Good morning, and welcome to the 22nd Annual CL King Best Ideas Conference. I'm Tom Hayes, Senior Industrial Analyst here at CL King, and we're very pleased to have the management team and IR of Bloom Energy today, with us today. Representing the company, we have Michael Tierney, VP IR for Bloom, standing in for Daniel this morning. For those in the audience, if you wish to ask a question, you can type the question into your Ask a Question box at the bottom of your webcast screen. All those questions will be sent to me, and I'll try to integrate those into the discussion. Michael, appreciate you having the time today to spend some time with us on Bloom Energy. Welcome to the conference.
I was hoping that maybe kind of level set everyone's knowledge of Bloom. You could provide a brief overview of the company and kind of go from there.
Got it. Okay. First,
Sorry, is it, is it just me with the echo, or?
I think so.
Okay, I'll just try and go over that then. Thanks for having me. Obviously, I apologize for Dan not being available today. Unfortunately, he came down with an illness this weekend and a fever, and so, so I will do what I can to help everyone through. A quick update on Bloom. Bloom Energy was founded twenty-four years ago by our current CEO. The company went public in 2018. We are the leader in solid oxide fuel cells, and our mission is to make clean, reliable energy affordable for all. Our fuel cells provide baseload power, and we compete primarily against the grid. The technology is scalable, based on the customer's power needs, and the fuel cells themselves are somewhat fuel agnostic. They were designed to use hydrogen.
They were designed to use hydrogen. We have some in the field currently that are using biogas. But right now, natural gas is the primary feedstock because that's what's available. We serve a lot of different markets. Honestly, everybody needs electricity, but the one that everyone is talking about most recently is data centers, as that is the incremental demand pressure on the grid.
No, that was helpful. I think one of the things that, you know, maybe, you know, Bloom has called out the last couple quarters is some pretty unique, you know, power contracts. And to your point, I think certainly you guys are competing against the grid. Do you think maybe we're, you know, kind of approaching a tipping point where, you know, people are... You know, thought the grid may be unstable, but certainly now they're moving forward to finding those solutions, and certainly Bloom fits within that solution set?
Sure. Absolutely. Yes, and you're right on the power contracts. You know, Silicon Valley Power is a great example of that. A utility in Santa Clara, California, where they have built, you know, five different sleeves and are 20 megawatts each, and we are providing power to one of those sleeves. The other four are still open and available. And the sleeves themselves are going to go outside of their basic rate payers. So they are significantly for one individual customer. That is something that's unique. We haven't seen that before with other utilities. We are in discussions with others, and hopefully that's a model that can be used going forward in the future.
As far as the tipping point, I agree with you. I think that, you know, we've probably been able to talk for a while about how the grid has gotten a little bit older or has had capacity issues or interconnect issues, but it has really started to become a much bigger deal over the last couple of years, and we're absolutely seeing it and seeing more interest in our demand for that reason.
You know, I think one of the things that I've become familiar with the Bloom products is just, you know, kind of how quickly you guys can get a solution to market. And, you know, you guys have talked about getting, you know, products shipped and installed within 50 days. Is that fairly unique in the marketplace, and does that provide you guys with a ongoing competitive advantage? And let me just kind of segue off that, you know, who do you guys see yourselves competing against?
Sure. I mean, I think our biggest competitor is the grid, right? And so, yes, when we talk about how quickly we can get our product to market, it is a big advantage. Time to power absolutely matters right now, and if it's going to take you two to three to five or more years in order to get an interconnect in order to power your data center or your factory, or your hospital, then absolutely the fact that we can get it to you in a matter of months, or in some cases, quarters, is absolutely a big advantage for us.
You know this is similar to, I mean, to your point on you know, competing against the grid. We've seen a lot of both small and large companies kind of developing their own are looking for someone that can provide them with a microgrid solution that fits, I think, right in the middle of the bull's eye of the products you guys provide.
Right.
Do you think just people are saying, "Okay, I think the grid will be there, but, you know, it's not gonna be. I gotta find my own solution?" So I think that's a little bit, you know, related to my other question, but I think you're seeing more and more different types of companies looking for different solutions. I just wanna make sure I kind of felt that out right.
Absolutely, that's right. And look, we're certainly not the only solution. There are a lot of companies and a lot of providers who are being forced to be creative about how do they get power faster than they would if they had to get it through the grid, right? And how comfortable are they that that power is going to be reliable, and how comfortable are they with the cost profile? And I think that yes, microgrids is absolutely something that we're seeing right now and something that has, you know, increased in our pipeline, in our funnel and the conversations that we're having with a lot of customers that maybe we wouldn't have had in the past.
No, that's fantastic, and I think, maybe shifting gears a little bit,
Okay
You know, I think KR brought it up at your last investor day event, and certainly it's a prominent longer-term opportunity for you guys. But maybe just, you have any update or overview you can provide on your going into the hydrogen market, the hydrogen fuel cell market, kind of where you see that now and you know over the next three to five years, what you guys have expressed?
Yeah, so hydrogen in general the you know obviously two main products at Bloom. We have the Bloom servers as well as electrolyzers. Now, the electrolyzers, you know, that's a business that we are excited about, but we've talked about how that's probably not something that comes to revenue in the short term, right? The fuel cells are certainly something that is driving the business, and while like I said they are primarily driven by natural gas right now, they're somewhat fuel agnostic. And so, we don't have a lot of hydrogen in the marketplace right now, but as we shift more towards the hydrogen economy in a series of years from now, we're very excited that Bloom's gonna be a big part of that.
You know one of the segments that you report, one of them is the services business. You know I think
Dan's talked about, you know, the opportunity for margin improvement in the service businesses. You've seen good year-over-year improvement. Just was wondering if you could reiterate what you guys are thinking about as far as a long-term outlook for the service margin business or service margin?
Got it. Right. So what we have said is that. So you're right. Services the margin for that business has been you know was notably negative, and has recently gotten up towards break even. What we have said is that in twenty twenty-five we have a goal, which I probably wouldn't necessarily say is guidance, but a goal of being at 20% margin for the services business at some point in twenty twenty-five. So we will you know there's a few things that are driving that, and that's not necessarily the long-term goal, but in a medium term that is where we are shooting for the margin for the service business. So right now, significantly better than it was but we will continue to make incremental improvements.
Could you remind us where Bloom stands on the installation business? I remember a couple, I believe it was last year the management team indicated that that was gonna be kind of a process that was gonna be outsourced. Is that still the case? And then, if you know is any changes in that?
Absolutely. So the installation business, I understand that's somewhat tough to model, and the reason for that is yes, we would like to have that be a smaller portion of our business. However, you know it's somewhat customer dependent. We'll always have a portion of the installation business in our revenue stream because we wanna keep it and keep the expertise so we can keep best practices. That being said you know some customers would prefer to do it themselves. Other customers would prefer to outsource it. We would like it to be smaller and to focus our energy in on the product and service side. But it is customer and project dependent so it will still be volatile but probably smaller over time, and certainly smaller as a percentage.
Kind of before we shift gears a little bit, I was just wondering certainly we've spent a lot of time talking about the grid and, you know, some of the recent wins have been US centric. Maybe just kind of walk us around the globe where Bloom is actively participating. Are they experiencing the same grid issues, and then does it present the same opportunity for Bloom?
Yeah, absolutely. So certainly right now, the U.S. is our biggest area for growth, right? And that is being driven a lot by the data center strength that we've all talked about and heard about. If we look internationally, Korea is a big business for us. We have a great partner there. We like doing business there. That probably isn't gonna grow quite as much as the other regions simply because again the U.S. has the current data center business, and our international ex-Korea is still really small. So we can grow off that small base. Yet the same issues that are occurring in the U.S. are also occurring internationally.
You know, I think we've talked about Germany and Italy being areas of strength for us and areas where we see a lot of opportunity, as well as you know some Asian areas outside of Korea.
Maybe kind of a bit of a segue into the Korea business. I think there was some questions in the market surrounding the pacing of the business with SK. Maybe could you just remind us you know the agreements you guys have publicly talked about as well as some of the pacing of those projects or targets?
Sure. So, this is with you know our partner is, SK Ecoplant, which is part of the larger SK Group. Originally, the 2021 agreement was for 250 megawatts. And then in the fourth quarter of last year, we signed a 500 megawatt volume agreement with them. So it was 250 under the original, plus an incremental 250. The agreement runs through 2027. And then, you know over the life of the project or that current agreement provides visibility for you know $1.5 billion in product revenue, as well as an additional $3 billion in service revenue over the next twenty years.
Okay. Maybe shifting gears a little bit to some of the financial aspects could you just remind us Bloom's process on capital allocation?
So right now you know we are putting all of our capital back into the business. And that is our primary focus right now to be cash flow positive. And so that is something that we have guided for the second half of this year, that we'll be operating cash flow positive. And then as we build beyond that we will look at other capital allocation strategies. But right now all capital is going back into the business.
Okay. Maybe on internal manufacturing capacity. I think certainly you know as business conditions continue to improve, and like you said you know strong demand on the data center side, where do you guys stand on manufacturing capacity? Do you? Are you adequate now? Or kind of tied back to my capital allocation question you know, are you gonna have to add some capacity?
So we currently have capacity in our Fremont, California, facility for one gigawatt of product. It is not fully tooled for that level, but it could be relatively quickly. As we continue to add capacity, that facility will be the primary source of it. If we wanted to add more capacity, we could at a relatively inexpensive way, right? We could probably double current capacity for $50 million or less. So when you think of, you know, where the capital is needed for the capacity, you would have to get significantly above that before we start to talk a different level on numbers.
Okay. You know, and I think people have you know kind of talked about you know different regions. You touched on it a little bit with Korea, and certainly U.S. seems to be great, really. What are some of the end-market drivers in across Europe? Maybe kind of talk about those cause I think maybe some of that detail gets lost on investors.
Yeah, I mean, I think. Look, it's not all that different from here. I mean, we anticipate that Germany is gonna see the same data center problems that we have in the U.S., right? They're, you know the timing of it may be a little bit off, but you will see that becoming a big issue. You will also see other issues in Italy, and so when you look at, for example, our end market distribution, you know we have a lot of a current installed base in a lot of separate different industries. We expect to see that matched throughout Europe just over time, right? It's not growing quite as fast as the U.S. yet, but we'll
When it becomes more of a focus for us, that will, you know, we will see a broad range of industries that are using the product.
No, that makes sense. Actually, maybe on the natural gas feedstock, like you said
your product is relatively sort of agnostic, but I think is it just ease of use now that most commercial applications have ready access to natural gas that's generally fairly affordable?
I mean, yeah, that's, that's why we're using it, right? That's, It's here. It's there. You know, it's, it's, it is overwhelmingly the most available product right now, and the most available fuel, and so that's why we're using it.
Okay.
You know, not only is it something that is available, but it's also relatively available in newer locations, right? So, there's no shortage of it, and it's fairly easy to get quickly. So that's why we're using it. Although, like I said, we do have some in the fields currently that are using biogas, and it's relatively easy to shift to hydrogen.
Okay. You know, I know we got a late start, but I think we've kind of
touched on most of my major points. I was just wondering, I just looked
there was no questions in the queue. But is there anything else that maybe, since we do have some time, anything that maybe I missed that you wanted to make sure we wanted to kind of get across?
No. I mean, just the base point, you know, which is we're really excited about the commercial opportunity. We are seeing a growing pipeline both in the U.S. as well as internationally. We do expect to see a lot of that growth occur in the U.S. because these projects are, and the time to power is so important right now for our customers. But we're excited, and we're hoping to prove that.
Great. I think, operator we'll cut it there, Michael, if you don't have any other points. I think again appreciate the time. I know it's a bit abbreviated, but I think it's a very interesting story, one I've followed for a number of years, and looking forward to continuing to hear about the progress at Bloom.
Okay. Thanks so much, Tom. Appreciate you having me.
Thank you.