Good afternoon, and welcome to the Bloom Energy Fourth Quarter 2018 Earnings Call. At this time, all participants are in 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. Good morning, all and thank you for joining us on Bloom Energy’s fourth quarter 2018 earnings conference call. To supplement this conference call, we have posted to our Investor Relations website, our Q3 2018 shareholder letter, as well as some supplemental financial information that we will periodically reference throughout this call. Please note that this call contains forward-looking information regarding future events in the future financial performance of the company. We caution you that such statements are predictions based on management’s current expectations and beliefs. Actual results may differ materially as a result of risks and uncertainties that pertained to our business. We refer you to the Company’s SEC filings, including the Company’s quarterly report on Form 10-Q for the fiscal quarter ended September 30, 2018. These documents discuss important factors that could cause actual results to differ materially from those contained in the Company’s projections are forward looking statements. We assume no obligation to revise any forward-looking statements made on today’s call. During this call and our Q4 2018 shareholder letter, we refer to GAAP and non-GAAP financial measures. These non-GAAP financial measures are not prepared in accordance with generally accepted accounting principles, a reconciliation between GAAP and non-GAAP is included as part of our Q4, 2018 shareholder letter. Joining me on the call today are KR Sridhar, Principal Co-Founder and Chief Executive Officer for Bloom; Randy Furr, our Chief Financial Officer and Matt Ross, Chief Marketing Officer. KR and Randy will review the operating and financial highlights of the quarter and then we will take questions. I will now turn the call over to KR.

Hello, this is KR. And good afternoon to all of you and welcome to our Q4, 2018 conference call. I am very excited to share with you my perspective on our Q4 and FY2018 results capping our first fiscal year as a public company. As we enter 2019, we have a strong foundation and the fundamentals of our business. One, strong and increasingly diversified sales backlog reflecting the mainstream appeal of our offering. Two, continued cost reduction. And three, a unique, innovative and proven technology platform in the Bloom Energy server. As you know, we provide three key benefits that our customers highly value today. One, lower cost to power. Two, lower emissions; and three, higher resiliency including the option for uninterruptible always-on power. It is clear that this value proposition is relevant and important to an expanding customer base. I'll focus on four key areas with you today. Growth, quality and diversification of our backlog, cost reduction and outlook for 2019. Let's start with growth. We grew 2018 acceptances by 30% or 187 systems in comparison to 2017. In 2018, we had 809 acceptances compared to 622 in 2017. In Q4, 2018, we grew acceptances by 28% or 56 systems over Q4, 2017. We had a record 257 acceptances in Q4, 2018 compared to 201 for Q4, 2017. We are very happy with this growth. And we look ahead to 2019; key metrics to consider are the product and install backlog volume and quality of that backlog. I am pleased to tell you that we exited 2018 with a strong product and install backlog of 1,384 systems, 70% higher volume than our actual customer acceptances in 2018. Based on this product and install backlog, plus anticipated bookings that we expect will convert to acceptances this year; we expect to…

Thanks KR. Throughout my prepared remarks; I’ll be referring to the slides in the earnings call presentation that Mark referred to earlier. First, some highlights. Note that all profit numbers that I reference will exclude stock-based compensation onto Slide 3. In summary, a very respectable quarter, acceptances were 257 systems; record revenue was $213.6 million, up sequentially by 12.3%. Non-GAAP gross margin came in at 18.1%. Our non-GAAP operating income was $4.7 million with adjusted EBITDA coming in at $14 million. Adjusted EPS was a loss of $0.12. Year end product and install backlog rose almost 17% to 13,084 systems with an approximate dollar value of $773 million. And this backlog excludes any long-term service agreements as we recognized those billings as occurred on an annual basis and it excludes future electricity revenue as well. As a reminder, service and electricity revenue in 2018 totaled $138 million. And we ended the quarter with $348 million in cash in short term investments and this excludes $36.4 million of PPA cash. In addition given the December quarter was the fourth quarter of our fiscal year, I want to share some annual highlights as well. Acceptances were 809 systems, a record as well and up 30% from 2017's 622 systems. Revenue totaled $742 million for the year and this includes the one time top line benefit of $45.5 million related to the Federal ITC reinstatement as this was for 2017 ITC benefit that was received in Q1 of 2018. Backing out that one time benefit, the actual 2018 revenue was $697 million, a number that was up significantly from 2017's $376 million where we did not have the Federal ITC benefit. Non-GAAP gross margin came in at 21.4%, non-GAAP operating income was $26.4 million and adjusted EBITDA was $66.9 million. During our call…

[Operator Instructions] And your first question comes from Paul Coster with JP Morgan. Your line is open.

Yes. Thank you very much for taking my questions. I've got two. You talked about higher margins on the South Korean product in the second half of the year. Can you just elaborate a little bit on why the ASPs margins are going to improve?

Yes, Paul. Good question. Look it's fairly simple we have an agreement; we know what are ASP is, that's not going to fluctuate and we also have through our detailed budgeting process a pretty good idea of where our product costs is going to be later in the year. And it's the simple difference between those two that gives us to where we are comfortable with, that's going to be in the communicated targeted margin range that we have before. And why is cost coming down to enable us to reach that has a lot to do with just our continued cost efforts down and the increased volume we are going to have that's spread over a larger-- our fixed cost spread over larger volumes that's going to give us that cost point that will let us achieve that targeted margin.

Okay, got it. I have got a lot of other questions, but I will confine myself to one other, and that is no real commentary around the installation timelines and delays or anything about nature. It suggests to me that maybe you are starting to get on top of that part of your business challenge. Can you just tell us we're doing in terms of sort of delivering in a timely manner and eliminating some of the variables that were affecting the acceptances domestically?

Paul, that's a fine question, this is KR. And yes, there was a lot of speculation about given what we have done earlier whether in Q4 we will meet our acceptance target, and what was going on especially in California and how that would impact us. You can see from the numbers that we put in a strategy and we have added both in terms of leadership, as well as other important skill sets to that area and made installation timeline a key area of focus for the company. And we are beginning to see the results, and stay tuned before the next earnings call we may give you some news and color on the additional leadership that we have brought on to Bloom to help in this area and you will see that that's it already paying very good dividend. And Randy, do you want to add?

I would just add that we are trying to be conservative in our forecast and in our outlook going forward in that that's kind of reflected in that Q1 outlook as well.

Your next question comes from Pavel Molchanov with Raymond James. Sir, your line is open.

Thanks for taking the question guys. I know you're not explicitly guiding on TISC, but in Q1 on you are indicating an uptick in that cost from Q4 levels. Is it fair to say that once the startup issues in Korea subside, the downward trend in your TISC should resume?

Yes. And I want to slightly worded though -- you had a very good point and you're on target and I want to slightly word it little bit different. It's not that that we have any startup issues in Korea, it's just that there is-- obviously, any time you enter a new market there is expenses associated with that. There is -- as we all know Bloom has come up and invented the concept of the power tower in Korea. And obviously, we have large numbers systems in Korea today in the Korean electric pole standards are different than, say, the US standards and make sure all of our products conform to those specifications and standards. There's some expense associated with that and we are experiencing some of that expense, but things are progressing and moving very, very well in Korea. And we are very proud of those installations over there, but you are right, there are some incremental expenses that were seen showing up in our cost of goods sold which has been reflected in TISC here that you will not see later in the year.

And the key point that Randy made is again, I want to emphasize on, it's not an issue, it's a real non-recurring expense in terms of a starting up in a new area is how you should categorize that. And the reasons, if you are looking for a data point to give you the confidence on there are no issues. You have to think about this, December of 2017 is when we had a purchase order due to do 8.3 megawatt power tower. And by fall of the following year and in less than nine months, we had the system up and by the end of the quarter, we got certification and we were having that one tower upgrading, one of a kind the very first time and so there are no issues, but there is start-up costs associated with it.

Okay. And one more regarding Korea, if I may, so to clarify the distributorship that you announced today with SK D&D that's a separate agreement versus another division of SK group that you had announced last year, is that right?

That is absolutely correct. So our first agreement that we announced was with SK E&C and they do utility scale projects, they do a very large projects for large corporations and things of that nature. SK D&D is an independent separate business unit still within the same conglomerate and SK D&D focuses on real estates and large building in Korea, where they are the leader today in on-site energy management and storage solutions, as well as solar solutions. And they are super excited to bring a base load to that mix thereby they can offer what will be truly microgrid solutions to a customer that they can have always-on power in addition to benefiting from the lower carbon footprint. So this would be whatever opportunities come from this particular partnership will be additive to what we have already signed on the utilities scale with SK E&C. So you can see why we are super excited about Korea as a market.

Your next question comes from Stephen Byrd with Morgan Stanley. Your line is open.

Hi, good afternoon. I wanted to look at the first quarter guidance and I believe the majority of the sales will be in Korea, and so I guess from a positive point of view that to me it seems to highlight potentially less execution risks in terms of other projects, but I wondered if you could just talk at a high level in terms of the kind of execution risks to achieve on the balance. I guess when you ship internationally, you are able to book those sales, but what is the degree of execution risk in your first quarter? And I know you have been asked in a variety of way just to think about execution risk. What kinds of challenges would you have if weather is not optimal or other kinds of risk? How should we think about sort of execution risk for the first quarter?

Yes, again great question, and I am going to give a kind of little bit of an answer here, so bear with a second, so, as we sometimes talk about -- the great thing about Bloom is we have great technology, we have great manufacturing capabilities, great quality and really the lead time from the time we get an order to the time that we recognize revenue and most of the US C&I business is very little time to manufacture the product and actually deliver them to the site and get them up and working and turned over. Two thirds of the times are this 9 to 12 months timeframe that we take really centers around the design, all the field work we need to do prior to that design and during the design, all the customer, landlord, utility, government approvals for the building permit and all of that stuff usually takes 6 to 9 months to accomplish. We-- and in all of our installations, each side we have a detailed project schedule and we go into that knowing a date. So 100% of our backlog today has a date out there that we think we are going to get an acceptance because we do that plan. But clearly we deal with so many third parties that there is risk in that and we've highlighted the risk, I think, the last quarter to deal with the hurricanes or the natural disasters, the wildfires, how utility crews are pulled off and sent to regions. And these are the guys that maybe come out and do the tie-ins and do the inspections. And it is just plays havoc with the calendars, right and so we have those issues. We don't want to miss our quarters that are obvious, none of us wanted…

So, Stephen, let me add to what Randy said. He covered most of the points and in my opening remarks and I made that comment of the importance of diversity geographically. A key underlying statement that I should have made probably and I will make it now, is when you look at it from an installation perspective particularly. Okay, and what do I mean by this is take Q1 as an example. I want you to how as we grow and become open up new markets, our reliance on California in terms of the total acceptance has been diminishing all the way from 100% to less than 30% this year. Now that's a good thing. But also understand the other six states that we operate are in the Northeast and the East Coast as we look at January, if January is any indication, we don’t know what the Groundhog is going to do whether February and March are going to be same as January or not. So we have two choices here. We can go to the international market and fulfill this or we can pay enormously large expedited charges to catch up for any weather related issues, and still try to make our quarter on the East Coast regions. As long as our customer is willing to wait, there's no reason to go to those additional expenses which you leads into the margins and you can swap things out back and forth. So having the flexibility of geography multiple zones is really helpful. And I think to Paul's question we answer another question. We are doing two things simultaneously. One is trying to be really, really good even in the face of contingency of managing all these risks, making our execution really good within our installation group by adding skill sets, adding to the leadership doing all that. In addition to that when we have optionality like what we have of international versus East Coast versus like West Coast. The combination of all these things is what ultimately will allow us to execute because the uncertainties of a forest fire or a somebody behind a desk in a city government in the last minute denying your permit or a utility person not showing up to give you a connection is something we cannot eliminate by using these strategies, we can still deliver on what we need to do and that's what we're focused on. And we demonstrated that in Q4, since you asked the forest fires did not hinder us from meeting the numbers, we put out for you in Q4. We're hoping to do the same thing in Q1.

It's extremely helpful color. Thank you very much. And then my next question is fairly high level just beyond Korea where you've had a very clear success. Would you mind just talking a little bit more internationally at where you're seeing the opportunity? Obviously, you don't need to be too specific, but I'm just interested in what kind of international opportunities you're seeing. What are you most excited about over time not necessarily on any particular quarter but just at a high level? What are you most [Technical Difficulty]

Steven, Matt is in the room and he is for --those of you on the call, Matt Ross is our Chief Marketing Officer and I'll have him this question.

Thanks KR and hi, Stephen. So keep in mind I think we made the statement earlier about a very low investment in sales and marketing. So we pick our shots and we're very careful about doing that. We don't have the coverage to go broad. So we pick our shots very carefully as you can see that Korea after being in that market for one year is already scaling very rapidly. Another market that we see some real potential in were 2019 is Japan. And that's because of the development of the power tower that gives us a very effective energy dense platform for deploying in Japan. It opens up some of the --kinds of opportunities that we've seen grow very rapidly in the United States, for example, edge data centers that are in dense urban areas. We can do that with the power tower now so the economics for Japan are looking pretty favourable this year. Taking into account our general costs down as well. And other area is India, where we are working on biogas projects. We think those will be small initially in scale, but they're strategically very important. So we see an opportunity in India, probably not very large numbers in the next couple of quarters but strategically again, very important. So those are a couple of examples, there are one or two European markets that we're looking at very carefully and so hope that gives you some perspective.

Your next question comes from Tahira Afzal with KeyBanc. Your line is open.

Hi, team. Nice to see you back on track. Congratulations on installed. So KR first question for you. If you see a year back from now and you see where your backlog is right now, where does it surprise you in terms of where the orders have come in from?

So we're extremely happy with the diversity that we have both geographically, as well as strong and various sectors and so been very -- what we're excited about without getting into the details, Tahira, is that we have newer opportunities that we did not have before. So these are new avenues that we can explore. But equally thrilling for us is the three sectors we have talked to you in the past, which are edge data centers, healthcare and retail. They continue to be very strong for us and we expect that to grow. And I think you heard the comments from Matt, there is an opportunity here for us to make a big difference in the data centers, not just in the U.S. but because of the power tower maybe in Japan which could potentially be a very large opportunity. But when I look back at our backlog, very strong in the areas that we've been traditionally strong, added to that is the geographic diversity and on top of that, you add some new areas we are super excited about growing it.

Your next question comes from the line of Michael Weinstein with Credit Suisse. Your line is open.

Hi, guys. When you look at the backlog that would have exist, or it did exist back in the fourth quarter 2017, at the end of 2017, and that converting to 809 acceptances this year or last year. What does it -- what can we infer about acceptances for 2019 versus the backlog that you now have of 1,400?

Yes, hi, you look, Mike, that's a great question. So there's clearly some backlog that we have that we exited 2018 that will end up being early 2020 kind of revenue. But as we look through part of what was in the 809 and part of what we expect in 2019, there are additional incremental bookings that will come in Q1 and even later in the year that will end up being revenue that we will achieve in 2019. A great example our Korean orders for which usually they come in one quarter and or ship the next quarter and recognized as revenue is an example. And we have pretty good visibility on what's going on in Korea for 2019. So I think to walk away from that as we kind of said in our prepared remarks, our backlog is 70% north of what we had in our acceptances in 2018. We're getting as we pointed out, a little bit better at our execution on the U.S. C&I, and we have the international where we don't do the install .It's not just Korea also for Japan regions as well. So we think it bodes well, we're not providing guidance for the full year, but as we did say in the remarks by the second half of the year, we certainly think we'll be in that 25% to 30% revenue year-over-year growth range and even expecting some contraction year-over-year in ASPs. We think that backlog bodes well for us to be able to achieve. Something approaching our longer term 30% revenue growth rates.

So I think I think in summary, Randy saying based on our exiting backlog, and what we expect to be booked is the basis on which we expect our second half growth to be the numbers that we gave you and we feel very good about where we're sitting right now.

Next question comes from a line of Colin Rusch with Oppenheimer. Your line is open.

Thanks so much, guys. Can I ask -- can you talk a little bit about how bigger percentage of the backlog and the 2019 unit acceptances is? You're expecting to come from Korea?

Want to make sure I understand the question.

Yes, I just want understand how much of the backlog do you have is from the Korean customers and how much of the growth and the total acceptances you expecting in 2019 are coming from overseas. And then I have a follow up.

So look, the Korean backlog that we have today; I don't have that number in front of me.

That what it is today which is

Given an approximate.

It's a high single digit number.

High single digit that we have in backlog today as a percent.

But understand based on what Randy said, the Korean backlog comes in and out with the pretty short shelf life. So then don't take that number as indicative of what the business will be.

Yes. And then I guess the clarifying question which I think is related here is how much of the acceptances you're expecting to have in 2019 with the unit growth are you expecting from Korea?

We think our Korean revenue in 2019 will be north of 25%, maybe approaching 30% of 2019's total revenue.

Okay, that's super helpful. And then I just want to make sure I understand the shipment terms really clearly. So you recognize revenue when the unit to get to the port and in California. And then the payment terms are 60 days after they arrive in Korea, is that correct? I just want to make sure that we understand the working capital means accurately.

Well, slightly changed from that. As you know, we build our units in Delaware, so we don't ship them across the country. We're getting close to Delaware. And yes, once the title transfers, once they're at the port and put on a show, and yes-- go ahead Matt.

Yes. I was just kind of jump in, just because I live this everyday. So our terms for acceptance last year were departure from U.S. port. In 2019, it's arrival at Korean port, simple as that. End of Q&A

I apologize. But we've run out of time. I will now turn the call back over to the presenters.

Yes. We want to thank you for the time and appreciate your support for Bloom. And we look forward to talking to you throughout the quarter on the next call. Thank you.

And I would like to add to what Randy said and say that look, our solution are always- on -for low carbon footprint is more important than ever and not just in the U.S. It's implied everywhere else. I'm super excited and more and more customers, we are taking to be mainstream in more and more sectors. And we look forward to growing this company with you. And we are constantly making sure that while we are meeting our short -term goals to get focused on building a great company and doing the right things to build the great company. Thank you.

This concludes today's conference call. You may now disconnect.