SPECIAL NOTE ABOUT FORWARD-LOOKING STATEMENTS
This Annual Report on Form 10-K contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. All statements contained in this Annual Report on Form 10-K other than statements of historical fact, including statements regarding our future operating results and financial position, our business strategy and plans and our objectives for future operations, are forward-looking statements. The words “believe,” “may,” “will,” “estimate,” “continue,” “anticipate,” “predict,” “project,” “potential,” ”seek,” “intend,” “could,” “would,” “should,” “expect,” “plan” and similar expressions are intended to identify forward-looking statements.
Forward-looking statements in this Annual Report on Form 10-K include, but are not limited to, our plans and expectations regarding future financial results, expected operating results, business strategies, the sufficiency of our cash and our liquidity, projected costs and cost reductions, development of new products and improvements to our existing products, the impact of recently adopted accounting pronouncements, our manufacturing capacity and manufacturing costs, the adequacy of our agreements with our suppliers, legislative actions and regulatory compliance, competitive position, management’s plans and objectives for future operations, our ability to obtain financing, our ability to comply with debt covenants or cure defaults, if any, our ability to repay our obligations as they come due, trends in average selling prices, the success of our PPA Entities, expected capital expenditures, warranty matters, outcomes of litigation, our exposure to foreign exchange, interest and credit risk, general business and economic conditions in our markets, industry trends, the impact of changes in government incentives, risks related to privacy and data security, the likelihood of any impairment of project assets, long-lived assets and investments, trends in revenue, cost of revenue and gross profit (loss), trends in operating expenses including research and development expense, sales and marketing expense and general and administrative expense and expectations regarding these expenses as a percentage of revenue, future deployment of our Bloom Energy Servers, expansion into new markets, our ability to expand our business with our existing customers, our ability to increase efficiency of our product, our ability to decrease the cost of our product, our future operating results and financial position, our business strategy and plans and our objectives for future operations.
You should not rely upon forward-looking statements as predictions of future events. We have based the forward-looking statements contained in this Annual Report on Form 10-K primarily on our current expectations and projections about future events and trends that we believe may affect our business, financial condition, operating results and prospects. The outcome of the events described in these forward-looking statements is subject to risks, uncertainties and other factors including those discussed in ITEM 1A - and elsewhere in this Annual Report on Form 10-K. Moreover, we operate in a very competitive and rapidly changing environment. New risks and uncertainties emerge from time to time and it is not possible for us to predict all risks and uncertainties or the extent to which any factor or combination of factors may cause actual results to differ materially from those contained in any forward-looking statements we may make in this Annual Report on Form 10-K. We cannot assure you that the results, events and circumstances reflected in the forward-looking statements will be achieved or occur. Actual results, events or circumstances could differ materially and adversely from those described or anticipated in the forward-looking statements.
The forward-looking statements made in this Annual Report on Form 10-K relate only to events as of the date on which the statements are made. We undertake no obligation to update any forward-looking statements made in this Annual Report on Form 10-K to reflect events or circumstances after the date of this Annual Report on Form 10-K or to reflect new information or the occurrence of unanticipated events, except as required by law. We may not actually achieve the plans, intentions or expectations disclosed in our forward-looking statements and you should not place undue reliance on our forward-looking statements.
Our actual results and timing of selected events may differ materially from those anticipated in these forward-looking statements as a result of many factors including those discussed under ITEM 1A - and elsewhere in this Annual Report on Form 10-K.
ITEM 1 - BUSINESS
Overview
Our solution, the Bloom Energy Server, is a stationary power generation platform built for the digital age and capable of delivering highly reliable, uninterrupted, 24x7 constant power that is also clean and sustainable. The Bloom Energy Server converts standard low-pressure natural gas or biogas into electricity through an electrochemical process without combustion, resulting in very high conversion efficiencies and lower harmful emissions than conventional fossil fuel generation. A typical configuration produces 250 kilowatts of power in a footprint roughly equivalent to that of half of a standard thirty-foot shipping container, or approximately 125 times more space-efficient than solar power generation. 250 kilowatts of power is roughly equivalent to the constant power requirement of a typical big box retail store. Any number of these Energy Server systems can be clustered together in various configurations to form solutions from hundreds of kilowatts to many tens of megawatts.
Our team has decades of experience in the various specialized disciplines and systems engineering concepts embedded in this technology. We had 224 issued patents in the United States and 110 issued patents internationally as of December 31, 2018.
Our solution is capable of addressing customer needs across a wide range of industry verticals. The industries we currently serve consist of banking and financial services, cloud services, technology and data centers, communications and media, consumer packaged goods and consumables, education, government, healthcare, hospitality, logistics, manufacturing, real estate, retail and utilities.
Some of our largest customers are AT&T, Caltech, Delmarva Power & Light Company, Equinix, The Home Depot, Kaiser Permanente and The Wonderful Company. We also work actively with financing partners, such as Southern PowerSecure Holdings, Inc. (referred to as "The Southern Company"). These finance partners purchase our systems and deploy the systems at end-customers’ facilities in order to provide the electricity as a service. Our customer base included 25 of the Fortune 100 companies as of December 31, 2018.
Industry Background
According to Marketline, the market for electric power is one of the largest sectors of the global economy with total revenues of $2.4 trillion in 2016, and is projected to grow at a compound annual growth rate of 4.3% to $2.9 trillion in 2021.
There are numerous challenges facing producers of electricity. We believe these challenges will be the foundation of a transformation in how electricity is produced, delivered and consumed. We believe this transformation will be similar to the seismic shifts seen in the computer and telecommunications industries - similar to its centralized mainframe computing and landline telephone systems' shift to the ubiquitous and highly personalized distributed technologies seen today.
Increasing capital costs to maintain and operate the existing electric grid. The electric power grid has suffered from insufficient investment in critical infrastructure as a result of complexities surrounding the ownership, operation and regulation of grid infrastructure, compounded by the challenges of large capital costs and lack of adequate innovation. We believe that U.S. electric utilities will be required to make substantial capital expenditures simply to maintain the electrical grid infrastructure.
Inherent vulnerability of existing grid design. The existing electric grid architecture features centralized, monolithic power plants and mostly above-ground transmission and distribution wires. The limits of this design, coupled with aging and underinvested infrastructure, leaves the grid vulnerable to natural disasters such as hurricanes, earthquakes, drought, wildfires, flooding and extreme temperature variations, which have increased in number and severity in recent years. This results in outages causing an annual loss to American businesses of as much as $150 billion with weather-related disruptions costing the most per event.
In addition to potential disruptions to the grid, there is also an increasing concern over the threat of cyber-attack and physical sabotage to the centralized grid infrastructure.
Intermittent generation sources such as wind and solar are negatively impacting grid stability. As the penetration of wind and solar resources increases, balancing real-time supply and demand becomes more challenging and costly. Due to these challenges, solutions are needed that provide constant base load 24x7 electric power that is reliable, clean and without the shortcomings of the existing grid infrastructure or intermittent sources such as wind and solar. This need is especially acute in the commercial and industrial customer segments, which represent 68% of global electricity consumption, according to Marketline, where cost and reliability can have a direct impact on profitability and business sustainability.
Increasing focus on reducing harmful emissions. The electric power sector, which today produces more greenhouse gases than any other sector of the global economy, is under increasing pressure to do its part to reduce such emissions. Policy
initiatives to reduce harmful emissions from power generation are widespread, including the adoption of renewable portfolio standards or mandated targets for low- or zero-carbon power generation.
Lack of access to affordable and reliable electricity in developing countries. Building a centralized grid system, in addition to its inherent limitations, can also be infeasible in developing countries due to the lack of adequate capital for upfront investment. We believe these countries are likely to develop a hybrid solution consisting of both centralized and distributed electrical power infrastructure to accelerate the availability of power.
Our Solution
The Bloom Energy Server delivers reliable, resilient, clean and affordable energy, particularly in areas of high electricity costs, through its advanced distributed power generation system that is customizable, always-on and a source of primary base load power.