Nov 16, 2018

Axios Pro Rata

By Dan Primack
Dan Primack

📺 Be sure to watch "Axios on HBO" this Sunday at 6:30 p.m. and 11:30 p.m. ET/PT, including for my discussion of legalized sports betting with NBA Commissioner Adam Silver.

Top of the Morning

Photo by Ina Fassbender/picture alliance via Getty Images

When fuel cell maker Bloom Energy went public back in July, its IPO prospectus included at least 35 mentions of a utility-scale deployment of Bloom "boxes" in Delaware, the company's largest single project. But none of them noted that those boxes need to be replaced, at a cost to the company that Axios has learned will be between $100 million and $150 million.

  • On November 6, Bloom announced its third quarter earnings, including around a $79 million net loss on $190 million in revenue. It didn't mention the Delaware replacement needs either in its release nor in the earnings call.
  • On November 11, Bloom quietly filed a construction permit request in Delaware for the replacements.
  • On November 13, Bloom filed its 10-Q with the SEC. Again, no word of the upcoming expenditure.

It is hard to argue that this isn't material information that Bloom should have shared with investors, particularly given how it could impact shareholder liquidity and the company's path to profitability.

  • Bloom would consider this $100-$150 million to eventually fall within its "cost of service" line item, which totaled just $79 million for the first nine months of 2018, and just $84 million for all of 2017.
  • Even if Bloom keeps it to $100 million and spreads the cost out over six to eight quarters, it would still come out to a minimum of $12 million in costs per quarter, or over half of its Q3 2018 cost of service expenses. If it's $150 million for six quarters, the quarterly hit more than doubles to $25 million a pop.

There continue to be no official rules governing what is or isn't material, when it comes to corporate disclosure, neither quantitative nor qualitative. But three experts I contacted believe Bloom's upcoming expenses are material, at least from an accounting perspective, and add that the "soft" test for public disclosure is about if it's a known expense that a "reasonable investor would want to know."

Bloom thinks I'm way off base. Per a spokesman:

"There will be incremental cost for replacing these systems. However, there will also be a savings in future service cost for these newer generation systems will cover the incremental cost. We’re very confident that there will be no material adverse cost to the company from the upgrade. It’s part of the normal process of our business.”

The bottom line: Bloom is a high-powered company, with a board of directors that includes Colin Powell, John Doerr and John Chambers. It defied some skeptics by raising $270 million in its July IPO at $15 per share, having its stock pop 67% on its first day of trading and then peak at $35.80 in late September.

But now the shares are almost back down to the IPO price — sinking 10% yesterday, apparently on California wildfire concerns — and investors have a right to be nervous. They also have a right to know about the company's future financial challenges.

The BFD
Source: Giphy

BlackBerry (TSX: BB) agreed to buy Irvine, Calif.-based cybersecurity company Cylance for $1.4 billion in cash.

  • Why it's the BFD: Because it's a reminder of how BlackBerry is trying to become more of an enterprise software company than a keyboarded smartphone maker.
  • To the exits: Cylance, which had been viewed as an IPO candidate, raised over $320 million, from firms like Blackstone, Insight Venture Partners, In-Q-Tel, KKR, Ten Eleven Ventures, Khosla Ventures, Fairhaven Capital Partners, DFJ Growth and Founders Equity Partners.
  • Bottom line: "Cylance makes AI-enabled software designed to protect mobile devices, tablets and other internet-connected devices from cyber attacks. The company’s software resides on these devices and is designed to work even when they’re not connected to a network and without consuming much power." — Jeremy Kahn, Bloomberg
Venture Capital Deals

Anywhere Automation, a 15 year-old robotic process automation company, raised $300 million in Series B funding at a $2.6 billion post-money valuation from SoftBank Vision Fund. Just four months ago it had raised $250 million at a $1.8 billion post-money valuation co-led by NEA and Goldman Sachs. http://axios.link/BM71

Rocket Lab, a New Zealand-based rocket launch company, raised $140 million in Series E funding at a valuation north of $1 billion. Future Fund led, and was joined by Greenspring Associates, Khosla Ventures, Bessemer, DCVC, Promus, K1W1 and ACC. http://axios.link/F43n

MapAnything, a Charlotte-based provider of “location-of-things” solutions, raised $42.5 million in Series C funding. GM Ventures and Andrew Leto were joined by return backers Salesforce Ventures, Greycroft, Harbert Growth Partners and David Stern. www.mapanything.com

AdaSky, an Israeli developer of far-infrared tech for autonomous vehicles, raised $20 million from South Korean auto supplier Sungwoo Hitech Co. http://axios.link/Mc7C

Bellami Hair, a Los Angeles-based hair extensions brand, raised $20 million from Houston-based Cathexis Holdings, plus an additional $100 million commitment. www.bellamihair.com

Emerge, a Scottsdale, Ariz.-based platform for connecting shippers and carriers, raised $20 million in seed funding led by Greycroft. www.emergetms.com

Propel, a Santa Clara, Calif.-based provider of cloud-based product lifecycle management solutions, raised $18 million in Series B funding. Norwest Venture Partners led, and was joined by Cloud Apps Capital Partners, Salesforce Ventures and SignalFire. http://axios.link/pVj5

Prose, a New York-based custom hair products company, raised $18 million in new funding, per an SEC filing. Listed backers include Insight Venture Partners and existing investor Forerunner Ventures. www.prosehair.com

Kaloom, a Montreal-based provider of automated data center networking software, raised C$10 million in new funding. Fonds de solidarité FTQ, and Somel Investments co-led, and were joined by MBuzz Investments. www.kaloom.com

Pachyderm, a Mountain View, Calif.-based containerized data analytic platform, raised $10 million from Benchmark. www.pachyderm.io

Shyft, a Seattle-based platform for connecting shift workers, raised $6.5 million in Series A funding co-led by Ignition Partners and Madrona Venture Group. http://axios.link/xnUt

Bunch, a New York-based video chat app for live mobile gaming, raised $3.8 million in seed funding. London Venture Partners led, and was joined by Betaworks, Founders Fund, Northzone, Streamlined Ventures and 500 Startups. http://axios.link/1WLB

Well Data Labs, a Denver-based completions data software platform for the oil and gas market, raised around $3 million in Series B funding led by Cottonwood Venture Partners. www.welldatalabs.com

Private Equity Deals

BMC Europe purchased German rayon producer Cordenka from Chequers Capital for around €240 million. http://axios.link/c50g

Clearlake Capital bought Team Technologies, a Morristown, Tenn.-based maker of dental and cosmetic products, from The Riverside Company. www.teamtechinc.net

Resource Label, a Franklin, Tenn.-based portfolio company of First Atlantic Capital and TPG Growth, acquired Best Label, a California-based label maker. www.resourcelabel.com

TorQuest Partners bought Bartek Ingredients, a Canadian maker of malic acid, fumaric acid, and maleic anhydride. www.bartek.ca

Public Offerings

🚑 Centrexion Therapeutics, a Boston-based developer of non-opioid pain therapies, postponed an IPO that had been set to offer 5 million shares at $14-$16. The pre-revenue company has raised around $138 million in VC funding from firms like NEA, InterWest Partners, ArrowMark Partners, 6 Dimensions Capital, Clough Capital Partners, EFung Capital and Quan Capital. www.centrexion.com

Weidai, a Chinese P2P auto-secured lending platform, raised $45 million in its IPO. The company priced 4.5 million shares at $10 (middle of range), will trade on the NYSE (WEI) and used Morgan Stanley as lead underwriter. It reports $75 million in net income on $441 million of revenue for the first nine months of 2018. http://axios.link/0wDX

Liquidity Events

Citrix (Nasdaq: CTXS) acquired Sapho, a San Bruno, Calif.-based micro enterprise app development platform for older software, for around $200 million in cash. Sapho had raised around $27 million in VC funding from Caffeinated Capital, Felicis Ventures, Alsop Louie Partners, SoftTech VC, Morado Ventures, AME Cloud and Bloomberg Beta. http://axios.link/4Jrj

Lariat Partners sold Ecoserv Industrial Disposal, a Winnie, Texas-based provider of non-hazardous industrial wastewater disposal solutions, to US Ecology (Nasdaq: EOCL) for $87.2 million. http://axios.link/fq0T

Oracle (Nasdaq: ORCL) agreed to buy Talari Networks, a San Jose, Calif.-based provider of SD-WAN technology that had raised around $68 million from Four Rivers Group, Menlo Ventures, Ares Capital and Silver Creek Ventures. http://axios.link/ZIZu

More M&A

ABB (Swiss: ABBN) is in talks to sell all or part of its power grids business, per Reuters. Possible suitors include Hitachi, Mitsubishi and State Grid of China. http://axios.link/oG8v

Ashland Global Holdings (NYSE: ASH) agreed to sell its composites unit to Switzerland’s Ineos Enterprises for $1.1 billion. http://axios.link/fbQs

Energizer Holdings (NYSE: ENR) agreed to buy the global auto care business of Spectrum Brands (NYSE: SPB), including the Armor All and STP motor oils brands, for around $1.25 billion in cash and stock. http://axios.link/2EIE

Fundraising

Wonder Ventures of Los Angeles raised $15 million for its debut pre-seed fund. http://axios.link/827q

It's Personnel

• TCV promoted Nari Ansari to general partner. He joined the growth equity firm in 2006, and serves on the boards of HireVue, OneSource Virtual and Watermark. www.tcv.com

Final Numbers: The upside of oil's rough patch
Source: FactSet

Go deeper: Axios' Courtenay Brown writes that oil's recent rout comes at the perfect time for much of Corporate America.

With a tight labor market that's forcing companies to pay more to attract workers, plus the costs of tariffs from President Trump's trade war, oil is one less expense that will cut into companies' profits.
Take Walmart, whose CFO, Brett Biggs, told analysts in October that the high fuel prices at the time — which played a role in pushing up transportation costs — were a 'challenge' for the company this year.
Dan Primack

🎧 Podcast: Our new episode focuses on forced arbitration in Silicon Valley, particularly when it comes to employee claims of sexual harassment. Listen here.