'll continue to monitor that going forward. On the AR side, there's very little trade receivables that we carry at any particular quarter. We went through that with the team as part of our closing process, and I can tell you that other than some immaterial amounts, nothing related to revenue, we haven't had any pressure on our AR, given the current environment.
Okay. A quick follow-up on your point about inventory. I'm trying to decipher the meaning here, that you said the inventory level supports revenue similar to last year in the second half of this year. What was the point of that? Obviously, there's risk of Well, that's not going to happen, right?
Yeah. Listen, I think part of it comes in is how we came into the year. The team had a very strong finish to the year in the third and especially into the fourth quarter around taking orders that we would expect to install in the second half of this year. As they looked at the forecast there and looked at the amount of capacity we had in order to deliver those units from a manufacturing standpoint, we made a decision, the team made a decision early on to pre-build those systems and leave those in inventory, and we would have those to meet the surge in acceptances in the second half. I just really wanted to make sure I highlighted that.
If you look at the inventory balance on our balance sheet, it may stay flat year-over-year, and you got to dig a bit into our footnotes and see that we increased the amount of finished goods in our inventory balance, so more finished versus a WIP, a raw. As well, there's other places on the balance sheet that we can point out to you on where we may have shipped units ahead of time based on the type of contract that's there. As we get in through the rest of the year, we're going to hold our manufacturing capacity about the same. As acceptances grow and we hope to work our way through the risk that we talked about from a revenue recognition standpoint.
As we continue to ship more units, that inventory will move out to the customer sites and hopefully will eventually become acceptances, and we'll have that inventory to support a larger number of acceptances in the second half than the first half.
Okay. One thing that coming into the year, you'd started to ramp up some expenses in readiness for the next generation server. Now you've got inventory, finished goods inventories included, sitting there, I'm assuming, on current generation servers. Is there anything in this scenario that delays the transition to the 7.5 Server? What does this also mean in terms of customer bookings, customers' readiness for that server? Are some of them hanging back until they see what it delivers?
Paul, that's a great question. This is KR. Good afternoon to you, and I hope you and your family are staying safe. Look, here is the beauty of our business. Our customers, more than 90%, somewhere in the 90% range, pretty much buy electricity that comes from our servers. They don't buy a particular model of a device. It is not like a cell phone business where if you went out and said, "I'm coming out with a new model," somebody's going to wait to buy, not buy that old model till the new model comes. None of our contracts, the $1 billion+ and whatever else is in the pipeline, does a customer specify that they want this particular model of a server or not.
The first thing you need to understand is neither with our backlog nor with our prospective customers, nor in our sales outreach, does timing of a new product impair our ability to sell. That's the first point. The second one is our 5.0 product continues to do well and bring the cost down continuously, even better than what we were originally planning. That's number two. Number three, on 7.5, I'm very happy to report to you that our prototypes, we have built now multiples of these power modules and put them together in a system mock-up operating types, and they are performing to technical specs and doing extremely well. Not to be surprised, this is the first time this team is bringing out that next-generation product, and every single time, they have hit it out of the park. This is no different.
What we are doing right now is to say, let's take this extra time that we have right now and further reduce the cost because the team's able to see even further improvements to performance and further improvements to cost compared to the prototypes that they've done. We're going to do that, so when we launch the product, it will even be a better product for us financially and a better product for the customer. In doing so, we can use our existing resources, our existing engineers to be doing that with the inventory we have. We don't have to ramp up on that inventory right now. It helps us in multiple ways. Number one, it makes us launch the product even better. Number two, it helps us be prudent with cash at this point in time, which is the right thing to do.
Got it. Thanks. I've got one last question. I do apologize, the flurry of questions here. The sales team and their effectiveness, is COVID-19 getting in the way of finding customers, developing the pipeline, closing deals, and getting bookings?
Very good question, Paul. What we are seeing is an increased interest from the sectors that you would expect, right? Essential businesses. The fact that we did these two pop-up hospitals, the fact that we were doing ventilators alone created quite a bit of awareness within the hospital sector for us on top of that, when we were doing the pop-up hospitals. There's strong interest from the hospital sector. We are getting inbound calls of saying, "Can you provide this power to us?" That should make sense. How can a hospital that's trying to cure people of their respiratory illness have backup generators that fuel dirty chemicals that affect the respiratory health of a patient as their backup? That just absolutely makes no sense. We have a great option.
We are finding inbound calls coming in from the hospital sector, coming in from the manufacturing sector, and from food services, which now understand why they need to stay on no matter what. The funnel is robust. The sales team is extremely busy. The sales team is also working on some strategic channels and partners in very early stages. They're extremely busy. However, I think what you pointed out, the signature cycles that are required at the very last stage from the executives, given that they are dealing with that immediate tactical save my business now issues, those closing of those orders will get pushed out by a little bit. Given our long sales cycle and given that these orders are not required for us to fulfill for a while, it is not impacting our business at all.
Great. Thank you.
Your next question comes from the line of Michael Weinstein from Credit Suisse.
Hi, guys.
Hi.
Hey.
Just wanted to say congratulations again to Greg, and also good work on the ventilators in California. Hey, I wanted to ask you a little bit more about the profit per kW and the ASP and TISC statistics that you put out. Looks like there's a big change from the way it was presented in the Q4 release and the Q1 release, especially if you look at the Q4 2019 numbers. They look pretty different in this latest release. Can you explain that a little bit?
Yeah, let me take that. Yeah. I can take it first, and Mark can add more detail since I wasn't here in the fourth quarter. As we've gone through the process of cleaning up on our restatement and worked through that, there may have been some issues to just presentation and what our 2019 numbers are to what our 2020 numbers. Anything that we're putting out now should be on a consistent basis and able to draw these off it. I'm looking at Mark on the video, making sure that I've stated that correctly, and he's giving me the thumbs up.
Oh, I guess what I'm going to assume is that maybe now you pulled out the leases that you're not allowed to account for. That's probably the value.
Yeah. I'm guessing. I'll go back, Michael, and make sure that's the case, and circle back to you if it's not. Overall the trends as presented now should be on the same basis.
Hey, a related question is, you have a pretty big increase there, $651 of profit per kW going up to $1,065 quarter-sequentially. The gross margins are pretty consistent, going from in the 15% range up to 16.2% or so in this quarter. Is that because one includes leases and one does not? What's the main reason why there's a difference there?
No, I think they're both going to be presented on the same way. Revenue is going to be recognized the way that we recognize it, and we have it in our revenue and EBITDA all on the same basis. I think from doing any comparison on a quarter-to-quarter basis, whether it's on ASP or on profit, you have a little bit of just what the mix is on the revenue and the variables there. I talked a little bit before about the installation cost being a little bit different, and that would drive an increase in revenue, but not an increase in margin, as that's a pass-through to our customers. You also have the geographical location of our customer, the type of solution that we're providing to that, and the complexity of the install.
All that will be included in those numbers, and would drive the variances on any quarter-over-quarter.
What's the thing that you think is different between those two data sets, though, or those two tables? What's being included in one and not included in the other?
Yeah. On what we presented last year versus this year, that difference would be the changes that we implemented at the end of-
No, not just that.
Yeah.
The difference on a per kW basis versus an overall gross margin number.
Yeah. Other than mix, Michael, I'd have to sit down with you and go through it.
Okay. Fair enough. Can you maybe give us a preview of how the second half will differ from the first half in terms of gross margin percent improvements, and where do you think costs to ISC will go and ASP might go in the second half as you ramp up on acceptances?
Yeah. Listen, I think our overall KR, do you want to-
Michael.
Take it away.
Michael, you're asking some forward-looking numbers that we don't present normally.
No, trends. Tell me about trends. You don't have to.
Were you trying to get the new guy in trouble?
I was trying to make sure that Greg doesn't answer that question before I had a chance to. Apologize. If you were in the room, I would've said I'm taking this, but this is the problem of Zoom. Anyway. Look, like I said, our material cost continues to come down quarter over quarter. Okay. We are doing good progress. You should be seeing an impact relating to that. Number two, knowing that we are in this regime, there's a slide out there that Greg didn't go through. We are trying to be as conservative as we can with our cash, and that should also have an impact on what you see in terms of margins.
Separately, what you would've seen in 2017, 2018, 2019, this is where I can walk you through, is in the second half has had greater volume and is more robust than the first half. Because of that, the absorption numbers get better, the overhead numbers get absorbed better, and you see a benefit coming from that. Assuming 2020 is that way, and I gave you the reasons why we should be optimistic that it's that way, we should be able to see very similar trends there also. If you're asking me what the drivers are, those are the drivers, and at this point in time, we are trending well in all those drivers.
Yeah.
Okay. Hey, one last question. California wildfire season starts in May, typically. That's right about now. Are you guys seeing or preparing for any kind of major uptick in sales interest in California as a result of that?
I think there is a significant opportunity there. A lot of our customers have been asking us, "Will you be able to install in a very short notice if we need you to install?" We are preparing ourselves. I want to make a point out here, Michael, that you would've seen in the deck. I mentioned it. It's worth mentioning. On this one project where we had the cooperation of the state, the local utilities, the local government, and our customer, from the day we got a green light to the day we installed was five days. We have told you our typical install cycle is 9- 15 months. That 9- 15 months got shrunk in five days when the need was there. In a pandemic world, if you have to shelter in place, evacuation is not an option.
Microgrids for critical infrastructure is the way to go. We can do this rapidly with what we have today. We will be reaching out. You can believe us that we will be reaching out to local governments and saying: Why don't you allow us to do this?
It's a very interesting confluence of the two disasters, state, I guess. Anyway, thank you very much, and have a good night, guys.
Thanks, Michael.
Thank you.
Your next question comes from the line of Jeff Osborne from Cowen and Company.
Good afternoon. A couple questions on my end. KR, in terms of the Gen 7.5, recognizing you're not selling products, but it certainly expands the market for your sales folks to go out and offer additional states and countries, et cetera. I just wanted to follow up on Paul's question. Is that product still slated to launch in the Q4-ish timeframe?
That product will be out for field trials, like we told you, in the end of Q4. How exactly the sequence of ramping it out and how we ramp it out is not something we have given you other than it'll happen next year. That is still our intent, and that's what we do. What I'm trying to say is we're taking extra time to make sure, even by the time we launch that product, that product has very close to cost parity that we would like to see and give us the advantages that we need to see.
Got it.
We will be having field trials out in the field end of this year, like we had told you.
Got you. Is there any lessons learned or customer behavior anecdotes from Korea as they've recovered, and how that might transpire in the U.S. or in Korea? I know a piece of the business is tenders and RFPs for larger projects that are sort of utility-run. It's my understanding. I'm not sure how applicable it is, but I was just curious. Any comments to that kind of line of questioning?
Look, yeah. That's a very good question, Jeff. One of the things that we noticed, we had a call a couple of weeks ago with our counterparts, SK, our partners in South Korea. What we actually see and what we heard from them is there was a pause, there was a moratorium, very similar to the moratoriums out here on working, on construction, things like that. The very first lifting of those moratoriums, the reopening, happened in construction and construction as it relates to infrastructure. You will see a picture in our stuff showing a 19.8 MW installation that got finished construction after they reopened and is imminently going to be accepted. That is one.
The second thing in addition to that is when we look at our pipeline and when we look at the funnel, every indication is all those things are moving forward as normal. They expect, unless something else happens going forward, based on where they are today, that their year will look very much like what they had predicted the year to be.
That's great to hear. I might have missed it, but as it relates to COVID-19, is there any impact to the supply chain or any of your suppliers from Asia or other parts of the world that you're reliant on as you ramp up for the second half that maybe you're concerned about?
Everybody globally is affected by this, and we had our own challenges, but we have a phenomenal supply chain team. In Q1, we had no part shortages. In Q1, the team made sure that through global diversity, bringing a few people on and doing what they needed to do, they not only satisfied Q2 but also built us a safety stock. Should there be a short-term emergency somewhere, we can withstand it while we divert from one part of the globe to the other to get what we need to do. At this point in time, they are busy procuring Q3. At this point in time, I would say as we sit here, the team's doing a great job managing our supply chain.
Excellent. That's all I had. Thank you.
Your next question comes from Pavel Molchanov from Raymond James.
Thanks for taking the question. You referenced some of the slowdown in deployments due to the lockdowns and stay-at-home orders. My understanding is, in most U.S. states, anything energy-related has been classified as an essential business, including installation of new power infrastructure. Are there any particular states where you've had regulatory restrictions?
The answer is yes. Without naming names, towns, and cities, here is the dynamic that we have to deal with. There are examples where the state capital and the governor would have issued those orders exactly similar to what you said, Pavel. There could be a local jurisdiction, a city that's laid a moratorium. When it comes to construction, I'm not a lawyer, but I understand according to the local laws that local jurisdiction can basically trump whatever the state puts as a regulation. There have been cases where we have been delayed, and here again, we are optimistic by going and showing the importance of what we do.
In most places where we are, you're correctly pointing out, by not having that reliable, resilient, clean power, they're subjecting themselves to potential more crisis when disaster season hits, whether it's the hurricane season or the wildfire season or whatever it is, right? We are optimistic, but we have experienced delays because of these things.
Understood. Now a follow-up question regarding India, which has had, I think, the strictest lockdown maybe of any jurisdictions. You don't have a lot of sales there, but some, so I'm curious what the impact was over the last six weeks that India's economy has been completely shut down.
Very good question. In India, anything relating to infrastructure, the government has actually been doubling up and doing it faster because if you've been to India and the roads are empty, this is the best time to repair the roads, right? That's the kind of approach they're taking. Anything infrastructure-related and construction-related, it's not a problem. However, the place where we are impacted is any sales opportunities, because pretty much all the offices and all the executives that we would have to deal with are not allowed to work, not allowed to travel. They're not even allowed to get out of home to go to where they need to go. I would say that's a delay, but like you correctly pointed out, Pavel, given that it's such a small fraction of our total business, that delay for a few months is not impacting the business.
For sure, that will get slowed down.
Appreciate it, guys.
Thank you.
We may have time for one more question. Your last question comes from the line of Colin Rusch from Oppenheimer.
Thanks so much, guys. I was wondering if you could help us understand the growth in deferred COGS. It looks like it's up about $20 million in the quarter. I just want to understand that dynamic, and I have one follow-up.
Colin, it's Greg. I'll take that. That's one of the places, as we talked about earlier on our builds from the quarter, where you would see that, not necessarily in inventory. That represents units as well as deferred costs on our shipments. At the end of December, I think it was about 47 units were in there, and that's increased, not quite double, but increased above 70, so low 70s in that number. That would represent systems that we have manufactured, completed, shipped to a customer site. They're being installed, but you have not yet taken revenue on, and they'll move from there when the acceptance is complete, and they'll move into revenue from there.
Okay, great. Thanks. Then just on the borrowings from the related parties, there's about $30 million in the cash flow of the debt issues to related parties. Can you just give me some more specifics on what that is, and I'll let you guys go. Thanks so much.
Yeah. That was the new debt that we announced at the time of the refinancing. We took $30 million in from our historical partners.
Okay, great.
Supporters here. Yeah, that was that $30 million.
All right, perfect. All right, thanks a lot, guys.
Great. Thanks.
Well, with that, I want to thank everybody for joining our call, and we hope all of you and your families will remain safe and healthy as we move through the COVID-19 pandemic. While this has been a challenging period for everyone, our team at Bloom Energy has remained focused on operating our business and serve the needs of our partners and customers while staying safe and healthy at the same time. I want to assure you that we are all unwavering in our commitment to continue our mission to provide clean, reliable and affordable energy for everyone. The need for this has never been clearer, and the high value of resilient power is more evident now than ever before. We are confident in our long-term strategy, our team's ability to execute it, and our ability to create value for you, our shareholders.
Thank you very much for your continued support. Stay safe.
Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.