The newest option for those interested in fuel-cell technology, Bloom Energy (BE +2.40%) is expected to report its second-quarter earnings on Aug. 7. Charged up as investors may be about the company's first earnings report since its IPO, it's easy to feel overpowered by the flood of facts and figures. Let's try to make things a little easier by focusing on three things we can expect management to address.
Prepare to be shocked
While its closest competitor in the stationary power fuel-cell market, FuelCell Energy (FCEL +2.17%), reported flat revenue growth in Q2 2018 as compared to Q2 2017, Bloom expects to report that it nearly doubled its top line year over year. Whereas the company reported sales of $86.8 million in Q2 2017, it stated in its prospectus in late July that it anticipates revenue of $167 million to $170 million in the recently completed second quarter. Should it achieve the midpoint of this guidance, it will represent a 94% year-over-year increase.
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Although the presumable sales growth will be a welcome sight, shareholders should temper their enthusiasm until they dig in deeper since a limited number of customers account for the lion's share of the company's sales.
| Customers | FY 2016 | FY 2017 | Q1 2018 |
|---|---|---|---|
| Top 20 | 89% | 91% | 94% |
| Top 2 | 29% | 53% | 70% |
Data source: Bloom Energy prospectus.
From the limited data available in the company's prospectus, it's apparent that the company's sources of revenue has grown increasingly concentrated since 2016. Because adversity with one of Bloom's largest customers could wreak havoc with the company's financials, the lack of a well-diversified customer base represents a significant risk for the company. Investors, therefore, should look to see greater diversification among the companies that account for Bloom's revenue.
Will the backlog blossom?
Management forecasts significant revenue growth in Q2, but equally important to investors -- if not more so -- is what lies ahead. Therefore, it will be important to assess the company's backlog. According to the prospectus, Bloom had a product sales backlog of 108.2 megawatts (MW), worth $742.5 million, at the end of the first quarter; To provide some context, the company had 312 MW in total deployed systems at that time. Unsurprisingly, considering the limited number of customers that account for revenue, Bloom's backlog also fails to reflect significant diversity. Management estimates that merely four customers account for 50%, or $371.25 million, of the company's backlog.
Earlier this year, the fuel-cell industry breathed a collective sigh of relief with the reinstatement of the federal fuel-cell investment tax credit, or ITC. This should provide a strong tailwind for Bloom, which can now present customers with a stronger value proposition. As such, investors should not only recognize growth in the backlog as a green flag, but also greater diversity among the customers that account for the backlog.
Navigating through mixed signals
While Bloom's stock skyrocketed 67% on its first day of trading, July 25, the bloom came off the rose shortly thereafter. Following an interview with KR Sridhar, Bloom's CEO and chairman, MarketWatch published an article that quoted Sridhar as saying, "The company is already profitable as of the second quarter."
Image source: Getty Images.
Those familiar with the company's prospectus, however, found this to be completely incongruous. According to the prospectus, Bloom is expected to report a GAAP loss from operations of $6.9 million to $4.2 million. Recognizing the contradiction related to Sridhar's comments, Bloom filed a supplement to its prospectus with the Securities and Exchange Commission. In the filing, Bloom confirms that it doesn't expect to generate an operating profit on a GAAP basis for Q2, negating Sridhar's claim in the article.
Naturally, investors will want to confirm that the company's operating loss falls within the expected range. The more pressing issue, though, is how will the company attempt to recover (if at all) from such an absurd blunder? Will the company issue a mea culpa in its shareholder letter or in the commentary from management that will be posted on the company's website? Moreover, what steps will the company take to regain the public's trust after such a misleading misstep?
What to look for from Bloom
In its first earnings report following its IPO, investors can expect to see significant revenue growth compared to the same period last year. There are more pressing issues for the company, though. For one, investors will want to see if the company has made progress in diversifying the sources of its revenue and backlog. If successful, this will be a significant step forward for what is one of the leaders among companies specializing in fuel cells. Looking past the numbers, however, I'll be most interested to see how the company responds to the gaffe it committed in its first week of trading, perhaps helping to regain some of the credibility it has seemingly lost.
