On Tuesday, Bloom shares were in free fall, after the company made cautious comments about its 2019 outlook, citing slowing installations because of changing attitudes on the use of natural gas. The company’s backup power systems rely on access to natural gas, and as founder, Chairman and CEO K.R. Sridhar said on a conference call on Monday following the announcement of second-quarter financial results, new strictures on adding natural-gas infrastructure are hurting business, at least for now.
On the call, Sridhar outlined a number of recent instances of severe weather-related power interruptions, in particular in New York and California, and made that case that Bloom can help address the issues. “It is becoming very evident that our aging and brittle electric grid is not capable of providing us with the basic human need, 24/7 reliable electricity,” he said. “It is neither built for nor capable of withstanding the consequences of the extreme weather mother nature is doling out as we struggle with climate change.”
Bloom’s fuel cells, he said, offer “a clean, reliable and resilient source that is adapted for the post-climate change world.” But he also pointed out that some of the most important markets for Bloom are pushing toward a goal of 100% renewable power, creating opposition to expanded use of natural gas.
“There is no credible way to achieve 100% renewables goal without compromising public safety, reliability, resiliency and affordability of power,” he said on the call. “Nevertheless, the political rhetoric continues. The confusion it creates in the marketplace in New York and California has slowed down the conversion of opportunity, [slowing] our otherwise very healthy sales funnel during the first half of the year.” As a result, he said that revenue growth and margins may not match analysts’ expectations.
Sridhar said he has a “high degree of confidence” that recent trends are an anomaly.
“Why? Let me give you 6 reasons,” he said on the call. “One, mother nature waits for no one. As the number, severity and duration of outages escalates, we expect customers will act to protect their interest. Two, economics will drive rational business behavior. Utilities in the markets we discussed have already made grid increase requests to their regulators to pay for disaster-related costs. This has resulted in higher grid-delivered electricity prices. Number 3, aggressive cost down on our product offering will enable us to lower our delivered price of electricity to customers without impacting our margins. Number 4, businesses are beginning to quantify the commercial cost of power outages and accounting for it when they switch from grid power to alternatives. Number 5, customers are now considering their risk exposure should they be unprepared to deal with long outages after receiving fair warning from their utility providers. Number 6, as I mentioned, traditional diesel-powered backup is not a viable option for days of power outage impacting large contiguous service areas.”
JPMorgan analyst Paul Coster wrote in a research note on Tuesday that “the Green New Deal debate has caused commercial end-customers to hit the pause button on gas investments,” a development he says “also has implications for the gas utilities and pipeline companies.” Coster maintains an Overweight rating on the stock, but cut his target price to $18, from $33, and notes that “the stock will likely be in the penalty box until visibility improves.”
For the second quarter, the company posted revenue of $233.8 million, up 38.4% from a year earlier, with a net loss of $62.2 million, including $51.2 million stock-based compensation, and adjusted earnings before interest, taxes, depreciation and amortization, or Ebitda, of $21.9 million. The company reported 271 “acceptances”—basically new systems installations—up from 235 in the first quarter and 181 a year earlier. For the third quarter it is projecting 280 to 310 acceptances. The company finished the quarter with a little more than $300 million in cash.
Bloom was down 38% to $4.97 near midday Tuesday, dropping the company’s market cap below $1 billion. The S&P 500 was up 1.8%.