Good afternoon, and welcome to the Bloom Energy Second Quarter 2020 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. 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. We appreciate you joining us on Bloom Energy’s second quarter 2020 earnings conference call. To supplement this conference call, we have filed our Q2 2020 shareholder letter and earnings release with the SEC and have posted it along with supplemental financial 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, demand for our Energy server in new applications, timing of new applications and the supporting market ecosystem and outlook. We assume no obligation to revise any forward-looking statements made on today's call. During this call and in our Q2 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 Q2 2020 shareholder letter. Joining me on the call today are K. R. Sridhar, Principal Co-Founder and Chief Executive Officer; and Greg Cameron, Bloom's Chief Financial Officer. K.R. 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 K.R.

Good day and thank you for joining us. I’ll talk about our business performance and strategy, and then turn it over to Greg to walk through our financial performance, followed by Q&A. When we last spoke on our first quarter earnings call, we were in the early stages of the COVID-19 pandemic, and we're uncertain about the length of the lockdown, the stress our public health system would face, the effect on our economy and the implications for our business. Fast forward one quarter, and COVID-19 remains a significant public health crisis in the U.S. and the rest of the world. This is a fluid, challenging and uncertain time for all of us. We send our prayers to people at home and around the world, who have been affected by COVID-19. We can weigh our gratitude to the frontline workers, who are working tirelessly to serve all of us. In times like this, all businesses and all of their employees are being tested. Bloom Energy is no different. I'm exceptionally proud of how the Bloom Energy team is rising up to the challenge. The team has demonstrated grit, saliency, resourcefulness and a deep commitment to excellence. At the height of the crisis, Bloom refurbished and supplied over 1,200 ventilators and rapidly deployed two hospital microgrids. We implemented new COVID-19 workflows and protocols at our factories and installation sites, prioritizing the safety of our employees. Over the last few months, our engineering team developed an affordable and innovative splitter that can service as four patients with one ventilator and obtained FDA approval for it. Our goal is to provide it at cost to the people in places that need it. We think it could be a lifesaving innovation for the emerging nations, where COVID-19 is on the rise. Our community response…

Thanks, K.R. It's great to have completed my first quarter at Bloom. When I began my next chapter with this team, I knew they had something very special, but as I've engaged with the operations and learn more about the products platform capability, I'm even more excited about the opportunities for this company and its impact on our world. Based upon the products design, it can serve as a platform from which to evolve into different applications with limited R&D or manufacturing investment. The core product or platform is essentially the same in each of these applications, but of course will be optimized to the specific purpose. This has significant implications for our operating and financial model as we address each of these new markets and applications. This is a key element to my confidence that Bloom will continue to grow through new applications in new or expanded markets. My role is to provide the operating cadence, transparency in funding to ensure we execute the playbook. With that said, let me turn to the financials. For your reference, we’ve provided a summary of key financials, along with a summary of P&L and balance sheet. I do not plan to walk through each slide, but I do want to emphasize some of our key deliverables and provide context for our strong second quarter performance. Given the operating environment, evaluating our results versus prior quarter is more relevant comparison and we've made progress on nearly every metric. I'd also note comparisons versus prior year are less relevant as we've benefited from a PPA upgrade that did not repeat this year. Revenue for the second quarter was $187.9 million up 19% from prior quarter on an equal increase on the number of acceptances. On gross margin, we continue to make progress. We delivered…

[Operator Instructions] Your first question comes from Michael Weinstein with Credit Suisse. Please go ahead.

Hi, good afternoon guys.

How are you, Michael?

Hey, good. Can you talk a little bit about the product – the expense ramp, the city – the expense ramp you are planning going into next year, where do you stand now? Where do you think you'll be next year?

Yes. Michael, let me take that. I think on the product costs, we talked about it in the script of it being 30% down over the last two years as we've really worked on our current technology. In fact that is accelerating, I'd say over the period 2018 and 2019 we were down 13% quarter-over-quarter and 19% last year to this year and we continue to see that. It goes from both sequentially into this year as well. I think what you're going to see is a continued decline around that same pace every quarter about the same level as we go through. We'll introduce 7.5, but it won't be a step function as we bring it in. As we ramp that product out, we continue to get to those same types of levels, the 15% to 20% that we've seen over the last couple of years.

I mean, do you think with 7.5 you'll achieve a 33% reduction that would be commensurate with a 50% increase in power density?

Yes, it will. It will come in over time, right. And that's where it's important as you introduce the new technology and bring that in, you have all the learnings that you get from your supply chain, you have the learnings that you get from your manufacturing process. So we plan to introduce that ramp in a way in which we'll get the levels of saving that you've seen over the last couple of years. So I wouldn't expect a step function at all and that's what I mean by trajectory as we go forward, you'll see that similar movement over the next few years. As we look out forward, we see that curve continuing to bend as we continue to take costs out of 7.5 as well.

So along those same lines of thinking, you’ve announced a lot of opportunities in Korea over the last couple of weeks, and I'm wondering is that – do you think those opportunities might cause you to focus more on Gen 5.0 improvements and rather than Gen 7.5 developments as you go forward.

Michael, this is K.R. For us it is a NAND and not an OR, we will do both. As you have seen the beauty of our platform is it gives us the ability to introduce a new platform – a new generation of that platform that went from 2.5 to 5.0, there the 2.5 costs were coming down, the 5.0 got introduced with a option – with a great opportunity to bring down costs and what you saw is we ramped it up quarter-by-quarter to a sustainable level and they've got the full ramp. We saw the benefits of it while 2.5 was continuing to fill the gap and the cost of 2.5 was coming down. Now it is that same approach that we are going to bring to the layers that we put on top of the platform. The marine is a layer and the hydrogen electrolyzer is a layer, the hydrogen fuel cell is a layer, when we do these things we are confident that working with our partners, we have an opportunity to actually do these things in a capital efficient, resource efficient way, working with them and being able to do all these things without having to de-prioritize something.

Got it. A lot of opportunities to try and pursue. So anyway thank you very much. I'll get back in the queue. Thank you.

Yes, it's all about focus and it's all about looking at each program and staffing and trying it. And that's why Greg talked about making sure that we have the right partners who can open up real markets for us that we believe in, and we can go and execute to them.

Your next question comes from Stephen Byrd with Morgan Stanley. Please go ahead.

Hi, good afternoon.

Thanks Stephen.

Just wanted to wish Matt Ross well, hope he is well and hope his health continues to be okay, certainly thinking about him. Wanted to just cover a couple of things around the pipeline of new sales. I guess in terms of – on the positive side, with respect to existing customers are you seeing any sort of increases in share with existing customers and then just on the risk side are you seeing any cancellations in the pipeline as you go-through this process of sales?

So on the – we don't comment on intra-year bookings and we are going to keep it that way, but here is what we can share with you is that on our backlog that we have told you and what we have showed you, there are no cancellation, there is no customer telling us that they don't want to receive our systems. In fact, in a few cases we have seen a request of can we do something earlier rather than later. Greg, you want to add anything else to that?

No, I think as we've gone through and look at it. It's where we look at the quality of our pipeline and we look at the quality of our backlog. We obviously don't publish that every quarter because there's some volatility to that, but I do want to emphasize, yes specifically about customers, delays, projects canceled, all those things. I would say none of that we've experienced at all if anything we've had a general pull from customers to continue to get our systems to their sites, because it gives them the resiliency that they need as well as the cost savings.

Understood. And in terms of just I guess shifting over to the Korean market, obviously there’s a very large market for hydrogen fuel cells. Could you talk a little bit about the timeline over which you would transition away from your methane-based fuel cells over to hydrogen-based fuel cells? Is that something that given a policy in the nation that you’re going to need to do fairly quickly, or do you see sort of a long glide path ahead of methane-based fuel cell sales? Over what timeframe roughly should we sort of think about that transition to hydrogen for your product sales?

Stephen, that’s a wonderful question. And the beauty of the Bloom platform is then we designed it, and I think this is going back to our early founding documents. We wanted to make our platform and our technology fuel agnostic. Whether either natural gas or hydrogen, our systems are going to be able to operate and not just operate, operate best in class with either of those fuels. So – and the beauty of our platform is we are future proofing our customer. When they buy a product from us today for natural gas, should hydrogen become available to them? It’s a fairly easy swap for them to switch to that fuel. And remember our hot boxes, typically today, lasts about five years. Every five years, you have this opportunity and even in between, you can go and make that change if you need to. So from our perspective, the beauty and the strength of the Bloom platform is we can develop both and we can put both out in the market and we can prove it out, and we can be the best-in-class invest in value. When fuels come into the market and how they play, is going to be dictated by policy, by geography, by nations, by what they want to do. We don’t control that. To some extent as a citizen of the world, we would like to see the hydrogen economy comes sooner rather than later, because it’s better for the planet, but we don’t control it. But we don’t need to control it because we are future proofing ourselves, as well as our customers, by the architecture that we have chosen.

Understood. And just to maybe follow-up on that and I’ll get back in the queue. Is there a possibility of sort of a smooth transition in terms of that that shifting Korea towards hydrogen? Or do you see a period where you’re going to need to replace a lot of the stacks, a lot of the hot box sort of replacements? Broadly speaking, is it possible to kind of allow for that smooth transition or do you see a sharper transition?

I think it’s going to be a smooth transition, and that ramp is going to last for a long period of time simply given the size of this market, simply given the physical amount of megawatts that you’re talking about around the world, not just for us, but for anybody else to be able to transition from the natural gas economy to the hydrogen economy. It is going to be a gradual ramp that’s going to happen, but again, here’s where I can emphasize what we do. Our manufacturing lines, our supply chain, they all have the same common element, the same operator who knows how to put together the natural gas fuel cells knows how to put together the hydrogen fuel cells. The same machines that build the natural gas fuel cells build the hydrogen fuel cells. The same install people do that, the same kind of monitoring we do. So from our perspective, if you told us to wake up tomorrow morning and switch everything, once we have this commercial unit done, we should be able to switch. And that is the beauty of what we bring to the table, right? And once our hydrogen product is commercialized, and we have given you that timeline, we can on the fly. And my vision, and I’ll paint this for you, the best in class automotive factories when they came out in Japan on an assembly line, simply did not have to change lines, you could have an ambulance, a fire truck, a off-roader, a sedan, and a roadster, all following one after another in an assembly line, and you can just do them without stopping the line. For us, whether it’s a hydrogen fuel cell or a natural gas fuel cell, our assembly lines can just crank them out. And it just depends on when the market wants it. We would like to see the market wants it sooner, but that depends on how soon the nation and the countries embraces hydrogen.

That’s really helpful. Thank you so much.

Your next question comes from Paul Coster with JPMorgan. Please go ahead.

Yes. Hi, this is Mark Strouse on for Paul. Thanks for taking our questions. Just wanted to kind of follow-up on some earlier questions. Can you kind of summarize the timeline for both the marine and the hydrogen business? As far as – how long it’s going to take to reach commercial production, just the start of that? And then once you get to that point, how long does that take before you can fully ramp to achieve some of the numbers that you talked about in the script?

Great question, again. Thank you. And so I’ll address one by one. There are three elements to this. Pardon me, I have to answer each one separately, which is first one is marine, the second one is hydrogen as an electrolyzer, and the third one is hydrogen as a fuel cell. So I’ll address all three. With respect to the marine, what we have announced is we’ve formed the – we have a joint development agreement now with Samsung Heavy Industries. We have formed a team and the two companies have resource it such that in the next two years, we will do all the validation testing and all the packaging necessary because our fuel cells for the first time will go from a stationary application, where it’s on the ground, to a mobile application on a ship. So there are changes that have to be made for that on the external. Nothing on the internal platform, same exact internal platform, adjusted for packaging to be able to deal with a mobile platform. Number two is similar to cars getting a rating from the federal transportation authority, and every part that you have getting at UL rating, ships have their own certifying agency. It has to go through a certification. So this is the activity that’ll go on for two years. And in 2022, we hope – the two companies hope to go, have this all completed and present a sales proposal to the off-takers of ships, to the buyers of ships. Samsung predicts based on their past history within two years from then the first ship using that technology they’ll be out at sea and they predict in commercial production. We should at least have 300 megawatts a year annually based on their market analysis. So that’s the shipping…

Yes. No, that was extremely helpful. Thank you, K.R. And just a quick follow up. So it doesn’t sound like there’s a lot of investment needed on the hydrogen side, but maybe more so on the Marine side. How do we think about the investments near-term to get those to production? And then longer term, any reason why those two or three businesses would be, have a different margin profile than your core business?

Look, when we evaluate market – when we evaluate markets and businesses, the way we think about it is, number one, instead of partner who really understands that market and really knows where that market is going and see a real competitive advantage to putting this in into that product and getting the competitive advantage. And ultimately, is there a willingness to pay by the – pay for the advantage by the customer, which is when you command margin. In our opinion, we think in these things that we have announced, based on all the diligence we have done with these amazing global partners, in one case, Samsung and the other case SK, that is there. So we shouldn’t in any way expect why we shouldn’t be able to command the margins that we expect to command, given that these large multinationals have looked around the world and sought us out because we have a unique platform and technology that nobody else has, okay? That’s number one. Number two question that you asked was on our spending. And again, I have to emphasize for all these three applications I talked about, the same factory setups, the same kind of equipment, the same kind of operators and training, it is in the balance of plant and the packaging, which is the external mechanical and how you absorb shock or vibration or tilt, these are the things that you have to add on features. A pretty significant portion of that will be handled by our corporate partners who are going to integrate our platform into the ship, but we will be working closely with them. So we expect, relatively speaking, the capital investment related to these things to be fairly light on our side, that’s what we expect, but we do expect a certain expense. But I think the key takeaway for you is our early investors and our employees have invested a lot to build this platform. And going forward, we can reap the benefits of all that investment with marginally small amounts of investment, given the opportunity that we have. That is the – that’s the takeaway if you’re looking for one.

Okay. Very helpful. Thank you very much.

Your next question comes from Ben Kallo with Baird. Please go ahead.

Hey. Thank you, guys. So thank you, K.R. And I think following on to that question, just as I look at the addressable market of the three different markets, could you talk about how you allocate capital? And is it just – is it we’re going to grow despite what the margins are in these three buckets, because we need to grow in those markets and improve our technology? Or is there a threshold on some type of returns? That’s my first question. And then my second question is I’ve been reading different articles, most recently that Capital Dynamics did a deal with Switch, where there’s lithium-ion batteries from Tesla. And I’m just wondering, were you stand on your levelized cost of electricity? And if that’s how you frame it when you sell to a data server company or where have you – or if you’re selling, it gets lithium-ion? Thanks.

Hey, Ben, it’s Greg. Let me take the first half of the question, and then I’ll turn it over to K.R. on the batteries. So on the investment of capital rate, building on K.R.’s answer from last time, the great thing that I’ve really seen as I’ve gotten in here and understand how the product is designed and built and executed a lot of that investment's already been made in our supply chain, in our production capability, in our distribution, et cetera. So one of the things I like to do is, I talk to people is just talk about how big this company is and how we built out all those with a great growth trajectory on it. And as we think about making capital investment and where do we get the return on our capital and trade-offs between that, as we look at our product roadmap on the things that we've introduced so far and are attempting to commercialize or things that are still waiting to come through that pipeline and be commercialized. We think that the majority of the application, the majority of the product base that is in there is going to be very similar. There may be differences to each of those systems in order for it to do its specific purpose, but the vast majority of that product and how it looks will look very much the same. So it is not in a situation where you were, say, where you've got adjacencies to a product and you're building out a whole new technology that you've got to go through the bunks and bringing it, designing it, engineering and building our supply chain, working with that and then taking it to market. So it works all through the same process from an application standpoint.…

Thank you very much. That's great.

Hey Ben, so this is a question we get all the time, right, batteries as fuel cells. You can go and do a lot of research from everybody, analysts, people who study this academically, the DoE labs, as well as industry publications. Even when you look at it, if you want power for a few hours at a time and it is literally small amount of power as a backup, batteries are a solution. If you wanted more than seven, eight hours you get into a wash, if you want it for more than a day, it is hands-down fuel cells will be better. So if you are thinking with the 20th century model of putting bandaids to an electric grid, because the grid only fails every once in a while, you're not falling down every day and hurting yourself, so just having a few bandaids is fine, batteries are okay. However, if you are dealing with what is going on today in the world where the grid fails so often and many times for long periods of time and it's not as reliable, it's not as resilient, batteries cannot do it because it's like a bank and you can keep taking money out, but there's only so much money that's in the bank after that, if there's no economic activity and no economic growth you want that money. And so that's the kind of way to think about fuel cells . So depending on the application it is a NAND, data centers will have batteries and they will have it for peak savings, they will have it for short duration uninterrupted power, but for long duration non-interrupted power, especially in city centers and other places there if you don't have power generation happening right there, you don't have a large renewable farm right there, you need onsite generation to be reliable and there the LCOE is not relevant, what is relevant is behind-the-meter electricity costs and that's what Bloom plays in and we have a tremendous value proposition there.

Great. Thank you very much. I'll leave it there.

Sure.

Your next question comes from Colin Rusch with Oppenheimer. Please go ahead.

Thanks so much. As I may have missed it, but can you give us a like-for-like ASP trends in Asia and the U.S. on a year-over-year and a quarter-over-quarter basis?

I don't think we break it down between geographies, but we can give you the trend for competitive reasons.

Yes, we don't break it down. Yes. Hey, it's Greg. So we don't break it down by geography for just that reason that K.R. talked about. In the shareholder letter, though, we do have some trending around where our total prices are from an ASP standpoint and you can see that trend, I would say any particular quarter because that includes the installation costs, there may be slight volatilities around that based on the application. So for this quarter K.R., talked about a 6 megawatt lipostructure that went in place and that's obviously going to be at a higher cost, so it's going to be an ASP. If you're looking for a trend, I would point you to the – I’d point you to the shareholder letter that's there.

And then as we look at you guys commercializing this electrolyzer technology, how should we think about the cadence of key technical milestones over the next period of time? It sounds like then as it gets through some testing and some approval those sorts of things, but how should we think about the key benchmarks over the next couple of years on that effort.

That's a very good question Colin, and look the company like I said has its roads in hydrogen generation using this technology and fuel generation using this technology, oxygen generation using this technology for Mars. From 2002 onwards, we have 19 issued patents in this area. So that active research and we have intellectual property in this area already for a long time. Now what we are doing as we speak is doing some extensive testing, accelerating that work. And the first benchmark you should see is to hear about the introduction of our commercial product next year. And what we expect to show is a best-in-class performance when it comes to electrolyzers that's the benchmark to look for. Once we do that, it purely a game given that we can use our same lines and everything else to operate. It is purely going to be a market pull in terms of how many products we build and who we ship it to, because it's the same lines that can produce the fuel cells, the electrolyzers so we can make some match as we need.

Okay. Thanks so much guys. Sure.

Sure.

[Operator Instructions] And your next question comes from Pavel Molchanov of Raymond James, please go ahead.

Thanks for taking my question. I want to go back almost exactly one year ago, when you talked about California and New York with 100%, zero carbon power standards and the headwinds that this was creating in terms of customer adoption. What's happened with that issue in the last 12 months? To what extent is this as impactful as you thought it would be a year ago?

Very good question, Pavel. I think it was not even a few months after we spoke the very tragic events up north happened with the forest fires and the wildfires. And it was unfortunate that similar to hurricane Sandy, similar to the hurricane that happened in Puerto Rico, similar to the same thing here in California, people did not have power and there were lights lost not because of the national disaster event but because medical attention, medical needs could not be supplied for lack of power. That is unconscionable in the most advanced nation in the 21st century. So I think for the first time, some people who did not quite appreciate the need for resiliency as we are dealing with the climate change issues started to understand that. We’ve had significantly good conversations of an and conversation, it is not an or, it is not sustainability or resilience, it is sustainability and resilience. We have been very successful in having that conversation and we'll continue to have that conversation. And we think the state will be very receptive to receiving such a message now having lived through PSPS, having lived through days of the utility simply shutting the power off. And at during those times you need systems like what we bring to the table. And a good example of that for you would be then a emergency hospital had to be stood up in a parking lot for COVID patients, diesel gen sets were not the options, because they put out parts, SOx, NOx and particulates that people should not be breathing even when they're healthy, let alone when they are gasping for their last prep. So Bloom, erected a clean, reliable solution for that and put that, and the state was fully supportive and helped us get that emergency power as quickly as possible. So there's tremendous realization and understanding. And there's also understanding that of all the technology that's out there, Bloom is the cleanest way to take that natural gas and produce power. And also Bloom is developing solutions with bio gas and hydrogen and things that can cut the carbon off. So I think we are sitting in a significantly different place in terms of policy and understanding and need, than where we were before. I appreciate you asking that question in what a different place we find ourselves.

My follow-up is on policy on the other side of the Atlantic, you've never historically sold into the European market, but now we're going to have the European climate law and net zero by 2050. Does that change your perspective on the opportunity in Europe?

Yes, we do. A great follow-up question. We didn't plan this, but it was the same week that we announced our hydrogen with South Korea, that you saw the EU put out its hydrogen roadmap and all the articles that came towards that very aggressive move. So we are looking at that market with cautious excitement. And we hope that we will find the right partners to work with and enter that market at the appropriate time, given the emphasis.

Appreciate it.

That’s all the time we had for questions, I'll turn the call back over to K. R. Sridhar for his closing remarks.

Thank you so much. I really appreciate you all taking the time this afternoon. As you know, we are continuing to innovate and execute on our business plan. We are de-risking our business, focusing investments in new applications for our Bloom Energy Server technology. And we are getting the support of very strong partners that's real commercial business prospects. We’re rising to the challenge and advancing our mission of providing clean, affordable, reliable and safe energy to everyone. Please stay safe and healthy. And we look forward with hope and optimism to a day where the COVID-19 pandemic is behind us. We appreciate your support and interest in our company. Thank you.

This concludes today's conference call. Thank you for joining. You may now disconnect.