Bloom Energy Corp (BE) 2023 Q2 法說會逐字稿

Good evening, ladies and gentlemen. Thank you for attending Bloom Energy's Quarter 2 2023 Earnings Conference Call. My name is Anna, and I will be your moderator for today's call. (Operator Instructions)

I will now pass the conference over to your host, Ed Vallejo, Vice President of Investor Relations. Please proceed.

Thank you, and good afternoon, everybody. Thank you for joining us for Bloom Energy's second quarter 2023 earnings conference call. To supplement this conference call, we furnished our second quarter 2023 earnings press release with the SEC on Form 8-K and have posted it along with supplemental financial information that we will reference throughout this call to our Investor Relations website.

During this conference call, both in our prepared remarks and in answers to your questions, we may make forward-looking statements that represent our expectations regarding future events and our future financial performance. These include statements about the company's business results, products, new markets, strategy, financial position, liquidity and full-year outlook for 2023. These statements are predictions based upon our expectations, estimates and assumptions.

However, as these statements deal with future events, they are subject to numerous known and unknown risks and uncertainties as discussed in detail in our documents filed with the SEC, including our most recently filed Forms 10-K and 10-Q. We assume no obligation to revise any forward-looking statements made on today's call.

During this call and in our second quarter 2023 earnings press release, we refer to GAAP and non-GAAP financial measures. Non-GAAP financial measures are not prepared in accordance with U.S. Generally Accepted Accounting Principles and are in addition to and not a substitute for or superior to measures of financial performance prepared in accordance with GAAP. A reconciliation between the GAAP and non-GAAP financial measures is included in our second quarter 2023 earnings press release available on our Investor Relations website.

Joining me on the call today are KR Sridhar, Founder, Chairman and Chief Executive Officer; and Greg Cameron, our President and Chief Financial Officer. KR will begin with an overview on our business, then Greg will review the operating and financial highlights of the quarter as well as the outlook for the year. And after our prepared remarks, we will have time to take your question.

I will now turn the call over to KR.

Hello, everyone. It was so great to see so many of you in-person at the New York Stock Exchange for our Investor Day. And again, we really appreciate you all joining us today for this call. At Bloom, we are continuing to make great progress, and we grew our revenues, reduced our costs and strengthened our balance sheet in the second quarter. We are dedicated as ever, and we're trying to build a great company that can meet the energy needs not just today, but for the future also.

Like me, probably all of you are watching the news and reading the headlines. The messages on energy and climate are extremely clear. We just exited the month of July and it was the hottest month on the planet in recorded history. And we are just looking at deadly heat waves, electrification of everything, digital transformation, all of them raising the demand for electricity. And the growing demand for power is far outstripping the growth in supply in most places.

And what is that doing? It's just creating the power shortages, and for people that want to grow their business, it is creating a time-to-power issue for them. The electric grid, it is just stretched to the limit and it's being run to fail. And we, believe it or not, in this century are living with the constant threat of power outages. And to add insult to injury, the power prices are rising really steeply.

Business leaders really are taking note of all this and they're becoming anxious. They're becoming anxious about energy security and the spiking energy costs. And in addition to that, they're getting very concerned about their decarbonization goals and how they're going to meet it.

So energy strategy now has become a real boardroom issue of great concern for companies. And many CEOs and boardrooms are finally realizing that this is not a short-term crisis they can somehow ignore and expect it to go away very soon. It's here to be with us for a while and they have to look for alternative solutions, solutions for energy that actually are more predictable and reliable.

In other words, they're asking for proven and reliable alternatives to the grid and very simply be able to find that solution that is easy to transact with no hidden costs, hassles and they don't have to be a rocket scientist to figure out what that alternative is.

Listen, our message to the market is very clear. The Bloom Energy servers, you can say 2 things about them. They're resilience-tested and they're market proven. It will allow you and the businesses to take control of your power and protect your companies as a viable alternative and a real enhancement to the grid. And this solution we have for you, it is -- we have scaled it. It is scalable. We have proven that it's affordable.

And most importantly, it's available today. It's not some future technology. So, not only can you operate these boxes we'll ship now with net 0 hydrogen right away, if it is available to you, but until it's available to you, you can use natural gas.

And when we listen to the customers, you, what we heard is you want an alternative and you want control. You tell us that you're worried about switching to a solution that doesn't have a track record. That's not a problem at Bloom. You say that you do not want to make big capital investments or lock yourselves up in long-term contracts. Because while you want the reliability, you also want the flexibility. You want the flexibility. 5 years from now if there's a better solution, you want to switch to that, and if 5 years from now, the location where you're operating is not where you want to continue operating, you want to be able to free to move.

In other words, you're asking for a proven option that's reliable and flexible, at the same time, it's very simple to transact and it doesn't have hidden costs or hassles. We responded to these customer concerns and needs by launching a brand-new offering last week, the Series 10. It's a power-buying model that's the first of its kind in the U.S. power industry. What did we try to do with this offering? To make it extremely simple for companies to take control of their power needs if they're a substantial user of electricity, 10 megawatts and higher.

Let me just explain how simple this is by addressing 6 salient points about the Series 10, and how the needs and concerns of the customers are met by the Series 10 offering. Number 1, there's concern about unpredictable and rising power costs, right? Well, we'll give you a flat power price for 5 years. Fixed, flat, right? In many places, it can be as low as $0.099 a kilowatt hour. So, cost concern, checked.

Number 2, worried about growing your business because of power availability or time-to-power, the issues we've talked about supply-demand mismatch? We guarantee to ship our units within 50 days from the signing of a contract. How is that for speed?

Number 3, capital investments and long-term contracts are a deal breaker for you, right? There is no upfront investments with our Series 10 offer. And we offer the shortest contract term in the market for baseload always on power. 5 years. Yes. You heard me right. 5 years. Checked that concern.

Number 4, if you're worried about installing, maintaining or operating the energy servers, it's all handled by Bloom for you at no additional cost.

Number 5, can it run on hydrogen or biogas when they become available? And it could be anytime soon or a little bit later depending on where you live. But in the meantime, you need to keep your business operating and you want to run on natural gas until that hydrogen becomes available. Yes, yes and yes. We can meet all your sustainability goals. You can run it on hydrogen today. You can run it later or you can run it on biogas today. You can run it later, but until all those things come, you can run on natural gas today.

Number 6, can customers ask for a solution through their power company and can they not get it directly from us? Absolutely yes. We would love to partner with independently owned utilities, municipal utilities and community co-ops to provide this solution to them and they in turn can serve you, the customer. And we really want to hear from them. And this offering makes it easy for everybody and a win-win. In other words, Series 10 is both in front of the mirror or a behind the mirror solution.

Okay. Then all 6 concerns addressed. Now let me highlight similarly another launch that we just had, and it's also very reflective of our innovative products and offerings. But before I do that, let me take a minute to explain why this is significant, and I'll just use 3 points to be able to explain to you.

Number 1, about half of all the energy that industrial customers use globally is for steam generation. Yes. 50% for steam generation. This is the sector of the economy that's currently the most challenging to decarbonize and they are struggling the most with rising energy prices.

Number 2, our digital transformation relies heavily on these big data centers and network operating centers that just send information traffic back and forth between all our devices and where that information needs to go. They're very large consumers of power and up to 40% of that power sometimes goes towards providing cooling for those data centers, so the computers can operate.

Number 3, conventionally, all that cooling is provided by electricity as a source of energy. That's how we do air conditioning and refrigeration today, and that air conditioning and refrigeration predominantly uses hydrofluorocarbons, or HFCs, as the refrigerant, the cooling medium, and HFCs are hundreds of times more harmful to the environment than CO2 is.

At Bloom, we look at the scenario and what do we see? We see an opportunity to innovate. 2 days ago, we launched an enhanced combined heat and power solution. Let me explain what this is to you. Our Bloom Energy servers operate at high-temperature and that high-temperature operation is the secret sauce that enables us to provide the highest electrical efficiencies in the industry to our customers when it comes to the electricity we provide them.

Here's another thing. When those servers are operating at that -- operating and producing that electricity, they also produce high-temperature heat. Our enhanced CHP offering simply taps into that high-temperature heat as a byproduct and it delivers it to our customers. Our customers can use it for steam generation. Steam is widely used by industrial customers for process heat, as I said, and it's about 50% of their energy needs if you're an industrial customer.

The steam generated has another major use. It can be used for cooling the air conditioning and refrigeration that we talked about, to absorption chillers that don't use hydrofluorocarbons or HFCs. These value streams are significant to our customers because they get this added benefit without incurring any additional fuel or operating costs, 0. They save money and they lower their carbon emissions. It's a win for their company, and it's a win for the environment.

This solution will impact industries from chemicals to petroleum to refining, pulp and paper, food processing, primary metals, you have it. We look forward to working with industrial customers and partnering with them as well as people that are in the business today of providing HVAC solutions to these industrial customers. It has global application in global markets.

Historically, Europe has had great incentives for people to do CHP, and it's very prevalent. And now, thanks to the IRA, the bill that U.S. passed, U.S. customers have attractive ITC benefits if they do the CHP projects and if they commence construction before January of 2025. I expect the industrial segment to react very favorably to this new product offering. With those 2 examples, I'll pause here, and I'll be back with you to answer questions.

For now, let me hand it over to Greg Cameron. Greg?

Thanks, KR. Let me begin with a few highlights about our strong second quarter performance. We had a record second quarter with total revenue of $301 million, up nearly 24% versus last year. Over last year, our product costs are down 13%, improving our product margin to 670 basis points.

As planned, this quarter, we continued to accelerate shipments of replacement units, which negatively impacted our service margin. Going forward, we expect quarterly results to improve in service. We are in a strong liquidity position with total cash balance of $923 million, which will enable us to grow our global business. We are reaffirming our 2023 framework for revenues and profitability.

With those as highlights, let me begin with some additional context to our performance. I'll keep my comments brief as we just held our Investor Conference in May.

During the Investor Conference, you heard from experts and customers about the market need for our products. Customers are recognizing that they need affordable, reliable, flexible solutions. Our ability to bring fuel-flexible power on-site quickly, coupled with combined heat and power and carbon capture, provides a competitive advantage versus alternatives. We are focused on both large-scale projects, such as data centers where their needs are complex, requiring a longer sales cycle, and as KR described, our Series 10 5-year offering, which is designed to meet the needs of customers looking for a shorter-term solution until power is available from their local utility.

We are encouraged by our recent announced technology advancements in international commercial wins. In our electrolyzer offering, we remain engaged with large-scale project developers who clearly value our efficiency advantages and manufacturing readiness. As you heard in May, as these projects move through their investment decisions, we expect to make announcements on our technology deployment.

In the past quarter, we executed a convertible green bond offering for net proceeds of $560 million and ended the second quarter with a $923 million in total cash. Cash used in operating activities in the second quarter was $46 million, down significantly versus the first quarter when we were building inventories to meet second half acceptances.

We expect to recapture the first half cash usage over the coming quarters to generate positive cash flow from operations for the year. With a much-improved liquidity position, our continued focus on reducing costs, we are well-positioned to execute on our growth opportunities.

Our product margin benefited from nearly a 13% reduction in product costs. Our efforts on lowering material costs, coupled with automation and increased power output are driving down product costs. We are very pleased that we achieved 2 quarters of double-digit cost reductions, and we are confident we will achieve our 12% cost-down target for 2023. With these cost downs coupled with strong pricing, our unit economics have improved to 20% versus the second quarter 2022.

Our second quarter non-GAAP gross margin of 20.4% benefited from the strong product margin. Excluding the impact of our service business, our non-GAAP gross margin would have been nearly 30%, giving us confidence that as service improves and product costs continue to decline, we will achieve our 2025 company margin guidance. We're taking swift actions in service that should position this business for long-term profitability.

As we've discussed previously, some of these actions will accelerate service costs, but they're incorporated into our 2023 company guidance. We expect second quarter to be our largest service loss and financial performance should improve each quarter as revenues grow, performance payments reduce and replacement power module costs normalize. We remain committed to our service business achieving a 20% non-GAAP gross margin by 2025.

We are reaffirming our 2023 annual guidance for revenue, margins and cash flows. Given our current backlog, we remain confident that we can deliver $1.4 billion to $1.5 billion of annual revenue at our targeted 25% non-GAAP gross margin. At this annual revenue and gross margin profile for the year, we should achieve a positive non-GAAP operating margin and cash flow from operations.

For the third quarter of 2023, based on planned acceptances, I would expect our revenue growth to be similar to the second quarter and margins to improve slightly on continued cost downs and improving service performance.

In summary, we had a strong operational quarter. As we move forward, we are well-capitalized, operating with discipline and focus and have a compelling product solutions for a net 0 carbon future, all of which will enable Bloom to execute on our growth roadmap. We are excited about our future.

With that, operator, please open up the line for questions.

(Operator Instructions) Now the first question comes from the line of Andrew Percoco from Morgan Stanley.

I just had a follow-up question around the Series 10 products. It's obviously a very interesting product just given where we are in the market. And I'm just wondering when we should start expecting to see that hit your P&L? I'm trying to get at -- with a 50-day lead time, could that drive upside to this year's revenue expectations or should we think of that as more of a driver for 2024 and 2025?

Think of that as a driver to '24, '25 mainly, but I think we will start transacting with our customers as we speak right now of initial engagement. And again, the sense of urgency with which people are going to come to us would suggest, as you would imagine, that it should be shorter sales cycles compared to the long lead sales cycles because we are solving an immediate pain, right?

So for those reasons, it is very foreseeable that you can start talking to a customer, book an order, ship an order and recognize revenue all in the same year, unlike in the past where it's been a long cycle. So expect this segment of the business -- and again, we think of this as multiple opportunities, right, complex, big sales and data centers as something slightly different, quick wins out here, both for us and the customer with the Series 10. So as we grow as a business, we want to see our top line and our funnel composed of a portfolio. And this is wonderful for us as a portfolio, but it's also able to meet the needs that we need for our customer.

And it's all about -- here, we think there will be a big segment, Andrew, that will -- that's going to focus on time-to-power saying, "Can I get something yesterday?" Right? And we will react as fast as we can. And one thing I can assure you, it will be faster than anybody else in the market.

Can we go to the next question?

Operator?

Operator, can we have the next question?

Your next question comes from the line of Julien Dumoulin-Smith from Bank of America.

Hey, guys. It's actually Alex Vrabel on for Julien here today. Maybe one for you, Greg. Just relative to your comments there on sort of the shaping that we can think about into Q3, as well as it sounds like some performance payments in service are still rolling off a little bit. I mean what -- I mean does that sort of point to, if you will, as far as 4Q cadence? I know you guys have the -- kind of the back half loading with SK this year as well as a perspective repowering. But just curious if you could kind of unpack the margin trajectory? Because you're using the word slightly in 3Q.

And then also, if you could throw any comments on sort of the operating margin and your confidence around reaching positive this year relative to the first half being in the books?

Yes. So we do expect second quarter to be the high watermark for service, both for performance payments as well as our fuel costs, as we move forward, our replacement power module cost. As we move through the second half of the year, we expect those costs to go down as well as revenues to grow in that portfolio. In each quarter, we should get better as we move through the course of the year around that service loss.

In fact, if you took service out completely for the quarter, we would have been at 30% gross margin business. If you put service to be 0 loss kind of where it's been traditionally, we're right at that 25%. We have some work to do to get back to that, but we definitely made a ton of progress on it.

As we move into the second half, specifically around the third quarter, and you look at the revenue growth, we had a really strong 2022, 3Q. So when you look at the list of likely acceptances for this quarter and you roll them up and you look at them versus last year, it gets you to a growth rate similar to what we've experienced this quarter. And the margins that we see both on an operating income side as well as on a gross margin side, we see improvement from where we are in the second quarter.

Obviously, as you move into the fourth quarter, we have -- traditionally, we had that to be our largest acceptance quarter. So you tend to get our most accretive part of our P&L, which is product as an outsized piece of the overall portfolio. And that generally is our largest gross margin quarter within the year, generally. Not always, but generally, it is.

So as we move forward through the rest of the year, I see the fourth quarter being a contributor to get us to a 25% non-GAAP gross margin total for the year. So I think that trajectory should look very familiar, as it has in prior years, especially versus last year.

As we move through that process and you've got the revenue range that we're at, and you've got those gross margin percentages that we've been talking about, you compare those to where we expect to be in OpEx, which is really what comes out just between what that gross margin and operating income is, the OpEx number. And that should be stable about where it is. You'll begin to see that operating income go positive for the year, which is still the guide. So that's kind of the shape as we look at it today, how we think the second half of the year plays out.

Your next question comes from the line of Manav Gupta from UBS.

The U.S. Treasury Department is in the process of developing final guidance as it relates to H2 production tax credit. A favorable ruling would be a tailwind for your electrolyzer business. Help us understand how you're thinking about additionality and temporal matching and what would you consider to be a favorable outcome here for your business?

Thank you so much for that question. Again, to put this context for everybody to understand the temporal matching, there is a lot of debate going on right now in the policymaking world. What is considered as green electricity, is it green electricity when it's produced by a solar auto vent right at that point in time, or as long as it's produced in some place and you use it a little bit later, can you shift it and take it from the grid and call it green electricity, what is it called. So this is a temporal matching that's there in the question.

Here is the wonderful thing about Bloom's electrolyzer technology compared to everybody else. We honestly are agnostic to it. Give it any way you want, and we will give you the best outcome in terms of hydrogen production, hydrogen price, hydrogen efficiency. From an environmental perspective, matching it time for time, space for space is the only way CO2 reduction is going to happen significantly. That is science. Nobody can deny that.

So that's the best outcome. If that's what the government wants, we are more than happy to comply and our technology will be a great solution. But if they choose to use some kind of leeway as a transition so it can help the other technologies get there also, we are fine with that too. So we are agnostic to it.

From the line of Chris Dendrinos from RBC Capital Markets.

I just wanted to follow up on the CHP system announcement. You commented that there was some additional cost savings potentially there for customers and then lower carbon emissions. Can you just, I guess, maybe wrap some numbers around that or help us kind of think about how you would quantify what kind of savings a customer could see from the system and what the, I guess, financial benefits are?

Welcome to our coverage team. We welcome you. And your question is on CHP. Let me take an example of a data center as a good example, which in this case will be a cooling application. What a data center will do today, it will use anywhere from 30% to 40% of the electricity that they use to drive an electrically driven cooling system, and that's what will keep the computers at the temperatures that they need to remain to be able to operate.

Now if the other 70% that they use electricity instead of getting from the grid, if they get it from our systems, which is right on site, we can tap in that heat, use absorption chillers and be able to provide the same cooling at no additional cost to them in terms of the energy.

They're not using additional fuel. They are not using additional electricity. They are using a different kind of a cooling technology than the electrical cooling technology. This is a heat-driven technology called absorption chillers. In that case, for them, it can amount up to 30% cost savings and a 30% reduction in carbon footprint, okay? So that is the advantage.

Your next question comes from the line of Sam Burwell from Jefferies.

I wanted to switch gears back over to electrolyzers. I guess it was about 1 year ago that you announced the plans with Xcel to install the units at the Prairie Island, the nuclear plant in Minnesota. So I was just confirming whether the timeline for that to be installed late this year is still online and whether you think that is like the biggest catalyst or driver to unlock electrolyzer orders and really accelerate the commercialization process around that?

Yes. That particular project is going through all the regulatory approvals, and we still expect it to be on track from its timing of getting that going, and we see that as a really good project especially to continue to showcase our technology with nuclear in that space.

And so now in electrolyzers, and we talked about this a little bit when we were all together in May, right? These are large-scale projects. They're going through their pre-FEED process. They're going through their FID process. They're making sure that they have sourced the -- their sources of green energy in whether that is new solar or new wind or existing hydro and how they're going to -- or nuclear as well, how are they going to bring that source of electricity into it.

And then they're looking on their options, right? Where is that going to go, is that going to go to an existing ammonia facility or existing fertilizer, is that going to go for transportation to a different market, how does that all work and making sure that they have the -- both book ends of that to pull together so they can ultimately make their project financeable.

We are working with a number of different projects going through there. They are very excited about our technology, the efficiency benefit of it, for sure, its ability to use heat as part of the process. And our recent demonstration that we did out here in California where we very quickly brought 4, almost 5 megawatts of electrolyzer online within 2 months and gathered the data for that is really giving us some strength that we've been up in operating these.

Our expectation, and it's been our expectation as we entered the year, as we move through the year and these projects reach their FIDs, they'll make their technology choices and announcements. We expect that over the course of '23 and into '24, you're going to begin to hear about different projects where we've been selected to be technology as part of that project. And our expectation is as you move later into '24, you should begin to see some shipments. But it really won't be until '25 that you begin to see it impact the overall financials on it. So we feel like we're still on track, and we're executing against the roadmap that we laid out as we came into the year.

Your next question comes from the line of Jordan Levy from Truist Securities.

I know we're just coming off the Analyst Day when you gave a lot of color here, but I just wanted to get any updated thoughts on international markets and kind of where you've told us before in key markets like Taiwan and Italy and that sort of things? So I just wanted to see if there's any update on momentum there in the sales pipeline?

Yes. Your line was really poor, but we put our ears to the phone here, and we think your question is around our progress around international. So hopefully, that's your question because that's the one we're going to answer.

We were in Europe this time last year, it was June of last year, so it's just a month past, and we were really excited at the time that we had our first units landing there, right, with Ferrari, 1 megawatt that we were able to land, and we thought for sure as that was going to open up that market for us, if people could see our technology and especially with a premier partner like Ferrari. And it's worked as though we thought, right?

You saw some of the deals that we've been able to announce whether it's Cefla in Italy or Perenco in the U.K. or EnBW in Germany that we just announced. There was a deal in Benelux that we announced. So we're really excited about our opportunities in -- broadly within Europe, and we feel like we've got a lot of good partnerships that we're in process of not only building a relationship with, but building a commercial relationship with and transacting, which is always -- getting that first contract, getting that first transaction done is always the hardest, as you know.

And then as you think about Asia, we've always had the real strong relationship in South Korea with our partners SK ecoplant. But you saw the announcements with Unimicron in Taiwan that we have units shipped there. In fact, I'm just looking at KR, he'll be on his way over to both Singapore and to Taiwan here in the near future as part of Tim's sales team and going through the process. But we're very excited about that market. And we think Unimicron is a premier customer that we can help open up that market and show that our time-to-power or speed to power and the economics of our solution makes sense.

And let me add to what Greg just said. I will be going to Taiwan not just to be on the sales, side but very proudly inaugurating our Unimicron systems that will start producing power out there. And so for us to be able to just sign a deal in a new country in Asia towards the end of last year and by now have it up and running for that customer speaks to the ease with which customers can deploy our systems and get value. And that really is what the customer should focus on and be happy about picking us, and they pick us -- in our ability to deliver to their needs.

Your next question comes from the line of Colin Rusch from Oppenheimer.

As the prospects for the hydrogen economy start to take shape and folks get a sense of the scope and scale of what can happen here, what are you seeing on the supplier side? I suspect that there's going to be more folks that want to get involved here, and I want to understand how you guys are managing that sort of opportunity in terms of maturing some of those suppliers and starting to drive costs out here over the next several years?

Yes. So Colin, I think about the question in a couple of ways, and it may not be exactly how you're asking it but let me just go through a couple of parts. One is that we think about our individual supply chain for our product. It's exactly -- as you know, it's exactly the same supply chain.

So as we think about how we build fuel cells versus electrolyzers, we're leveraging all those same vendors, same partners, same supply chain that we've executed -- that we've partnered with over time. So that hasn't changed.

If I think about the broader balance of plant that customers and EPCs and other folks are going to have to work with, we have made our stated goal very much to be that we're going to be the electrolyzer supplier into that process, meaning that a couple of things. One is we don't want to own plants that create the hydrogen. We want to be able to sell our electrolyzers into that space.

And we found some really good relationships within that, and we've done this whether it's on the input side around inverters and boilers and things that bring the processes, the electricity and the steam into our systems or when it comes out and you think about the drying and the compressing and the other part.

Those relationships are forming. They will be built over individual projects as they get taken out -- as they get pulled together and the purchase orders get issued around that. So I think you'll see some development over that as we go forward.

And then from a supply standpoint, we're building some really good relationships with players that want to either be -- have been a traditional provider of hydrogen, and they want to look to our technology as part of their solution and how they create clean hydrogen and sell it into the space, or users of hydrogen before, that like the distributed nature of our product that they can bring it right on site and perhaps use it right as part of their overall process. Think steel, think glass, think ammonia where you've got a thermal process that links in very well with ours.

So it's a -- to your point, it's an economy that's evolving and a lot of relationships are going to be formed, but we're really excited that we've already built out that supply chain, that manufacturing processes, and we can focus on the value-add partnerships moving forward.

So Colin, let me add one more thing to everything that Greg said, right, is, if you think of the electrolyzer, if you think of the various different offerings that we have today in our solid oxide fuel cells, take our entire supply chain by -- and assume that about 70% of it is common between electrolyzers and our fuel cells, and maybe even larger. Okay?

For us to grow from the $1 billion to the $15 billion company that we want to be, it's that all of the 80% needs to grow. So the beauty is the people that started with us when we were less than $100 million in revenue are growing with us to bring to $1 billion and they want to grow with us to get to $15 billion. But along the way, we are adding more people and more geographies also in order to build a robust supply chain in all these components.

Everything outside the system -- like Greg said, we are counting on partners who have been in this business for a long time, whether it is a hydrogen compressor or -- as an example, or electrical systems for rectification. These are all players who have been there, and we are partnering with the best in the industry to be able to do it.

Your next question comes from Kasope Harrison from Piper Sandler.

So can you help us quantify the proportion of your backlog or business today that's tied to the data center opportunity? And then if you could just help us think through the energy demand implications for rack conversions to GPUs from CPUs to your business, what that looks like, whether that conversion -- you think that's accelerated recently? And then how does this impact -- potentially impact your growth rate? Is it transformational or is it just -- or is it more incremental?

All very good questions, and I wish the infrastructure part of the business moved as fast as the application part of the business and how quickly ChatGPT gets adopted versus how quickly infrastructure changes to keep up with that, right? So that's where you're going to see the lag. But let me address all your questions qualitatively because of that.

Number one, think about the Bloom system, what our data center customers love about our systems is the modular nature of our power systems where you simply keep adding like modules when you need more power. Number one.

And even in places that have a slightly smaller footprint -- just look at how our power density keeps going up every 2 years. So in the same amount of space that you have, you're able to get more and more power. So as you go to the GPUs and there you require more power, this is not a problem for Bloom. We offer a solution which helps our customers scale. And wherever it's necessary, they can rack it up as a tower even if they don't have a single-level floor space.

So they couldn't find a more adaptable power platform to be able to address what they need within the spaces that they already have. They can stay within their white spaces and get a lot more power from us. That's the first question.

The second question you asked about, is this an opportunity? Heck yes. Right? If -- look, if, NVIDIA is telling you they're going to grow exponentially because of GPUs, and the amount of GPUs, there's only one thing we all know for sure. All those GPUs need power and those GPUs are going to go into data centers.

And in most places in the world where data centers operate today, they're not able to get extra power, and we can power very quick power -- We can offer very quick power. If you put those things together, it stands to reason that we should benefit as this evolution takes off. So we are the power engine that is best suited to power the AI revolution.

Your next question comes from the line of Michael Blum from Wells Fargo.

I wanted to go back to Series 10, a really interesting announcement on that. I just want to understand the contract dynamics a little better. So if you're offering flat rate electricity pricing, is Bloom responsible for procuring the feedstock fuel? And if so, how do you mitigate price and margin risk over the term of that contract? And then just how do we think about capital deployed and return from Bloom's perspective under these contracts?

Yes. So similar to our existing PPA offering, the Series 10 offering, the customer will be responsible for the fuel. So Bloom is not going to be in a position where we're buying that fuel and selling it to the customer and taking that commodity risk. The customer is going to be there.

We price it based on an average U.S. delivered price of natural gas. Depending upon where the customer resides, that could be slightly more if they have a higher delivery cost, the cost to gas.

From a use of Bloom's capital, similar to what we do with the PPA, we're going to be able to sell this into a structure that allows a financier to provide this 5-year term to the customer. So Bloom will not be taking this onto our balance sheet. It will look very similar to a product sale that you see today within the U.S. through the PPA structure, but we're able to deliver that to the customer.

What the customer will get is -- we've sized it to a 10 megawatt. They will get a fixed price. Think of it as a monthly bill that they will pay where they will be able to procure their electricity as low as $0.099, slightly higher based on gas prices if they exist than that, and they'll have that electricity that they'll be able to use.

The other thing that's really interesting as you think about it, we've constructed the delivery to be always at that 10 megawatts. So for us, it is a constant delivery to the customer and it takes 10 megawatts for them to draw that and take it for their customer. So it's a shorter term, it's more predictable for the customer, and if they have an opportunity at the end of 5 years for a different solution, we will be able to sell them that however that is, wherever that is for them. So it gives them a lot of flexibility. So we're really excited about our ability to deliver this product. And we can move as quick as the customer can in their local permitters on getting it to them. So we're really excited about it.

Your next question comes from the line of Ameet Thakkar from BMO Capital Markets.

It looks like your installed base is down. It's like roughly kind of 1,100, 1,200 megawatts. I was just wondering if you could give us a sense for kind of how much output in power and megawatts that you're producing kind of like last quarter or just kind of over the last year?

So on the -- what's great about our product, right, is if you scaled it to its installed base, we're always on. right? So you always just take the amount of installed base that we have times the number of hours and that gets the amount of power that we're providing into our customer base.

It's -- since we're now a backup power or peak power, we are the baseload power for our customers. So as we ship more and that gets installed in, that gives us a larger installed base, which helps grow our service offering to those customers and more customers get to use the -- get to enjoy the benefits of the Bloom machine.

And in the past, if you look at our contracts, we would have promised our customer what is called the total maximum output and that number will be -- let us say, if it's 1 megawatt, and we say it's a total maximum output of 90%, 900 megawatt hours is what you're going to get every hour -- or 9 megawatt hours is what you will get if you have 9 hours of operation of a 10-megawatt system. However, with the Series 10, we are telling them, we will give them flat 10 megawatts through the entire 5 years all the time. That's a significant difference.

Your next question comes from the line of Martin Malloy from Johnson Rice.

Could you comment on the progress in developing a server that offers the CO2 capture capability, and maybe any comments you have about potential customer interest in such an offering given the tax credits that are out there?

Sure. So look, here's what happens, right? Every 3 megawatt hour roughly that we produce with our system, we can capture a very high concentration of 1 ton of CO2 that has about $85 a ton credit if you sequester it. The net benefit after the cost of sequestration and everything can be somewhere between 15% and 20% in terms of lowering the cost for a customer, depending on what their costs are. That's significant.

So not only do you get baseload power from the most ubiquitous available fuel today that's clean at 0 carbon, but you get it at 15% to 20% lower cost, right? That's the value proposition of what we bring to the table.

So the obvious people that have significant interest to this are big oil and gas customers that have the gas, but also have the ability to sequester the carbon dioxide. Now the 45Q and -- from the IRA has significantly increased the interest. There are number of places in the country that have applied for permits for the wells to be able to sequester it out there. As soon as these wells are permitted and they're able to do it, it's then that adoption will be, and you're talking about very large-scale, hundreds of megawatts of opportunities.

So to me, let me tell you, there are a couple of things that really get me excited, right? One is we are able to take our LEGO blocks and do hundreds of megawatts, small power plants that are reliable, resilient, clean, no local air pollution, do not use water and 0 carbon using something like this. That excites me.

Similarly, there's another segment that we were asked about ChatGPT or GPUs and AI and stuff like that. I'll tell you in the last 3 weeks, we -- at Bloom, we have had discussions at least with 3 different customers from the data center side and things like that asking for 100 megawatt solutions. And that interest is very high because of the time-to-, power supply-demand mismatch and need for reliability and the growth at which -- these data centers are looking at what's coming to them and wanting that power to be secured. These are complex sales cycles in that side of the business. But just looking at the number of people approaching us and being very serious about it, makes me feel very excited about what's to come.

Your next question comes from the line of Brett Castelli from Morningstar.

I just wanted to ask on the new products. So the Series 10 and the CHP. What do you expect to see in terms of average order size for those maybe relative to your history?

So Series 10 is offered at 10 megawatts. We can scale it up from there. It works very well. It will be a building block. So slightly larger than what we've been our traditional sale but the product -- overall product works really well at that 10 megawatts. We can adjust it slightly for a customer, either slightly down or above. So I would expect to see those in multiples of 10, of course, to make that solution work for them.

On CHP, my guess would be, that would be slightly larger just given the amount of industrial integration that would happen either through the creation of steam or through the chillers. So definitely, we continue to move up on the size and scale of our average order size. Why don't we take -- operator, why don't we take one more question and then we'll have KR close after we answer that last question.

Sure. Your last question comes from the line of Kasope Harrison from Piper Sandler.

I just wanted to follow up on the advanced CHP solution. Can you help us quantify the annual revenue market opportunity just on a dollar basis? And then when does this CHP solution begin to have a meaningful financial impact to your business? Is it a 2024 story, 2025, 2026? Just trying to think about that.

Yes. Kasope, I would tell you, it's similar to most of the TAMs that we have around here. We measure them in trillions. I think KR talked about that half the energy use being for the creation of industrial steam. So there's no limitation to the size of that market. And in fact, you have some retirements and other things that are going to naturally happen here in the near future that make that market quite attractive here in the near term.

My expectation is as we go through the process, likely '24, '25, you'll begin to see the shipments over the next year or 2 on that. So we're really excited about that product in that application, and we're really pleased by the market response we're getting on it. So KR, that was our last question. I'll turn it over to you for closing comments.

Thank you, Greg. So thank you all for joining us today. And as you have heard through the highlights, the first thing we are pleased with is our performance in -- during the quarter. We are continuing to grow our revenues, bring our costs down. As Greg said, we are reaffirming our guidance for the year.

The second thing that should be very clear is customers really are looking for alternatives and solutions, and it is really becoming a boardroom [decision]. It is about protecting their businesses, having business continuity, not putting their customers, their employees and their neighborhood at risk. So for those reasons, they are focused on energy security, and we bring to them a great solution.

And as you have seen with what we just announced this last quarter, the 2 innovations, Series 10 and the enhanced CHP, we will continue to innovate as the market develops. Thanks to that amazingly flexible platform that we have at the Bloom Energy server, we are able to adapt. We'll be nimble and we look forward to serving, and look, we believe that we will be the go-to partner that companies and utilities come to as a long-term strategic partner to not only go through the transition but take them to the destination and be with them as they grow. Thank you all for attending.

This concludes today's conference call. You may now disconnect.