A leader in fuel-cell solutions, Bloom Energy (NYSE:BE) is expected to report its second-quarter earnings on Aug. 12. While the company met analysts' sales and earnings expectations in the last quarter, in Q2, analysts anticipate Bloom Energy will report $208 million on the top line and a loss of $0.16 per share.
Although it will be interesting to see if the company meets -- or even exceeds -- expectations, in-the-know investors know that there's much more to a company's quarterly performance than just top- and bottom-line metrics. So let's prepare for the company's report by keying in on some points we can expect management to address.
1. Something investors should happily accept
Although management hasn't provided specific guidance as to what investors can expect regarding revenue, there are some key metrics with which the company has offered to provide some context. Forecasting growth in the company's number of acceptances (the transition of projects out of backlog), Bloom Energy reported 181 acceptances in Q2 2018, and for Q2 2019, management has guided for acceptances of 250 to 280. Should the company report at the midpoint of its guidance, it will represent a 41% increase over the 181 acceptances it reported during the same period last year.
Investors, furthermore, can look for management to confirm its opinion that acceptances will grow in the second half of 2019. And they can expect the company to address longer-term opportunities. For example, on the Q1 conference call, management expressed its interest in expanding into new markets -- India in particular. Characterizing India as "a slow market in terms of entry and then a very fast growth," K. R. Sridhar, Bloom Energy's CEO, said that the company is "doing a lot of groundwork" in the country.
2. Flat expectations
While the presumable growth in acceptances is noteworthy, investors' enthusiasm should be tempered by the fact that management doesn't foresee significant progress toward profitability. To gauge this, investors can focus on two important metrics, both of which are reported on a dollars-per-kilowatt basis: average selling price (ASP) and total installed system costs (TISC). Guiding for ASP in the range of $6,050 to $6,350, management forecasts TISC of $4,875 to $5,175. If the company, therefore, achieves the midpoints of these ranges, it will report a $1,150-per-kilowatt up-front margin. While this is slightly below the $1,212 margin it reported last quarter, management stated on the Q1 conference call that for the most part, it expects the up-front margin, compared to the previous quarter, to be "essentially flat, maybe slightly up a bit."
Similar to the expectation that acceptances will grow in the back half of the year, management foresees improved profitability in Q3 and Q4 due to an improved mix of business. Investors, therefore, should look for management to forecast ASP and TISC that indicated a wider up-front margin in Q3 than what it reports for Q2.
3. On the road back to positive cash flow
While Bloom Energy's bottom line will be a figure worth noting, I'll be more interested in checking what the company reports on the cash flow statement -- especially considering what it achieved last year. In Q2 2018, Bloom Energy reported operational cash flow of nearly $16 million, a virtually unheard-of feat for a fuel cell company. In the subsequent quarters, however, the company has failed to turn in a repeat performance. Most recently, for example, Bloom Energy reported operational cash flow of negative $4.2 million and free cash flow of negative $13.6 million.
Speaking to the prospect of returning to strong cash flow, management stated on the Q1 conference call that it believes that the company "could see neutral free cash flow this coming quarter, Q2. And then obviously, with expected profits in the second half of the year, we expect that to go to free cash flow positive."
What to focus on from Bloom Energy
While I'll be watching to see if Bloom Energy meets expectations regarding acceptances and whether it improved its up-front margin in the second quarter, I'm more interested to see how the company fared in generating cash flow. Should Bloom Energy demonstrate the ability to generate strong cash flow, it will unequivocally indicate that the company is ahead of its peers in proving that offering fuel cell solutions can be a lucrative endeavor.