Bloom to downgrade prior earnings as firms investigate
NEWARK – Bloom Energy Corp., the energy company that produces fuel cells from its STAR Campus manufacturing plant, announced Feb. 12 that it will have to revise all of its earning statements dating back to before its 2018 initial public offering after an “accounting error.”
The news, issued 15 minutes after markets closed, has led to investigations by numerous law firms across the country following a temporary 20% drop in the company’s stock price in after-hours trading.
Officials reported that the error is related to the company’s managed services agreements (MSAs), one of the company’s three financing options in buying what it calls “energy servers,” but are essentially fuel cells that create electricity by primarily burning natural gas.
In MSAs, Bloom sells its equipment to a bank financing party, which pays Bloom for the energy server and takes title of it. Bloom then enters into a service contract with an end customer, which pays the bank a fixed, regular fee for its use of the energy server and pays Bloom for its maintenance and operation of the energy server.
According to a notice that the company filed with the U.S. Securities and Exchange Commission, the majority of the impacted MSAs were recorded as sales, subject to an operating lease, where costs and revenues would be recorded at installation.
Now, however, the company’s audit committee and PricewaterhouseCoopers LLP, its independent registered public accounting firm, have determined that the MSAs should have been accounted for as financing transactions, in which revenue is recognized over the lifetime of the agreement as per generally accepted accounting principles (GAAP).
Bloom noted in its 8-K filing that PricewaterhouseCoopers never raised concerns about its handling of the MSAs through three years of auditing, and it had not changed the language of its agreements. Only in reviewing an MSA in November did the auditor raise the question of its accounting, and subsequent discussions led the audit committee to agree to restate prior revenues.
In doing so, the company reported that it overstated revenues by $165 million to $180 million dating back to the second quarter of 2018. It will now report those revenues over the lifetime of their respective agreements.
Bloom will also report an increase in operating loss in a range of $20 million to $35 million; and net loss in a range of $55 million to $75 million from the past five reported quarters.
John Doerr, lead independent director, said in a statement that the board promised to rectify the accounting issues.
“Bloom Energy has a long track-record of groundbreaking innovation that is overseen by a highly engaged board and experienced management team. We are committed to upholding the highest standards of oversight and compliance and remain focused on executing our long-term strategy and creating value for all stakeholders,” he said.
The late-breaking news of the nearly 10% change in years of reported revenues, however, led to a roughly 20% drop in share value in after-hours trading. It closed Feb. 13 down about 8% from its $10.46 value a day before, but rebounded Feb. 14 to a close of $10.70.
The sharp decline in share price may have led some to dump the stock before the rebound though, and it’s spurred at least a half dozen law firms around the country to open investigations into “possible securities fraud,” according to press releases. They include Bernstein Liebhard, of New York City; Block & Leviton LLP, of Boston; Bronstein, Gewirtz & Grossman LLC, of New York City; Hagens Berman, of San Francisco; Holzer & Holzer LLC, of Atlanta; and Johnson Fistel LLP, of San Diego.
“We’re focused on recovering investors’ substantial losses and determining whether Bloom’s improper revenue recognition practices were intentional,” said Reed Kathrein, of Hagens Berman, in a statement.
The restatement of its earnings is just the latest woe for Bloom, which has been viewed by some with skepticism for years for its inability to turn a profit, its failure to create the 900 jobs it promised at its Newark plant – it has about 340 employees there now, and debates about the technology’s environmental impact. It pushed back against criticisms levied by Hindenberg Research, a forensic financial research firm run by short-seller Nate Anderson, and was the subject of a critical Forbes investigation this month.
Regardless, Bloom founder KR Sridhar, who serves as chairman and CEO, said in a statement that the second half of 2019 saw “strong growth in the business,” citing grid outages and utility rate increases as evidence of the need for Bloom’s reliable energy technology.
The company is due to report its year-end earnings by March 16 but noted in early reports that 2019 saw a record 1,194 orders for its fuel cells. It reportedly ended the fourth quarter of 2019 with record backlog of 1,983 units, an increase of over 43% year-over-year. The backlog value includes $1.1 billion for product and installation revenue.
By Jacob Owens