Bloom Energy Corp Q1 FY2025 Earnings Call

Hello, and welcome to the Bloom Energy First Quarter 2025 Financial Results Earnings Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. Thank you. Now, I would like to hand the call over to Michael Tierney, Vice President, Investor Relations. Michael, you may begin.

Thank you, and good afternoon, everybody. Thank you for joining us for Bloom Energy's first quarter 2025 earnings call. To supplement this conference call, we furnished our first quarter 2025 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 2025. 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 first quarter 2025 earnings press release, we refer to GAAP and non-GAAP financial measures. The 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 first quarter 2025 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 Dan Berenbaum, our CFO. KR will begin with an overview of our progress and then Dan will review financial highlights for the quarter. After our prepared remarks, we will have time to take your questions. I'll now turn the call over to KR.

Good afternoon, and thank you for joining us today. Bloom had an excellent quarter; in fact, the best first quarter in our 24-year history. You're seeing strong disciplined execution across the entire company from sales to service, technology, and manufacturing operations. I want to thank the incredible team at Bloom for their dedication to serving our customers and building on the success of last year. We are off to a good start for the year and we are very excited to continue building on that success throughout 2025. We know the current economic environment affects various businesses differently. Here is the dynamic we are seeing at Bloom. The world needs a lot of power and demand for electricity will continue to expand at a rate that cannot be met solely by traditional sources of supply and methods of delivery. We don't see that changing anytime soon. This reality means that major users of power have accepted on-site generation as a necessity. Here is how that realization impacts Bloom's major customer segments. First, AI data centers. We're seeing no slowdown in this sector. Just last week, I was at a gathering of business leaders, including some of the largest cloud service providers. What I heard loud and clear was that they remain committed to investing in data center capacity growth and the necessary power needs that come with it. Even down the road, should there be a slowdown in the pace of investing, the total gigawatt gap is so large that it will not have a meaningful impact on Bloom's growth in this market. This is an investment super cycle, and short-term economic issues will not adversely impact the megatrend. The robustness in this sector is clearly validated by the customer activity we are experiencing. The second segment is our commercial and industrial business, which I'm breaking down into two buckets. First, we see robust activity in large load advanced manufacturing operations, AI related hardware, and semiconductor chips, as well as essential services like hospitals and healthcare for whom power is mission critical. We don't see any slowdown here. Reassuring and growth in the U.S. industrial base is continuing. Their need for electricity has not diminished and their operations cannot afford to pause. The second bucket of commercial and industrial customers are the consumer-facing businesses, such as retail. They may see a stretch out of decision-making cycles until the economic scenario is clear. We are keeping a close eye on this segment and are staying close to our customers. Our third customer segment is in the international arena. Our Korea business remains strong and the rest of international is growing off a small base. Our fuel cells provide reliable, scalable, high-density base load power, making them an ideal power choice in many industrialized nations. This international expansion continues to progress well. When you put the three segments together, the diversification of our customer base, both in terms of sector and geography, is a key strength that gives us the flexibility to soften the impact of exogenous factors that make us more resilient. Based on the bottoms-up customer-by-customer forecast in these three segments, we remain confident in our previously provided 2025 revenue guidance. Tariffs are probably another topic everybody wants to hear about today. The main takeaway is that the strength of our supply chain, in combination with the relentless execution of our product cost reduction goals, will greatly mitigate the impact of tariffs on Bloom. We have been developing, diversifying, and fortifying our supply base for years to mitigate the impacts of any particular country or supplier. We have two manufacturing and assembly facilities and they are both located in the United States. Our products are proudly made in America. Yes, we do import materials and components from abroad, but not from China. The majority of our material spend is in custom-made components unique to us, which give us control over pricing and sourcing. We have excellent long-standing partners and are jointly invested in each other's success. If the current tariff structure continues throughout the year, we expect to see up to a 100 basis point impact on our gross margin for the year. Cost reduction is in our DNA and we will work extra hard to mitigate the adverse impact through innovations and efficiency improvements. As of now, we remain committed to our margin and profit guidance for 2025. As we look ahead, we are excited about the super cycle in electricity infrastructure growth. The ongoing momentum will be driven by growing demand for on-site power generation and Bloom Energy is at the forefront of this revolution. The opportunity for Bloom is immense and we are focused on growing the business. We have the resilience to navigate through short-term challenges and execute on strengthening market leadership in the long term. Before I turn it over to Dan to go through the numbers, I want to thank him for his service to Bloom over the past year. Dan will be exiting the company on May 1st and we have started a search for a permanent CFO. In the interim, Maciej Kurzymski, Bloom's Chief Accounting Officer for the last four years, will assume the role of Acting Principal Financial Officer. Bloom has a strong leadership team and capable finance organization, and we will continue to perform without missing a beat. I'll turn it over to Dan for now, and I look forward to answering your questions.

Thank you, KR, and good afternoon, everyone. KR gave some great detail about how we view the current economic environment, and more importantly, how excited we are about future growth potential. Bloom's product capability enhancements over the past few years have dramatically improved our value proposition to customers, and our relentless focus on cost reduction and profitable growth has left Bloom in a very healthy financial position. Turning to our excellent first quarter, execution was and remains strong. We saw record revenue for a first quarter, our first ever positive Q1 non-GAAP EPS, and our fifth consecutive quarter of service profitability. As a reminder, I'll focus my discussion on non-GAAP adjusted cost and profitability metrics. For a reconciliation of GAAP to non-GAAP, please see our press release and the supplemental deck on our website. Revenue for the quarter was $326 million, up 39% year-over-year. We've talked before about how this is a project-based business with quarterly variability, and that continues. Q1 was better than implied by the commentary we provided on our late February call, driven by timing of customer projects. Gross margin was 28.7%, more than 1,000 basis points higher than the 17.5% gross margin in Q1 of '24, attributable to our product mix and level-loaded manufacturing. As expected, we took advantage of our balance sheet and our confidence and visibility into customer demand to build inventory and level-load our factory. Our operating income was a positive $13.2 million, as opposed to the $30.7 million deficit in Q1 last year. EBITDA was $25.2 million versus a negative $18.2 million in Q1 of '24, while EPS was $0.03 per share versus the loss of $0.17 per share a year ago. Again, these are all non-GAAP numbers. Turning to the full year, we are reiterating our 2025 guidance. As a reminder, we expect 2025 revenue of $1.65 billion to $1.85 billion, non-GAAP gross margin of approximately 29%, and non-GAAP operating income of approximately $150 million. We also expect positive cash flow from operations around the same levels as we saw in 2024, and we also expect CapEx to be around the same levels as 2024. Of course, we will maintain our strong fiscal discipline to flex our business as needed. As we discussed on our last call, consistent with historical patterns, we continue to expect the majority of our revenue in the second half of the year, with a roughly 40-60 first-half/second-half split. I mentioned our services business as a highlight for the quarter as it was profitable for the fifth consecutive quarter. This is a critical part of our business and the long tail in our backlog. Service performance over the past year is dramatically better than we saw in prior years, and we expect this trend to continue. Technology improvement, scale, and AI-assisted execution will drive continued improvement in service profitability. To conclude, we delivered a record Q1 revenue and continue to execute in a strong commercial environment. I am excited about the future opportunities for Bloom. And even as I leave the organization, I have full confidence in the finance team and I wish all of Bloom's employees the utmost success. Operator, we are now happy to take questions.

We will now begin the question-and-answer session. Thank you. And your first question comes from the line of Andrew Percoco with Morgan Stanley. Andrew, please go ahead.

Great. Thanks so much. Good evening, guys. Congrats on a strong start to the year. And Dan, unfortunate to see you go, but wish you the best of luck. Multi-part question here, but just maybe to start out with the guidance, KR, it sounds like you're not really seeing any change in demand, particularly from data centers. But just curious, more on a granular level if you're seeing any impact on timing of that pipeline conversion. I guess, I'm thinking about some of the projects that may have been commissioned in 2025 that might get commissioned in 2026 because of supply chain issues, policy uncertainty. So, I'm just curious if you've seen any shift to the right in those types of conversations. And then, second part of the guidance question is around margins. You mentioned a 100-basis-point margin impact from tariffs, but you reiterated the gross margin guidance. So, just to be clear, are you not including tariffs in the reiterated guide? If you could just maybe clarify that. And then, Dan, just to end it with you, can you provide any more information or context around your decision to leave here? Obviously, a pretty quick turnaround. So, anything that you can provide there would be helpful. Thank you.

Hello, Andrew. Thank you for your questions. I'll address the first one regarding margins and then hand it over to Dan. We had initially guided for a margin of 29% for the year. To clarify, we are not reliant on China as we operate a multi-country strategy, but we primarily manufacture in the U.S. with our two factories producing Made in America products. This allows us to mitigate the impact of tariffs, which we estimate could be around 100 basis points if they continue as is. However, we are still maintaining the 29% margin guidance because cost reduction is ingrained in our company culture. We continuously strive to optimize and reduce costs, and we view external challenges like tariffs as opportunities to identify the 100 basis points elsewhere rather than allowing them to hinder our performance. We won’t pass these costs on to customers, nor will we absorb them without finding solutions. Hence, we reaffirm our 29% guidance. Moving on to your question about macro conditions related to our guidance, you are indeed asking the right thing. We need to book, build, ship, and recognize revenue for part of our second half to meet the guidance. If we lacked confidence in that entire process, we wouldn’t be making this assertion. We are very confident based on what we see. There’s a significant change occurring within our business that I believe warrants further explanation. Customers, whether they are from data centers or large factories, no longer question the need for on-site power. That discussion is settled; the grid has its limitations in the short term, and without on-site power, facilities will face outages. The pertinent question now is whether we can offer a viable on-site power solution, which has been our focus. We have a proven track record that outperforms other technologies. While combustion turbines and reciprocating engines are more familiar, our reputation is growing with those who understand our capabilities. Every success sharpens demand for our solutions. We are competitive in terms of costs, technical performance, and environmental benefits. We are very optimistic about this cycle and are confident in meeting customer demands. Some projects may shift short-term, but we have sufficient projects in the pipeline to fulfill our guidance. That’s our perspective. I'll now pass it to Dan for your additional question.

Yeah. Thanks, Andrew. So, listen, I'll just say that I think the opportunity ahead for Bloom is fantastic. I think there's a huge commercial opportunity for all of the reasons that KR discussed, for all the reasons that we've talked about previously. Nothing more to add for myself personally at the moment, but you'll hear more from me, I'm sure.

And your next question comes from the line of Manav Gupta with UBS. Manav, please go ahead.

Just wanted to thank Dan upfront. You came in and you were very helpful right away. You brought in transparency. So, thank you for all the help. My question here is, as you are trying to scale up, Sri, there are two ways you're doing it. One, obviously, you are directly working with data centers, but the other, which we kind of liked last year, was you're building this partnership with utilities. So, can you help us understand which will be the bigger driver of your product deployment in '25 and '26? Will it be you directly going to these customers, or will it be a combination of that and working with AEP or maybe even more utilities to place more product into service?

Manav, thank you so much for that question. So, here's what I can tell you very simply, right? The grid is what is constrained. The grid is what is challenged. Utilities are a business that manage their customers. In many cases, the utilities have both the willingness and the ability from a regulatory perspective to procure our products and supply it to their customers. That always will be our preferred choice and it will be the customer's preferred choice, because they can continue to procure their power from whoever they got it all along, except through a different means of generation right on-site. So, for that reason, we are working with multiple utilities and with AEP. We are very bullish on that partnership and where that's going to go. But we're also working with several other utilities as we speak right now, both electric utilities and gas utilities. And when they materialize and when we are allowed to speak about that by them, those are the two conditions for us to announce anything. Sometimes, we book things and we can't speak about it because the customer tells us not to. Sometimes, it takes a little while to get there, but we are very confident we're going to get there within the timeline. So, it's that combination. But definitely, we are working with them. In certain other cases, because of regulatory reasons or because of the customer's wish, they want to procure their systems directly and procure the power from us. In that case, we work with the utility to get the fuel from them and supply to the customer. We are agnostic, and we like both models. In terms of small retail, there, most often the utility doesn't want to get involved and would rather have us supply it directly to the customers. But for the large loads, I think partnering with the utility is a very smart option. Hopefully that answers your question.

And your next question comes from the line of Dushyant Ailani with Jefferies. Dushyant, please go ahead.

Hi, thanks for taking my question. Dan, it was nice working with you, and hopefully we can see you again. Maybe on the first question, guys, margins for repowering came a little strong. How are you going to think about that going forward? And then, my second question is on tariffs, the 100 basis points that you talked about. What's the sensitivity to that if, let's say, the 90-day pause is over and maybe we revert back to higher tariffs?

Look, in the estimation and everything that we have given you, we have based it on the best current understanding with the tariffs remaining the way they are and balancing it as a portfolio against all the countries that we deal with and everything that's going on. So, we stand by those numbers. We wouldn't likely reiterate that guidance if we didn't have strength in our conviction. So, it's a strong conviction that we can represent it. So, how we do it is internal to us, but the what we will deliver is what I can state with conviction to you. So, that's the key part that I want you to understand in terms of where our guidance is. And then, the other question you have was on...

On repowering.

Yes, repowering is part of our business. As I mentioned in my script, the mix did affect our Q1 gross margin. While we won't go into specifics about the mix, some quarters will include repowerings and some will not. It's an ongoing aspect of our operations, and we aim to provide some insights on this as we consider our guidance for the entire year.

Your next question comes from the line of Colin Rusch with Oppenheimer. Colin, please go ahead.

Thanks so much. As you look at some of the stack technology and your ability to multi-source critical materials as well as evolve the chemistries, can you talk a little bit about the resilience in the supply chain around some of those critical materials as the trade war starts to heat up a little bit and we kind of go through some waves around what's getting shipped between the U.S. and China?

That’s a great question. It’s important to note that none of our essential materials come from contested supply chains or conflict zones, and we don’t rely on a supply chain from China. Regarding our procurement, as I mentioned earlier, commercial off-the-shelf items make up a small portion of our purchases. Instead, we rely on custom-made parts from vendors we've developed relationships with over the past 15 years. These vendors are geographically diverse, and we have effectively tested this strategy of resilience in real situations. Throughout COVID, Bloom never experienced a parts shortage or shut down a factory, nor did we slow down orders at any point. We have indeed tested this strategy in various scenarios. Therefore, we are very confident that not only will we maintain this resilience now, but we will also uphold this discipline as we significantly scale the company in the future. We have built our supply chain not just for the present but also for the rapid expansion we envision. I want to take a moment to thank our supply chain team and our Chief Operations Officer, Satish Chitoori, for their leadership in this effort.

Thanks so much. And can you just give us an update on customer traction outside of the U.S. and outside of Korea? There's been a lot of activity in and around end market in Europe as well as in places like Australia. Just curious, how your sales efforts are going in both those geographies.

We are currently concentrating on a few countries in the EU and Asia for our expansion efforts, specifically outside of the U.S. and Korea. In Europe, we are focusing on Italy, Germany, and the UK. In Asia, we are particularly targeting Taiwan due to significant growth within the AI supply chain, despite challenges like constraints on their power grid and increasing energy costs, as well as their reliance on natural gas. We believe these factors create strong opportunities for us. Over the next two years, we anticipate these markets will experience considerable growth. Our approach to international growth is strategic and targeted, rather than broad and unfocused. Thank you.

And next question comes from the line of Jordan Levy with Truist Securities. Jordan, please go ahead.

Hi, everyone. It's Henry for Jordan here. First off, congratulations on a strong quarter, and thank you, Dan, for your efforts over the past year. Regarding the domestic C&I side of the business, could you provide more insight into the power demand concerns and how they are affecting orders?

On the commercial and industrial side, we are currently seeing a significant shift as most customers are now asking for islanded power. Interconnection times, even for small megawatts in our operating regions, are quite lengthy, leading customers to seek this type of power. In manufacturing environments, factories often shut down or operate at very low loads over weekends depending on their operations, so the ability to adapt to varying loads is crucial. Unlike in the past when we only provided base load power, we can now offer islanded power without the need for batteries to operate a microgrid that can adjust to our customers' loads. This is a considerable advantage given the current supply chain and tariff challenges associated with batteries. Not only do we avoid the need for interconnection, but we also do not need batteries, allowing us to meet customer demands effectively. Now, focusing on large load factories, the average construction-related spending on manufacturing facilities during the 2000s and 2010s was about $85 billion a year. However, this spending is projected to rise to nearly $250 billion a year in 2023 and 2024, tripling previous levels. These factories are becoming increasingly automated and reliant on robotics and AI, which significantly increases their power needs per square foot. This sector represents a substantial growth opportunity for us. The investment of $250 billion in 2023 and 2024 is already in place, and these factories will not be idle; they need to be powered. There may be some fluctuations in cycles, but factors like the CHIPS Act, the Infrastructure Act, the availability of cheaper energy, and efforts to shorten the supply chain are all driving strong demand. On the retail side, including big-box stores, these consumer-facing businesses are likely to extend their decision-making timelines during this period of economic uncertainty. However, this segment constitutes a smaller portion of our overall business, and our diversification helps mitigate these concerns. Hopefully, this provides clarity on our current business landscape.

No, that's very helpful. And then just a quick follow-up for me. Looking at the margin trajectory during the rest of the year, with the strong first quarter and the reiterated guide, it looks like gross margins will actually be relatively flat or maybe see a little bit of upside during the remainder of the year. I guess, just, how should we think about that trajectory? And is there any incremental upside from the guidance at this point?

No, again, what I said is what I meant in the script. We are just reiterating guidance at this point in time. And again, look, we are going to have to do a lot of things very innovatively and we are confident we will do it to make up for any of these tariff issues. And I'm sure you are not on too many calls with too many companies that are saying that in spite of the tariffs, they're not downward-revising their margins.

To revisit my earlier comments, it's important to highlight that our product mix and the ability to level load production both positively influenced our Q1 gross margin. We're confident that our strong balance sheet and the visibility we have will help us avoid the significant fluctuations in gross margin we experienced last year. This quarter's performance is showing more consistency.

Your next question comes from the line of Chris Dendrinos with RBC Capital Markets. Chris, please go ahead.

Yeah, thank you. Maybe just to start and follow up on that prior commentary around the tariffs, could you maybe just provide a bit more detail on where you think there's opportunities to save and sort of what types of things you're looking at?

In the past 15 years, we have conducted weekly operational reviews with my direct reports, where we evaluate around 100 cost reduction projects at any given time. These projects are regularly assessed, and at least once a quarter, we review them based on their importance. We take a portfolio approach, understanding that progress is not always linear. Some projects will succeed ahead of schedule while others may lag behind, and we face unexpected fluctuations in commodity prices and other factors. Our management of these projects has been effective and disciplined, allowing us to continuously reduce costs. This includes improving technology, simplifying product development, enhancing yields, making factory improvements, and gaining efficiencies through learning curves with our supply chain partners. It's difficult to identify a single factor contributing to our success, as cost reduction is ingrained in our company culture. For 15 years, we have achieved double-digit cost reductions almost annually, which is central to our daily operations. Everyone in the company, starting from my level, is dedicated to this effort.

And then, just recall that everything that KR just talked about that we focus on benefits product and it also benefits service, right? So, all of that at scale, those technology cut-ins, those continuous improvement programs, benefit both product and service with a very long tail.

That's a very good point, Dan.

Thanks. Shifting topics, regarding the utility regulatory environment, I'm aware that AEP is currently awaiting the PUC approval process following the FERC collocation decision. More generally, is this situation causing delays or hindering deal flow in the near term as your customers anticipate these decisions? How is this situation evolving from your perspective?

Very good question again. Look, I know that many of you have been talking to AEP regarding this and you're getting directly from them. It is better for them to answer from their point of view, where things are. They feel very confident that the projects that they've already signed up are going to go through and not have any issues. And going forward, they have a very robust pipeline of customers that they're talking to and are confident that what they believe and the reason they chose us is we are a superior technology with a superior value that they can make many more of these transactions. And they have pathways very clearly to be able to satisfy those customers. So that's AEP, and they'll be more than happy to answer more questions on that from that perspective. Now, from the customer side, what do they see? I think our large customers are very, very sophisticated when it comes to power and electricity buy. They clearly understand that any arrangement that they can make that does not impact the local rate payer is not only a nice thing to do, but a necessary thing to do if they want to locate their new data centers in a new neighborhood, and our solution becomes extremely useful. For the regulators and the policymakers, it's very clear to them if they do not allow a structure where without affecting the rate payer, they can also provide electricity to these big data centers, those data centers are not going to be located in their neighborhood and they're going to lose economic development. So, the interests are all aligned out here. Our customers see it that way. These are temporary blips in any transition that goes on where the technology and the market is always slightly ahead of regulators. Regulators are catching up.

And your next question comes from the line of Chris. Please go ahead.

Hi, KR. Dan, good luck on your future endeavors. I wanted to just ask, what's the size of the backlog at the end of Q1? And can you help frame the typical size within that backlog?

We only provide comments on backlog once a year as part of our policy, and that won’t change. I believe I have made this point clear before: when we confirm our guidance for the year, it indicates our strong confidence in our commercial pipeline and our ability to convert it. You should view that as a positive signal, but we only provide numbers and commentary on backlog annually. Thank you.

All right. Thank you. And then maybe just based on current conversations, do you see the next potential deal coming from utility or perhaps an end user?

Hopefully both.

And your next question comes from the line of Ameet Thakkar with BMO Capital Markets. Ameet, please go ahead.

Hi. Thank you for taking our questions. Dan, I want to echo everyone else's sentiments and wish you all the best. I appreciate your patience over the last year. You have been very clear about your limited exposure to Chinese or disputed supply chains. In your previous disclosures, you highlighted the use of scandium in your fuel cell ink coatings. Could you share where you are sourcing that if it’s not from China, considering the significant percentage involved? Additionally, as a follow-up, could you update us on the megawatts deployed at the end of last year and your current status?

So, let me address the scandium question first, and I'll have Dan explain why we change metrics and how we change metrics right after that. So, the first thing for you to know is, like, number one, we are not dependent on China for scandium. I can state that very clearly. Okay. Number one. Number two, we get this from multiple geographies and multiple continents. Number three, knowing that we would be the world's largest consumer, this was in 2007, '08, when we were barely shipping units, to today, when we actually are the largest consumer of that material, we have complete confidence that we have that supply to grow as fast as we need to for the foreseeable future from multiple sources. We don't reveal those sources and methods. That's part of our IP. Thank you.

We stopped discussing megawatts shipped during specific time periods because it's not how we operate the business, and we believe it's less useful information since not all megawatts are the same. The cost and price vary based on the configuration, whether it's just base load on the grid or an islanded microgrid with AI data center load following capabilities. Therefore, we consider this data much less valuable and not truly comparable. We did provide some insights in my script regarding the mix that supports our gross margin slightly in Q1, and we plan to share more details about megawatts in the future. However, our focus is on the overall economics of each individual deal and our portfolio of deals as we manage the business.

And your next question comes from the line of Sherif Elmaghrabi with BTIG. Sherif, please go ahead.

Hey, good afternoon. Thanks for taking my questions. One of the advantages of energy servers is that they can tap the existing gas network. You talked about this earlier on the call. But for larger agreements with utilities, like the one you signed with AEP, is there a new gas grid infrastructure that needs to be put in place? And if you can characterize the timing around that?

That's a great question. The main gas lines are functioning well, but the secondary lines connecting high-pressure to medium-pressure areas are where the situation varies by location. The timing really depends on where you are; it can range from a couple of months to six to nine months based on the specific location needed to secure gas supply. When large data center customers decide to install equipment, they also need this amount of time for installation. As long as they recognize their power requirements and proceed with orders while constructing the data center, this shouldn't cause significant delays. Historically, this has been the case, and it's clear that major data center operators are aware of it. It's worth noting a recent comment from Jensen Huang of NVIDIA during the GTC keynote, where he mentioned that revenues are limited by power availability, emphasizing the connection between power procurement and revenue potential for his customers. So, while gas is accessible, its availability depends on the specific location of the data center and the extension of the gas pipeline. In certain regions, permitting has taken longer. However, considering the urgency to lead in AI and the current administration's support for rapid advancements, I believe that gas infrastructure will develop quicker than the actual construction of data centers.

That's really great color, thanks. So, second question, there's a Conagra contract announced at the beginning of the month. It's not the biggest, but it's interesting because of its duration. Can you remind us how long energy servers typically last and to the extent that you can? Maybe some specifics about why they were willing to commit to 15 years?

So, very good question. We have a lot of contracts, the ranges being anywhere from five years to 20 years. A lot of our South Korea contracts are 20 years. Many of our PPAs that we do are 15 or 20 years. So, what happens in that cycle though is Most of our equipment have operating lifetime as certified by independent engineers to be much longer than that, but the fuel cell itself gets replaced, and that is the hotbox of the field replacement units that we talked about. And we recycle all those parts and put them back on. Today, an average life of those units however somewhere in the five-year range. So, in the Conagra contract what will happen is their service pricing will allow us to keep replacing these units, assuming that the five years, the number we're talking about in a 15-year contract, two times through the life of that contract to be able to fulfill the entire contract while the rest of the system will continue to operate. And the good news about this, right, five years from now when they get the next hotbox, it will be the latest and greatest technology of that time, which will even be better than what we put out today.

And your next question comes from the line of Noel Parks with Tuohy Brothers. Noel, please go ahead.

Hi, good afternoon. I heard you mention earlier that the alternative to a Bloom solution, the Easy Button alternative, would be a combined cycle gas turbine. I was a bit surprised because I don't see those as targeting the same customers or projects. It seems like there would be a significant lead time for ordering those turbines. So, are they realistically competitors for your time to power projects?

Noel, very good question. Thank you for asking me to clarify that. When I said combustion turbines, I should have been very clear. I was talking about the micro turbines, the aeroderivative turbines that are in the 50 megawatts class, 30 megawatts class, not a combined cycle gas turbine. There are many, many reasons why CCGT will not be a good choice for situations like this if they are not connected to the grid for them to load follow. And then, if they're not connected to the grid, remember, they have to be maintained, they have to be shut down, you cannot have a monolithic failure of one unit. So, if you build two of those to back it up, all those become super expensive. So, so most of these 100-megawatt, 200-megawatt solutions you're looking at today, it is tens of micro turbines or tens of reciprocating engines that are clustered together is what that solution is. And that is the true competition. A combined cycle gas turbine at a gigawatt scale, there are very few projects. And like you correctly identified, it will take a very long time to put that together. And unless there is a grid connection, backing that up becomes a real issue. So, that's what I meant. Hopefully that clarifies for you. And in that, both on a cost basis, performance basis, total cost of ownership basis, reliability basis, time to power basis, and the environmental impact basis, noise, water use, air pollution.

Great. Thanks a lot. It totally clarifies it. And just for data center customers, for on-site expansions versus greenfield new data centers, and I'm thinking of your capacity to deliver 100 megawatts in an acre, is there any difference in sort of the decisiveness or the sales cycle, say, for a cloud vendor who's pursuing one type of project versus another?

That's a great question. I believe that my answer will evolve over the months and quarters ahead. Let me explain why. As we speak, Meta is hosting their earnings call, where they mentioned increasing their infrastructure spending from $60 billion to a higher figure. This will come from the major tech players contributing to their projects. Furthermore, the national initiative announced by the White House indicates a commitment of $600 billion to $700 billion for 2025. This will require over 15 gigawatts of power. Everyone is trying to maximize whatever power they can get from utility backups. As demand saturates, companies won't be buying these chips at a premium to store them; they need to be deployed. This will shorten the demand cycles. In essence, the decision-making and implementation timelines must shrink. If you believe in the growth of AI and companies like Nvidia, those ideas are interconnected; one cannot be true while the other is false.

And our final question comes from the line of Maheep Mandloi with Mizuho Securities. Maheep, please go ahead.

Hey, thanks for taking our questions. Nice to talk to you again. Just one question on the tariff impact. I presume your guidance of 100 basis points of impact you talked about is more on the 10% tariff right now. Just curious how to think about the impact of these reciprocal tariffs go back to the level we talked about, which you guys were saying choppier.

Thank you for the great question, Maheep. We have conducted a detailed analysis of our US suppliers, focusing on what we procure, the quantities, and the dollar value involved. Our US manufacturing plants remain unaffected. We have also assessed the countries from which we source and explored our ability to temporarily shift sourcing to optimize our needs. This thorough examination allowed us to evaluate material costs alongside other expenses, ultimately translating that into the gross margin. The impact we expect is based on careful analysis, leading us to the 100 basis points figure. This is not a random estimate; it's a well-considered projection. We are diligently working to minimize this impact, which is why our team is committed to maintaining our guidance. Thank you for your question. As we look at our momentum moving into 2025, it's clear that large customers recognize the necessity of on-site power. Unlike previous discussions, the focus now should be on our value proposition in meeting this urgent need. You should no longer question whether on-site power is required; that is evident. Instead, consider how Bloom's offerings compare to alternatives for on-site power. It’s important to note that these alternatives are not solar or wind, particularly for larger applications where transmission is an issue. The competition primarily involves combustion engines, which are facing rising costs. Customers have made it clear that prices for those technologies have increased. We stand out by providing a superior product that is more reliable, faster, quieter, and cleaner. We are truly excited about the future of Bloom and appreciate your support during this exciting time in the on-site power sector. Thank you all, and have a good night.

This is today's call. You may now disconnect.