Good afternoon, and welcome to the Bloom Energy Third Quarter 2019 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. [Operator Instructions] As a reminder, this conference call is being recorded.

I would now like to turn the conference over to Mark Mesler, Vice President of Finance and Investor Relations at Bloom Energy. Please go ahead..

Thank you. Good afternoon, all, and thank you for joining us on Bloom Energy's third quarter 2019 earnings conference call.

To supplement this conference call, we have file our Q3 2019 earnings release and shareholder letter with the SEC and have posted it along with supplemental financial information that we will periodically reference throughout this call to our investor relations website.

The matters we will be discussing today include forward-looking statements regarding future events and the future financial performance of the company.

These statements are subject to risks and uncertainties that we discuss in detail in our documents filed with the SEC, specifically the most recent reports on Forms 10-K and 10-Q, which we identify important risk factors that could cause actual results to differ materially from those contained in the forward-looking statements.

We assume no obligation to revise any forward-looking statements made on today's call. During this call, in our earnings release and in our Q3 2019 shareholder letter, we refer to GAAP and non-GAAP financial measures.

These non-GAAP financial measures are not prepared in accordance with generally accepted accounting principles and are in addition to and are a substitute for GAAP financial measures. A reconciliation between GAAP and non-GAAP is included as part of our Q3 2019 shareholder letter.

Joining me on the call today are KR Sridhar, Principal Co-founder and Chief Executive Officer; and Randy Furr, Chief Financial Officer. KR and Randy will review the operating and financial highlights of the quarter and then we will take questions. I will now turn the call over to Randy.

Thanks, Mark. Throughout my prepared comments, I'll be referring to slides and the earnings call presentation that mark referenced earlier. I'm going to start with financial highlights for the quarter and then talk about our balance sheet. First some highlights, note that all profit numbers that I referenced will exclude stock-based compensation.

So on to slide three. In summary, this was another very respectable quarter. Acceptances were 302 systems, up 47% from Q3 2018's 206 systems. Revenue was $233.5 million, up approximately 23% year-over-year. Non-GAAP gross margin come in at 25.8%, up 5% from Q3, 2018 and up 350 basis points sequentially.

Our non-GAAP operating income was 15.2 million, with adjusted EBITDA coming in at $40.8 million. Adjusted EPS was $0.01 and we ended the quarter with $357.9 million in consolidated cash and short term investments which includes $23.8 million of PPA cash. So excluding the PPA cash, we have $334.1 million of cash and short term investments.

Now onto some color for the quarter and on to slide four. The 302 acceptances and $233.5 million in revenue were both two three records for Bloom. Acceptances were up 46.6% year-over-year and ended up 11.4% sequentially. Revenue was up 22.8% year-over-year and essentially flat quarter-over-quarter.

The mix of acceptances where we had low for virtually no installed revenue is what drove revenues being in the flat range on the acceptance volume growth. I will add more color to this in my ASP discussion.

Included in Q3's mix of acceptances were both new and existing customers and in a wide range of verticals to include healthcare, data centers, pharmaceutical universities, utility scale projects, and food and beverage retail. In total, the 302 systems were spread over eight different end customers in four different geographic markets.

The majority of the installations were in the United States. Onto slide five. As I just discussed, we do provide specific quarterly estimates. And in our Q2 shareholder letter, we provided you with a range of Q3 average sales price estimates, as well as a range of total installed system cost estimates.

For Q3 '19, our average selling price or ASP come in at $6,618 per kilowatt, a number at a higher end of our estimated range. Total installed system cost or TISC came in at $3,730 a number better and below the bottom end of our estimated range.

As I mentioned in the past, both ASP and TISC are impacted by a number of factors to include site location and applicable utility tariffs for that relocation whether the site includes grid outage protection and or is mission critical, the size of the site being installed.

Generally, the larger the installation, the lower the costs on a per kilowatt basis and whether or not the scope of the work includes installation. Typically, our international business does not include installation.

So once again, I want to stress that the important element is not the trend of the ASP or the TISC, but the trend in the delta between the two. The Delta represents our unit level profit of the acceptances during the quarter. The midpoint of the estimated ASP and TISC yielded a delta or margin estimate of 2,175 or $2,175 per kilowatt.

As you can see on slide by, our actual margin delta was $2,888 per kilowatt, a number exceeding the higher end of our estimates. Driving this performance was a combination of unusually favorable mix of side acceptances, as well as continued reductions and our product and installation costs. Turning to slide six.

Gross profit, excluding stock based compensation was up almost 53% from 39.5 million in Q3 of '18 to 60.3 million in Q3 of this year. On a sequential basis, gross profit increased 15.7%. Gross Margin came in at 25.8%, a number nicely above last year's 20.8% and Q2 '19 22.3%. Operating expenses for Q3 were at the lower end of our estimates.

Non-GAAP operating income in Q3 was fixed 15.2, again this number excludes stock based compensation, again, was up significantly both on year-over-year and sequential basis. Our reported adjusted EBITDA was 48 million for the quarter. Not operating expenses were plan and adjusted EPS come in at one set.

Now I want to talk about the balance sheet on slide seven. We ended the quarter with 357.9 million of consolidated cash and short term investments. This includes a total of 23.9 million of PPA cash. So excluding PPA cash, we ended with 334.1 million of total cash and short term investments.

This is essentially flat down about 300 K from Q2, however included in the 334.1 million of Bloom cash is 112.6 million of restricted cash. This is up by about 68 million from Q2. The driver of this increase in restricted cash is a cash reserve committed to our financing partner and exchange for their commitment to increase their financing limit.

This will reduce over time starting July 2020, with the full amount of this increase expected to roll off by June of 2025. Keeping on the balance sheet, but turning to debt, I'd like to make a couple of comments. Of the 664 million in total debt, 261 million is fully non recourse to Bloom.

This represents debt from PPA companies for Bloom is a minority investor and once again debt, we are not responsible for it. That leaves $403 million in total Bloom recourse debt, of which $312 million of that, representing approximately $330 million in total principal balance is due in December of next year.

The vast majority of the remaining balance roughly $91 million is not due until 2024. So, clearly the focus is on the approximate $330 million due in December of next year.

So, what are our plans with respect to this? First off, we are presently in discussions with our existing noteholders and we have selected and hired as an advisor, the investment banking firm of Jefferies to help us with our options. At a high level, we will either use a portion of our existing cash to pay down a portion of the notes.

Four, refinance all for a portion of our existing notes. Think of this as an extension, but likely under new terms for we will raise new money and pay off all or a portion of our existing notes or do a combination of the three. Obviously, our goal here will be to refinance or raise new debt no later than the first half of next year.

We were focused on doing so for choosing the best option for our existing shareholders. But put another way, our primary goal here is to accomplish this with the least amount of dilution. Referencing Slide 8, days of sales were down 11 days from Q2 to the 13 days.

Days of inventory outstanding was up two days from Q2 to 75 days and our payable days was up from Q2 by six days to 43 days. I'd like to make a comment relative to our service P&L, especially in light of some of the recent press. We've consistently said that we do expect near-term losses in our service P&L.

This coming from the updating and modernizing of our installed fleet during our normal service process, where we replace older fuel cells with our latest technology. In 2017, we incurred an approximate service loss of $6 million. Last year, that number was about $8 million.

For this year, we expect to see service losses in Tiers 1 and 3 and service profits in Tiers 2 and 4 with full year service losses in the $3 million to $6 million range for this year. Quarterly or even annual fluctuations can and may occur. We did see a relatively higher Q3 service loss.

This was driven by accelerating some Q4 cell replacements into Q3 to avoid doing this work during the peak winter time and ahead of the holiday season, which is certainly appreciated by our retail and data center customers.

With respect to our service P&L accounting, in addition to selling our energy servers installed at the customer site, we sell ongoing operating and maintenance contracts to our customers. We refer to this as service contracts and these service contracts can and are generally renewed annually by our customers.

In summary, the revenue associated with the service contracts is recognized radically over their service contract term, again, generally 12 months. The treatment of the cause depends on whether we estimate a profit or loss on the contract.

If we estimate a profit on the contract, which we do for all contracts that we've signed over the last several years, then the cost associated with the contract is expensed as incurred. If however, the service contract is estimated to have a loss, we expense the loss at the time of the contract signing or renewal.

Again, all service contracts executed since the beginning of 2015 are profitable. As we've communicated previously, based on the 10-years of data that we've been tracking or service costs, the service revenue over the estimated service contract period or our current install base exceeds the cost that we expect to incur to support those contracts.

Further details relative to our service costs can be found in the technical note that KR will be referring to in a couple of minutes. Now over to KR for business update..

Good day to all of you from California. I started this company 19 years ago, because I was convinced that electricity is a basic human need that should be generated cleanly and delivered reliably and resiliently. And there were no solutions that could provide that combination to anyone let alone make it affordable and accessible to everyone.

The extended Bloom family worked tirelessly for 17 years as a private company to make that dream a reality. And we have shown grid and resiliency to weather through the many hurdles we had to overcome.

Today, 19 years later, the time has come when the consumers understand the need for reliable and resilient power and its impact on their overall safety. We are now willing to value it.

Today, we have a product that is battle proven in the field and ready to scale to the next level with that no compromise solution that is unique and unmatched in the marketplace. Let me start with the recent events in our home state of California and how they relate to our business.

Its mind boggling how much the energy landscape has changed since our last earnings call. We have witnessed how vulnerable our state electricity infrastructure is, and how unprepared we are as a society to cope with the consequences of climate change.

This as we mark the tragic one year anniversary of the campfire in Paradise, California that took 85 lives. We express our deepest sympathies to our fellow citizens of California, who have suffered significant health, safety and economic hardships due to the fires, evacuations and repeat prolonged power outages.

The public safety bar shut off has not been a satisfactory solution despite the massive shut off fire still started due to electric wires and spread quickly. Without power many people were unable to access essential emergency services and basic communication, which further jeopardize their safety.

Consumers are increasingly demanding certainty and reliability of power availability. So what does this mean to Bloom energy? The Bloom Energy micro grid is the right product right now to add to the infrastructure. We haven't always on micro grid that is unmatched in the marketplace.

Bloom Mciro Grids provide customers with reliable always on clean electricity, no matter how long the utility grid power outage. A micro grid is a local grid that is specifically installed to allow critical facilities, businesses and communities to operate without interruption. Then a surrounding electric grid becomes unreliable or unavailable.

Bloom has 89 always on micro grids in operations. And 26 of those micro grids are in the service areas that were subject to the recent California utilities public safety bar shut off once. All of them, let me repeat, all of them performed reliably for our customers. The customers include manufacturing facility, corporate campuses, and data centers.

These micro grids are field proven, readily available, and the only viable clean alternative to the failing grid for critical facilities, businesses and consumers that demand reliability and our certainty for extended period of time. Two recent examples illustrate how valuable the blue micro grid can be to a business during an extended power outage.

The first one is blue multi-megawatt micro grid that supports a critical load for an industrial facility in California. In early October, during the first emergency utility shut off of the month, blues micro grid, ensured the facility could operate.

In the recent shut off, towards the end of the month, the same customer voluntarily disconnected from the unstable grid and relied on its bloom micro grid for power. Use the proximity of the wildfires, management evacuated the facility for the safety of its employees. As they evacuated, they shut off all power sources including backups.

They kept the blue micro grid in operation to support the critical load. Our customer had complete confidence in the blue micro grid to operate autonomously. They knew that with real time remote monitoring and control, Bloom could shut down with remote instructions the micro grid safely if a need arose.

Let's shift to the east coast for a second example. During the heat waves in August, a large retailer in the northeast had grid related power interruptions, ranging from one to five days in their local area that impacted five of their stores.

The blue micro grid in those stores allows them to stay open and serve their communities during a time of real need. Unlike the multi megawatt first example, these stores are each about 200 kilowatts of base load power. These examples illustrate, what communities and businesses can expect from Bloom’s 21st century power solutions.

The natural disaster related resiliency issues are not restricted to just the two coasts. It's a global issue and Bloom is well sufficient address this challenge with our always on micro grid solution.

This is a big opportunity, as I see it, there is a fundamental shift in thinking from what is the cost of power to what is the cost of not having power. We expect the recent power disruptions to be a strong and sustained tailwind for our micro grid solutions and products.

The reason, interruptions from natural disasters on the aging, and congested grid are not new normal. But the beginning of a trend that will worsen, the grid based hardening will not occur in a timely manner. A timely solution is only possible by valuing resiliency and investing in proven solutions like micro grids.

The micro grid allow consumers to take their power destiny into their own hands. Our customers in the northeast experienced 150% increase in grid disruption in August of 2019 compared to the same month in 2018.

In California, just from September to October of this year, the disruptions to the grid in the areas around our micro grid customers have more than doubled, when Mother Nature speaks, we have no choice but to listen.

State officials and regulators are responding to these resiliency crises with a new sense of urgency and are sending the right market signals. California Governor, Newsom said last week, “we've got to harden our equipment, we've got to modernize our equipment, micro grids, new strategies of distributed networks.

We recognized the need to do something in this space many months ago and have now required $5 billion of investments as part of the plan” It is important to note that for the first time, there is a willingness to value the resiliency and invest in it.

Last quarter, we discuss potential headwinds in New York related to the battle over a new natural gas pipeline. It is clear that political leaders and regulators have shifted their thinking, as they realized that the only other viable near term option, oil is dirtier, less reliable and more expensive.

Since our last earnings call in August, all of the Democratic senators who represent Long Island have come out in support of the pipeline. And then, just lastly, Governor Cuomo said, “You have to coordinate the sequencing of moving off gas, then you have the renewables to satisfy the demand otherwise, you go to oil”.

In other words, you cannot disconnect from the gas, without compromising safety and the environment. The large scale weather related events are forcing all of us, including policymakers to deal with both the causes and consequences of climate change.

We need both decarbonisation and resilience with optimum balance, so we can protect both the planet and the safety of our people. In California and New York, costs related to the transmission and distribution of electricity has risen dramatically over the last 10 years, approximately 20% to 50% depending on the utility.

Customers have had options to hedge the generation portion of the utility bill through competitive markets, but they have no such option for the transmission and distribution portions of there bill. PG&E has requested to 2021 potentially $2.5 cents per kilowatt hour increase for commercial and industrial customers.

The corresponding number for Southern California Edison is 2.8 cents per kilowatt hour. In both these cases, transmission and distribution costs account for over 50% of the potential rate increase.

In contrast, the Bloom Energy server by producing electricity on site avoids distribution and transmission costs and allows customers to lock in and fixed and predictable electricity costs. In some, these climate changes related market forces are driving interest for always on reliable, clean power that's affordable and predictable.

Developing a product to meet those requirements have been Bloom’s mission for the past 19 years. The time is right. And the time is now to rapidly expand our product deployment. Looking forward as an innovative products of technology company, we understand the importance of reducing global carbon emissions.

Bloom platform is uniquely capable of moving from a low carbon to a carbon free solution. We are moving aggressively to harness biogas as a fuel to deliver zero carbon electricity. We recently announced a collaboration with CalBio to produce renewable electricity from daily waste to power electric vehicles.

This collaboration creates local jobs, generate additional income for dairy farmers and enjoy strong local community support. There's an estimated 320 megawatts of economically viable daily biogas in California alone.

I’m extremely thrilled about our joint efforts with energy power to deploy commercial scale onsite biogas, electricity projects in India. We plan to install and operate four megawatts of Bloom Energy servers in the state of Maharashtra, India next year. Agricultural and municipal waste will be used as feedstock for producing the biogas.

Just this week, India's capital New Delhi recorded its worst air quality in three years, leading to the city declaring a public health emergency, schools shut down and banning millions of vehicles from the roads. Crop residue is a big contributor to the bad air quality.

In the future, it can be used to the feedstock to provide clean renewable electricity using Bloom servers rather than simply burning it. They're also working to bring our energy platform to the marine shipping industry to reduce the significant greenhouse gas emissions produced by that industry to a partnership with Samsung Heavy Industry.

This is very large and new market opportunity. To put it in perspective, a single large cargo ship would require up to 100 megawatts of power. And if the marine shipping industry vary country, it would be the sixth largest emitter of greenhouse gas emissions in the world.

In the past month, we are experiencing a strong customer interest from the Korean market for our energy solution to our partnership with SK of Korea. A number of questions have been asked and some have expressed doubts regarding the useful life of our fuel cell module. We have released a technical database report today.

It shares our research, findings and addresses those questions clearly with actual field data. We encourage you to read the support in its totality. It is found on our website. In conclusion, I'm pleased to announce two important additions to the Bloom Energy Board, effective November 12, Jeff Immelt and Michael Boskin.

Professor Boskin is an eminent economist at Stanford, serves the Chairman of the Council of Economic Advisors for President, George HW Bush, and remains involved in major economic policy issues, both in the U.S. and globally.

He has served on several corporate boards, including Exxon Mobil and Vodafone and continues to serve on the Board of Oracle Corporation. Jeff Immelt served as Chairman and CEO of GE for 16 years. He has deep insights into the global power markets and strong connections to customers.

He has experienced multiple market cycles and has had exposure to Bloom since its founding. He knows our company well and believes in our mission. I'm thrilled and privileged to welcome both Jeff and Michael to the Bloom Board. I will now hand this over to Randy for his remarks on Q4 2019.

Randy?.

Changing the conversation to our outlook, in Q4 we expect acceptances to be between 355 and 385. ASPs to be between $5,920 and $6,220 per kilowatt, and our total installed system costs to be between $4,250 and $4,550 per kilowatt. Also, we expect operating expenses to be between $46 million and $49.5 million.

To close today's prepared remarks, I wanted to announce that I will be retiring and transitioning over to my replacement over the next few months. I turned 65 last July, and after a 43 year plus professional career, with over 33 of those working here in the Silicon Valley, all in technology, I feel it is time.

In my almost five years at Bloom Energy, I'm proud to have been part of a team that has advanced the ball significantly when it comes to the fuel cell industry from Q1 2015, which is roughly when I joined the Q3 of this year, our product costs on a per kilowatt basis has declined by over 62%, our quarterly gap revenues have grown by almost 270%, and we've moved from losses to profitability at the non-GAAP operating income level, very nice progress over this period.

However, I believe this is just the early innings for Bloom. I firmly believe that the company has great opportunities ahead.

I say this because next year, the next generation of the Bloom Energy server, which will initially have 50% more power output should begin commercial shipments, providing a platform for further cost reductions well into the future.

The macro factors such as the Public Safety Power Shutoff events currently being experienced in California are heightening awareness and providing greater clarity for future demand. And finally, the strong case, that Bloom could be the lowest cost solution for 24/7, low to zero carbon based power. I only wish I was five years younger.

So, thank you KR for the opportunity. I'd like to thank all of my fellow Bloom colleagues for their support over my 10 year. Once again, I'd like to thank all of you on the call today, and I will now turn back to KR before we take questions..

It is amazing how quickly five years have gone by. I vividly remember including Randy out of a nascent retirement and convincing him to join Blown and help take the company public. Our goal then was to take Bloom public in 2016. And Randy promised me a maximum of three years of service when he joined.

Randy has done an amazing job of helping build this company over the last five years, including taking it public last year. He will stay with us and help with external search process that we have started and through the transition. Many of you will see him in person at the investment conferences he will be speaking at this month and next.

I want to thank him for his service and wish him a wonderful and well deserved retirement. Randy, thank you from all of us at Bloom. In conclusion, let me summarize where I see the company going in the next three years. Thus far created four generations of product, each one, significantly better performing and lower cost than the previous generation.

We are now cranking that flywheel for a fifth time with our Blown 7.5 platform, whose development is on track. And we successfully execute this product. We can deliver under $0.10 per kilowatt hour electricity that is reliable, resilient, clean, and that has low to zero carbon footprint. This combination is unique.

No other products in the market can do what our Bloom service do. And for this reason, I'm extremely excited about our future. We will now move to Q&A..

[Operator Instructions] And your first question comes from the line of Michael Weinstein from Credit Suisse..

Hi, guys. Randy, congratulation, and you're going to be miss..

Thank you, Mike. Thank you for the time..

Yeah. Hey, could we provide an update perhaps on the 130 megawatt backlog as of the fourth quarter of 2018 that existed, especially as we near the year end now and heading -- you've got fourth quarter guidance out there now, so maybe we can talk about that..

Repeat that one more time Michael.

Are you asking about our backlog?.

Yeah. Maybe an update on the backlog, and also can you talk about how this, so my question is out right now. Talk about California, the shorter PPA product that you had mentioned launching where does that stand? And what's been the response so far in California to changes to your approach to sales there..

I’ll take the first one, the backlog. We're going to stick with the policy of just announcing backlog once a year we'll do it on the call. We’ll do it ahead of when we file the K. gain I want to stress orders come in very, very lumpy. We often see an example of the big box store where we're all at once.

And that'll grow over a four or five quarters of shipments of just acceptances. So to keep in giving any false pretenses one way or the other, we're just going to stick with one annual disclosure of our backlog. We'll do that on the next call. With respect to our – as you refer to a shorter PPA I’ll let KR take that..

So. Hi, this is KR. So, I think you’re in asking the question on the shorter PPA and the market dynamics given what’s happening with BS.

Is that the duplicate question?.

Exactly..

Yeah. Okay. Great. So, look, when event like what has just happened, it's completely unprecedented. 2.5 million lost power, almost 6 million were affected by it one way or another. It changes the entire discussion of what's going on out here. And we're seeing that. Let me answer your question in two parts. Okay, one is the long term.

And one is what does it mean immediately. If I just take it from the practical to the long term first and then bring you back, the fundamental thing that's shifted, that is for the immediate term, the mid-term, and the long-term is around people focusing on not just the cost of power, but the cost of not having power.

And the other big tectonic shift you're seeing is, as you know, the regulated business for IO use. And the rate design is never valued resiliency. What you're hearing from the governor and other policymakers speak is they want to change that, and put a value for resiliency. And they do that, it's extremely good for Bloom.

This is exactly what we have been saying should be done, because the product has to be valued for resiliency, for its reliability and safety is extremely important. So that's the long term picture that I want you to think about, as well as customers saying, we want to take our destiny in our own hands, we're seeing that.

So how are we seeing that in a very tactical way, if you want to see that is whether it's our existing customers, or whether it's new prospects, you're seeing it significant inbound inquiry increase, roughly about five times what we have normally seen, since these events have started happening.

And we think that our existing customers who typically have been grid parallel in some cases are now coming and asking for micro grid solutions. The always on micro grid becomes extremely important. The second thing also that we're seeing in the dynamic there is interest today is not just coming from the facilities, it is coming from the C suite.

And if you ask why is it coming from the C suite? It is about saving the business. It is about keeping the lights on for the business, protecting the safety of the people and serving their customers. So we see all this happening in terms of what is coming in.

How will it translate? Is, as Randy said, these are tens of millions of dollars worth of transactions and they have to run through a process and the C suite doesn’t walk, we expect the cycle to shrink. compared to when it is just a facilities by for electricity. This is mission critical for their business now. It's about saving the business.

Given that it will be the process will shrink, so what we expect is that we will see the impact of all this in our 2020 bookings. And most of that revenue to that normal cycle will be in the 2021 cycle..

Got you. And one more question about the length of time that the servers you know, the lifetime they last at your papers, note that it goes from 1.9 years back in 2011.

Now, currently at 4.7 years on average, where do you expect to see for generation 7.5?.

It will be greater. It will be north of that without a question. How much north? I'm not going to speculate on that until we get to, until we get to having enough of the lifetime and enough data to be able to say that. So the 4.7 that we mentioned is for the servers that we shipped in 2015. And that's extremely important.

Let me take a little bit of time to be able to walk you through that. If you look at the whitepaper at the technical note that we just referred to, it is 4.7 years for the units that we shipped in 2015 as a median age, why are we referring to that? You add 4.7 years to 2015. Roughly, most of those units should have seen their life by 2019, right now.

Anything past that they're still in the field. So we're seeing, you don't have to trust our judgment. You don't have to rely on some third parties judgment, simply rely on field data. Equipment don't lie. This is -- equipment working in the field, we have the data.

This is 4.7 years, we’re saying 2016 and onwards to expect even greater life incrementally as you go going to five years to 7.5. I would expect definitely for it to be greater than five years, but how much greater, stay tuned, we will tell you as soon as we have confidence in that number.

And the other point I want to make here is even in the 2014, 2015 timeframe, we have predicted the median life to be what they are. The field has proven that we are correct.

That shows credibility to our being able to say, why we can support a number, if these numbers are supported to extensive knowledge base, extensive field data of actual working items..

Okay. Thank you very much. I’ll see….

Thank you, Michael..

And your next question comes from the line of Stephen Byrd from Morgan Stanley..

Good afternoon..

Good afternoon, Stephen.

How are you?.

Good. Randy, congratulations on your retirement and thank you very much for all the help you provided….

Thank you, Stephen. Thanks for your time..

Really appreciate it. I wanted to build on Michael's question. Just in terms of the sales outlook broadly. You know, I guess since the last call, we've had as you eloquently walked through KR, series of shut down to power in California. You've had announcements in the California dairy industry, in the shipping industry.

I think you mentioned some potential incremental opportunities in Korea. But I guess as I'm thinking about all those opportunities, and you mentioned this a little bit on Michael’s question just in terms of the time it takes to translate these types of dynamics into actual sales. There's a lot of attention in the investment rolled on 2020.

And just in terms of that cycle of translating agreements or dynamics into actual incremental contracts, would you mind just touching on that a little more detail?.

Yeah. So, Stephen, the way I see it is a following. When you flip a switch and electricity does not come in, that dynamic and that tailwind or that reality from every other headwind that was created that did not have that kind of an impact, because it is about the safety, the reliability of now and nobody can ignore that.

And I can tell you these are real life situations. I, in my house did not have power for almost four days, okay. Our Chief Marketing Officer, who has a medical device did not have power in his house. So these are real things that happen and it touches one in six Californian from this period.

What this means is? The sense of urgency with which our existing customers and our prospective customers are engaging with us. And the levels at which they're engaging with us, the C Suite, is something we have not seen before. It is new to us. So, as I see it, I would expect that the sales cycles become more shorter.

Can I tell you how much shorter it can become? The answer is no, I don't know, right? It is still multi-million dollar investments, whether it is a power purchase agreement that they make, whether they're committing to that kind of numbers, or whether it is a lease or whether it's a capital purchase.

So it will go through a process, but we expect this process to be fast. So think of a few months on the bookings. And think about our normal cycle of nine months to 12 months to convert that bookings to an acceptance. That's why I mentioned we will see those bookings happening and the impact of it.

We expect it to be significant in 2020, early 2020, and we expect the results of that showing up in our P&L in 2021. Now, let me just say that this is not a California phenomena alone. I think the nor'easter. I think the winter and we saw that happen in the summer in the northeast.

It is a global phenomenon that -- its the heat in India, it is the -- tremendous pollution that is making the government think very heavily about biomass conversion to biogas, thereby preventing people from burning the crop. So, this is a phenomena that I think we're going to see worldwide.

It is it is definitely a sustained and strong tailwind in our back. I wish, I could tell you how quickly and how fast that numbers that it'll convert to. My hope was it's going to be a very good one, but I cannot give you numbers..

Make sense. Randy Furr, I just want to remind everyone that, as KR pointed out from the time of booking, it's 9 to 12 months for the time you're going to see the revenue as we refer to as acceptance. So what you're saying is, we think the sale cycle is definitely contracted and shorter.

But it's still in 3 to 6 month kind of timeframe, maybe even 7 months. That's kind of put the bookings, call us in the first half of next year, which you'll probably see early and 2021. So I just want to re-emphasize that that point out there.

There are exceptions for that, for example, our international business to where we don't do the installations, that's done by our partners whether it be India, in Japan, South Korea that happens, which means that, that order or booking to shipment is a lot less than that 9 to 12 months.

It can theoretically even occur in the same quarter, but usually occurs one quarter and the shipment acceptance is in the next.

So there could be -- I know we gave guidance on our last call for year over year growth being -- flat range, but the point being is that, there could be upside to that depending upon the international orders that come in next year. So I'll leave it at that..

That's really helpful color. Thank you. And just on the shipping contract or agreement that you've reached I guess, on the positive side, even a small number of shifts from a megawatt point of view, can very quickly be a pretty big needle mover for bloom.

I guess I'm thinking though, about the timeframe required to secure orders in the shipping industry.

Just give relatively long lead time to actually construct one of these ships, and would you mind just talking briefly in terms of sort of the life cycle of that dream and in particular, but I think just too specific that anyone project is more just about the sort of the time over which you would be able to sign up agreements there relative to the time required to manufacture a ship and just sort of where we stand with that?.

So this is the best of our understanding from the ship under Samsung.

And you know, as well as others that we have spoken tom the demand for wanting ships that are lot smaller in carbon footprint, is extremely high from the end users opposite to buyers of the ships, and they're seeing this internationally, why? The reason is, the UN International Maritime Organization that controls and put standards on these things, has put a extremely stringent requirement on carbon footprint on these ships that has to be -- that has to happen in a very short time period.

And we have talked about this in our press release on this particular topic for those of you that want to read up more that, that's a requirement. And most ship operators believe that this is a number they have to meet because unlike local installations and facilities, the ships have to travel globally.

And they have to be in multiple floors and any country insisting on it, it’s going to set the standard, so to speak. So they're all moving very quickly towards. So, what we understand from TransAuto is there is a significant demand, as soon as they have a product ready.

So what is happening now is they have already passed the first step with the regulators, are saying conceptually this design as they have conceived with Bloom is something that can go to the next stage of development. We are doing the -- we're doing the development, the whole development and certification..

I would imagine given the two year timeframe, so to answer your question, Stephen, it's a two years out demand as opposed to something that's going to happen next year in terms of actual acceptances and being able to shift, but it's an enormous market.

And it's a unique market for us in terms of being able to capitalize with very few other good alternative options that a shipbuilder would have..

Very good. Thank you very much..

Ladies and gentlemen, and your last question for today's call comes from the line of Pavel Molchanov from Raymond James..

Thanks for taking the question. Another one if I may, on the Samsung agreement. So this is your first kind of entry into the transportation sector.

Are you looking at other options or other end markets beyond distributed generation?.

The answer is yes. And the answer is yes in a following way. Just think about what happened with distributed computing. The event from mainframe computers to distributed computing, but the mainframe computers are not that they're called Cloud computing. And these are large mainframe computers, except they're not built as one single monolith.

They've built with thousands of distributed servers can act together.

If you think about Korea Power Tower, it is nothing but a whole bunch of bloom distributed generation stacked together both horizontally and vertically to build a huge structure that gives you very good density, to give you an idea of what this means, in a one acre space, we can do hundred megawatts if it is 50 feet tall.

That's an amazing power density. And the beauty is around that one acre. You don't need any easement space because there is no noise, vibration, pollution smokestacks.

So we believe that there is going to be a transition even for places that need significant amount of concentrated power like micro power plants, mini power plants, MIDI power plants, you will build them as these hundred megawatt monoliths, and if you want a gigawatt, you'll have 10 of them.

Because the beauty is, unlike a monolithic power plant, you don't have to take down an entire power plant to service, it's availability will be high, and our efficiencies will be significantly higher, and we are -- as we continue with this flywheel that I talked about of our cost reduction going to get to a point, that building a large power plant using these servers this way will be cheaper than building a large scale power plant.

So we will come full cycle extremely similar to what the computer industry did. So that's, that's where I see us going in the future. In addition to serving the distributed needs, so we will be both on your desktop as well as in the cloud the same thing, we will be next year building and we will be in the central power plants..

Okay, let me ask one more question about the ITC in the solar industry. We're watching demand pulling because of course the tax credit stepped down in 2020 and again in 2021.

Given that we have the same dynamic with fuel cells, I am curious if that may accelerate some of your bookings –either I, you know, either by the end of this year or next year?.

Well, you know, clearly the ITC is an incentive for the end customer. And yet, having a sunset will create a similar dynamic in the marketplace, as its creating elsewhere. So we would expect the same thing. And we as a company are prepared for the Safe Harbor in construction models that, you know, solar and wind industry is planning.

We are planning for something similar on our side to. So that's a good question. .

And we're leveraging that obviously with our customer base to point out that there is a savings on a….

Book sooner rather than later. .

Exactly. Thank you..

Thank you..

Ladies and gentlemen, this concludes today's call. You may now disconnect..