Good afternoon, and welcome to the Bloom Energy Second Quarter 2021 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 Investor Relations. Please go ahead.

Thank you, operator. Good afternoon everyone and thank you for joining us on Bloom Energy's second quarter 2021 earnings conference call. To supplement this conference call we have furnished our Q2 2021 earnings press release with the SEC on Form 8-K and have posted it along with supplemental financial information that we will periodically reference throughout this call to our Investor Relations website. The matters that we will be discussing today include forward-looking statements regarding future events and our future financial performance. These include statements about the company's business results, products, new market, strategy, financial position, liquidity, and full year outlook for 2021. These statements are subject to risks and uncertainties as discussed in detail in our documents filed with the SEC from time to time, including our most recent reports on Form 10-K and 10-Q. This documents identifies important risk factors that could cause actual results to differ materially from those contained in the forward-looking statement. We assume no obligation to revise any forward looking statements made on today's call. During this call and in our Q2 2021 earnings press release, we refer to GAAP and non-GAAP financial measures. The 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 2021 earnings press release available on our Investor Relations website. On the call today are K. R. Sridhar, Founder, Chairman and Chief Executive Officer; and Greg Cameron, Chief Financial Officer. K.R. will begin with an overview of business highlights in the quarter, Greg will review the operating and financial highlights of the quarter. And after the prepared remarks they will take questions. I will now turn the call over to K.R.

Good day, and thank you very much for joining us on this call. I'll share my thoughts on the state of the energy market and our company progress before turning it over to Greg. From a big picture perspective, the three key attributes that matter when it comes to energy and electricity are, resiliency, sustainability and cost predictability. Here are the trends that we see in the marketplace with respect to these value propositions. First, on resiliency. They're all experiencing and witnessing the increased frequency with which natural disasters are impacting our everyday life. These events around the world cause major disruptions to energy supply and availability. Their adverse impact on businesses ability to operate lingers for a prolonged period of time after the disaster strikes. In the United States, the 2021 report on commercial and industrial power reliability states that 44 of companies reported that they lost power at least once a month. This is double the number of outages from just two years ago. The situation worldwide is even worse. The World Bank's research shows that on a global basis companies experienced 2.42 power outages in a typical month in 2019 and that number ballooned to 6.19 power outages per month in 2020. That is a 155% increase in just one year. Contrast this to the 117 microgrids Bloom Energy had operational in 2020. Our microgrid site locations experienced several hundred utility grid power outages during 2020 and Bloom microgrids protected our customers from business disruption or 99% of the time. Now to the second value proposition sustainability. The World Wildlife Federation's Power Forward 4.0 report has tracked the commitments of companies to sustainability and decarbonization. We are seeing a dramatic shift in the efforts businesses are making to decarbonize their footprint. In 2020, 60% of Fortune 500…

Thanks K.R. Yes. We had a busy quarter and we've accomplished a great deal in the first half of 2021. I'll go through each of these in more detail. But I wanted to give some highlights. We achieved record acceptances in revenue through the first half of the year. We made progress on our technology roadmap to deliver our new products to market. We continue to invest in our commercial capability both in the U.S. and internationally. We commence the build out of the manufacturing capacity needed to meet future demand. As we emerge from the pandemic like other global manufacturing businesses we've experienced some supply chain pressures. The team's relentless focus on cost reduction has enabled us to offset these pressures to roughly hold our product costs flat over the last few quarters. Given the strength we're seeing across our business, we are reaffirming all of our 2021 targets. First, let me go through our financial performance. We are proud of how the business is performing and that the progress we've made relative to the milestones that we laid out for you at analyst day. And the foundation that this creates for us for 2022 and beyond. Please note, we've kept the format of the earnings release and the supplemental information like previous quarters. And I'll be referring to the slide presentation closer to our website. Building off last quarter's momentum we continue to have strong growth versus the prior year. Although, as expected our mix of accepted deals this quarter impacted margins. This is one of the reasons why I've encouraged you all to look at our business on an annual basis, not simply quarter to quarter. We achieved record second quarter acceptances in revenue. Acceptances of 433 were up 41% versus the second quarter 2020. Revenue totaled…

Thank you sir. We will now begin our question and answer session. [Operator Instructions] Our first question from Stephen Byrd of Morgan Stanley. Please go ahead.

Hi. Good afternoon. Hope you all are doing well?

Yes, Stephen, how are you?

I'm doing well. Thank you. Thanks for the thorough update on a lot of topics. I wanted to talk first on carbon capture. You gave a an update during your prepared remarks. And I'm thinking about sort of the next steps for you all on carbon capture. Is it -- I think you mentioned a pilot. Is it likely you would start by kind of showing the capability this technology on kind of a small scale pilot before broad deployment? Or is there any chance of customers wanting to begin to kind of roll this out more broadly. How should we think about kind of the cadence of that development?

So the cadence that you would see would be as you said a pilot that we would start with the clear intent of it being in scale. Again Steven as you know, anything and everything we do in Bloom is about can we really move the needle both on the commercial front in terms of it being meaningful, as well as on the carbon footprint for the world that we are able to make a big stent on it. So obviously, carbon capture in hundreds of megawatts in every single place is the way to be thinking about this. That is the scale at which it has to work. Not in a laboratory, not in a test tube. It has to be working in these large scale. So, but with our utility partners that we will -- people partner with as well as with some of our commercial partners that we are in engagement with now. We want to start with the megawatt scale, but clearly it's going to take a state/federal support. And they're very encouraged by what they're saying in the infrastructure and the reconciliation bills. I think one of the common areas that democrats and republicans both agree upon is ways to figure out carbon capture with natural gas. So we see this as a great sweet spot and with these proclamations or with these things looking more and more likely to be enacted into law, we should clearly expect that the large utilities want solutions like what we have and we will start with the pilot with the goal of getting there faster as quickly as we can.

That's really helpful. And you mentioned federal support. I thought I'd touch on that as well. Curious, your thought on -- I'm thinking about the broader reconciliation package frankly though perhaps, so I 'm not giving enough credit to the to smaller bipartisan package. But the broader package may include some fairly large elements of support for hydrogens -- for green hydrogens as well. I was curious to know your view on what that might do in terms of your rate of growth, the deployment of electrolyzes, really any other business impacts you see to the extent that became law?

So, at least in what we are finding out from the early days of what we are reading and what we are hearing on the hill is there is a clear understanding that in this area of hydrogen, it is of national importance. Of national importance not only for us in terms of climate change and decarbonization, but it's a competitive advantage for all our industries. It is also viewed as a technology in which we need to gain leadership to be a leader in this country. And therefore American companies with American technology, with American manufacturing jobs getting the benefit needs to get. So if you look at the box and try to check it off, Bloom is an American innovative technology. Bloom is an American manufactured technology. And what we do at Bloom with high temperature electrolyzers and how we are able to integrate it at commercial skill. We have a leg up on everybody else. So you put those things together and then take into account hard to decarbonize industries like steel, like chemicals. And when you're able to combine that, the advantage our U.S. industries can have, because they have a green product to sell to the world. These are the reasons we are extremely bullish about what those policies will mean for our future growth. It is necessary. It's the right thing to do. I think it is an investment that the country is making and it's the right investment for the country to make.

Understood. And then maybe lastly for me just going to the financial results. The ASP number, Greg, you gave some color around that. I wonder -- just I'm trying to think through that in terms of mix. And you had mentioned the impact of that, I guess, I think of it as a legacy or an older contract impacting that. Can you just touch on that a little bit? What I'm thinking about is the ASP did fall meaningfully. You're keeping product costs flat, but you're not in this environment able to reduce the cost, which is understandable. But I'm just trying to decompose that ASP impact and think about what that might look like going forward?

Yes, Steve, I'll give you a little a little context on that. And year-over-year our product costs are down 8% for the first half. So, we're proud of the progress the team has made. We are off versus our expectations. We always like to be down double digits. But we were down significantly in the first quarter and down in the second quarter year-over-year. And to your point, we were flat the last couple quarters. It's not on the one deal in particular. And it did impact margins. And it did impact sales price. It was an outlier deal that was in the -- within the backlog previously. It's part of our backlog and financial framework for the year. So I tried to give you guys some sense of that on last quarter's call that we're going to do it. Listen, we got some pretty important relationship with that transaction with somebody that we think we can grow with going forward. And we've learned a lot around the project development world. But as I think of back or look back through the backlog, we've got no other deals that look like it. So it truly was an outlier. And is part of the -- this part of the framework for the whole year it's just a little bit -- its impact this quarter comes through both in ASP as well as in margin.

Very good. I'll pass it on. Thank you.

Thanks, Steven.

Our next question from Mark Strauss of JPMorgan. Please go ahead.

Yes. Good afternoon. Thank you very much for taking our questions. Just wanted to go back to the comments around finding EPC partners for installations. Can you just give us a bit more color there? How those conversations are evolving and what your current expectations are for when we could start seeing? Some of that start to occur and maybe some less variability in your margins as a result?

Yes. Thanks Mark. And again, congratulations on your promotion. So it's good to hear your voice.

Thank you.

Listen, on the EPC stuff we've made a lot of progress. Joe Tavi and the team who runs our installation group has done a lot of the legwork that we're going to need in order to engage with third parties and make sure that we're able to provide to them a level of standards that they're going to need to be able to do the installations outside of our business. The other place where we've made a tremendous amount of progress is through the front end with Sharelynn Moore's team on the marketing side. And really looking for partners that can bring in not only the expertise around EPC, but broaden the relationship as well. Think of them as channel partners or as a financing partner or as a technology integration partner, somebody that can really do it. If it's just somebody who's trying to replicate what it is that we can do they're probably not going to be able to do it at a cost lower than we can. So we really need to find something that's going to create a lot of value for it. You think about timing. And this is one of the things that's a little bit frustrating as you look at some of the things that are coming through the business now. We need to one, secure those relationships. But two, is given our installation cycle, it'll be another six or twelve months from the point in which we award a project to a third party until they're able to go do that. We do use EPC partners today in some of our larger projects that are contracted by our customer, but it will be a different from us. I think you'll probably see if we're on track, you'll see one large project done with a partner this year. And then, as you start to move into next year you'll begin to see. Probably some of our more standard smaller size, smaller kilowatt installations get done through a partnership with somebody who can do it in a region or for a specific customer. And then I think as you get through the course of next year I'm hopeful that they'll be able to take a larger percentage. But for about everything but maybe a deal or two that's in our current project pipeline for installation this year, those were primarily going to be started by and finished by our Bloom.

Okay, excellent. And then, grand scheme of things really doesn't matter if a project comes in late December or early January. But just thinking about your guidance and kind of the risks to the upside or the downside, can you talk about the magnitude of some of these larger projects that you're calling out? I mean, if the worst case scenario if none of them come in is there risk below your guidance or vice versa if they all come in, is there risk above your guidance range?

Yes. So like there's a couple two three deals I would say, that make up the difference between the 950 and $1 billion. And as I look through those is there a risk that each of those deals don't happen. There's always a risk that any project doesn't happen. But given where they are from a timing standpoint and as I look at it versus the late December, early January that truly would be the difference around those. And from an upside standpoint, because we are sold out on the amount of systems that we can manufacture and get installed over the course of the year. So I still think as you think about upside to that billion it's going to be really as we get into next year and have the opportunity with more capacity online to really help facilitate a number for growth next year about where we are this year.

Okay. Very helpful. Thank you very much.

Thanks Mark.

And speakers, our next question from Maheep Mandloi of Credit Suisse. You may ask your question.

Hey, good afternoon and thanks for taking a question. Maybe if you can just probably Greg talk about the electrolyzer opportunity. And that you did announce the new product launch and the pilots in South Korea and the one later this year in the U.S. teams on frac [ph]. So wanted to understand what feedback you are getting from initial discussions with customers on the electrolyzer opportunity and how should you think about the revenue recognition maybe in 2022 or in 2023 today?

Maheep, it K.R. and again I think congratulations on your promotion too and welcome. Nice to hear from you. Look, with respect to hydrogen, we are super excited about the things that we're doing today, right? Look at the announcements that they made. This quarter we are shipping a unit to the Idaho National Laboratory. This is both from a speed to market on hydrogen as well as a lifeline for zero carbon nuclear power to be more economical. For the entire nuclear industry it's a big step. This is the way the U.S. Department of Energy, Idaho National Laboratory and the Department of like energy is thinking about it, because our high temperature electrolyzer. With this theme and the potential possible integration in the future and the daytime, nighttime arbitrage we understand of nuclear power plants not running at full capacity during the day would be a huge economic drain to them. That as if they can make hydrogen during that time when the sun is shining and the solar is providing the electrically, it's a huge where and heat is zero carbon nitrogen. And it can be made in large quantities. And it can be -- these hydrogen projects can go on in industrial sites that are already cited for nuclear power plants and things like that. So if you just look at it practically end to end the entire system you can appreciate the importance of this. So at Bloom we are very deliberate of the many opportunities that come knocking at our door every single day to only pick and choose the ones that we have conviction on. So it is not the amount of opportunities that come to us. It's the ones we choose to say, yes to that's the hard part. Okay. The second…

Got it. That's really helpful K.R. And maybe one small one housekeeping. If -- just talk about the customer financing in Q2, could just remind us of what that was related to? Was it tax equity or something else? And how should we think about those financing arrangements for the second half or going forward in 2022?

Yes. So, if you remember last quarter when we went through it, we raised a risk for our second quarter acceptances making sure that we had our financing vehicles, our PPA type structures in place in order to facilitate those acceptances. Coming out of 2020 and into this year, our traditional provider had decided not to participate going forward, which was, okay, we had already begun the process to work with other providers. But the team did an absolute amazing job. Not only our team, but our customers like the facing teams off us to our provider's side. The teams were incredibly engaged through the course of the quarter. We worked through a series of just negotiation issues and other things and secured the tax equity that we needed. And what we said at the time was if we solved the quarter we basically got the year solved. So for as we look forward for the second half, we don't nearly have that effort in front of us. And we're really happy with the providers that we've made relationships with in the second quarter. Some are folks that we've worked with on previous transactions others were new that we brought. We brought the Bloom and we see them as resilient sources of capital as we go forward. So we're very excited about the progress that our team made and the relationships we built there.

Yes. That's good. All right. Thanks a lot.

Thanks.

Our next question from Michael Blum of Wells Fargo. You may ask your question.

Thank you. Good afternoon everybody.

Hi, Michael.

I wanted to talk about your announcement you made at the end of July on the marine space with Samsung. Just one thing about your progress in that arena. Does that announcement signal that you're ahead of schedule with commercialization? Are you on schedule? I'm just basically looking for an update on your commercialization efforts in that arena in light of the announcement? Thanks.

Yes. This is K.R. Let me answer that question, Michael. So, when you look at -- when we started with Samsung and we were looking at trying to get at least one approval and this was the approval in principle with DMV, which is a international maritime classification society, highly prestigious. It came sooner than what we had originally had in our timeline. And that is kudos to our engineering team and what they were able to accomplish working with our partners. And that's a big step forward. I would say that's a very big step forward. But when we put that announcement out what we found out is there was significant interest from other ship builders in different classes, right? So, if you look at our announcement with our partner Samsung that is for cargo ships. And that's a big deal, because 80% of world's economy moves on ships, right? And if they're a country in terms of emissions it'll be 6% then this could be year or two. So that itself is a big opportunity. But outside of cargo ships the maritime industry is very big. And we started getting inquiries from other ship builders in other continents. And including passenger ships and other kinds of ships here in the U.S. So cruise liners. So what we had then was the American Bureau of Shipping is a very important entity, which is again a global certification and technology advisory services. And we went to them and try to simultaneously get an approval. And what we got from them ABS, which is the American Bureau of Shipping is a new technology qualification. And that's what we got. So again, it speaks to -- so the final approval will be expected in this case of ABS in 2022, which will be much sooner than we had originally planned. We think this industry is primed and there is a tremendous push from the consumers for this, as well as the international maritime organization. But on top of that our solution future proof that they can go from the really dirty heavy oil that they're using today to a much cleaner natural gas, which can be even used foresight. But in the future whether it's hydrogen or ammonia we are future proofing them. And not too many technologies can do that. We believe we are the best option for this. This is the reason why we're seeing that heavy fall.

Great. Thank you for all that. And that's all I had.

Thanks, Mike.

And our next question from Noel Sparks [ph] of Tilley Brothers. You may go ahead.

Hi, good afternoon. Just a couple of things. I was wondering if you could talk in general terms about the biogas projects you're working on. Just a little bit about what those applications are like. And I'm curious in particular about the sources and whether they are for instance like well-established sources like landfill for example or something newer, like a new implementation specifically to take advantage of fuel cells?

No. We believe that the whole renewable natural gas, biogas is part of this, right, is probably the fastest quickest way to get to zero carbon base-load power in scale especially for mission critical applications. So they fall in three different categories. Think of solid waste coming from landfills. Think of wastewater treatment plants and water treatment plants that put on sour gas. And think of dairy and animal waste, right? So, if you take those each one has its characteristics. But what is common to all of them is in the absence of there being a commercial opportunity for them, a lot of methane which is significantly more harmful to the atmosphere than CO2 is going to go into the atmosphere. So if you want to decarbonize finding a way to trap that is probably the most important thing. And then the next thing you do is, what if you can use that in a highly efficient way with no air pollution, no water use and create reliable power. So we are excited about three opportunities here. We are -- as we said with this large within lot of company and we'll be talking about it in the months to come doing a project, which is operational of taking landfill gas and producing power. We see an enormous opportunity in wastewater treatment plant. Because the amount of gas that comes out is sufficient to operate that wastewater treatment plant with all its electricity needs and thereby bring in resiliency. It's not only a decarbonization play. It's not only a biogas play. But it's essential for our everyday life. When there is no power you can drop bottles of water for people to drink. You can drop food from helicopters. If your toilet doesn't flush there's not a whole bunch of options you have. Okay. It's essential for everyday life and that's what we can bring to the table. And we will very soon be talking about some dairy projects where we are able to use the animal waste and use that gas to be able to do our systems. And the beauty of our modular system is we don't need very large scale facilities to make this operational and economically wired. We can go small and medium scale there and be able to implement this and get that power out. I think there is a huge opportunity. We are excited about it. You'll see us trying to grow this field in the future.

Great. Thanks for that update. And I was interested in your discussion about the pipeline and the backlog. You mentioned that you were seeing an increase in commercial momentum which sounds great. And I'm just curious at this stage in general terms, your sales and marketing costs per deal size or given the per deal signed or given the size of a deal. I assume we're in a trend where that probably would be heading higher as you sort of walk through the horizons on the backlog. And then maybe hitting a point where it turns lower. Can you give any insight on just what it's costing to just sort of source and close a deal these days?

Noel, its Greg. So we think about it right and we look at the pipeline and we're really happy with the progress that the team's making in expanding. In the U.S. as well as that this team is expanding internationally. In the cost that drove this quarter really was around making sure those teams had the analysis that they needed, the materials that they needed, the coaching that they needed, all those things. And we think that converts in from in the pipeline and what's in pipeline and the bookings over the course of the next six and 12 months as we go forward for it. So I don't think it is not just as like I would in a consumer model where you've got acquisition cost tied to each the amount of advertising you put in place and what dealings here. This is really about making sure we were accelerating the progress that we see and the opportunities that we see and we're getting more and more confident in how that looks every day.

So, thanks Noel. So I think we just -- we've run out of time. We still had a couple more questions we wanted to get to. I apologize for not getting to everybody who is looking to ask a question. I'll say a couple comments here in just closing. We had very strong performance this quarter in this first half of this year. We're happy in how we are executing and putting the backlog into revenue. We are gaining confidence as I was just talking to know about on in our pipeline and what we're seeing there. And it's giving the confidence for us to invest in our technology, in our manufacturing capabilities as well as continuing to hone out our front end in commercial resources. We're reaffirming our guidance for this year. We are confident that we can offset any cost pressures that we're seeing and deliver on the gross margins that we've had. We're going to continue to invest in those opportunities and are still targeting a 3% operating margin. And I'm getting more confidence based on the second quarter performance that we had around our cash flows. But we're on how we're expecting those for the year. Although, I'm still holding -- I'm still have a holding approach in power business as -- is our targets and look to update as we go forward. So I want to thank everybody for their interest in Bloom. Thank everybody for their time and we'll look forward to getting back together in 90 days and talking about third quarter performance. Thank you.

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