Last week, leading stationary power generation system provider Bloom Energy published fourth-quarter results well ahead of expectations as the company outperformed on both the top- and bottom line:
Backlog was up 17% year-over-year to $10 billion but this number includes $7.2 billion in service backlog which is recognized over up to 20 years.
Unfortunately, the Q4 performance was still insufficient to meet the company’s full-year margin and cash flow targets provided in the Q3 earnings presentation:
Even when adjusting for the company’s decision not to factor over $160 million in eligible receivables during the quarter, cash flow from operating activities would have been negative by more than $30 million for the year:
Please note also that during the first nine months of 2022, Bloom Energy already sold $146.3 million in receivables to its factoring partner at a cost of $3.7 million.
Full-year non-GAAP gross margin of 23.0% missed by hundred basis points while non-GAAP operating margin remained in negative territory.
Things didn’t exactly get better on the conference call with management admitting to having selected certain high-margin transactions from the company’s backlog “to make sure that we were able to get to our commitments for the year“.
But even with Bloom Energy predominantly picking high-margin projects for Q4 delivery and a very significant non-GAAP benefit from the sale of a previously consolidated subsidiary, the company fell short of profitability and cash flow targets.
Please note that on a GAAP basis, the company actually recorded $73 million in one-time charges related to the transaction.
Management pointed to a similar deal for the last remaining consolidated entity in late 2023 or early 2024 but from that on, there won’t be any more significant one-time benefits from restructuring legacy agreements.
For this year, Bloom Energy expects total revenue growth in a range of 17% to 25% with non-GAAP gross margin to improve by 200 basis points to 25%.
Non-GAAP operating margin should finally cross the break-even point while cash flow from operating activities is projected to turn positive:
While I consider most of the company’s 2023 targets as reasonable, I am having a hard time envisioning cash flow from operations turning positive given the requirement to finance expected growth amid substantially reduced factoring activities.
That said, with $348.5 million in unrestricted cash at the end of Q4 and another $311 million soon expected from the anticipated closing of the second tranche of the SK Ecoplant investment, liquidity appears to be sufficient for the foreseeable future.
During the question-and-answer session of the conference call, most questions centered around the company’s new electrolyzer segment and other hydrogen projects but management made abundantly clear that there won’t be any material near-term impact on the company’s top line performance:
So as you look at the backlog and it’s predominantly the server with no electrolyzer in there. If you look at the 2023 framework, so we talked about as we get orders for the electrolyzers deliveries in those are likely to be late 24, 25 before you see any commercial momentum out of them. So as you think about the 2023 guidance that we put out for revenue, it’s really around our core product today that we’re selling on the energy server in the U.S. in Korea in other parts, where Tim has made a lot of progress on the international side. So really excited about that market, but it’s not yet contributing to the overall framework or or backlog at this point.
In addition, management rebuffed analysts’ requests for investments in additional electrolyzer capacity ahead of the curve in both the U.S. and Europe as the company continues to take a wait and see approach:
We are super excited about hydrogen, because that is the abundant, clean power the world is craving for. We are not in the business of guessing when that hockey stick is going to take off. But we are extremely prepared.
Despite strong Q4/2022 headline numbers, Bloom Energy missed out on its margin and cash flow targets for the year.
While the majority of management’s projections for 2023 appears to be reasonable, cash flow from operations might very well fall short of expectations again this year as the company will have to finance growth amid reduced factoring activities.
In addition, Bloom Energy’s much-touted electrolyzer business won’t contribute to revenues anytime soon as the company’s $10 billion backlog appears to be entirely comprised of the company’s legacy, natural gas-powered Bloom Energy Server solution.
Given these issues and with the stock up by more than 20% since the beginning of the year, I wasn’t exactly surprised to see JPMorgan analyst Mark Strouse downgrading the shares to “Neutral” on Friday with a slightly reduced price target of $27.
Considering the company’s less-than stellar 2022 performance, ongoing dependence on legacy technology and risk to cash flow projections, it’s hard to get excited on Bloom Energy at this point.