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Bloom Energy IPO: 5 things to know about the Silicon Valley clean-energy ‘unicorn’

Published: July 11, 2018 6:57 a.m. ET Bloomberg News

Bloom Energy seeks to raise up to $252 million in shares

Bloom Energy Corp. is the latest Silicon Valley “unicorn” hoping to join the likes of Dropbox Inc. DBX, -0.96% in roiling equity markets this year.

Bloom Energy BE, +0.00% has set the terms of its initial public offering, seeking to sell 18 million shares between $13 and $15 a piece to raise up to $252 million, according to a filing on Monday. Underwriters include J.P. Morgan, Morgan Stanley, and Credit Suisse.

Bloom had filed the initial paperwork last month with a placeholder amount of $100 million.

Bloom is a rare clean-energy “unicorn,” Valley-speak for a privately held startup valued at more than $1 billion. Its backers include Sand Hill Road powerhouses Kleiner Perkins Caufield & Byers and New Enterprise Associates. The company long has been on lists of Silicon Valley companies poised for going public, but it backtracked from a confidential IPO filing in 2016.

The Sunnyvale, Calif., company hopes to trade on the New York Stock Exchange under the ticker symbol BE.

Here are five things to know about Bloom Energy ahead of its IPO.

What Bloom Energy makes and its client list

Bloom makes solid oxide fuel cells that are used in stationary power-generation servers. The servers convert natural gas or biogas into electricity through an electrochemical reaction, which results in lower emissions, Bloom Energy says.

The company claims that each on-site server, with a footprint of half the size of a shipping container, can provide around 250 kilowatts of power to its customers, or enough to power 160 average U.S. homes. That is more space-efficient than other forms of alternative energy, and unlike intermittent solar and wind power, the servers provide a constant source of electricity, Bloom says.

Clusters of servers can provide tens of megawatts for large-scale clients, and the company focuses on commercial and industrial customers. Some of its largest clients include AT&T Inc. T, -0.54% utility Delmarva Power, a subsidiary of Echelon Corp. ELON, -0.12% Equinix Inc. EQIX, -0.68% and Home Depot Inc. HD, -0.09% among others.

Utility holding company Southern Co. SO, -0.83% is a financing partner, buying the servers that are sent to customers’ facilities in order to provide electricity as a service. Southern and Delmarva Power were Bloom’s largest customers last year. In the filing, Bloom Energy disclosed that business is concentrated with few customers, saying that in 2017 its top 20 customers accounted for about 91% of its revenue “and two customers accounted for approximately 53% of our total revenue.”

Federal tax credits are essential

Bloom Energy had a good reason to thaw its IPO plans after years of hand-wringing. Crucial federal tax credits for alternative energy systems were allowed to expire in December 2016, but President Donald Trump’s budget deal in February restored those credits, known as investment tax credits, or ITC, and made them retroactive to January 2017. The Wall Street Journal reported in March that Bloom had gone back to the IPO path.

The tax credits plus state tax credits and other incentives offset the price of each Bloom server and are a key component of Bloom Energy’s business model. When the tax credits disappeared, Bloom reduced its prices to make up the difference, which damaged its revenue.

For instance, Bloom Energy delivered on 166 orders in the first quarter, an increase of 39.5% compared with 119 in the year-ago period, but first-quarter product revenue increased 338%, from $27.7 million to $121.3 million.

The big difference between the rise in product revenue and the rise in deliveries, or acceptances, in company parlance, was thanks in part to one-time product revenue benefit from the retroactive ITC renewal as well as price increases linked to the tax credits’ return.

Financial picture

For the three months ended in March, Bloom listed total revenue of $169 million, compared with $72 million in the year-ago period. First-quarter net losses attributable to shareholders reached $18 million, or $1.14 a share, compared with losses of $60 million, or $3.91 a share, in the first quarter of 2017.

Bloom is an “emerging growth” company, meaning it faces fewer reporting requirements because its revenues are less than $1 billion a year.

The company listed revenue of $376 million in all of 2017, compared with $209 million in the prior year.

GAAP losses for the ‘foreseeable future’ as debt piles up

Since its founding in 2001, Bloom has “incurred significant net losses and have used significant cash” in its business, accumulating a deficit of $2.3 billion as of March, it said in the filing.

“We anticipate that we will incur net losses on a GAAP basis for the foreseeable future,” it said.

In addition, those servers do not come cheap, and to help potential customers afford them Bloom offers leasing programs and power purchase agreements, or PPAs, in which the cost of the server is funded by an investment entity financed by Bloom Energy and third-party investors.

“Our ability to attract third-party financing depends on many factors that are outside of our control, including the investors’ ability to utilize tax credits and other government incentives, our perceived creditworthiness and the condition of credit markets generally,” the filing said. “If we are unable to help our customers arrange financing for our Energy Servers, our business will be harmed.”

As its business suffered last year with the ITC lapse, Bloom Energy had to lower the price of its servers. The incentive could be repealed in the future, creating havoc on company’s budget.

Bloom Energy also lists as risks the possibility that it overestimates the useful life of its servers, the servers’ overall on-site performance, and natural-gas prices.

And then there’s debt.

As of March, Bloom Energy and its subsidiaries had about $951 million in debt, according to the filing. About a quarter of that is convertible debt that will become shares in the company just ahead of its offering, but Bloom admitted in its filing that conditions on some of its debt, particularly its 10% notes, make it hard to raise more debt.

In addition, Bloom conducts operations and gets equity allocations from its PPA entities, which also contribute to its cash flow. But since these are separate entities, they are of no avail to Bloom when it comes to make good on debt.

Bloom appears to be in serious need of the cash infusion an IPO would provide. The company reported cash and cash equivalents of about $88 million at the end of the most recent quarter, in which it burned about $37 million of its cash.

Major ownership and share structure

Bloom is offering to sell class A common stock in the IPO, which entitles holders to one vote a share. Each share of Bloom’s Class B stock has 10 votes a share and is convertible into one share of class A common stock.

K.R. Sridhar, with a background in aerospace, is the founder and chief executive of Bloom Energy, and he owns about 3.6% of the company in Class B shares ahead of the IPO. Kleiner Perkins owns about 16% of the company in Class B shares, while New Enterprise owns about 11%, according to the filing. Other large shareholders include the Kuwait Investment Authority, with roughly 11%, and pension manager Alberta Investment Management Corp., with 7.5%.