FORTUNE — For years, the knock on fuel cell maker Bloom Energy Corp. has been that its boxes cost more to make than they cost to buy. Not exactly the sort of dynamic that would help Bloom make it up on volume.
But perhaps things are finally about to change, after 10 years and nearly $1 billion in venture capital funding.
Fortune recently obtained confidential documents sent by Bloom to its “significant investors,” detailing third quarter earnings and the company’s broader financial position. We also have managed to learn some broader context around the numbers, and have received what is believed to be the company’s first on-the-record statement about its top-line projections for 2013 (all prior requests for information had gone unanswered).
For the uninitiated, Bloom was founded by K.R. Sridhar in 2001 to translate a NASA science experiment into self-generating energy boxes for commercial customers like warehouses and data centers. The idea is basically to place solid oxide fuel cells on a company’s premise, which convert air and natural gas into electricity via an electrochemical process. After several field trials, it shipped its first boxes to Google (GOOG) in July 2008 and since has secured paying customers like Wal-Mart (WMT), Federal Express (FDX) and AT&T (T). It also has expanded the business model to include box rentals (where customers pay on a consumption basis, kind of energy-as-a-service), and also is rolling out advanced boxes that can operate independent of the gas grid if needed (the new module also can be added onto existing boxes).
Despite the customer wins and technological advancements, however, Bloom has a reputation for burning money.
Since its founding, Bloom has raised nearly $974 million in venture capital funding from firms that include Kleiner Perkins Caufield & Byers, New Enterprise Associates, DAG Ventures and Goldman Sachs (GS).
Included in that figure is a $150 million Series F round led in 2009 by Advanced Equities, which later was accused by the SEC of misleading investors and ordered to “locate purchasers” for Bloom shares that misled investors want to unload. Bloom itself was not party to the case, and has shown little outward interest in helping out those shareholders — most of whom fall below the company’s “significant” investor threshold. Also worth noting that Advanced Equities tried twice more raising money for Bloom, including earlier this year. Neither of those fundraises were authorized nor accepted by Bloom.
So $974 million in venture capital, which makes Bloom one of the five largest recipients of VC funding in history. And, through Sept. 30, the company’s retained earnings stand at negative $873 million.
According to its investor letter, Bloom generated approximately $101 million in pro forma Q3 revenue. Its pro forma cost of goods was nearly $106 million, plus another $26 million in operating expenses. That works out to a Q3 pro forma loss of nearly $32 million, which expands to more than $42 million on a GAAP basis. The company also reports that it had a net cash loss of approximately $80 million in the quarter, leaving it with just around $113 million.
Okay, not so good. In fact, the figures seem to confirm much of the Bloom skepticism, including the part about each box costing more to make than it costs to buy. Moreover, at this burn rate, Bloom would be out of cash within a year.
But Fortune also has learned that things aren’t necessarily quite as dire as they appear. In fact, there seem to be silver linings all over the place (and I’m not just talking about the literal ones on the Bloom boxes). For starters, Bloom’s third quarter figures were partially hampered by the cost of keeping inventory for some customers that delayed acceptance/installation of the boxes until Q4. Moreover, the company cut its pro forma operating cash burn by 56% between Q2 and Q3 2012, and expects to cut it by more than half again in Q4. In other words, it isn’t expecting to run out of money any time soon (and, to date, has not told investors that it plans to raise more private capital).
Bloom also reported a 26% quarter-over-quarter revenue increase, and booked 87 new commercial customers in the quarter (putting it on pace to meet its 2012 goals).
Perhaps more important than the Q3 financials, however, is what Bloom CFO Bill Kurtz told Fortune in an official statement:
“Bloom Energy is pleased with the substantial progress we have made in 2012. On a pro-forma basis Bloom has become gross margin positive in 2012 and is on track with our goal to be profitable in 2013. Bloom is operating with a fully funded business plan. Bloom has experienced strong new and repeat customer orders as evidenced by recent announcements from AT&T, eBay and others.”
In other words, Bloom claims that it is now turning a profit on its product and that, next year, it also will become operationally profitable.
Now, to be sure, this isn’t the first time Bloom or its investors have expressed a rosy outlook. It has been promising investors that it can successfully boomerang the cost curve for a while, and some of its investors have been even more optimistic. For example, one of Bloom’s VC backers told me in the summer of 2010 to expect a 2011 IPO at a valuation of “at least” $20 billion. Suffice to say, that didn’t happen.
But Bloom has never before put its credibility on the line like this with a public assertion of gross margin profitability, and the pro forma differential for Q3 (less than $5 million) seems to support its claim. Particularly given that the company regularly manages to (slightly) decrease production costs, by both improving the core technology and by soothing certain supply chain bottlenecks.
So Bloom’s accounting department seems ready to swap its red pens for black. Returning capital to investors, however, will be a much tougher trick. Remember, negative $873 million in retained earnings.
Bloom isn’t the type of company that’s going to pull off a massive shareholder liquidity round in the private markets, and its unclear that there would be a viable strategic buyer. So, eventually, it would need to go public.
To date, the public equity markets haven’t looked to kindly on cleantech offerings. Not just from the beleaguered solar sector (remember, Solyndra failed to go public long before it collapsed), but also for more asset-light efforts like smart grid platform Silver Spring Networks (which filed for its IPO 16 months ago). Plus, even if Bloom does obtain operational profitability in 2013, the margin could again reverse were certain federal and/or state tax subsidies to disappear.
Bloom likely would try arguing that it’s the energy generation equivalent of Tesla Motors (TSLA), a big VC-backed, revolutionary spin on a vital industry (and, for the record, Tesla remains unprofitable). In other words, the next exception to cleantech’s rule. From what we’ve learned, the company’s investors certainly have reason to believe there is a viable path to that exit. But it’s hardly a sure bet, which remains worrisome for a 10 year-old company that has raised nearly $1 billion.
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