Bloom Energy: Approaching The Crossroads After Another Unimpressive Quarter

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About: Bloom Energy Corporation (BE), Includes: BLDP, FCEL, HYGS, PLUG
by: Henrik Alex
Summary

Bloom Energy is the largest US-exchange listed pure play on the emerging fuel cell space.

The company reports its fourth mediocre quarter in a row. Briefly discussing Q1/2019 results and Q2 outlook.

Management continues to expect materially improved results in H2/2019 due to higher overall revenues and a stronger mix of business.

Investors should closely monitor the company's ability to perform vs. management's stated expectations.

The stock seems to be at the crossroads. Missing out on projections will likely cause a move to new all-time lows but only minor outperformance on key metrics could be sufficient for a strong recovery rally.

After already looking to go public for many years, leading stationary power generation system provider Bloom Energy (BE) finally managed to conduct its IPO on the NYSE in July 2018, selling 20.7 million shares for net proceeds of $282.3 million.

With annual sales expected to cross the $1 billion mark in FY2020 and a market capitalization of $1.55 billion, the company is, by far, the largest US-exchange listed fuel cell pure play.

Source: Author's own work

The company's Bloom Energy Server is based on so-called solid oxide fuel cell technology ("SOFC") which converts fuel into electricity through an electrochemical process without combustion. The primary input to the system is standard low-pressure natural gas or biogas from local gas lines.

Photo: Bloom Energy Server Installation - Source: Company Website

The stock made a terrific debut on the NYSE, soaring more than 50% from its IPO price of $15 on the first day of trading and ascending even further over the next two weeks until a mediocre Q2/2018 report and weaker than expected outlook caused an almost 20% setback in early August. But the stock managed to come back even stronger than before, ultimately peaking at $38 in late September 2018.

Just around that time, I stumbled upon an article by fellow contributor "Another Silicon Valley Investor" that presented a very compelling short case for Bloom Energy's stock and turned into a highly successful call within just a couple of weeks.

Photo: Bloom Energy Server Installation at a Macy's location - Source: Data Center Knowledge

The general market turmoil in Q4/2018 and another quarterly report with key metrics and outlook below expectations, in combination with the IPO lockup expiration date in January approaching, literally caused the bottom to fall out. The shares spiraled downwards for several weeks, plunging below their IPO price in late November and dipping below $10 for the first time in December. After setting a new all-time low of $8.88 at the end of January, the overall market recovery finally helped the shares to overcome the third mediocre earnings report in a row in early February and recoup its IPO price later on.

On Monday, Bloom Energy reported Q1/2019 results and, once again, the earnings release and outlook contained very little to write home about.

System acceptances came in right within the company's previous guidance range while a sizeable increase in operating expenses and a material drop in adjusted gross margins were disappointing thus leading to a sizeable decline in adjusted EBITDA.

Sources: Company's SEC-Filings, Shareholder Letters, Author's own work

At the middle of the guided range, Q2 system acceptances will increase by 46% year-over-year, up from the 41% growth rate recorded in Q1/2019. But system margins are expected to improve just slightly from subdued Q1 levels due to a generally weaker H1 business mix, and cash flow from operations is expected to be at break-even levels next quarter. Operating expenses are expected to move up by roughly 10% sequentially, but this will be more than offset by an anticipated $8 million one-time benefit seemingly related to some form of warranty provision release.

That said, according to management, the second half of this year should see stronger results with margins recovering above the 20% level as well as positive earnings and cash flows.

Bottom Line:

Bloom Energy continues to grow at a healthy clip, but my main concerns are centering around the projected further material increase in operating expenses and potentially ongoing margin and cash flow pressures as well as the requirement to refinance approximately $330 million in debt maturities at the end of next year. In addition, the company is still heavily dependent on investment tax credits being available for customers and financing partners.

Investors should closely monitor the company's gross margin and cash flow performance in the second half of this year. Market participants are looking for substantial improvements, a miss could easily cause the stock cratering to new all-time lows. On the flipside, only minor outperformance on key metrics would likely be needed for the share price to work its way higher again.

Investors looking for a growth story in the emerging fuel cell space should put Bloom Energy on their watch list but rather wait for the company's Q2 and Q3 earnings reports which will be crucial for the direction of the stock.

Keep in mind, current analyst consensus calls for the company to turn profitable on a full-year basis in 2020 which could provide the stock another boost should the next sets of quarterly results not disappoint.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.