Ladies and gentlemen, thank you for standing by and welcome to the Bloom Energy Third Quarter 2020 Earnings Call. At this time, all participants’ lines are in a listen-only mode. After the speakers presentation there will be a question-and-answer session. [Operator Instructions] Please be advised that today’s conference is being recorded. [Operator Instructions] I would now like to hand the conference over to your speaker today Mr. Mark Mesler, VP of Finance and Investor Relations. Thank you. Please go ahead sir.

Thank you operator. Good afternoon all. We appreciate you joining us on Bloom Energy’s third quarter 2020 earnings conference call. To supplement this conference call, we have furnished our Q3 2020 shareholder letter and earnings release with the SEC and have posted it along with supplemental financial information that we will periodically reference throughout this call to our Investor Relations website. The matters we will be discussing today include forward-looking statements regarding future events and the future financial performance of the company. These statements are subject to risks and uncertainties that we discuss in detail in our documents filed with the SEC, specifically the most recent reports on Forms 10-K and 10-Q, which identify important risk factors, including those related to the COVID-19 pandemic that could cause actual results to differ materially from those contained in the forward-looking statements. These include statements about the 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 Q3 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 Q3 2020 shareholder letter, which has been furnished on Form 8-K and posted on the company’s investor relations website. 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. Bloom Energy has made substantial progress in the third quarter as we continue to bring operational discipline and agility to drive our innovation and industry leadership. Reflecting upon third quarter results, I was reminded that we announced our fourth quarter and year-end 2019 earnings on March 16, the first day of Bay Area's shelter in place order. It was impossible to know at that time, how the unfolding situation would affect our business and our life. Since March, we have made great progress across the key pillars that are fundamental to our long-term future. We have significantly enhanced our balance sheet and liquidity, added proven leaders to our executive team, and have pursued a number of additional initiatives that we believe will drive more predictability into our business over time. Importantly, we continue to innovate, making meaningful announcements on our core platform, as well as the role we intend to play in hydrogen, and something that is personally very important to me. Even in times of great turmoil, is that [these] remain true to our culture, and core values in serving our community, whether it was redeploying manufacturing resources to address an immediate need for ventilators or our rapid response to power up pop-up field hospital in response to COVID, or in a hurricane devastated area. I am confident we met the need of serving our community. I want to thank our resilient and motivated employees, including our exceptional leadership team for their outstanding collaboration to grow our business and drive innovation. I’m exceptionally proud of how team Bloom responded to the challenge. In a nutshell, Bloom Energy is stronger today than it was in March. We are performing well, and our outlook is brighter. This year, we have embarked on numerous…

Thanks, K. R. As you said, we accomplished a great deal in the third quarter. Our management and operating teams are demonstrating our ability to execute in a complicated business environment. As we discussed in prior calls, when I joined the company, my near term focus was to simplify our business, improve our liquidity, and address our debt. During the third quarter, we successfully raised 230 million in new financing through a convertible green bond offering at an [attractive rate term]. We completed the conversion of the 10% convertible promissory notes due in 2021, retiring the entire June 30 balance of 249 million. The majority of these converted shares have now been traded by the former debt holders and are part of our [public float]. Additionally, we have called the outstanding balance of 79 million of the 10% senior secured notes due 2024 and will pay off the entire balance on November 9. In our supplemental financial information slide deck that Mark referenced, we've included a pro forma capital structure that details our post-retirement, outstanding debt, cash balances, and leverages. A few highlights. Since the end of the first quarter, we have reduced our recourse outstanding debt by 143 million, eliminated any debt maturities prior to 2025, improved our available cash over 60 million, and reduced our annualized debt service by 44 million. Today, our recourse debt less unrestricted cash or net debt is only 57.7 million. These actions, which have improved our balance sheet, provide Bloom with the additional capital and the flexibility to pursue our technology roadmap and further advance our manufacturing capacity. With an improved capital structure, we are clearly well-positioned for growth. But I want to be clear that we will continue to be disciplined around those investments to ensure that the applications we develop and…

[Operator Instructions] Your first question comes from the line of Stephen Byrd with Morgan Stanley.

Him good afternoon, and thanks for taking my questions.

Hi Stephen.

Wanted to just talk about the fourth quarter, Greg, I think you had mentioned that you expect fourth quarter revenue to be similar to the fourth quarter of 2019, but margins – just want to make sure I understood what you were messaging there in terms of the margin similar to sort of the average for this year that we've seen, similar to this quarter, I just want to make sure I'm understanding kind of the margin outlook in the fourth quarter.

Yeah. So, when we think about the fourth quarter in where we are, revenue should be a little better than we were a year ago. And when I talk about margins, we've made a tremendous amount of progress on our margins over this year, I think on our first call, we were in the mid-teens, reported 29. But really, when you strip-out the revenue deferral, we're in the mid-24, 25 range, as well as positive on our operating income and EBITDA. So, as I look forward to the quarter, you should be a little bit better revenue year-over-year, and my expectation is that we will report our profitability metrics. So, margin, as well as the other metrics, very similar to what they were in an operating basis in the third quarter. We are very focused on maintaining the improvements that we've made on profitability.

Understood. And when you think about that, the performance you also talked about the – some of the delays of installations. And I think you mentioned 41 accepted in the first couple weeks of October, when you think about performance for the fourth quarter, are you sort of baking in some degree of conservatism on the risk for potential additional delays, storms, or anything like that?

Yeah, when we look right. So, those to your point, those 41 acceptances from a timing basis could have fallen on either side of the reporting day. It gets more interesting as you think about the fourth quarter, because not only do you have the normal cut offs, but you've got the holidays there as well. And history's told us that alone could put the pressure on it. So, as K. R. and I built the operating plan for the fourth quarter we were very focused on anything that had a December data on it, seeing if we could get that earlier into the quarter or make sure that we weren't, it wasn't necessarily [within the role], as we thought about the quarter. So, we tried to take the learning’s we've had from the third quarter and roll them through as we think about from the fourth quarter. I’d say as we think about the process, right, the real endgame here is to, you know think about how we take some of that volatility out of our business? I mentioned in the script around working with partners. I think as we think about our installations, we've talked in the past around our ability to continue to simplify that and leverage partners that do that work as a lot of OEMs do, and I think as we find partners like that, I'm hopeful to find the ones that have the ability to own the equipment through that process and take that volatility out of our operations and move it into where their core competencies are.

Got you. Last one from me here. Just as you think about growth overall, what are the biggest limiting factors to growth? Is it the, you know, issues around installation? Is it permitting? Is it appetite for natural gas usage? What would you characterize as the sort of biggest limiting factors on growth?

Okay, let me start and then I'll hand it over to K. R. So, I think we have made a tremendous progress this year on really growing our relationships, not only in South Korea, which K. R. talked about it, within the U.S. as well. And I think, in our shareholder letter, I know in our shareholder letter, we broke out some of the distribution on where our revenues are to really show when you adjust out for the repowering last year, how much growth we've had, just within our U.S. business. So, I think over the long-term, right, the growth is really to continue to expand with their current customers, as well as find additional markets within the U.S. where they value the resiliency of our product. I also think, so we can expand the map within the U.S. and [they will be distributed]. I also think there is a larger play internationally. I couldn't tell you how pleased I am with the SK relationship, not only from its operating mechanisms, just, but from our alignment – from an operating view, in the process standpoint. As we look to expand internationally and we'll announce our new international business development leader who I'm very excited about. Our hope is to find cost find partner similar to SK where we can expand in additional markets that will value our products. So, I look at and say there’s opportunity within the markets we’ve been we’re in today. And there's an opportunity to play in some other markets as well.

And to add to what Greg had to say out here, Stephen, if you just look at Korea that, you know, Greg talked about in numbers, since the beginning of this year, our partner SK in Korea has installed 58.8 megawatts. Okay, that's [500 intermediate] systems that they’ve installed. And so while in the past, we would have seen installation as potentially a gating item for what you need to do and what this is showing us when we find the right partners. And then we are able to leverage it. You know, that bottleneck can be significantly overcome, right. And so that's part of what we are planning to do is to find, you know, partnerships like that, you know, for sure, should be a great opportunity for us going forward given the emphasis that they are putting on both decarbonisation as well as resiliency, especially with hydrogen. And we're super excited about that. So those are the opportunities. In terms of limitation, otherwise, you know, we just – all that we need to do is to look across our country, whether it's flooding events, wildfires, hurricanes, right? Resiliency is becoming extremely important. And we don't see our ability to put out the best available product today, when it comes to balancing the attributes of liabilities, resiliency, sustainability, everything together. We see that we are in the right place. So, look, we will be very enthusiastic about what the future is going to hope for.

Very good. Thank you very much.

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

Hi, guys.

Hi Michael.

Could you talk a little bit about some of the drivers behind the total installed system costs declining? I think it's very across the goods sold roughly down 10% sequentially. Seems like a pretty good direction to be in and maybe you could talk more about, you know, with some of the factors that are driving that?

Yeah, no, we were we were very pleased on our unit economics when we pulled them all together, especially after the second quarter. So, from 942 in the second quarter 1,621 in the third quarter. If you start pulling that apart there's a couple of things that are happening within there. One is just a very favorable mix, the deals that we were able to do within the quarter and the profitability related to them. Our pricing that was in that number had improved significantly without that margin and that that was accelerated by a reduction in product cost at the same time. So, those two things added to a lot more profitability. We also had some legacy issues, I'd say in the second quarter, as we work through some of our older installs that came through. There were very valuable projects to get done. We completed them, we were excited to get them done, but they didn't have the profitability that we would have going forward. So, a big change quarter-over-quarter driven both by margin on the product, as well as a reduction on installation, that we give it to you guys on a fully loaded basis. But I look at an operating basis; we're about breakeven on our installation, this quarter, versus a small loss on that last quarter. As I think about that going forward, you know, we will continue to take cost out of our product. So, you're going to continue to see that come down, but the favorability on the mix that we had is I take a peek forward into the deals that are in our next short term installation process. My expectation is that number may not be as high, when we get into the fourth quarter, probably drift down more towards not quite to an average over – it's been over the last quarter. We definitely benefited from a favorable mix. And it can – you know, these are – it can move slightly each quarter. So, as I think forward on it, 1,621 was a great accomplishment. I don't look at it as a high watermark, but I think in the short-term, you'll see it drift down a few dollars as we move forward.

So what you’re saying is, you won’t see the same kind of decline going forward, but you don't expect it to creep up or anything like that?

Yeah, yeah. I mean, over time, it should, right? I mean, you're talking about product coming out 19%, and we're doing a really good job on our discipline on price, I'm really comfortable with what we have there. I would just look at 1,621 being a very favorable mix on this quarter versus what you may see in kind of next quarter or the following quarter.

Right. And I think Greg, you mentioned that replacement costs are also down on the servicing side is that and you expect to able to do less replacements per cycle [or for]?

Yeah, it's a combination. So, there's a couple things that are happening in there, right. One is we've just continued to improve on the stack life within the fuel cell. And it's continued to improve. And we've written about that in technical papers, and you could see that on the blog. The other thing that the team has done really well is been managing the entire fleet in managing to make sure that we're achieving the outputs that we want and being well optimizing the units that are there. Those things, two things combined. So, having a longer life in doing a more optimization around where we put our [foot] has reduced the amount of field replacement unit that we've had to put out into individual sites. We did ship a few extra this quarter for the team. One is, it helps them on managing what the total output does. And they can think about that, and there's some good economic trades there. We also did it as a way to when you look forward, you can just see this business gaining profitability, and then growing margins, as well as revenue in the near future. So, we're through a process of that that’s trying to accelerate. The other place similar to where you see it on total product costs with new units, you see a very similar cost profile with the replacement units, and the team's done a very good job of driving cost out. So, we think as you should go forward you need lots of them and each one you need is less cost, and we see a very good trajectory out there I think we talked about 2022 being the crossover point where that business is profitable, and we expected to gain from that as well and you get the very valuable service business that every OEM wants.

Is that because that by 2022 basically all your – is it only – all though even the generation five units will be – [indiscernible] generation five at that point?

Yes, that is you know, you know, that is correct. You know, we would have lost our legacy units, Michael, this K. R. speaking and we would replaced them with our Gen 5 units and again the reason we talked about our career installation, the 8.35 megawatt system is because that performance is publicly reported and you know, with our certain other systems, we have to be careful about contractually speaking here. It is, you know, it is something that’s publically reported and look at it statistically even though you have, you know, we have been saying what we’re shipping as close to a [five-year life] in showing average data. That doesn't mean statistically everything lasted five years, but if you just look at this installation, it gives you a sense of the kind of quality, reliability, and life that we are continuously improving upon, right on all those metrics. 167 little power plants, each putting out 50 kilowatts, not one of them had to be, you know, like replaced [indiscernible], right, and continue to operate. And I gave you all the metrics that is in the [indiscernible], I don't want to repeat it here. But that performance is pretty astounding, and it shows you how far we have come in making this technology robust. And the most important thing is, isn't it great from people speculating wrongly about how much of a liability that we will have going forward to our CFO now telling you in 2022, so it will be a profitable business.

Alright, I'll get back in the queue and [indiscernible]. Thank you.

Your next question comes from Colin Rusch with Oppenheimer.

Thanks so much, guys. You know, if you think about these cost reductions on the service side, you know, rolling through and scaling, how should we think about, you know, that flowing through into your bidding process in the sales pipeline, and [indiscernible] pricing?

So for us, when we look at it Colin, the way to think about it is, really, at the end of the day, the customer, what is the value proposition for them? For them, it's not breaking it into fuel costs, product costs, service costs. For them, it is, what is the quality of electricity with what attributes do they get, at what price, and what is their alternative. So, for us, pricing will always be dictated by market conditions on pricing it to make it an attractive value proposition for the customer and for us. So, we would see in, you know, we would see our cost coming down as either our ability to attract margin in certain places, because that's still a very good value proposition to the customer. And in certain other cases, we will see that as an opportunity for us to expand into market, there our economic value proposition may not be as high as it is, as you know, it will get more attractive going forward with that lower cost structure that we have for the same margins that we want to commence. That’s the way we would see it. Greg, would you add anything to that?

No, I think that's exactly right. I think as we look at what our value prop to our customers are, where we've been able to reduce our costs, whether it's on our product costs, or on our service cost, or installation costs, those are all opportunities where we can create value for our customer, as well as for ourselves. So, we want to make sure we're maintaining some of that, but using it as well to help us open up new markets where we can be competitive as well.

Okay, and then on the manufacturing side, and the evolution of the technology. Can you talk about the cadence of improvements, you know, it sounded like there's a number of areas it has been working on and being able to move to different materials, different form factors, can you talk about how that is progressing? And how we should think about that flowing through into the product margin, as we think about the balance of this year into next year?

Yeah, you know, it's – we've talked about this in the past. As we think about our cost out, it's part of our D&A. It's part of our operating teams to think about it. In any particular quarter, our targets are anywhere from 10% to 12%, as high as 15% cost out year-over-year on our product, I'd tell you we get it through a number of different ways. Our supply chain is fairly sophisticated in working with our vendors to improve their manufacturing processes, as well as simplify our product through engineering to make it cheaper for our supply chain, the manufacturer; it can be assembled within our product. I'm very impressed with the manufacturing processes and our engineers working with our team there and coming up with additional ways in which to improve whether the yields, take steps out of the process, etcetera. All those things help take the cost out and as we project going out forward, we give the team fairly aggressive cost targets that we expect them to achieve and to give them the tools and resources to do that, but it's part of our kind of core operating D&A and how we move forward. In any particular quarter, it may come from – it may come from a different variable that they optimize, but quarter-in and quarter-out that team has been able to deliver on that product cost. And as you start to look back at it, year-over-year, quarter-over-quarter, it really demonstrates itself out. So, we count on that as we think about how we grow the business. When you add to capacity, we are going to have a little bit of challenge here on the cost absorption. So, the team is ahead of that and thinking about how they bring those capital investments on and they can increase – as they increase the number of units going through the volume will recapture some of that, but our product cost is not an output metric. It is very much a target that we use to run the company around.

Great, thanks so much.

Next question comes from Benjamin Kallo with Baird.

Hey, guys, good evening. You guys have a couple of good announcements about new product lines with hydrogen project electrolyzer and the marine project? And could you just talk to us about when those products were initially developed or started coming from the lab to announcing that just, you know, just some history there? And then I think, Greg, you talked about, you know, having a new Head of Europe, can you talk about just the management team and where you guys are in? And if there are [holes] or anything you need change? Thanks.

Yeah, sure. Ben, I'll get started and then I'll pass it on to Greg because you asked history. So, look, the company's history started with this particular technology used as an electrolyzer. That's my work that I did, you know, [for Mars]. Even in the very early days of the company, we were thinking about, is our product going to be a single generation of electricity, generation of electricity and heat, generation of electricity, heat, and hydrogen. So, we have thought about and very uniquely, the solid oxide process is the only electrochemical process that you can effectively and practically run in a reversible manner, the same device can be run in one direction as the fuel cell in another direction as an electrolyzer that is called a solid oxide regenerative fuel cell or SORFC, and I have some of the early papers and patents from that. And as a company, we have over 19 patents on this area, and we have been doing a lot of research, but why have we not spoken about hydrogen so far and why are we speaking about it now? It is because of market timing? It is it is the world wanting decarbonization in a very strong way. Number one, and number two, the cost of renewable electricity coming down the way it has come down. And the ubiquitousness of that in certain places that make it very attractive, and policymakers realizing that this is coming and putting policy in place to enable this and automotive, you know, makers coming up with a need for it in the transportation sector. And regulation coming along in the heart to decarbonize areas are saying that they would rather go to hydrogen then use other forms, other carbon intensive forms of generating industrial heat and things like that, it is that combination, and so it's a matter of timing. So, if you look in the literature, purely based on technology, there is consensus that the solid oxide electrolyzer is far superior to the low temperature electrolyzers. This is academic research. This is DOE research. You can just look at that. It's not just company research. So, we feel very confident that we will play a important contributing in the hydrogen economy transformation and the timing is right. And in terms of rolling out our first, you know, first product, and also addressing the international market development, Greg, I'll pass it on to you.

Yeah, thanks, K. R. So, you know, when I first started looking at Bloom, you know, what attracted me to the company was not only the product that we had today, and its applicability and its resiliency, but really what I got excited about was I spent time with the team around that technology roadmap. We call them five pillars internally, that we are growing the company with. So, it's both forms of our hydrogen play, whether it be the fuel cell or the electrolyzer. Marine, we've talked about bio gas, which I think is a really exciting opportunity and then carbon capture that can be part of our server processing there. And just some of the unique ability to do that with solid oxide fuel cell and a fuel cell, make that really attractive. I think not only has the market opportunity come into play, but I feel now that we've got to the other side of what we needed to do with making sure that we fortified the balance sheet, taking care of some of the short-term issues, we have a lot more flexibility to go invest in those pillars, than we may have had 6 or 12 months ago. And you know, the nice thing we've talked about it before, the server is a platform. It can do all of those things, without requiring a lot of investment to go do that. We do have an operating process set up internally, with the engineers to make sure that they are moving through the process of doing the design. We’ve got Sharelynn Moore came in as our marketing leader has a great product management background, and really putting into place and how you commercialize these products. So, it feels like everything is coming together quite nicely all at…

Great. Thanks guys.

Thank you.

Thank you.

Your next question comes from the line of Jeff Osborne with Cowen and Company.

Good afternoon. A couple quick ones on my end. I know you don't discuss bookings or backlog, but I was wondering if you could just qualitatively talk about the fire season and then coupling that with COVID, and the lack of being able to meet face-to-face as a virtual sales or digital sales, is that working for you? I know the solar industry is transitioned well to that, but I wasn't sure about you folks.

So, Jeff, as you know, yeah, very clearly, we don't give you for guidance on sales and now we're doing it's only once a year. But look, our sales team is doing very well reaching out to customers. I would say getting those virtual meetings is probably a little bit easier than what then you know, trying to go and have a face-to-face. And they are able to get a lot more of those calls in because they're not spending their time traveling, and I think it's pretty remarkable. I don't know what you are seeing everywhere else. But it’s pretty remarkable how our ecosystem we see people are adapted extremely well, to this, you know, online, digital virtual process for everything other than the essential production processes and things like that where we need people out there. So, I would say the momentum is good. And I would say that we are seeing traction. The one use and you know, you've heard us talk about Entergy during the script. You know, there are parts of the country where the hurricanes are making people really want to think about resiliency in a very different way. This is no, you know, it is not a new normal, it is the beginning of a trend that’s getting worse by the day. And so people are seeing that, whether it's our last day, whether it's the wildfires here in California, or the hurricanes, and on top of that, grid prices are going up, not only is the quality of service, not as you know, not where it needs to be, but the prices are going up. And Greg talked to you about how, you know, we are able to get our unit economics to a place where we can play in certain, you know, some of these markets effectively that we could not in the past. So, it's all pointing in the right direction.

Got it. And my follow up was actually on Entergy, you know, a couple multi-partner, is it similar to Southern and Duke where they'll be providing financing or are they just selling? And you're owning, who actually would own, or is it a cash sale? Can you just talk about A, you know, when you would anticipate bookings? And then B, what they're actually doing? Is [indiscernible] or the customer will own and operate the microgrids that you referenced?

No, this is a new relationship. Here the common interest. Their interest in resiliency is extremely high. Just think about the, you know parts of Louisiana within the last 60 days, three different hurricanes category two or higher. You know, having impacted. It has been devastating. Mother Nature has been devastating. So, you know, like resiliency is in the top of their mind. And for a certain fraction of their customer base distributed power is something that they were interested in. And their leadership team is thinking – is very forward leaning on decarbonisation. These are common interests. We are exploring these opportunities together. It is it is a mutual interest. We will find [indiscernible], you know when, we are just discussing that and we will share with you as we make progress.

Got it? Thanks so much. That's all I had.

There are no other questions at this time. This concludes today's conference call. Thank you for participating. You may…

There is a …

Yes, sir.

I was going to just give a concluding remark.

Okay, no problem. Everyone is still connected.

Thank you so much. So, I want to take this opportunity to thank Mark Mesler. This is his last meeting as our VP of Finance and Investor Relations. Mark has [forged] strong connection with the investor base and the analyst community and really adequately guided Bloom in his first year as a public company. He's leaving to join a promising Silicon Valley startup as a CFO. Mark, we thank you for all your services. And we wish you a very good future and we're excited for you. The Bloom team is proud of the work we have done over the last year. We have showed up our financial position. Our business operations are more nimble, efficient, and effective. Customers are increasingly valuing our solution as we have powered through wildfires, hurricanes, and public safety power shutdown. Our collaborations with public utilities and commercial partners are robust, and they're actively engaging with new partners and their developing trailblazing low and zero carbon power generation distributions. They’re scalable, affordable, and integral to our planet's fight against climate change. Bloom’s future is very bright. Team Bloom joins me in expressing our gratitude to the investors, for being stakeholders with us in our journey. Thank you very much. Have a good evening.

Ladies and gentlemen you may disconnect.