Good afternoon, and welcome to the Bloom Energy Third Quarter 2019 Earnings Call. At this time, all participants are in a listen-only mode. Later we will conduct a question-and-answer session and instructions will follow at that time. [Operator Instructions] 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 afternoon, all, and thank you for joining us on Bloom Energy's third quarter 2019 earnings conference call. To supplement this conference call, we have file our Q3 2019 earnings release and shareholder letter 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 we identify important risk factors that could cause actual results to differ materially from those contained in the forward-looking statements. We assume no obligation to revise any forward-looking statements made on today's call. During this call, in our earnings release and in our Q3 2019 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 and are in addition to and are a substitute for GAAP financial measures. A reconciliation between GAAP and non-GAAP is included as part of our Q3 2019 shareholder letter. Joining me on the call today are KR Sridhar, Principal Co-founder and Chief Executive Officer; and Randy Furr, Chief Financial 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 Randy

Thanks, Mark. Throughout my prepared comments, I'll be referring to slides and the earnings call presentation that mark referenced earlier. I'm going to start with financial highlights for the quarter and then talk about our balance sheet. First some highlights, note that all profit numbers that I referenced will exclude stock-based compensation. So on to slide three. In summary, this was another very respectable quarter. Acceptances were 302 systems, up 47% from Q3 2018's 206 systems. Revenue was $233.5 million, up approximately 23% year-over-year. Non-GAAP gross margin come in at 25.8%, up 5% from Q3, 2018 and up 350 basis points sequentially. Our non-GAAP operating income was 15.2 million, with adjusted EBITDA coming in at $40.8 million. Adjusted EPS was $0.01 and we ended the quarter with $357.9 million in consolidated cash and short term investments which includes $23.8 million of PPA cash. So excluding the PPA cash, we have $334.1 million of cash and short term investments. Now onto some color for the quarter and on to slide four. The 302 acceptances and $233.5 million in revenue were both two three records for Bloom. Acceptances were up 46.6% year-over-year and ended up 11.4% sequentially. Revenue was up 22.8% year-over-year and essentially flat quarter-over-quarter. The mix of acceptances where we had low for virtually no installed revenue is what drove revenues being in the flat range on the acceptance volume growth. I will add more color to this in my ASP discussion. Included in Q3's mix of acceptances were both new and existing customers and in a wide range of verticals to include healthcare, data centers, pharmaceutical universities, utility scale projects, and food and beverage retail. In total, the 302 systems were spread over eight different end customers in four different geographic markets. The majority of the installations were in…

Good day to all of you from California. I started this company 19 years ago, because I was convinced that electricity is a basic human need that should be generated cleanly and delivered reliably and resiliently. And there were no solutions that could provide that combination to anyone let alone make it affordable and accessible to everyone. The extended Bloom family worked tirelessly for 17 years as a private company to make that dream a reality. And we have shown grid and resiliency to weather through the many hurdles we had to overcome. Today, 19 years later, the time has come when the consumers understand the need for reliable and resilient power and its impact on their overall safety. We are now willing to value it. Today, we have a product that is battle proven in the field and ready to scale to the next level with that no compromise solution that is unique and unmatched in the marketplace. Let me start with the recent events in our home state of California and how they relate to our business. Its mind boggling how much the energy landscape has changed since our last earnings call. We have witnessed how vulnerable our state electricity infrastructure is, and how unprepared we are as a society to cope with the consequences of climate change. This as we mark the tragic one year anniversary of the campfire in Paradise, California that took 85 lives. We express our deepest sympathies to our fellow citizens of California, who have suffered significant health, safety and economic hardships due to the fires, evacuations and repeat prolonged power outages. The public safety bar shut off has not been a satisfactory solution despite the massive shut off fire still started due to electric wires and spread quickly. Without power many people…

Changing the conversation to our outlook, in Q4 we expect acceptances to be between 355 and 385. ASPs to be between $5,920 and $6,220 per kilowatt, and our total installed system costs to be between $4,250 and $4,550 per kilowatt. Also, we expect operating expenses to be between $46 million and $49.5 million. To close today's prepared remarks, I wanted to announce that I will be retiring and transitioning over to my replacement over the next few months. I turned 65 last July, and after a 43 year plus professional career, with over 33 of those working here in the Silicon Valley, all in technology, I feel it is time. In my almost five years at Bloom Energy, I'm proud to have been part of a team that has advanced the ball significantly when it comes to the fuel cell industry from Q1 2015, which is roughly when I joined the Q3 of this year, our product costs on a per kilowatt basis has declined by over 62%, our quarterly gap revenues have grown by almost 270%, and we've moved from losses to profitability at the non-GAAP operating income level, very nice progress over this period. However, I believe this is just the early innings for Bloom. I firmly believe that the company has great opportunities ahead. I say this because next year, the next generation of the Bloom Energy server, which will initially have 50% more power output should begin commercial shipments, providing a platform for further cost reductions well into the future. The macro factors such as the Public Safety Power Shutoff events currently being experienced in California are heightening awareness and providing greater clarity for future demand. And finally, the strong case, that Bloom could be the lowest cost solution for 24/7, low to zero carbon based power. I only wish I was five years younger. So, thank you KR for the opportunity. I'd like to thank all of my fellow Bloom colleagues for their support over my 10 year. Once again, I'd like to thank all of you on the call today, and I will now turn back to KR before we take questions.

It is amazing how quickly five years have gone by. I vividly remember including Randy out of a nascent retirement and convincing him to join Blown and help take the company public. Our goal then was to take Bloom public in 2016. And Randy promised me a maximum of three years of service when he joined. Randy has done an amazing job of helping build this company over the last five years, including taking it public last year. He will stay with us and help with external search process that we have started and through the transition. Many of you will see him in person at the investment conferences he will be speaking at this month and next. I want to thank him for his service and wish him a wonderful and well deserved retirement. Randy, thank you from all of us at Bloom. In conclusion, let me summarize where I see the company going in the next three years. Thus far created four generations of product, each one, significantly better performing and lower cost than the previous generation. We are now cranking that flywheel for a fifth time with our Blown 7.5 platform, whose development is on track. And we successfully execute this product. We can deliver under $0.10 per kilowatt hour electricity that is reliable, resilient, clean, and that has low to zero carbon footprint. This combination is unique. No other products in the market can do what our Bloom service do. And for this reason, I'm extremely excited about our future. We will now move to Q&A.

[Operator Instructions] And your first question comes from the line of Michael Weinstein from Credit Suisse.

Hi, guys. Randy, congratulation, and you're going to be miss.

Thank you, Mike. Thank you for the time.

Yeah. Hey, could we provide an update perhaps on the 130 megawatt backlog as of the fourth quarter of 2018 that existed, especially as we near the year end now and heading -- you've got fourth quarter guidance out there now, so maybe we can talk about that.

Repeat that one more time Michael. Are you asking about our backlog?

Yeah. Maybe an update on the backlog, and also can you talk about how this, so my question is out right now. Talk about California, the shorter PPA product that you had mentioned launching where does that stand? And what's been the response so far in California to changes to your approach to sales there.

I’ll take the first one, the backlog. We're going to stick with the policy of just announcing backlog once a year we'll do it on the call. We’ll do it ahead of when we file the K. gain I want to stress orders come in very, very lumpy. We often see an example of the big box store where we're all at once. And that'll grow over a four or five quarters of shipments of just acceptances. So to keep in giving any false pretenses one way or the other, we're just going to stick with one annual disclosure of our backlog. We'll do that on the next call. With respect to our – as you refer to a shorter PPA I’ll let KR take that.

So. Hi, this is KR. So, I think you’re in asking the question on the shorter PPA and the market dynamics given what’s happening with BS. Is that the duplicate question?

Exactly.

Yeah. Okay. Great. So, look, when event like what has just happened, it's completely unprecedented. 2.5 million lost power, almost 6 million were affected by it one way or another. It changes the entire discussion of what's going on out here. And we're seeing that. Let me answer your question in two parts. Okay, one is the long term. And one is what does it mean immediately. If I just take it from the practical to the long term first and then bring you back, the fundamental thing that's shifted, that is for the immediate term, the mid-term, and the long-term is around people focusing on not just the cost of power, but the cost of not having power. And the other big tectonic shift you're seeing is, as you know, the regulated business for IO use. And the rate design is never valued resiliency. What you're hearing from the governor and other policymakers speak is they want to change that, and put a value for resiliency. And they do that, it's extremely good for Bloom. This is exactly what we have been saying should be done, because the product has to be valued for resiliency, for its reliability and safety is extremely important. So that's the long term picture that I want you to think about, as well as customers saying, we want to take our destiny in our own hands, we're seeing that. So how are we seeing that in a very tactical way, if you want to see that is whether it's our existing customers, or whether it's new prospects, you're seeing it significant inbound inquiry increase, roughly about five times what we have normally seen, since these events have started happening. And we think that our existing customers who typically have been grid parallel in some…

Got you. And one more question about the length of time that the servers you know, the lifetime they last at your papers, note that it goes from 1.9 years back in 2011. Now, currently at 4.7 years on average, where do you expect to see for generation 7.5?

It will be greater. It will be north of that without a question. How much north? I'm not going to speculate on that until we get to, until we get to having enough of the lifetime and enough data to be able to say that. So the 4.7 that we mentioned is for the servers that we shipped in 2015. And that's extremely important. Let me take a little bit of time to be able to walk you through that. If you look at the whitepaper at the technical note that we just referred to, it is 4.7 years for the units that we shipped in 2015 as a median age, why are we referring to that? You add 4.7 years to 2015. Roughly, most of those units should have seen their life by 2019, right now. Anything past that they're still in the field. So we're seeing, you don't have to trust our judgment. You don't have to rely on some third parties judgment, simply rely on field data. Equipment don't lie. This is -- equipment working in the field, we have the data. This is 4.7 years, we’re saying 2016 and onwards to expect even greater life incrementally as you go going to five years to 7.5. I would expect definitely for it to be greater than five years, but how much greater, stay tuned, we will tell you as soon as we have confidence in that number. And the other point I want to make here is even in the 2014, 2015 timeframe, we have predicted the median life to be what they are. The field has proven that we are correct. That shows credibility to our being able to say, why we can support a number, if these numbers are supported to extensive knowledge base, extensive field data of actual working items.

Okay. Thank you very much. I’ll see…

Thank you, Michael.

And your next question comes from the line of Stephen Byrd from Morgan Stanley.

Good afternoon.

Good afternoon, Stephen. How are you?

Good. Randy, congratulations on your retirement and thank you very much for all the help you provided…

Thank you, Stephen. Thanks for your time.

Really appreciate it. I wanted to build on Michael's question. Just in terms of the sales outlook broadly. You know, I guess since the last call, we've had as you eloquently walked through KR, series of shut down to power in California. You've had announcements in the California dairy industry, in the shipping industry. I think you mentioned some potential incremental opportunities in Korea. But I guess as I'm thinking about all those opportunities, and you mentioned this a little bit on Michael’s question just in terms of the time it takes to translate these types of dynamics into actual sales. There's a lot of attention in the investment rolled on 2020. And just in terms of that cycle of translating agreements or dynamics into actual incremental contracts, would you mind just touching on that a little more detail?

Yeah. So, Stephen, the way I see it is a following. When you flip a switch and electricity does not come in, that dynamic and that tailwind or that reality from every other headwind that was created that did not have that kind of an impact, because it is about the safety, the reliability of now and nobody can ignore that. And I can tell you these are real life situations. I, in my house did not have power for almost four days, okay. Our Chief Marketing Officer, who has a medical device did not have power in his house. So these are real things that happen and it touches one in six Californian from this period. What this means is? The sense of urgency with which our existing customers and our prospective customers are engaging with us. And the levels at which they're engaging with us, the C Suite, is something we have not seen before. It is new to us. So, as I see it, I would expect that the sales cycles become more shorter. Can I tell you how much shorter it can become? The answer is no, I don't know, right? It is still multi-million dollar investments, whether it is a power purchase agreement that they make, whether they're committing to that kind of numbers, or whether it is a lease or whether it's a capital purchase. So it will go through a process, but we expect this process to be fast. So think of a few months on the bookings. And think about our normal cycle of nine months to 12 months to convert that bookings to an acceptance. That's why I mentioned we will see those bookings happening and the impact of it. We expect it to be significant in 2020, early 2020, and we expect the results of that showing up in our P&L in 2021. Now, let me just say that this is not a California phenomena alone. I think the nor'easter. I think the winter and we saw that happen in the summer in the northeast. It is a global phenomenon that -- its the heat in India, it is the -- tremendous pollution that is making the government think very heavily about biomass conversion to biogas, thereby preventing people from burning the crop. So, this is a phenomena that I think we're going to see worldwide. It is it is definitely a sustained and strong tailwind in our back. I wish, I could tell you how quickly and how fast that numbers that it'll convert to. My hope was it's going to be a very good one, but I cannot give you numbers.

Make sense. Randy Furr, I just want to remind everyone that, as KR pointed out from the time of booking, it's 9 to 12 months for the time you're going to see the revenue as we refer to as acceptance. So what you're saying is, we think the sale cycle is definitely contracted and shorter. But it's still in 3 to 6 month kind of timeframe, maybe even 7 months. That's kind of put the bookings, call us in the first half of next year, which you'll probably see early and 2021. So I just want to re-emphasize that that point out there. There are exceptions for that, for example, our international business to where we don't do the installations, that's done by our partners whether it be India, in Japan, South Korea that happens, which means that, that order or booking to shipment is a lot less than that 9 to 12 months. It can theoretically even occur in the same quarter, but usually occurs one quarter and the shipment acceptance is in the next. So there could be -- I know we gave guidance on our last call for year over year growth being -- flat range, but the point being is that, there could be upside to that depending upon the international orders that come in next year. So I'll leave it at that.

That's really helpful color. Thank you. And just on the shipping contract or agreement that you've reached I guess, on the positive side, even a small number of shifts from a megawatt point of view, can very quickly be a pretty big needle mover for bloom. I guess I'm thinking though, about the timeframe required to secure orders in the shipping industry. Just give relatively long lead time to actually construct one of these ships, and would you mind just talking briefly in terms of sort of the life cycle of that dream and in particular, but I think just too specific that anyone project is more just about the sort of the time over which you would be able to sign up agreements there relative to the time required to manufacture a ship and just sort of where we stand with that?

So this is the best of our understanding from the ship under Samsung. And you know, as well as others that we have spoken tom the demand for wanting ships that are lot smaller in carbon footprint, is extremely high from the end users opposite to buyers of the ships, and they're seeing this internationally, why? The reason is, the UN International Maritime Organization that controls and put standards on these things, has put a extremely stringent requirement on carbon footprint on these ships that has to be -- that has to happen in a very short time period. And we have talked about this in our press release on this particular topic for those of you that want to read up more that, that's a requirement. And most ship operators believe that this is a number they have to meet because unlike local installations and facilities, the ships have to travel globally. And they have to be in multiple floors and any country insisting on it, it’s going to set the standard, so to speak. So they're all moving very quickly towards. So, what we understand from TransAuto is there is a significant demand, as soon as they have a product ready. So what is happening now is they have already passed the first step with the regulators, are saying conceptually this design as they have conceived with Bloom is something that can go to the next stage of development. We are doing the -- we're doing the development, the whole development and certification.

I would imagine given the two year timeframe, so to answer your question, Stephen, it's a two years out demand as opposed to something that's going to happen next year in terms of actual acceptances and being able to shift, but it's an enormous market. And it's a unique market for us in terms of being able to capitalize with very few other good alternative options that a shipbuilder would have.

Very good. Thank you very much.

Ladies and gentlemen, and your last question for today's call comes from the line of Pavel Molchanov from Raymond James.

Thanks for taking the question. Another one if I may, on the Samsung agreement. So this is your first kind of entry into the transportation sector. Are you looking at other options or other end markets beyond distributed generation?

The answer is yes. And the answer is yes in a following way. Just think about what happened with distributed computing. The event from mainframe computers to distributed computing, but the mainframe computers are not that they're called Cloud computing. And these are large mainframe computers, except they're not built as one single monolith. They've built with thousands of distributed servers can act together. If you think about Korea Power Tower, it is nothing but a whole bunch of bloom distributed generation stacked together both horizontally and vertically to build a huge structure that gives you very good density, to give you an idea of what this means, in a one acre space, we can do hundred megawatts if it is 50 feet tall. That's an amazing power density. And the beauty is around that one acre. You don't need any easement space because there is no noise, vibration, pollution smokestacks. So we believe that there is going to be a transition even for places that need significant amount of concentrated power like micro power plants, mini power plants, MIDI power plants, you will build them as these hundred megawatt monoliths, and if you want a gigawatt, you'll have 10 of them. Because the beauty is, unlike a monolithic power plant, you don't have to take down an entire power plant to service, it's availability will be high, and our efficiencies will be significantly higher, and we are -- as we continue with this flywheel that I talked about of our cost reduction going to get to a point, that building a large power plant using these servers this way will be cheaper than building a large scale power plant. So we will come full cycle extremely similar to what the computer industry did. So that's, that's where I see us going in the future. In addition to serving the distributed needs, so we will be both on your desktop as well as in the cloud the same thing, we will be next year building and we will be in the central power plants.

Okay, let me ask one more question about the ITC in the solar industry. We're watching demand pulling because of course the tax credit stepped down in 2020 and again in 2021. Given that we have the same dynamic with fuel cells, I am curious if that may accelerate some of your bookings –either I, you know, either by the end of this year or next year?

Well, you know, clearly the ITC is an incentive for the end customer. And yet, having a sunset will create a similar dynamic in the marketplace, as its creating elsewhere. So we would expect the same thing. And we as a company are prepared for the Safe Harbor in construction models that, you know, solar and wind industry is planning. We are planning for something similar on our side to. So that's a good question.

And we're leveraging that obviously with our customer base to point out that there is a savings on a…

Book sooner rather than later.

Exactly. Thank you.

Thank you.

Ladies and gentlemen, this concludes today's call. You may now disconnect.