Last week, leading stationary power generation system provider Bloom Energy Corporation reported mediocre second quarter results, with revenues and earnings per share coming in below consensus expectations:
While product gross margin was up nicely, consolidated gross margin was up just slightly year-over-year and even down sequentially despite a meaningful reduction in payments related to performance guarantees for the company’s Bloom Energy Server product.
But the ongoing requirement to replace underperforming units in the field has caused service gross margins to decrease substantially:
In addition, while substantially improved from the abysmal first quarter performance, free cash flow for the quarter was negative again, thus bringing total H1 cash outflows to an eye-catching $407.3 million.
To be fair, the company abstained from selling additional trade receivables under its factoring agreements during the quarter, which would otherwise have benefited cash flow quite meaningfully.
Quite frankly, I am having a hard time envisioning the company generating positive cash flow from operations this year as projected by management, but with $767.1 million in unrestricted cash at the end of the quarter, liquidity won’t be an issue for the time being:
Despite Bloom Energy’s disappointing Q2 margin and cash flow performance as well as stated expectations for margins to improve just “slightly” in the current quarter, management reiterated the company’s ambitious full-year projections:
While Q4 tends to be the company’s strongest quarter by a wide margin with gross margins benefiting from a large number of high-margin product shipments, another mediocre quarter with gross margins in the low 20% range would require Bloom Energy to achieve Q4 gross margins substantially above 30% to make up for the shortfall in the first nine months.
Please note that the company already missed out on margin and cash flow projections last year due to its Q4 performance not being sufficient to make up for Q1-Q3.
Lastly, with contributions from Bloom Energy’s much-touted electrolyzer offering not expected anytime soon, revenues will continue to be derived from the company’s existing natural gas-powered Bloom Energy Server solution for the time being.
At least in my opinion, Bloom Energy Corporation’s less-than-stellar second quarter and H1/2023 performance might set the company up for missing out on full-year margin and cash flow targets again.
Given the issues discussed above, I would advise investors to avoid Bloom Energy Corporation’s shares until the company starts to deliver on its promises.